American Honda will reduce dealership profit margins on new vehicles and make other changes designed to help support the company’s costly transition to electric vehicles, according to a corporate memo obtained by Automotive News.
The Japanese automaker’s 0.5 percent profit margin reduction — squeezing the amount between the invoice price that dealerships pay and the manufacturer’s suggested retail price — comes with additional changes to marketing, advertising and service payments.
“Obviously, Honda dealers are not happy about the change,” a dealer who asked not to be identified told Automotive News.
The dealer said his peers realize the move to electric vehicles will require “billions of dollars of investments,” and “Honda is no exception to that.”
“We don’t think the change is appropriate,” the dealer said, “but it’s also not necessarily surprising.”
Brian Kanyan, chairman of the Honda National Dealer Advisory Board and a partner at Bill Page Honda in Falls Church, Va., said the changes, which the board opposed, will be felt by dealerships.
“It will have an impact on dealerships’ bottom line. How much will be determined as we move forward,” Kanyan told Automotive News.
He added: “Dealers will have to adjust. Hopefully Honda will look for ways to help us adjust.”
Honda’s actions are a response to consumers not yet being widely able to afford EVs at their current pricing, said Martin French, managing director of consulting firm Berylls Strategy Advisors USA.
“The only way to be able to market and encourage consumer adoption is more attractive pricing, and it’s clear that they’re going after their retail network in order to find a more attractive solution,” French said.
While U.S. dealers will see less money and the margin cut could hurt smaller dealers in particular, these are more moderate changes compared with drastic margin cutbacks expected with Honda’s Canadian dealerships. Honda Canada reportedly expects to reduce the profit margin its Canadian dealers earn on vehicle sales by up to 44 percent, an action the Canadian Automobile Dealers Association is promising to fight with “substantial legal, financial and intellectual resources,” Automotive News Canadareported.
Honda consulted with the National Dealer Advisory Board before making its decision in the U.S. and took “careful consideration” of how any changes would affect dealership operations, according to the March 1 memo signed by Mamadou Diallo, American Honda Motor Co.’s senior vice president of sales. Diallo promised further details at Honda’s dealership meeting in Las Vegas in April.
Kanyan said he appreciated Honda giving the dealer board an opportunity to give feedback to try to minimize any overall effect the changes will have on dealer operations.
“We were opposed to the changes as a whole, but they were good enough to come to us and let us know and did take some of our feedback into consideration,” Kanyan added.
Jessica Fini, a spokesperson for American Honda, declined to comment on the memo because the company “doesn’t share details” of its business relationship with dealers. She said, however, the plans are meant to provide for long-term stability of Honda and its dealerships with the advance of EVs.
“Honda has a strong plan for the electrified future and has been making strategic investments that will enable us to continue to meet the needs of our customers and create a sustainable and mutually profitable future for Honda and our dealers,” Fini told Automotive News via email.
Some of the changes appear to ding dealerships’ bottom lines, while others are essentially neutral. Still, they haven’t been well received, the Honda dealer said.
U.S. Honda dealers will see their margin per vehicle sold drop by 0.5 percent beginning May 1. If the invoice price of a Honda Accord is $30,000, for example, there would be $150 less for the dealership, according to the dealer.
On the other hand, Honda’s March 1 memo outlines a now-fixed dealer marketing allowance of $150 per vehicle for all models effective May 1, which Honda said is near the current average. The dealer said the new policy is neither an increase nor decrease, but reflects average vehicle cost extended to a flat, fixed number.
“In the end, it should relatively wash out,” the dealer said.
Honda is reducing funding that goes to its Dealer Advertising Association from 1 percent of dealer net to 0.5 percent, also as of May 1. Typically, 1 percent of the invoice for every vehicle wholesaled is sent to the association to help fund regional advertising.
In addition, the company’s Honda Service Pass program will go from two years of complimentary routine maintenance to 12 months or 12,000 miles of coverage starting with 2025 models.
Internal combustion engine and hybrid vehicles from the 2023 and 2024 model years still will have two years or 24,000 miles of service with oil changes, multipoint inspections, oil filters and tire rotations based on service details outlined in the vehicle owner’s Maintenance Minder system.
“Whether we’re getting reimbursed from Honda or reimbursed from getting paid by the customer, I think it’s relatively neutral,” the dealer said. He added that the Service Pass program had the benefit of driving more customer service with dealers, but it is important that the benefit remains for the first ownership year of a vehicle.
“And then, it’s up to the dealership to do a good job taking care of the customer and retaining customers,” he said.
Electric vehicles, he said, will still need service on tires and in other areas.
Honda, meanwhile, is experiencing a rebound in U.S. sales after the pandemic and chip shortages dented supply.
Diallo told reporters at a January briefing he expects the Honda brand to sell between 1.2 million and 1.3 million vehicles in the U.S. this year, up from 1.16 million in 2023.
Honda’s margin cuts will save some money, French said, but are “not a way to long-term sustainability and long-term adoption of EVs.” Still, more are likely from the automaker and other manufacturers, he added.
“This isn’t going to stop,” he said. “There’s going to be a lot of pressure in terms of overall pricing and I think it’s going to be very tough for [manufacturers] to make any significant concessions.”
Carly Schaffner and David Phillips contributed to this report.