Honda's dirty secret of bribes finally came to light
Company faced messy cleanup after 2 dozen managers, dealers and vendors were indicted
Lindsay Chappell
Automotive News | June 8, 2009 - 12:01 am EST
Just to show how screwed-up a good thing can get when greed and dishonesty get in the way, consider three of Honda's brightest lights in 1986: Jack Billmyer, Rick Hendrick and Frank Borman.
Jack Billmyer, a 6-foot-4-inch stock car enthusiast, helped create the Honda retail network in the 1970s. He stoked Honda's business through the 1980s as its brusque and free-wheeling head of automotive sales. He attempted to retire in 1985, only to be pulled back to head up one more special project — signing up Honda dealers to launch a franchise called Acura.
Rick Hendrick's fortunes as an auto dealer moved as fast as his unbeatable NASCAR racing teams. His popularity around the South helped him build Hendrick Automotive into the largest auto retail group in America in an era before AutoNation and Sonic.
Frank Borman — that's Colonel Frank Borman — was an American hero, a multimission astronaut who flew Apollo 8 into the human race's first penetration of the dark side of the moon. He had run Eastern Airlines during troubled times and was the sort of iconic leader whose affiliation as a New Mexico Honda dealer brought the brand prestige and an all-American identity.
But just 10 years later, Billmyer would be serving a five-year prison sentence, convicted in what federal prosecutors called a nationwide racketeering scheme involving dealer kickbacks and factory fraud.
Hendrick would plead guilty to criminal charges and be stripped of management control of his retailing empire.
And Honda's American hero, Frank Borman, would end up leading an aggrieved army of dealers who sued Honda, demanding restitution for more than a decade of dishonesty and lost opportunity.
Borman's lawsuit would become the anchor complaint in a dealer class-action suit that would cost Honda $390 million to settle.
Dirty dealing
Turning point: Honda's do-no-wrong image is stained by bribes.
When: 1993
Significance: Honda is forced to root out layers of company managers and vendors who are on the take and to drop dealers who are paying bribes. More than 2 dozen indictments result in jail sentences and spawn a class-action dealer lawsuit and years of dealer mistrust.
Cowboy boots, and more
What went so wrong?
"The Honda scandal," as it became known, was a familiar story of ambitious people — car dealers, salaried men and opportunists — doing what they wanted in a system with no safeguards.
It was a story of widespread bribery and embezzlement that somehow went unnoticed for 15 years. Some Honda dealers prospered by lavishing gifts — cash, jewelry, homes, cars — on some American Honda Motor Co. employees. In return, those dealers were given additional dealership points and more vehicles to sell at the expense of dealers who did not indulge in payola.
One of those who refused to make payoffs was Jeff Connole, general manager of Borman Honda in Las Cruces, N.M. Connole had spent his life in the car business, including four years working for General Motors in vehicle distribution before becoming an operating partner with the retired NASA astronaut.
Connole was immediately suspicious of Borman's chief competitor in El Paso, Texas, whose vehicle inventory was consistently better than Borman's.
"I knew what was going on," Connole recalls, speaking from his New Mexico dealership. "It was pretty obvious to a lot of us. What wasn't clear was what we could do about it."
One day, Borman's local Honda representative walked into the showroom wearing a pair of expensive cowboy boots.
"Aren't these nice boots?" Connole recalls the rep saying to him. "I got them in El Paso. And I'd really like another pair."
"I told him to go [deleted] himself," Connole says.
Chump change
Cowboy boots were chump change in the payola scheme. Peter Epsteen, a portly and debonair Rolls-Royce dealer from Beverly Hills, Calif., bought Jack Billmyer a $19,000 swimming pool in addition to other gifts. When Billmyer later faced IRS problems, Epsteen sent him a check for $200,000.
One dealer presented a Honda manager with a briefcase containing $500,000 in cash in the mid-1980s in order to receive a new franchise.
As the 1980s ended, the graft became more egregious. Billmyer retired for a second time in 1988 and was replaced as head of Honda sales by his second-in-command, Jim Cardiges. Cardiges already had been accepting payments from dealers for years. But as top sales boss, he increased the pace.
Rick Hendrick's North Carolina organization gave Cardiges a house in California, according to the lawsuits. Hendrick sent Federal Express envelopes containing $15,000 to $20,000 in cash quarterly to Cardiges.
Another dealer put Cardiges down as part owner of two dealerships, and another gave him commercial real estate property.
In court, a scheme to funnel hundreds of thousands of dollars in dealer advertising through a bogus mail-order agency and into the pockets of company managers was disclosed.
In desperation, and with little factual information, in 1983 a small group of Honda retailers approached the one man they believed could help them and keep their identities in confidence: California marketing guru Dave Power, founder of J.D. Power and Associates.
After hearing their stories, Power requested a private meeting with Yoshihide Munekuni, head of auto sales at American Honda Motor Co. Munekuni later became chairman of Honda Motor Co. Power later said that Munekuni took the news grimly and pressed Power for names and details. But Power had no specifics to offer.
It would take an FBI investigation, 10 years later, to finally bring the sordid details of corruption to light.
By 1995, the U.S. Justice Department, operating out of Concord, N.H., indicted more than two dozen ex-Honda managers, dealers and vendors under the federal Racketeer Influenced and Corrupt Organizations Act, with charges ranging from mail fraud to obstruction of justice. The list included Billmyer, Cardiges and Epsteen.
All charges resulted in either guilty pleas or jury convictions, and all resulted in prison sentences.
The other mess
The aftermath was messy. American Honda quickly labeled their indicted and fired managers as "rogue employees" and claimed that the corporation had been defrauded just as many of its dealers had been. In 1993, the company tapped Dick Colliver, a 20-year sales veteran with Mazda Motors of America, to take over Honda's imploding sales organization and get it moving forward again. But that did not happen overnight.
"They thought it was cleaned up, but unfortunately it wasn't," recalls Colliver, who retired recently after 16 years as head of Honda's U.S. sales and marketing. "When I came in, I started getting a lot of anonymous letters and phone calls telling me what was going on. Within three weeks I started seeing that some of the issues that had existed from the early '90s were still going on — bribes. I didn't know how deep it was.
"The first two days I was here, they had scheduled what they call 'the state of the zone.' All the zone managers and their assistants were making presentations," Colliver says. "I listened and learned and evaluated and asked questions. There were 10 zones, and I went through a process in my head about who were the guys who were most experienced that I could build around? And 60 days later they were gone. They had to be fired."
The math
Frank Borman was not the first Honda dealer to file a lawsuit demanding payment for income lost as a result of a corrupt distribution system. But his household name proved irresistible to the army of lawyers and disgruntled dealers queuing up to seek justice.
It also helped that Connole created a mathematical formula that showed lawyers how years of unfair vehicle distribution translated to lost store revenue. That formula was applied by dealerships across the country to determine the final distribution of Honda's settlement.
"We got a million bucks out of the settlement," Connole notes. "But more than that, we got justice."
Convicted Honda exec Jack Bilmyer outside a federal courthouse in 1995.
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