As OEMs navigate the rocky path to vehicle electrification, the rules of the game are also under increased pressure and scrutiny.
Some Honda Canada dealers say they are upset the company is cutting their profit margins to offset the manufacturing costs of entering into the electric vehicle market. It’s a move they say could drain as much as $2 million in gross revenues from the bottom line of some of the major dealership groups — and potentially lead to legal challenges.
The reductions will be 2 per cent for internal combustion engine vehicles, or about $800-$1,000, and 1 per cent for electric vehicles. It will begin soon with Honda’s launch of its battery electric SUV Prologue.
Several dealers, speaking on condition of anonymity because of the sensitivity of the matter, say the move was thrust upon them in a memo sent out March 5 to dealer principals and general managers. One dealer said the company had a meeting with the Honda Dealer Advisory Board to inform it of the plan to adjust the margins without any input or discussion.
“Obviously (the company) has a strategy for this, and I think they thought if this went down okay that would be it, but it didn’t go down that well,” said one dealer. “They had a national Zoom call with every dealer and they had their Vice-President of Sales come on and he gave more of an explanation. But the gist of it was, this was done, and everybody better get on board…It’s a huge, big thing.”
Another dealer echoed that sentiment.
“It was just kind of sprung on us,” said the dealer. “Do they really have the power to just flip it like that? Are we really nothing? It’s alarming that this can happen just like that…That’s a lot of money. To reduce our bread-and-butter vehicles by 2 per cent, that’s ridiculous. It means if I throw in a pair of mats, I’m not making money on the car.”
The dealer said the move speaks to the lack of goodwill shown by the company when dealers had to make do without vehicles during COVID. “If you are affecting our margins, there’s an issue there,” the dealer said. “There’s a reason they are doing this. We shouldn’t have to bear the brunt of bad decisions.”
Canadian auto dealer obtained a copy of the “private and confidential” memo the company sent to dealer principals and general managers informing them of the decision “shifting from planning to implementation of some notable initiatives.”
The memo further stated as the company prepares to enter the internal combustion engine transition to BEV from 2025-2030 with the Prologue, its core objective of maintaining a “mutually profitable and sustainable shift (in) business.”
But, the memo added, the shift is now “underscored” by the necessity for “significant electrification and technology investments, sustainment of a smart and flexible vehicle lineup…and navigating the challenging market conditions.”
The Canadian Automobile Dealers Association (CADA) was contacted for comment and provided a statement. “Honda dealers have reached out to CADA in relation to Honda Canada’s recent notice of its intention to implement a margin adjustment, a decision that would severely impact Honda dealers across the country. CADA supports cooperative and fair relations between automobile dealers and their respective manufacturers, in pursuit of the mutual success of both dealers and manufacturers. To that effect, CADA is deploying its substantial legal, financial and intellectual resources in support of the Honda Dealer Advisory Team and all Honda dealers in this matter,” reads the CADA statement.
One dealer said the added cost the company puts on the dealer will be crippling toward the bottom line and potentially lead to layoffs. “Whatever we have to do to squeeze it, we’re going to do it,” said the dealer.
Another dealer said what the company is doing is extremely impactful, adding that some of the bigger dealership groups could lose $2 million in gross revenue. “It’s not something I’m excited about,” said the dealer. “To a longtime Honda dealer, I think it would be devastating.”
The dealer said Honda is already requiring dealers to make their stores EV compliant with infrastructure, notably chargers, that depending on the size of the dealership could cost anywhere from $250,000 to more than $1 million.
“Honda didn’t give us any money for that,” said the dealer. “They gave us standards, we met them. That’s our contribution…coming on the heels of (Honda) spending a lot of money on electrification and now you’re telling (us) you’re cutting our margin and we just installed your chargers? Come on. It’s like a crap sandwich and now we’re getting seconds.”
Honda Canada spokesperson Ken Chiu told Canadian auto dealer the company does not share details of its business relationship with their dealers.
“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 profitable future for our business,” said Chiu.
