Honda Faces Kickback Claims Against Executives

July 16, 2002 JEF FEELEY writng for BLOOMBERG NEWS reported that Honda Motor Co. is facing a new lawsuit alleging executives of Japan's second-largest carmaker demanded kickbacks from dealers in exchange for shipments of hot-selling Accords and Preludes.

Officials of Motorcars Inc., a Cleveland Honda dealership, sued last week in state court in Ohio, resurrecting the more than 20-year-old bribery claims. Those accusations led to the mail fraud convictions of nearly a dozen executives of Honda's U.S. unit.

Honda already has paid more than $400 million to resolve dealers' suits claiming the company shipped them fewer cars after they refused to pay kickbacks starting in 1975. Officials of the Cleveland dealership opted not to join that settlement.

"The pattern of corrupt activity and the extent of illegal acts and conspiracy was widespread throughout the management of American Honda, Honda North America and Honda Japan," lawyers for the Cleveland dealership said in the suit.

Honda officials refused to comment on the suit, saying they don't discuss pending litigation. Honda's American depositary receipts, each representing half an ordinary share, rose 31 cents to $20.99 today. The ADRs have fallen 2 percent over the last 12 months.

A federal judge in Baltimore approved a $316 million settlement of dealers' suits over the kickbacks in 1998. It called for dealers to get cash, auto parts, signs and dealership improvements in exchange for dropping their claims over the kickback arrangement.

More than $400 million paid

Honda agreed in 2000 to add $60 million to the class-action settlement after dealers unhappy with it uncovered a memo showing Honda's lawyers hid evidence of management's involvement in the bribery scheme.

A group of dealers objected, saying $60 million wasn't enough to compensate them for Honda's wrongdoing. The company agreed to provide the extra $21 million in January to win their approval of the deal.

The additional funds brought to more than $400 million the total Honda has paid to settle individual and class-action suits by dealers.

Federal indictments handed down in 1994 estimated that $15 million in bribes were paid to Honda executives for car shipments between 1975 and 1992.

Among those convicted were John Billmyer, a former national sales manager for Honda's U.S. unit. Billmyer, of Raleigh, North Carolina, was sentenced to five years in prison in 1995 on mail fraud charges in connection with the kickbacks.

Dennis Josleyn, a former west coast sales manager, also was convicted of racketeering, perjury and mail fraud charges spawned by the bribery allegations.

Japanese parent's involvement

The Cleveland dealership's lawsuit contends that officials of Honda's Japanese parent knew U.S. executives like Billmyer and Josleyn were extorting bribes from dealers for cars and sought to cover it up.

Honda's Japanese executives "encouraged this system to provide supplemental income to American Honda executives who were paid salaries well below market scale," the suit said.

Car-allocation quotas created while the kickbacks were being paid are still in effect, officials of the Cleveland dealership contend in the suit.