Hodaka: The Final Years

The Hodaka Motorcycles Story Part Five
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This excerpt is from Hodaka Motorcycles by VMX magazine editor Ken Smith. You can find reviews, videos, and more at the book’s page. Click to learn more!  

Hodaka: The Final Years

In early April 1976, Ed Miley had meetings with others from PABATCO, Hodaka, Shell and from Sanko (Sanko was Alex Hata who was PABATCO's agent in the Orient). They were no-holds-barred meetings, laying everything on the line, and over a number of days an action plan to move forward was developed. Those meetings covered all the downsides of the business, such as how most if not all Hodaka models had a higher selling price than their competition, how they still had emissions targets to meet (and the changes/expense that were required to meet those targets), how morale was low at PABATCO and Hodaka, how distributors had lost confidence in the product and how the market itself had lost any sort of enthusiasm for the brand.

At those meetings, both Hodaka and PABATCO made a point of stating at the outset they would continue to support each other, but as the meetings rolled on, it was apparent there were more than a few disagreements across the table and the relationship was showing signs of strain. Hodaka’s management determined they needed to produce 14,400 bikes for 1979 in order to make a profit. That broke down to 700 units per month of the 125 and 500 units per month of the 250. Building the new 175 would entail more costs for emissions testing, and production interruption.

PABATCO management weren't keen to undertake a commitment to so many bikes, feeling they would merely end up with a large unsold inventory.

All agreed, though, on the need to reduce prices, both at a retail level and with a lower production price. Comparisons with other manufacturers were raised at the meetings. For example, the 1976 retail price of a Wombat 125 (03) was $830, while the equivalent Kawasaki sold for $699, the Honda for $785 and the Yamaha for $790. Distributors were also going to be asked to work with a lower margin, however inventory levels were already low at most dealers because the Hodaka brand was losing popularity. Parts prices were also planned to be reduced.

The action plan also called for significant advertising for 1976 ($440,000 budget) and a host of initiatives to "instill enthusiasm and confidence in dealers.” Planning included the possibility of providing bikes on consignment to distributors, a poster series, a consumer Trail to Fun contest, co-op advertising, a dealer contest and a distributor recognition award. As well, there was to be biweekly mail to all dealers with feedback, new ideas and the like. Even with all this in place, PABATCO was still looking at a potential $100 loss per bike sold with the lower prices. Producing a new four-stroke 250cc trail bike was discusssed, but they really had enough issues with the models already planned and in production. Similarly, a 360cc two-stroke was also talked about, but it never got to the design stage.

The consignment plan, instituted in early '77, meant they basically stocked dealers for free and only collected the money when the bike was sold. This did get bikes into shops, but also caused a few headaches. PABATCO employee Ed Chesnut remembers more than one trip, once in blizzard conditions, to do spot checks at some dealers to see how many bikes they really had or hadn't sold. Of one such trip Ed said, "I did turn up a bit of a problem at one of the dealers. There were several machines missing from the showroom, and the dealer admitted that he had sold 'em and not paid for them. Once caught, he offered to write a check for the full amount [more than $10,000], which the home office urged me to take right then and there."

What was also troubling PABATCO was the apparent decline in quality of the bikes being produced. Dealers were constantly complaining not only of the high prices, but that the quality didn't match the price. Owners were often making modifications and having to undertake repairs. PABATCO did voice their concerns to Hodaka at the meetings that quality control needed to improve. The mood between PABATCO and Hodaka seemed a bit strained in these later years and didn't replicate the big, happy family atmosphere of the '60s, when both companies were keen to please and both enjoyed prosperity. Each company couldn't quite agree on whom should be shouldering most of the burden for development, or for testing, and whom should shoulder the responsibility when a part failed.

In short, though, one of the biggest problems was capacity.

The Hodaka factory really hadn't grown since it commenced operations with the Ace 90. There were actually two factories, or facilities. One was the Odaka facility (112-15 Oneyama, Odaka-cho, Midori-ku, Nagoya, Japan, phone [052] 621 2332) where final assembly was done plus a big parking lot and a dirt area where some testing was done, while the other was the Nagoya facility (18, 3-Chome, Shioya-cho, Minami-ku, Nagoya, Japan, phone [052] 821 3191) where the machine work and engine assembly was done. The Nagoya facility was referred to as the downtown factory.
So despite all those years producing motorcycles for PABATCO, not much had changed. They didn't have significantly bigger premises, more staff or more resources in any shape or form. They just didn't have the capacity to develop and test multiple models, or indeed produce multiple models with any great chance of success. Hodaka itself stated at these meetings in April '76 they could develop only one model per year if it required an endurance test or significant field testing. Similarly, their simple production line couldn't accommodate changes to production partway through a model if that change required new jigs or molds. I It should also be noted Hodaka produced very little besides the engines. The majority of the other parts were sourced from other companies in Japan.

This concept of Hodaka simply being too small to be viable, especially against the might of the big four Japanese brands, was explored in an article by C. D. Bohon in Motorcyclist magazine in February 1979. The article, titled ”Hodaka at the Crossroads—Will the Fall of the Dollar Squash the Road Toad?,” said the number of motorcycles produced since Hodaka's inception in 1964 was tiny. ”Any other Japanese motorcycle maker could turn out that many machines in a few weeks. Any other maker could cut costs, raise prices, find a balance and survive on sheer volume. But Hodaka is just too small.

The article also said Hodaka was the last of more than 100 small motorcycle-makers which blossomed in Japan in the 1950s (besides the big four) and that it was only the association with PABATCO that allowed Hodaka to survive for so long. The author of that article had also been chatting to Alex Hata, president of Sanko International, Hodaka's Japan-based export agent. Hata had been quick to point out a large part of the problem of Hodaka's viability in the USA was the exchange rate between the yen and the dollar. "The collapse of the dollar has hurt us terribly,” Hata said. It will sometime kill us. We do business on a yen basis. The dollar drops. We sweat. If it costs ¥125,000—$1,500 at an exchange rate of ¥250 per dollar—to profitably build a Road Toad, and a year later the dollar is down to 175, selling that Road Toad for $500 brings in only ¥87,500 [$350]. We can't raise prices and stay competitive, so we cut costs 20, then 30 percent. And still the dollar drops."

Comments like that clearly show something else: he aforementioned mindset of Hodaka in cost cutting, a strategy that ultimately had drastic effects on innovation and quality control.

One of the very straightforward questions Bohon posed to Hata was, ”Can Hodaka survive?” Hata’s reply was similarly straight to the point: "It's very risky, frankly speaking, very shaky right now." Indeed, that article in 1979 stated Hodaka had already been saved from bankruptcy in 1977 by an emergency loan from the Japanese government.

That whole situation of the exchange rate and limited resources barely kept Hodaka afloat, and unable to invest much, if anything, in new model development. It was a vicious circle. More model development meant hiring more people, which couldn't be done as profits were already marginal. Hodaka was stuck in a rut of not being able to move forward with sales declining, nor could PABATCO provide them with any relief as they too were suffering financial hardship. They were both very small-scale companies and even though PABATCO was owned by Shell, they weren't prepared to throw money at PABATCO's problem, even though they were more than happy to enjoy the profits of PABATCO in years past. As Hodaka stated, “At present, number of production is small, and model change is often, therefore from Hodaka's standpoint Hodaka cannot afford to improve their facilities.”

The lost opportunity of bringing competitive 175 and 250 models to market was really the last hurrah for the brand. The models that were sold were far less than what PABATCO specified, but would it have made any difference? Perhaps it would have prolonged the demise of the brand, but the lack of available funds to expand the capacity of both Hodaka and PABTACO would have eventually still given the same conclusion. You could say both companies were intrinsically much better suited to the one-color, one-model mode of manufacture than either of them realized.

All the falling exchange rate throughout the '70s really did was compound other underlying issues, with the relationship between Hodaka and PABATCO, and with Hodaka’s production capacity problem. That same article in Motorcyclist in 1979 provided the following very telling quote from unnamed PABATCO executives: "Hodaka seemingly didn't really want to make motorcycles. We got by on minimum factory production. They just wanted to keep grinding out the same old stuff. We had to push them . . . put pressure on them to make engineering improvements. Our R&D department designed one of the first reed-valve induction systems, but it took us years to get Hodaka to build it for us. It was three years after everybody else had it before we convinced them we needed primary kickstarting. Same thing with oil injection. We had to make a virtue of mixing oil and gas in our ads because we couldn't get Hodaka to build an oil-injection engine. All they wanted was to make current production motorcycles—and get their money."

Further comments from that same executive just added to the fire, with statements about how PABATCO only survived all the previous years by operating on superlow overheads and by spending several million dollars on advertising, concluding with, "We spent a lot of money on promotion we really couldn't afford." Direct comparisons were also made with models from other manufacturers and how Hodaka, as a brand, just couldn't compete:

"The Honda MR series really hurt us. You could buy a Honda for $200 less than a Hodaka."

The frustration of both sides continued apace in that February '79 article, with Hodaka in Japan stating they needed a bigger volume (30,000 units per year) to be really viable, and PABATCO saying when approaches had been made by them to invest in the plant that they were rebuffed. Hodaka's response to these changing market conditions in the late '70s was to explore other relationships and models, besides the dirt-only bikes produced for PABATCO. A super moped was planned, with Nagoya providing the engine unit while the rest was to be manufactured in Taiwan. This was going to be sold outside the confines of the previous Hodaka/PABATCO business relationship, and Hata was quoted as saying, "We have contacts in Portugal, Singapore, Indonesia and elsewhere."

Of all the statements made in that article in Motorcyclist, none were perhaps as pointed as the final summation by the unnamed executive from Athena. It was time for finger-pointing, and the executive gave Hodaka no more credit than being “a good machine shop, as they farmed out most of the production to 147 subsidiary shops”. Most of the points raised in that article were moot anyway, the whole PABATCO/Hodaka shebang had already fizzled out by the end of ’78. But regarding the quote of them being no more than a good machine shop, a more recent comment by PABATCO employee Marv Foster provided a bit more depth to the philosophies, and indeed skills, of both PABATCO and Hodaka. Foster noted PABATCO was a “market-driven company” and Hodaka was a “manufacturing-driven company.” Ordinarily, they would be two arms of the same company and there’d always be someone presiding over both, making decisions that unified both entities and making a product that drew upon the best of both arms. With PABATCO and Hodaka, especially after the first few golden years, it was more a case of compromises that really benefited neither.

At the very end, all Hodaka distributors sent back their parts to PABATCO, except Bill's Hodaka from Mexico, Missouri. Bill Friday, from Bill's Hodaka, wanted to keep supporting his dealers and so argued to keep his parts stock. The entire stock of PABATCO was eventually sold to Wheels of Time (an existing Hodaka distributor in Pennsylvania) as they were the only interested party. Ed Martin, owner of Wheels of Time, negotiated both the use of the Hodaka name and most of the existing dealership network. Chuck Swanson, although last to leave the PABATCO premises, did stay on the Shell payroll into 1979 to tie up all the loose ends with Wheels of Time.

Martin was also questioned in that Motorcyclist article, and said he was keen to revive and expand the Hodaka motorcycle line. When asked why he took over the total distributorship of Hodaka he said, "I like Hodakas. They're good bikes. I think there's a place for them."

Martin purchased the whole inventory of spares were housed in Athena, Oregon, as well as all the parts of other distributors. PABATCO employees recall the parts sent to Wheels of Time filled seven railway cars. For this, Martin paid a down payment and was required to pay a percentage of his future sales back to Farm Chemicals. Martin did purchase some fast-moving stock direct from Hodaka at a later date as well. Negotiations for those other parts were quite simple, as Ed spoke fluent Japanese; he was brought up in Japan because his father was a missionary stationed there. Contrary to some reports, Martin did not purchase a further consignment of 2,000 250 SL models from Hodaka in Japan. On December 15, 1980, a fire started in the building, a converted bowling alley, where Martin stored all the parts (estimated parts stock was around $1.5 million), as well as some special and valuable Hodakas he had bought from PABATCO with the parts inventory. According to Martin all was lost in the fire, although some of the special bikes he'd bought as part of the sale had already been sold.

Any sort of independent resuscitation by Hodaka in Japan was a long shot, and by the end of 1978 the number of employees still at Hodaka had fallen to 60, down a further 20 from earlier that year. Alex Hata had stated the obvious in Motorcyclist when he said this about the likelihood of the company moving forward past '78: "Financially, we are like the chicken and the egg. We need to sell more motorcycles to get enough money to expand our facilities so we can sell more motorcycles."

There were some final gasps from Hodaka: tie-ins with companies in Korea (Daelim) and Portugal (Forval and Anfesa; see more in Chapter 12) but both were short-lived. There was also a short technical tie-in with Puch, but that didn’t progress far. In the case of the relationship with Daelim, that did look as though it was going to reach some kind of result for Hodaka.

After the cessation of PABATCO in 1978, Hodaka sent 14 engineers to Daelim to collaborate on the production of new motorcycles, and Hodaka sold Daelim all their tooling and production machinery. Those engineers stayed in Korea until 1981, trying to incorporate their Hodaka technology into new motorcycles produced by Daelim. A small number of bikes were made, although they were only sold to the Taiwanese market, ostensibly to show the Korean government export was indeed within their capability, and then that production and export prowess was used to forge a partnership with Honda. The Hodaka engineers and their technology were no longer required.

So Hodaka did linger on longer than PABATCO. PABATCO had been such a large part of Athena, Oregon, since the beginning of the company way back in 1961. It was the biggest employer in town, the surrounding countryside had been the testing ground for every model of Hodaka. Their building still remains to this day, largely unused since PABATCO moved out, and move out they did, with Chuck Swanson being the last guy out of the building in August 1978 (although he stayed as a liaison through '79), closing the door on the brand that pioneered so much in the world of trail bikes, with so little. It was never more than a bunch of committed dirt bike enthusiasts who wanted to build and sell a great bike so everyone could have as much fun as they did.

This excerpt is from Hodaka Motorcycles by VMX magazine editor Ken Smith. You can find reviews, videos, and more at the book’s page. Click to learn more!  
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