What if Honda pulled out of Australia? It could have happened if it didn't make a drastic change to how it runs its business

Honda was in danger of withdrawing from the Australian market if it didn’t make a drastic change to its business model, according to the brand’s local boss.

The Japanese carmaker switched from a traditional dealer model to an ‘agency’ model midway through 2021. Under this model, Honda Australia - rather than the dealers - owns the vehicle stock, while dealers still conduct test drives and manage servicing.

The model allowed Honda to move to national drive-away pricing and prompted a significant consolidation of its dealer network.

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Honda’s move was controversial and prompted backlash from some dealers. It also resulted in a sizeable sales slide, with registrations dropping by 68 per cent from 2019 to 2023.

Speaking with journalists at the Australian debut of the 11th-generation Accord, Honda Australia Director Carolyn McMahon said the shift to an agency model was necessary to ensure the survival of the iconic brand.

“So one of the reasons we changed our business model was really because if we didn't, the survival of the franchise going forward was under a big question mark,” she said.

Honda Australia Director Carolyn McMahon pictured.

“And the profitability of our business partners is really, really key because, you know, during COVID years they had a sugar hit in the industry, you know the industry has done very, very well. But we're seeing very, very quickly those grosses starting to come down and we think the original design of our system will more and more come into play.”

Much has been written about Honda’s sales decline, but Honda executives have consistently stated an agency model allows the company to be leaner and more profitable. It no longer chases high volume and low margins, rather, the company focuses on sustainable growth.

For reference, in 2019 the brand’s year-end tally was 43,868, but in 2023 it sold 13,734 units.

Honda Civic VTi LX pictured.

Back in 2019, Honda had eight models in its line-up, and it has since consolidated that down to five. The core models are three SUVs - the HR-V, ZR-V and CR-V - with the Civic and Accord passenger cars playing supporting roles.

McMahon reiterated that Honda had no intention of pursuing a return to the top-10 best-selling brands anytime soon, or chasing outright volume, as it is not consistent with the brand’s strategy.

At the end of the first quarter of 2024, Honda has sold just under 4700 cars, which would put its year-end total at or close to 20,000 units.

Honda HR-V Vi X pictured.

Without nominating an annual target, McMahon suggested that the current sales level is roughly what can be expected going forward.

“Yeah around that mark, but you've got to interplay that with what's happening with competition and cost-of-living pressures as well. So that level of pace is where we would hope to be going forward.”

When asked if more could be done to get the message out to buyers about Honda’s widely praised model line-up, McMahon acknowledged the challenges the company has faced since announcing the shift to an agency model, but spoke proudly about the resilience and reputation of Honda in Australia.

Honda CR-V RS e:HEV pictured.

“We took a leadership position in the industry to consolidate the business to right-size the business and to put us in a more sustainable position. So we've done that. It was really tough, obviously with COVID and the lack of supply, it hampered our ability to get to the volumes that we originally hoped to be at.

“So, you know, there's lots of commentary around ‘Honda’s fallen off a cliff’. Honda’s still here, we're not going away. We want to make sure that we're here for the future. And we will, step-by-step, just get this model working well.

“We can do more in telling the consumer about our product, we can do more telling the consumer about the value of the ‘one-price promise’, the quality of their vehicle.

Honda ZR-V pictured.

“We've been around 75 years globally. We’ve been in this country for 53 years. Our quality and reliability is second to none, and maybe we’ve just got to do a better job at communicating that.”