Book Review: Arrogance And Accords
If you’ve ever read a book on the automotive industry, you’ll note that many of them provide you with narratives behind the scenes of some of the industry’s most important moments. Once Upon a Car tells of the US government’s decision to bail out General Motors and Chrysler in 2008 and the steps taken by those companies to rebuild themselves. Go Like Hell covers the challenges faced by the Ford Motor Company in its quest to beat Ferrari at the 24 Hours of LeMans, describing how $1 billion could be spent on a racing program in the 1960s. Though these books provide the readers with some interesting subjects to think about, only a few of the automotive industry books that document the background behind important corporate decisions will actually make their audience laugh.
One of the few books that can accomplish the feat of its audience laughing is the book Arrogance and Accords, which has been alluded to on TTAC more than a few times. Written by Steve Lynch (Full Disclosure: Steve Lynch is also a TTAC contributor), the book tells of a scandal at American Honda, where executives in the sales division were found to have solicited kickbacks from dealers in order to give dealers a favorable allocation of Honda cars throughout the 1980s and early 1990s. Eventually, these Honda executives were brought to justice on federal charges.
During the 1980s and early 1990s, Honda cars routinely sold for over the sticker price and dealers couldn’t get enough inventory. The Accord, Civic, Prelude, and later, the CR-X, were winning accolades left and right, and buyers were willing to pay a premium to get their hands on one. Owning a Honda dealership was like having a license to print money, and many dealer principals quickly became millionaires. Despite the profits generated on the retail side, the salaries (even including bonuses) made by the people in American Honda’s sales division were low. Since these were the people in charge of allocating Honda product, they were more than happy to take a bribe or kickback in exchange for a favorable allocation of product.
Some of the people involved in the dealer kickback scandal were real characters. One man ended up stealing and married his own aunt (by marriage). Another had a dealer pay for a crew chief for a motor racing team he was a part of. One enterprising gentleman set up a sales training seminar (the Honda employee was a partner in the marketing company) that Honda dealers had to pay a large sum of money to attend, or their Honda shipments would be at risk. Many of these men had secret partnerships in Honda dealerships in exchange for granting a franchise to the main dealer principal. They also had dealers pay for houses, Porsches, Mercedes-Benzes, BMWs, and ‘gift’ them Rolexes.
There were many dealers that took part of bribing the Honda sales division, but none back out looking as bad from the Honda scandal as Rick Hendrick. Hendrick managed to have almost everyone involved in the distribution of new Hondas on his payroll, including the North Carolina zone traffic assistant in charge of distributing cars that arrived at the port. All of these people were paid in order to ensure the Hendrick dealers were always flush with new Hondas. He paid some of their mortgages and some of the top executive had access to his private jet. Furthermore, a great number of Acura franchises (compared to any other individuals) went to Hendrick. Hendrick ended up pleading guilty to one count of mail fraud. (He ended up being pardoned by Bill Clinton.)
A large part of this book covers the launch of Acura and how it might have been bungled from the start. Lynch characterizes the Acura sales division as a place where the “less intelligent” or clean members of Honda sales division ended up. While Acura was being pitched in the mid-1980s, it was stated that Acura could sell 300,000 cars by 1990. (At the time that number was quoted, Honda was selling 550,000 cars per year.) As a result, existing Honda dealers and other individuals were clamoring for an Acura franchise with the added profit margin in selling luxury cars compared to proletarian Hondas. However, Acura dealer selection involved kickbacks to Honda executives as well, and there were no customer satisfaction requirements to retain the franchise.
Furthermore, even though some Acura dealers were fully committed to the brand, with expensive new showrooms selling solely Acuras, if their dealer principals didn’t bribe the right people, other dealers with significantly worse showrooms and atrocious customer service could be allocated a better mix of cars. The product didn’t help as much either, as the Lexus LS400 and Infiniti Q45 debuted, with both sporting V-8s and rear-wheel-drive. Overall though, throughout the early 1990s, Acura struggled with a good number of its dealerships being unprofitable and its customer satisfaction scores lower than other luxury brands. Lynch argues a big part of that may have had to do with how Acura dealers were determined.
Apart from the Acura launch, Lynch also details some absolutely hilarious moments, such as building Honda dealerships in the middle of nowhere so an executive could sell it to a dealer and keep the profits for themselves, finding out who potential NSX customers were from the clean Acura dealerships and giving those names to their cronies, and steering the allocation of Accord wagons to crony dealers, leaving many clean dealer without any. (However, the Accord wagon ended up being unpopular, so the clean dealers had the last laugh on that one.) Another story involves turning to diverting money from Honda’s own advertising funds to make up for the graft.
In the final third of the book, Lynch informs the audience how people in the Honda sales division were charged by the federal government for the dealer kickbacks and embezzling the money from Honda. Utilizing the documents from the federal investigation of the Honda executives, Lynch chronicles how the trials and tribulations went, noting the comments Honda executives made about their corruption on the stand, during questioning by the Honda human resources department, and by federal investigators before the trial. These stories show how the malfeasance of the Honda executives came out into the open and the reactions to their actions.
As for obtaining the book, you cannot buy a hard copy of Arrogance and Accords since it’s out of print. On Amazon, used copies are being sold for at least $85 while the copies described as “new” as going for at least $190. Other sites selling hard copies of the book aren’t much better on pricing. However, on eBay, Steve Lynch sells a PDF copy of Arrogance and Accords for $24.95 along with an update in 2011 and his private e-mail address so you can talk to him directly about the book.
Now, since Steve Lynch is a contributor to TTAC, I needed to interview him. After all, it’s been more than 15 years since the publication of the book. That conversation will appear tomorrow.
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All of the stuff described in the book makes sense when you have a hot commodity with constrained supply. I'm sure if Yugos had somehow been a fantastic car upon arrival (and similarly constrained supply lines), then they would have gone for a lot more than the $3995 originally advertised. As someone further up the strings mentioned, you can thank the VRAs for this mess. However, I could never understand the Honda Lovefest thing, either. My experiences with them date back to the mid 1970's, with the cute little Civic that would rust to death faster than anything else (midwest snow belt), glass transmissions (you NEVER were supposed to "rock" a Civic out of a snow bank), and the horrendous CVCC servicing (look at that vacuum tube routing sometime. they're all over the internet.). Plus it was unheard of to replace a water pump (at timing belt service time) if it wasn't leaking. A woman I used to date was gifted (by her parents) a 78 Accord (in 1980). The Hondamatic was power sapper, along with the A/C which only blew out wisps of cool air. The front fenders were replaced by the dealer in a secret warranty in less than two years, but that didn't help the sagging interior panels. This was also the company that couldn't engineer odometers on their US cars in the 1990's. I guess we've all collectively forgotten about that little scandal too, but I think that was happening as the book in the post was being published. To wit, the odometers on many Honda models were clocking miles faster than the actual miles driven. Great if you're the dealer, as this accelerates maintenance schedules and better yet if your leases come in a little early. Not so great for the consumer. I never liked the Honda dealers I had to deal with on my mother's two Hondas. The dealers were pushing all sorts of extra chemical and maintenance treatments on her on every visit. She bought a few of them (who really needs throttle body cleanings EVERY OTHER OIL CHANGE?), but once I got wind of that, my one brother or I started taking her car in for service. We eventually found an indy foreign car mech that would service her car(s) without all of the BS. Thanks for the reminder about these kinds of things. We're all a lot better informed now thanks to the internet!
"All of the stuff described in the book makes sense when you have a hot commodity" Exactly! Just look at the queues at Apple stores when a new I-gadget was launched.