Three Strikes and You're Out: Dealers Wary of Honda Ad Police

In Midst of Sales Slump, Dealers Want HQ to Take the Cuffs Off

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Credit: Bloomberg News

Honda dealers face no shortage of challenges this year: soft national 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 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 for about $100 below the invoice price. "You have to price below invoice to get noticed on TrueCar," Mr. Waikem said, adding that his Hyundai and Kia stores pull in significant traffic by offering certain models below invoice.

In Raynham, Mass., Adam Silverleib, VP 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," Mr. Silverleib said.

However, he understands Mr. Waikem'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," Mr. 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.

Managing brand value
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% to 784,913, while the overall U.S. market is up 5%.

Accord and Civic sales are up slightly and CR-V sales are up 6%. But sales are down for the aging Pilot (19%) and Odyssey (7%). Crosstour sales are down 28%.end opt cut

Mr. 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, Mr. 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.

Mr. 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.

Mr. Waikem said: "We're being very cautious with our Honda advertising for the rest of the year."

--Neal E. Boudette is a reporter for Automotive News.

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