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Honda looks to new CEO to emerge from crisis-filled Ito era

Tuesday, February 24, 2015 - 08:46
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Honda Motor Co's chief executive officer will step aside later this year as Japan's third-largest carmaker reels from one of the biggest setbacks over quality in its history.

[TOKYO] Honda Motor Co's chief executive officer will step aside later this year as Japan's third-largest carmaker reels from one of the biggest setbacks over quality in its history.

In a surprise announcement on Monday in Tokyo, 61-year-old Takanobu Ito said he'll hand over the reins to Managing Officer Takahiro Hachigo, 55, after the annual shareholders' meeting in late June. Mr Ito, the motorcycle-racing engineer who's led Honda since 2009, said he handpicked Mr Hachigo for his experiences running Honda's various overseas businesses.

The CEO is ceding his job after leading the company through a tumultuous era that began with a global recession, followed by natural disasters and unfavorable exchange rates. Mr Ito's successor will face the challenge of navigating Honda past the latest crises, record recalls involving deadly Takata Corp. air bags and flaws with the popular Fit compact car, which have tarnished the company's reputation for quality.

"Honda just got through its worst-ever period of quality problems," said Takeshi Miyao, a Tokyo-based auto analyst at researcher Carnorama. "They're getting a fresh start."

Honda made the announcement at the 3pm close of trading in Tokyo on Monday, after the carmaker's stock fell 0.9 per cent to 3,928.50 yen, paring this year's gain to 11 per cent.

While Mr Ito will give up his roles as CEO and president, Honda said he will remain on the company's board and serve as an adviser. Takashi Yamamoto, currently in charge of production, and Yoshiharu Yamamoto, head of Honda R&D, will also step down, according to the company.

Mr Ito's departure contrasts with General Motors Co.'s decision to stand by CEO Mary Barra while the Detroit-based automaker navigated through the costly recall of 2.59 million small cars with a defective ignition-switch design blamed for at least 57 deaths.

"With Barra, the ignition-switch recall situation blew up shortly after she got" the top job, said Karl Brauer, an analyst with Kelley Blue Book. For Ito, Honda's air-bag problems have been "a long ongoing issue, and the issues were getting more serious since he's been at the top of the organizational chart," Brauer said.

The management overhaul comes weeks after Honda cut its profit forecasts for the second time in as many quarters because of recalls tied to Takata and new hybrid systems installed in the company's Fit cars and Vezel SUVs. The quality missteps derailed Honda's plans to introduce new models and led the carmaker to project its first profit drop in three years.

Mr Ito this month also said the company will scrap its target of selling 6 million vehicles by 2017, which he said will ease a burden on engineers so they can focus on quality.

"It does a big favour to his successor," said Christopher Richter, a Tokyo-based analyst at CLSA Ltd.

"That was a sales programme that Ito put in place. It's very appropriate that he was the one then to say that we're going to step back from that, rather than to have somebody new come in and then say 'oh, we're not going to do this' and create an image of discord."

CHASSIS ROOTS

In choosing Mr Hachigo, Mr Ito turned to someone with similar roots. Both started their careers at Honda more than three decades ago as engineers designing chassis, the frame underneath that holds the key parts of a car together.

As an engineer, Mr Hachigo was responsible for high-profile projects such as the US-built Odyssey minivans that were launched in 1999 and the second-generation CR-V SUV that debuted in 2001.

He then rose through the ranks with executive roles across the US, Europe and China before he was promoted to managing officer last year. Mr Hachigo said he was in China soon after the new year when he learned of his next role. "I was surprised when I received a call from Ito," Mr Hachigo said in Tokyo on Monday. "I understand this is a major responsibility."

Mr Hachigo pledged Honda's past efforts will bear fruit in 2015 and said that the company needs to step up development of products and technologies. He also said he plans to build on Honda's six regional operations - an organisational structure his predecessor set up to shift Honda away from a US-centric business mindset.

ERA OF DISASTERS

While Mr Hachigo will follow the footsteps of a CEO who returned Honda to Formula One in 2015 and brought back the NSX supercar, he'll also seek to avoid his predecessor's misfortunes.

Under Mr Ito, Honda was roiled by the 2011 tsunami in Japan and mass floods in Thailand the following year. More recently, Mr Ito has been plagued by recalls.

Honda has called back 14 million vehicles worldwide since 2008 to replace air bags made by Takata, in which it has a 1.2 per cent ownership stake. Takata's defective air bags, which can rupture during deployment and propel metal shards at passengers, have been linked to five fatalities in the US and the deaths of a pregnant woman and her unborn child in Malaysia.

While at least nine other carmakers have been hit with air- bag-related recalls, Honda is Takata's biggest customer.

Scrutiny of how Honda responded to the flaws led to the US government slapping the company with a record US$70 million fine for failing to report more than 1,700 death and injury incidents to regulators over 11 years.

AIR BAGS

Honda's quality problems go beyond air bags. The carmaker has called back the Fit - its top-selling model in Japan - five times since its introduction in late 2013, and recalled its Vezel crossover three times. Those fixes delayed the roll-out of other new vehicles by as long as six months.

As Honda takes steps to address quality shortfalls, Honda's shares have begun rebounding. This month, the stock has climbed 10 per cent through Monday, double the Nikkei 225 Stock Average's gain.

"We knew this was coming sometime, although it was probably a little bit sooner than we expected," said CLSA's Mr Richter. "Maybe this is a good time for a fresh face."

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