Opinion ID: 152280
Heading Depth: 2
Heading Rank: 4

Heading: Honda's reaction to the Internet sale of Honda VSCs

Text: Beginning sometime in 2002, Honda dealers who did not sell Honda VSCs over the Internet began to complain to Honda about the practice, focusing their complaints on the lower prices charged by the Internet dealers. Despite these complaints, Honda did not attempt to curb Internet sales and actually appeared supportive of such sales, which it believed reflected capitalism at its best. In 2007, however, Honda's position began to change. In January, Honda's Dealer Advisory Board (DAB), a body composed of Honda dealers who are elected to represent dealer interests, [1] recommended that Honda stop the Internet sale of Honda VSCs. The DAB told Honda that such sales impacted customer satisfaction and were resulting in strained relations between the dealers who were selling the Honda VSCs locally at the dealership and their customers. Honda told the DAB that it would further study the issue. Both the DAB's recommendation to Honda and Honda's response were published in a Dealer Direct newsletter sent to all Honda dealers, including Saccucci. Later that year, individual dealers complained to Honda that the Internet sale of Honda VSCs was undermining customer satisfaction with both the dealers and Honda. When deposed, Dan Spafford, Honda's Manager of Consumer Assurance Products and Services, testified about these complaints. One came from a Honda dealer in Illinois. The dealer told Spafford that he had sold a long-time customer both a Honda and a Honda VSC at his dealership, charging the customer a traditional in-store price for the VSC. The customer later found a Honda VSC being offered on the Internet for a significantly lower price. The customer returned to the dealership, called the dealer a thief, and told him that he would never go back to his dealership again. The customer also told the dealer that because Honda had condoned such practices, he would never buy another Honda. Following this interaction, the dealer stopped promoting Honda VSCs and began offering a competing VSC. Spafford testified further about a similar conversation he had with a Honda dealer from California. The dealer told Spafford that the Internet sale of Honda VSCs was endangering the dealer's reputation in the community. This dealer also told Spafford that he was considering promoting a competing VSC. In response to these individual dealer complaints and the DAB's earlier recommendation, Honda formed a committee to consider the issues posed by the Internet sale of Honda VSCs. The committee consisted of members of Honda's management, Honda counsel, and outside counsel. For three months, the committee met on a weekly basis, considering the positives and negatives of allowing its dealers to sell Honda VSCs over the Internet. Ultimately, the committee decided it was necessary to impose restrictions on such sales. The committee based this decision on a number of considerations, including the DAB's recommendation that Honda prohibit the practice, complaints from individual dealers, and concerns that customer dissatisfaction with Honda dealers would harm brand loyalty and brand image. The committee also took into account factors not directly related to customer satisfaction. Among other things, the committee expressed concerns that dealers who were unhappy with the Internet sale of Honda VSCs would begin to push the VSCs offered by competitors and that the Internet sale of Honda VSCs might violate state laws. With respect to the latter, Honda learned that the California code only allows sellers licensed by the state to sell VSCs and also limits such sales to sales incidental to the sale of a vehicle. Based on the committee's findings, Honda announced a temporary prohibition on the Internet sale of Honda VSCs in February 2008. To enforce this prohibition, Honda set up a scheme of graduated penalties for non-compliant dealers. First-time violators are temporarily suspended from selling Honda VSCs, second-time violators are permanently deactiva[ted] from selling Honda VSCs, and third-time violators must forfeit any payments they have received under Honda's performance-based allowance program.