Honda dealers face no shortage of challenges this year:
soft U.S. sales, a dearth of vehicle launches and an aging truck lineup.
Add to that what some dealers call the "advertising police."
Officially,
it's known as the Honda Compliance Headquarters, an extension of the
automaker's marketing department in St. Louis, and run by an outside
marketing firm.
It keeps a close watch on the marketing
activities of dealers who participate in the brand's dealer marketing
allowance program and cracks down on any who violate strict rules on
what dealers can and can't say in their advertising, whether print,
online or broadcast.
One major no-no: advertising a vehicle below
the invoice price. That's classified as a Category 1-Type A offense,
the worst kind; get three of those in one year and you lose your
marketing assistance, which can be $400 per vehicle for many dealers.
Running
an ad that shows a car or truck with the wrong trim level also brings a
stern warning. Other offenses include a range of actions or word
choices that may suggest Honda vehicles are "distressed goods" that are
subject to extreme discounting. These include terms such as "blow out,"
"liquidation," "inventory reduction" and "close out."
While all
automakers set marketing guidelines for their dealers, Honda's are among
the most restrictive. For example, Ford, Hyundai, Kia, Chevrolet and
many other volume brands don't specifically prohibit dealers from
advertising below-invoice prices.
Although the rules have been in
place for years, they've been a special burden this year as Honda
struggles with a sales slump that's defying gains in the overall auto
market.
'Take the handcuffs off'
Honda acknowledges the guidelines are strict but says they are in
place to protect its brand. Most dealers agree, noting Honda's residual
values are consistently among the industry's strongest.
Still,
some dealers say the restrictions, particularly those on advertising
prices below invoice, limit their ability to compete.
"I'd like
to see Honda take the handcuffs off of us and let us be aggressive,"
said Doug Waikem, owner of Waikem Honda in Massillon, Ohio. The Waikem
family also owns Ford, Hyundai, Kia, Mitsubishi, Nissan and Subaru
dealerships in Massillon.
This year, he got a letter from the
Honda Compliance Headquarters after his store advertised a Civic on
TrueCar.com for about $100 below the invoice price. "You have to price
below invoice to get noticed on TrueCar," Waikem said, adding that his
Hyundai and Kia stores pull in significant traffic by offering certain
models below invoice.
In Raynham, Mass., Adam Silverleib, vice
president of Silko Honda, said he has seen what happens when lowball
pricing becomes the focus of dealer marketing efforts. A few years ago, a
large competitor, Boch Honda, opted to forgo Honda's marketing
assistance and so was free to advertise vehicles below invoice. "It
destroyed the market for all of us," Silverleib said.
However, he
understands Waik-em's viewpoint. Honda has $3,000 in what Honda calls
flex cash on the Crosstour, making it possible for dealers to offer the
slow-selling vehicle below invoice. Honda also is offering $500 in
dealer cash on the Civic, which could enable a dealer to sell the LX
automatic model below its invoice price of $18,632.
"We can do a
deal below invoice, but we can't advertise that," Silverleib said. "We
should be able to tell the customer the price they can expect when they
come in to look at the car. But we have to advertise the invoice price,
which obviously isn't working in the case of the Crosstour."
Boch Honda officials didn't respond to requests for comment.
Jeff
Conrad, Honda Division general manager, acknowledged in an interview
that Honda is having a "challenging year." Through the first seven
months of 2014, Honda brand's U.S. sales are down 1 percent to 784,913,
while the overall U.S. market is up 5 percent.
Accord and Civic
sales are up slightly, and CR-V sales are up 6 percent. But sales have
dropped for the aging Pilot (down 19 percent) and Odyssey (down 7
percent). Crosstour sales are down 28 percent.
Conrad said he
"totally gets" dealers' desire to advertise more aggressive prices, but
added that the marketing guidelines are designed to manage long-term
brand value.
He said Honda is aiming for steady sales growth
through the rest of the year but declined to elaborate on specific
marketing plans. The company expects dealers to get a lift late in the
year when the updated CR-V begins rolling into showrooms.
The
prices Honda dealers advertise in print, online, on TV or on radio are
monitored constantly by the Honda Compliance Headquarters, which is
operated for Honda by Ansira Partners, a marketing communications
company. To ensure compliance with Honda's guidelines, dealers or their
advertising agencies can submit ads to headquarters for review. Dealers
can expect approval within 24 hours, Conrad said.
The operation
also checks ads to catch typographical errors, banned phrases, incorrect
photos and improper use of the Honda "H" badge and the logo type
prescribed for the Honda name.
To err is easy
John Kudner, general manager of Art Moehn Honda in Jackson, Mich.,
said nearly every dealer gets called out by the compliance headquarters
at some point. Given the volume of ads that run each month, "it's real
easy to make a mistake," he said. Yet he adds that it is worth heeding
the guidelines to support strong resale values. "I can't argue with
Honda's philosophy," he said.
This year, Waikem in Ohio was
charged with a Category 1-Type A violation because an ad included a
photo of an Accord that had wheels that were different from those
described in the text.
Waikem said the mistake was inadvertent.
He's worried, however, because he now has two strikes against him this
year, including the TrueCar pricing incident. A third will cause him to
lose his marketing allowance from Honda.
Waikem said: "We're being very cautious with our Honda advertising for the rest of the year."
The power of rules
Honda holds dealers to some of the strictest marketing guidelines in the
industry, with repeat violators at risk of losing their marketing
support. Honda classifies offenses by category and type; Category 1-Type
A offenses are the most serious. Some examples
Category 1
Type A violations
• Advertising a retail price that is below dealer invoice
• Advertising an incorrect vehicle description
Type B violations
•
Using words that suggest Honda vehicles are “distressed goods” subject
to big discounts, such as “blow out,” “close out,” “liquidation” or
“inventory reduction”
• Using terms that imply a dealer can offer
the lowest price of any Honda dealer, such as “guaranteed lowest price”
or “we won't be undersold.”
Source: Honda Marketing Allowance Program Guidelines
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