Honda CEO battles to stay on the job for another two-year term

Tokyo

HONDA Motor CEO Takanobu Ito, under fire for how he is dismantling the traditional way that the Japanese carmaker sources parts and technologies, has resisted moves for his ouster and will fight on for another two-year term, according to four people with direct knowledge of the matter.

Mr Ito took over in 2009, and for the past three years has shaken up Honda's decades-old, tightly-knit supply chain, looking to trim costs while finding more cutting edge technologies. That has rankled long-term local suppliers and some former Honda chiefs, and the pressure on Mr Ito has been ratcheted higher by mass recalls over quality issues. Some retired executives manoeuvred to have Mr Ito removed.

"Honda's group suppliers were thrown into disarray by Ito's actions. The way things are going, they're soon all going to become subcontractors with no technologies of their own," said one former Honda chief.

But Mr Ito, a former super-car engineer, is determined to see his reforms through, and told his critics as much at a recent meeting with some former Honda chiefs, said two of the sources. None of the sources wanted to be named because of the sensitivity of the issue.

"Since the start of this year, we've been operating on the assumption that Ito will continue as chief executive," said a Honda divisional head, adding that Mr Ito has a "70 per cent" chance of keeping his job.

"Ito is determined to keep going as CEO," said another individual, who was a senior Honda executive in the 1980s. "We're generally okay with that."

Honda spokesman Kaoru Tanaka declined to comment on Mr Ito's position, but noted that the company "procures components in the most optimal way possible, taking into consideration cost, quality and delivery", adding: "That policy remains unwavering and unchanged."

One of Mr Ito's moves to reset research and development priorities was to focus on vehicle electrification by courting global suppliers such as Robert Bosch, Continental and TRW Automotive. Contracts have even gone to Denso, a supplier part-owned by rival Toyota Motor Corp, often bypassing Honda's local suppliers such as Keihin Corp and Showa Corp.

Deflecting any talk of a crisis, Keihin spokesman Hidekazu Nagasawa said that Honda's procurement reforms were "an opportunity to . . . develop better technologies and more innovative, cost-effective ways to manufacture them, and sell them . . . not just to Honda but other automakers",

While Mr Ito's critics acknowledge a need to change how global carmakers like Honda develop their technologies, they believe that Mr Ito has moved too hastily, and they have been quick to point to damaging product recalls as symptomatic of his rush to reform.

Besides having to recall more than 13 million cars for potentially lethal air-bag inflators made by Takata Corp, Honda has been hit by five recalls of its Fit subcompact car and Vezel crossover utility vehicle since their 2013 launch. Mr Ito's critics note that the defects mainly involved German supplier Schaeffler's IPO-SHF.F hybrid transmission technology, and how Honda engineers integrated it with their other vehicle technologies.

Former CEO Nobuhiko Kawamoto was so concerned that he visited Mr Ito in October and warned him about the quality and reliability slippage that he said risked damaging the Honda brand, the sources told Reuters.

In Japanese corporate culture, former chiefs retain more clout than in the West. The Honda grandees, dubbed the "old boys", maintain a Tokyo office known informally as the Yaesu Club. Under an unwritten code, they do not intervene in day-to-day management, but some have ramped up the pressure on Mr Ito by airing their complaints internally, two of the sources said.

"We're all worried and irritated by Mr Ito's audacious, not-so-well-thought-out reform moves," the ex-Honda chief said. A company insider close to the CEO said that Mr Ito understands where his critics are coming from, and would likely slow the pace of reform. On the plus side, Honda shares have risen 37 per cent since Mr Ito took over as CEO, and operating income has more than trebled since his reform drive began.

To provide some help to existing suppliers, Mr Ito may follow Toyota's lead and seek to consolidate some of the supply chain, possibly combining transmission units of Musashi Seimitsu, Yutaka Giken and Atsumitec into a single entity. Spokesmen for those companies declined to comment. REUTERS