Coverage: Honda CEO steps down

After several years of recalls and other issues, Honda’s chief executive officer is being replaced with what some are calling a low-level engineer. He’s certainly an unknown to run one of the world’s largest carmakers.

Bloomberg’s Jie Ma and Yukiko Hagiwara had this story about the company’s attempt to put quality control back on the right track:

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. Ito, the motorcycle-racing engineer who’s led Honda since 2009, said he handpicked 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. 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.”

Through his promotion, Hachigo jumped over higher-ranking executives such as Koichi Fukuo, who was promoted last year to oversee product quality. Hachigo will also be the first Honda CEO who didn’t lead Honda R&D Co., the carmaker’s research arm. Fukuo will be the next president of Honda R&D.

The Fortune story by Doron Levin blamed the move on the company’s U.S. performance:

The company’s loss of momentum in the U.S., its most important market, may be its biggest headache. Accordingly, the latest shakeup includes the departure of Tetsuo Iwamura as chairman of the American Honda Motor Company. He will remain a director of Honda – but no new chairman will replace him. Instead, Takuji Yamada, president of American Honda, will assume his duties.

Ito will be replaced in June by Takahiro Hachigo, 55, an engineer who currently serves in a senior post in Honda’s research and development arm in China. Ito, 61, will continue to serve as an adviser to the company.

Honda shareholders and fund managers may have played a part in the change. In the past five years, Honda shares have returned 27% to holders, lagging well behind the Nikkei 225 Index, which returned 82%. Nissan shares returned 66%; Toyota shares 146%.

The Wall Street Journal story by Eric Pfanner said that executive pay cuts hadn’t been enough to reassure investors that quality would be returning to Honda:

In October, Mr. Ito and other top executives took pay cuts to show responsibility for quality problems with Honda models such as the redesigned Fit, which dented sales. Honda also is the car maker most affected by the recall of millions of older vehicles equipped with air bags from Takata Corp. that have been linked to six deaths around the world. Its vehicles account for more than half of the about 25 million recalled for suspect air bags.

Honda has joined an auto industry group investigating what caused the air bags to explode with too much force. Takata has linked the air-bag failures to hot and humid climates, but hasn’t been able to pinpoint a defect.

Mr. Hachigo pointed to his international experience, which has included stints in the U.S., Europe and China, at a news conference here on Monday. Little-known outside the company, Mr. Hachigo has worked in areas including vehicle design, production and purchasing.

“I did have wide-ranging experiences over the years, and I believe I can make that useful for the future of Honda,” Mr. Hachigo said.

Mr. Hachigo said dealing with globalization and developing vehicles with what he described as a more “challenging spirit” would be his two priorities.

Jena McGregor wrote for The Washington Post that Honda wasn’t alone in replacing the CEO:

Though this may mark an unusual move for the automaker, a growing number of companies are making similarly unconventional choices when naming their next chief executive. In a November report, the Boston Consulting Group labeled the phenomenon “leapfrog successions,” in which boards reach a couple of rungs down the ladder to find their next leader.

“At its essence, it’s when a company looks at the future direction of the company and the business environment and makes a determination that the people doing business as usual will not be the ones who make that change,” said Roselinde Torres, a senior partner at Boston Consulting Group.

Electronic Arts did this in 2013 when it named the 39-year-old head of its sports video games, Andrew Wilson, to be CEO, promoting him over two more senior executives. Torres also pointed to General Motors’ Mary Barra as an example. Before being tapped as chief executive, she was chosen to lead product development despite the relative obscurity of previously running human resources. And at 32, Daniel Schwartz was named to run Burger King after little experience in the fast food industry.

The move is meant to restore confidence from investors who have been looking for something good to happen to the automaker. After redesigns, safety issues and other recalls, Honda has a lot of work to do to get back on top. One thing is certain, consumer sentiment is quick to change, so maybe a new face at the top will be enough to reassure customers that Honda is back to business as usual.