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How Honda's New CEO Will Reboot the Company: Electric Cars

By John Rosevear - Feb 27, 2016 at 8:40AM

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Honda’s new CEO thinks that the storied Japanese automaker needs a reboot, and he unveiled his plan this past week, What’s in it? Among other things, a big shift toward electric cars.

Honda CEO Takahiro Hachigo outlined his plans to revamp the automaker in a speech in Tokyo on Wednesday. Image source: Honda.

Honda (HMC -1.11%) CEO Takahiro Hachigo, confronting sluggish sales and uncharacteristic quality problems, unveiled a sweeping overhaul plan for the company in a speech in Tokyo on Wednesday, February 24.

The plan is a major effort. It will revamp the company's global production structure, streamline research-and-development and product-development processes, and shift Honda's focus more toward electrified vehicles. 

What's the plan? 
First, a little background. Hachigo's predecessor as CEO, Takanobu Ito, moved Honda to what the company calls a "six-region" structure. The idea was that Honda, which has long centralized its design and engineering efforts in Japan, would move to a system under which six regional offices around the world would work together to develop region-specific products, as well as "global" models sold around the world. 

The plan looked good on paper, but in practice, it has been a mixed bag. Honda has ended up with too much production capacity in some regions, and not enough in others. And costs have escalated as regions have sometimes duplicated efforts. 

Hachigo's plan is to clean that all up. He will juggle production to make better use of the company's factories around the world, exporting global models from one region to another when it makes sense. (That probably translates to more exports from Europe and Japan to the United States, and from Japan to Europe.) He's also making a series of organizational and structural tweaks to simplify regional product development.  

That should all cut costs, improve time to market, and possibly help Honda avoid some of the quality snafus it has encountered in the last few years. 

But what about the products themselves?
Honda's products used to be praised for being "fun to drive" and sporty. That was a key differentiator from rival Toyota (TM -2.30%), which had a reputation for products that were very well built, but somewhat dull.  But in recent years, Hondas -- at least in the public perception -- have lost some of that "fun to drive" luster, while Toyota CEO Akio Toyoda has pushed his company to adopt edgier styling, and put a little more emphasis on performance and handling. 

The tables, in other words, have started to turn. Hachigo said that he will push Honda to get back to the "Honda DNA." Some of the changes he made to Honda's global product-development organization are intended to spur development of more exciting new products.

And electric cars?
Hachigo outlined a plan to push Honda much more aggressively toward electrification. Honda will continue its development of hydrogen fuel-cell vehicles, continuing its work with General Motors to bring a new lower-cost fuel-cell system to market around 2020. 

That's not new. What is new is that Honda is stepping up its efforts with plug-in hybrids. It plans an all-new plug-in hybrid model for North America by 2018, after which it will add plug-in variants to its major global model lines. The longer-range goal is for Honda to get two-thirds of its overall global sales from hybrids and electric vehicles -- including both fuel-cell vehicles and battery-electrics -- by "around 2030."

What it all means
When he took the CEO job last year, Hachigo hinted that big changes would be forthcoming. Now we have an idea of what he was hinting at. But it'll take time before we see the effects in the marketplace, much less on Honda's bottom line. 

Still, it seems like the kind of plan Honda has needed for a while -- one that could return the company to its traditional strengths, while adapting it to a changing global marketplace. I'd say I'm cautiously optimistic -- but we'll have to see how all of these changes, which take effect April 1, start to play out over the next few quarters.

John Rosevear owns shares of General Motors. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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