Honda to replace its CEO amid air bag crisis, sales drop

First Posted: 2/23/2015

TOKYO (AP) — Honda Motor Co. — hurt by falling sales and embroiled in a crisis over defective air bags — is replacing its CEO.

The Japanese automaker said Monday that Takanobu Ito, its president and chief executive officer since 2009, will step aside in June and be succeeded by longtime executive Takahiro Hachigo

The unexpected decision follows the recalls of more 6.2 million Honda vehicles in the U.S. — and millions of others elsewhere — equipped with air bags made by Japan’s Takata Corp. The air bags have inflators that can explode, expelling shards of metal and plastic. At least six deaths and 64 injuries have been linked to the problem worldwide.

At a press conference Monday, the 61-year-old Ito said it was his own decision to step down. He has been at Honda since 1978, when he joined the company as a chassis engineer.

“I believe Honda needs to become one strong team in order to overcome challenges and the team requires a new, youthful leadership,” Ito said, according to a transcript provided by Honda. Hachigo is 55.

Other automakers use the Takata air bags, but Honda has the most exposure and is spending heavily on the recalls. The company has lowered its full-year profit forecast to $4.6 billion from $4.8 billion.

Honda is also facing civil penalties and lawsuits over the issue. In January, the U.S. fined the company $70 million, which was the largest civil penalty levied against an automaker, for not reporting to regulators some 1,729 complaints that its vehicles caused deaths and injuries and for not reporting warranty claims.

Amid the crisis, Honda lowered its global vehicle sales forecast for the full year to 4.45 million vehicles from 4.6 million. Its U.S. sales grew just 1 percent last year as plummeting gas prices hurt demand for its lineup of small cars such as the Civic.

Earlier this month, Ito scrapped Honda’s goal of selling 6 million vehicles per year by 2017, saying the company needed to focus on quality instead of on sales targets.

Stephanie Brinley, a senior analyst with IHS Automotive, said Ito’s six-year tenure as Honda’s chief is in line with Honda’s past three CEOs.

Ito’s tenure was largely a successful one, Brinley said. Between 2009 and 2014, Honda’s global sales grew 28.5 percent. He encouraged a focus on sportier cars, like the upcoming Acura NSX, and returned Honda to Formula 1 racing. He also expanded Honda’s global manufacturing footprint with new plants in Mexico, Brazil, Thailand, Indonesia, India and China.

Expanding production always carries the risk of quality fumbles, Brinley said. Consumer Reports wouldn’t recommend the 2015 Honda Fit small car to U.S. customers because it was the first model made in Mexico. The Fit was recalled in the U.S. in July because some parts were assembled improperly.

Last October, Ito and other top executives took a pay cut after Fits made in Japan were repeatedly recalled for quality problems.

The massive quality problem at Takata centers on air-bag inflators that can explode with too much force, blowing apart a metal canister and sending fragments into the passenger compartment.

Takata’s president, Stefan Stocker, resigned in December.

Hachigo, Ito’s hand-picked successor, handled development of the U.S.-built Odyssey minivan and has guided the automaker’s businesses in the U.S., Europe and China during his 33-year career with Honda, the company said.

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