AD #1440 – Recalls Hurt Hertz, Honda Blasts Competitors, OEM R&D Spending Ranks
August 20th, 2014 at 12:05pm
Runtime: 7:26
- Recalls Hurt Hertz’s Bottom-line
- Thieves Target EV Charging Stations
- Honda Blasts Competitors
- Car Sharing Going Luxury
- OEM R&D Spending
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In today’s show, Honda lashes out at how its competitors run their business, car sharing continues to catch on, and ranking the car companies by how much they spend on research and development.
HERTZ DOUGHNUT
Automakers and consumers aren’t the only ones hurt when a recall is issued. Rental company Hertz lowered its financial forecast for the year, in part due to all the recalls in the U.S. Rental companies aren’t obligated to have recalled vehicles fixed but two years ago Hertz and other companies agreed not to loan recalled cars until they’re repaired. So with the record number of recalls this year, Hertz hasn’t been able to keep up with demand. The company is also reeling from accounting issues which is also damaging its financial results.
CUTTING THE POWER SUPPLY
We’ve heard of thieves hacking off catalytic converters to cash them in for all the precious metals that are inside, but have you heard they’re now attacking EV charging stations as well? Some thieves in Canada have been cutting off charging cables for the expensive copper wiring and we’re willing to bet that we start hearing about this more. Maybe North America will have to adopt what Europe does, EV drivers there have to carry around their own charging cable because the stations don’t have them permanently attached.
HONDA GETS TETCHY
American Honda seems to be getting a little touchy about its downward slide in market share. Last year the company lost a tenth of a point and this year it’s down five tenths, despite a rip-roaring market. So yesterday the company came out with its guns ablazin’. Speaking to reporters, company president John Mendel attacked his competitors who sell to sub-prime buyers, who offer extended car loans and who sell vehicles to fleets. Let me give you a different perspective on this position. Attacking loans to sub-prime lenders is like saying, “How dare you try to sell cars to people with lower incomes, we refuse to deal with them.” Attacking extended car loans is like saying, “How dare you try to make cars more affordable to people who need them.” Attacking sales to fleet customers is like saying, “How dare you make slightly lower margins with fleet sales to customers like contractors, corporations, governments and rental companies. No one should sell any vehicles to them.” So get off your high horse Honda. Just because you refuse to do this does not make them bad business practices. You need to come up with better excuses as to why you’re losing market share in the hottest market we’ve seen in years.
CAR SHARING GOING LUXURY
We keep reporting on how car sharing is becoming more popular. And now BMW’s car-sharing venture, DriveNow, is reporting a dramatic rise in memberships, up by more than 85,000 customers since the end of last year. Makes sense to us. If you’re only going to use a car for a short hop, why not get a cool one? Better to be seen driving a BMW than a Mitsubishi. DriveNow operates in Germany as well as San Francisco. Its fleet includes MINIs, the 1-series, the X1 CUV and offers BMW i owners access to a fleet of ActiveE cars for longer trips. And by the way, you can even rent these cars by the minute.
To succeed in the car business you need to be constantly coming out with new product. So which car companies are spending the most money to do that? That’s coming up next.
OEM R&D SPENDING
Car companies won’t stay in business long if they don’t spend the money to come out with shiny new cars bristling with cutting edge technology. That’s why we dug through the annual reports of the largest automakers in the world, to find out which ones spend the most money on research and development. Hyundai-Kia are not included because Hyundai still hasn’t released its numbers for 2013. Come on Hyundai, it’s the middle of August for crying out loud. Anyways here’s what we found.
While it’s not surprising to see that Volkswagen is in first place, it’s amazing to see how much more its spends than anyone else. Last year VW spent over $14 billion on R&D which is $5 billion more than Toyota which spent just over $9 billion. We think that’s due to all the different brands that VW has to feed, but it’s probably also due to the MQB platform strategy that is forcing it to redesign everything. Next up is Renault-Nissan which spent about $7.5 billion on R&D, barely beating out Daimler. GM poured about $7.2 billion into its research and development efforts which topped its crosstown rival Ford by about $800 million. The Blue Oval was followed by Honda which spent $6.3 billion and then comes BMW at just over $6 billion. Rounding out the top ten are Fiat-Chrysler and Peugeot-Citroen.
But that’s just the raw number of dollars being spent. Bigger companies have more money to spend than smaller ones. So let’s take a look at R&D spending as a percentage of total revenue. That’s more of an apples-to-apples comparison. Despite being near the bottom of the previous list, BMW jumps to the top, with R&D accounting for 5.8% of its total revenue. Honda improves to the second spot at 5.4%. VW is next at 5.2% and then there’s a tie between Renault-Nissan, Daimler and GM. Ford follows those automakers at 4.4% and Fiat-Chrysler is once again towards the bottom at 3.9%. Despite outspending every automaker not named Volkswagen, Toyota’s R&D expenditures aren’t that big of a percentage of its total revenue, which is very surprising to see. We think that Toyota is getting a lot of bang for its bucks. And once again Peugeot-Citroen is dead last. We expect it to drop further. Carlos Tavares, the new CEO, is slashed spending to try and make the company profitable.
We think this is a very telling comparison and helps you become better informed about what’s going on in the global automotive industry.
Talk about being better informed, don’t miss Autoline After Hours. Every week we bring you some of the best insider discussion in the business.
And that wraps up today’s report, thanks for watching we’ll see you tomorrow.
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Comments (37)
August 20th, 2014 at 12:24 pm
5 minutes of ‘dead-air’ at the end of today’s show; doesn’t make a difference, just an observation.
Honda should just acknowledge the reduction of ‘share’ by stating that their business practices are more conservative in lending and thus this reflects their philosophy in trade. By expressing their displeasure they sound ‘whiny’. It is, after all, their business on whom they wish to finance. John, your view, certainly gives the subject excellent perspective (as a retort).
August 20th, 2014 at 12:24 pm
LMAO…..go John.. Honda should invest some R&D money into their boring as hell vehicles,and learn to deal,just like the rest of the oem’s.
August 20th, 2014 at 12:32 pm
Honda spent 6 billion on R&D? for what? They must have spent most of it on their new plane and robots cause it doesn’t show in their product lineup.
Also, auto companies file their racing budgets under the R&D category or is it advertising? or neither?
August 20th, 2014 at 12:33 pm
Interesting stats on R&D as a percentage of revenue. Something to consider, a company with higher revenue is going to show a lower percentage. Toyota does a lot of things right, and as a consequence has very high revenue to sales ratio…BMW suffers from a lower revenue to sales ratio, has to spread R&D costs over a smaller sales and lower revenue, they remain respectable though, and keep their Teflon image as a result.
Not the first time Honda’s Mendel has stepped in a barrel of sour grapes and stomped away. In the past it’s been something along these lines as well. Finding fault because your competitors are more strategic than you are? For starters you could stop having the lamest advertising the business?
August 20th, 2014 at 12:39 pm
John – I won’t say you’re wrong for telling Honda to get off its high horse; however, I would have made it a little more personal by telling Mr. Mendel to get off his high horse…and take a hike while he’s at it! He is doing Honda no favors, including by running his mouth like he did. If he is upset by Honda losing market share, then he ought to give himself the retirement he so richly deserves. We all make mistakes Takanobu, but it’s not too late to replace John Mendel. And its not just because of his absurd remarks or the fact that he thinks their refreshed for 2013, slow selling, nearly $40K CUV STILL has only one way to open/close the hatch—when all your competitors have five ways, including power assist. Perhaps selling Kirby vacuums door-to-door is a better fit.
August 20th, 2014 at 12:39 pm
John had his Wheaties today, clearly.
August 20th, 2014 at 12:46 pm
R&D spending is a complicated metric. There are tax implications as R&D spending is treated differently. There can be motivation to call routine work “R&D” to get whatever tax breaks are being offered. Because the accounting rules are different, comparing Toyota to BMW to GM can be a challenge. Then too, a lot of the genuine innovation occurs not at the OE’s but at the big multi-national suppliers like Bosch, Continental-Teves, Denso etc. GM doesn’t need to research new fenders; they need Bosch to invent a better GDI or something like that. This is where the killing off of Visteon/Delphi hurt the American OEMs.
August 20th, 2014 at 12:47 pm
Honda sales are down because the Pilot is in desperate need of a redesign. The Odyssey is also ODD looking with it’s thunderbolt rear quarter panel window and poorly placed side door handles. The biggest claim to fame in the new Oddyssey was the built-in vacuum, Oh-Boy!
The CR-V is selling very well but the styling is polarizing with it’s round rear end.
How does Acura figure into Honda’s financial numbers? I would bet that Acura is dragging on Honda’s numbers.
Honda needs to focus it’s R&D money on Acura and convert Acura model’s to Regular Gasoline.
Let’s face it Honda, Acura is just a Premium Brand. It will never be a Luxury Brand. Let the innovations for Acura filter down to Honda.
The current Pilot is Big & Boxy! The 2013 MDX should be the basis for the next generation Pilot and so on with other models. The TLX is a great start in the right direction. I hope the HR-V gets a larger motor than the Fit. If it does not get a large engine it will be a flop. 2.0 or 2.5 Liter would be better.
As John McElroy said during his message today “Get Off Your High Horse Honda!”
Reliability, Engineering, Design, Form, Function and Innovation are the pillars of a great automotive company. It might be time for Honda/Acura to re-examine the needs of it’s customer base and not waste money on a in-car vacuum system. I purchased a great small vacuum for around $20.00. It does a great job! How much did it cost for yours?
August 20th, 2014 at 12:48 pm
Mr. McElroy, I would say your criticism of Honda’s comments has merit. However, in 2006 no one was complaining to banks for giving out sub prime loans and now in hindsight that is seen as one of the major reasons for the 2008 economic decline.
August 20th, 2014 at 12:55 pm
Relative to Honda, IMHO there is a difference between selling cars and “Movin the metal”. It can be hard to “take the high road”. You will always lose “volume” to the Hyundai/Kias of the world. The key metric is not raw sales numbers but profits in the context of a strong brand image. Honda has done gangbusters by that measure. Just look at the resale value of the Odyssey versus the Caravan.
August 20th, 2014 at 12:58 pm
RE: Honda sales
To my mind, Honda has lost its way a bit. Their product lineup is inconsistent with the new Fit & Accord being quite good, but products like the failed Insight, CRZ, the mediocre CRV has no real personality.
Hondas used to be the “enthusiast’s” choice which drew other new buyers with them in the same way as artists can draw new buyers into “hip” neighborhoods.
Honda needs to get back to the root values that brought them such success in the past.
August 20th, 2014 at 1:07 pm
It looked obvious to me at the Woodward Cruise that Richard from Fast & Loud was on the “payroll ” from Chrysler to be there. He couldn’t say anthing objective about the products and clearly plugged them well. Oh well, so much for show business…
Funride 1931.
August 20th, 2014 at 1:27 pm
Fast and Loud: when that show first started he was driving a ford raptor.Since I don’t like the show,or the loud mouth Richard,I don’t know if he still drives the raptor.
August 20th, 2014 at 1:41 pm
How much of Honda’s R&D budget goes to their F1 power unit program? Gotta be a quick billion right there.
August 20th, 2014 at 2:10 pm
@Bradley Banks (and automakers) have extended credit to sub-prime lenders for eternity. The problem in 2006 was extending loans to people with no verification they were employed, or had any means to re-pay. It was greedy loan officers out to exceed their quotas and no one monitoring them that caused so many problems. Just because someone has a sub-prime credit rating does not mean they are a bad risk. The vast majority of sub-prime borrowers repay their loans on time. The trick is to not overly rely on sub-prime customers. An interesting aside: GM Financial, by law, can only loan to sub-prime borrowers, which GM admits has hurt its sales efforts. GM is desperately trying to get into the prime lending business.
August 20th, 2014 at 2:19 pm
Sorry to be a contrarian, but there are key elements (no pun intended) of John Mendel’s sales philosphy that have merit. If he is measuring sales on a retail basis, then let the retail numbers speak for themselves. Overall sales that are bloated by heavily discounted fleets sales will erode retail brand value.
Case in point – The late 1980s through the 1990s say many OEMs resort to dumping excess inventory into Daily Rental fleets with short “hold” times. New vehicle sales could not compete with those nearly new Daily Rental vehicles… which in turn triggered more dicounting and a continued downward spiral in brand valuethen competed with new vehicles. Honda has done very well in avoiding this disease.
Nevertheless, I agree Honda/Acura’s product portfolio has more than a few disappointments. I give them credit for patching up the Civic, but it really was not fully fixed. Fortunately for Honda, they got their bread and butter car correct – the Accord. The CRV lives off the Honda reputation, the Fit is a package efficiency marvel, and the rest of the line-up is a shame. I won’t get started on Acura, but I foolishly am awaiting the production NSX.
August 20th, 2014 at 2:42 pm
15 Back then, weren’t the dealers also falsifying buyer’s financial information?
Personal note; in 2003-4 someone at IRS was telling me that there was rampant fraud in mortgages, but that so many FBI agents had been moved over to the counter terrorism beat.
—–
Hey, how about that story in the Post about Seinfeld’s 911 getting dinked by a parking BMW in the Hamptons?
3 Series…I rest my case, your honor
http://pagesix.com/2014/08/19/jerry-seinfeld-unleashes-road-rage-in-hamptons/
(you should have seen where an X3 was parked at Costco, today. Astride the temporary entrance to the lot; evidently because there were parking spot line painted there. What’s up with these people, John? John?) (Yes, I shop)
August 20th, 2014 at 2:45 pm
#15
Thanks!
August 20th, 2014 at 2:56 pm
I predict that pretty soon EV charging stations will go the way of the pay phone, unless it is located in a secure location.
August 20th, 2014 at 3:11 pm
One more point on sub-prime buyers. They tend to be minorities, a topic that Honda needs to treat very carefully.
August 20th, 2014 at 3:11 pm
Regarding Hondas sales decline. If my experience means anything every time I look at Hondas they won’t budge off sticker price. It seems they think they have something special and don’t have to negotiate. I went down the street and bought a toyota and it is a great car.
Thank you
August 20th, 2014 at 3:36 pm
#21 Most Honda vehicles seem to be in short supply, this gives the dealer max profits.
August 20th, 2014 at 4:03 pm
22 Pedro, you know how I claim to like negotiating? When I bought the Civic it was crystal clear that msrp was the price. The car has also been a great value for all these years; I won’t let it go.
August 20th, 2014 at 4:27 pm
HTG I walked out of Honda dealers 3 times, I originally wanted a Civic hatchback in 98, but I ended up with a cheaper Corolla, in 86 i wanted an Accord, they wanted MSRP plus so I got a Camry and when my sister went looking for a CRV the price was so high, she could have bought a much larger vehicle for the same price.
August 20th, 2014 at 4:41 pm
Honda, instead of griping about others , build cars that people want to buy. You followed Toyota’s lead with the blandtastic approach. Except that Toyota still gets people to buy their vanilla products and you haven’t. Give people a reason to visit your showrooms. There is NOTHING that attracts me to one. Here is a novel thought, why don’t you try and fill a completely now ignored segment, the compact pick up. Not a mid size not the boat anchor Ridgeline,that you haven’t been able to move. A real mini pick up.
August 20th, 2014 at 4:58 pm
It’s hard to see where Honda spends so much on R and D, unless that number includes motorcycles, lawn mowers, and generator sets. They have a limited, and increasingly non-descript car lineup. Maybe there was a lot of money spent on R and D for the Acura “nose.”
As far as Honda’s declining market share, if it is because they don’t sell to rental companies, and they don’t want to sell to rental companies, I have no problem with that, but they shouldn’t whine about it. Subaru is a niche car company by choice, and they do well with that strategy. Honda is just a “bigger niche” company, and there is no problem with that either. If they want to sell more cars, I think they know what they need to do.
I, for one, would like to see them offer some interesting cars again, like the S-2000, but they, like Toyota, seem to have a change in philosophy on such things.
August 20th, 2014 at 5:03 pm
Honda wasted a lot of R and D money on their most recent hybrids. The second generation Insight came out at about the same time as the third generation Prius, and I checked both of them out before buying the Prius. This is what I found in comparing the cars, which were sold at the same dealership in Indiana:
Compared to the Prius, the Insight was slower, noisier, less roomy, rode worse, and used more gas. No wonder it didn’t sell very well.
August 20th, 2014 at 5:03 pm
Accord and Civic both lead the segment in retail numbers and they do fly out the doors.
August 20th, 2014 at 5:04 pm
….and no, I don’t dislike Honda. My SilverWing scooter is a great machine.
August 20th, 2014 at 5:05 pm
28, I suspect Accord would be my choice, if I were buying a car in the category.
August 20th, 2014 at 5:14 pm
I also wonder about comparing R&D figures when cos like GM have research centers in South America and Korea, while VW has so many engineers in Germany.
Also, Accord yes, Civic oofah
August 20th, 2014 at 5:42 pm
JM, in my view the most telling R&D story would be the ratio of dollars spent as function of patents or as function of models released. This would be telling about who spends the money smartly. I would guess GM and Ford would show as a winner actually, and perhaps some companies that don’t even show on the top 10 list (Mazda for instance).
August 20th, 2014 at 7:06 pm
Re: #17,A while back at the Kroger store I noticed someone parked in front of one of the cart corrals blocking it from carts being parked there. I guess they parked there because the No Park Fire Lane was full.
August 20th, 2014 at 10:36 pm
17, 33
It seems that store managers won’t confront these people because they don’t want to pi$$ them off, but they pi$$ me off by ignoring the people who don’t park properly.
August 21st, 2014 at 8:23 am
Kit, despite the orange-white plastic temporary barriers and the written signage, this X3 driver put their car’s right front quarter into the traffic lane. You had to squeeze around it to get into the lot. I couldn’t help wishing someone would crunch it.
I bet BMW knows the psychology of their customers very well.
August 21st, 2014 at 9:24 am
Here’s something GM spent some of their R & D money on:
http://www.thetruthaboutcars.com/2014/04/saturation-dive-the-gm-8l90-transmission/
August 22nd, 2014 at 1:52 pm
Doesn’t Audi fund its racing programs out of R&D? Any reason to believe the rest of VAG does the same? There are many models from Audi, Porsche, Lamborghini, and Bentley racing on the global stage, and a fair few SEAT’s and Skoda’s at the national level too.