Why Honda re-invented the way we buy a new car

New agency model aimed at putting the customer first. The agency model flips the age-old relationship of a traditional dealership into a more conventional retail environment.

New agency model aimed at putting the customer first

Honda Australia claims it is making the car buying experience more “joyful”, following a complete overhaul of its business in July 2021.

The Japanese brand has become the first car maker in Australia to move to an agency-type model, which eliminates pressure in the pipeline between dealerships and the manufacturer, in order to make the customer experience simpler and more transparent while ensuring the long-term sustainability of the brand.

The agency model essentially flips the age-old relationship of a traditional dealership into a more conventional retail environment.

Previously, individual dealerships would purchase vehicles at a wholesale price from Honda Australia – usually on short-term, high-interest finance deals – which often meant sales staff were asked to ‘move them on’ as quickly as possible. This would create a level of pressure on both the system and consumers, which affected the profitability of the dealerships and Honda Australia as a business, while also impacting the used-car value for customers.

With the new model, Honda Australia now essentially acts as the retailer, as it effectively owns all the new vehicles in the showroom and the dealership simply acts as a selling agent.

Key to this model is a consistent ‘one-price-for-all’ policy on all new Honda vehicles across Australia called the Honda Price Promise, with Honda Centres paid a predetermined commission for each sale, taking the buying and negotiating stress away from the customer.

Honda Australia Director, Stephen Collins, admits the concept is bold and concedes that eliminating the ability to negotiate a cheaper deal “means it won’t be for everyone”. But he stresses “The way we purchase a car needs to move with the times and, importantly, improve the ownership experience for the customer.”

“In the past, when you purchased a vehicle, the experience was great when you finally took delivery, but going through the process - the haggle, the negotiation – was often very intimidating for many people. In fact, our research shows that 90 percent of people don’t like haggling over the price of their new car,” he said. 

undefined
Stephen Collins, Director, Honda Australia

“The main reason for making this change is that we wanted to elevate the customer experience to become simple, seamless, transparent and joyful. We really put the customer’s viewpoint at the centre of our decision-making process.

“The car business hasn’t really changed for, I’d say, 50 years but it is probably really more like 70 or 80 years,” he added.

“When we looked at the customer experience, we recognised we had two options. One was to accept the status quo and keep tinkering around the edges or the other option was to be bold and try and address some of the fundamentals that needed to be improved.

“We decided to take a big step and we articulated it as bringing joy to the purchase process of a new vehicle no matter where you are located.”

Through in-depth research, modelling and a review of global retail brands, Honda established the new agency model and methodology.

“We saw an opportunity to address customer pain points in the current car purchasing experience, and this new model enables us to focus our time into building a stronger relationship with the customer,” said Collins.

“Our people are there to walk you through the car, they sit beside you rather than in front of you – it’s not us versus them across a desk – and they can answer your questions really easily and simply in customer language. We want them to speak in human language, not car jargon and using acronyms and such.

“We want to create a new benchmark in the auto industry.” 

undefined
Automall Service at Indooroopilly Shopping Centre, Brisbane

While improving the customer experience was at the forefront of Honda’s decision to radically alter its business, Collins also admits the entire business model needed to change for Honda Australia and its Honda Centres to be more financially secure and sustainable in the long term.

“Generally speaking, pre-COVID, dealer profitability was very tight and if you look at it compared to return on sales it is very low compared to other industries,” he said.

“There was this inherent profit issue. For us, we were selling some vehicle lines at a huge loss and not being able to offset that against commercial vehicles was very problematic for our dealer partners.

“So, we thought it was best for us to rationalise our line-up and focus on what we're good at and concentrate on growth markets like SUVs, while still providing good value and a good range of cars. But we need to do it sustainably.

“The way we were operating, which was focused on chasing volume and doing deals, discounting heavily to clear stock, wasn’t where we wanted to be, and it wasn’t a sustainable model.

“For us, the constant obsession with volume was clearly not working. It’s not what we’re about. When the Aussie dollar is strong that’s okay, but when it is experiencing a downturn, it’s really damaging.

“We need to stand on our own two feet as Honda Australia and having that mindset of chasing volume is not what we are about as a brand. And it took us a while to get there, but we are really proud of the changes we made, and we truly believe it is benefiting the customer and our network.

“The combination of all that makes us more sustainable for the future.”

undefined
Northern Honda, Melbourne

Learn more about the Honda Experience