Honda Announces Future Business Strategy

Honda president and chief executive officer (CEO) Takanobu Ito has announced the automaker's future business strategy, aimed at ensuring sustained growth in its financial performance amid the changing business environment. Ito revealed that in order to deliver low-priced quality products with reduced carbon dioxide (CO2) emissions, the company needs to focus on three core areas: advancement of environmental technologies; the strengthening of manufacturing systems and capabilities; and the strengthening of business operations in emerging nations. He said that, "What I think is most important, and the message I conveyed strongly to all Honda associates, was to provide good products to our customers with speed, affordability and low CO2 emissions."

Advancing Environmental Technologies

• Honda will accelerate the widespread market introduction of integrated motor assist (IMA) hybrid technology by launching several small-sized models equipped with the IMA system in Japan before the end of 2011. The first of these will be a hybrid version of its Fit subcompact car, which is scheduled to hit the market by the end of this year.
• It will use an advanced, high-output, and compact lithium-ion (Li-ion) battery in its future hybrid models, starting with the next-generation Civic hybrid, production of which will begin before the end of this year.
• It will launch a plug-in hybrid vehicle (PHV) and an electric vehicle (EV) by 2012, first in the United States and Japan, followed by other key markets over the next 10 years.
• It will continue focusing on upgraded technologies to improve the fuel efficiency of gasoline (petrol) engines and will start renewing its engine and transmission line-up from 2012 in order to achieve improved fuel efficiency in its vehicles.
• It is accelerating its efforts to develop a smaller diesel engine, and a model equipped with this engine will be introduced in Europe in 2012.
• It will continue accelerating its efforts to develop hydrogen-powered fuel-cell vehicles (FCVs) and hydrogen refuelling systems.

Strengthening Manufacturing Systems and Capabilities

• Honda's domestic facilities will focus on three key goals: firstly, upgrading production methodology in order to accommodate production of small-to-medium-sized low-priced fuel-efficient models; secondly, efficient production of the products to be sold in Japan; and thirdly, strengthening the support functions for Honda plants outside of Japan.
• Honda will resume construction of its new factory in Yorii, Saitama Prefecture. It will build hybrid vehicles and fuel-efficient subcompact models at this facility when it becomes operational in 2013 (see Japan: 15 July 2010: Honda Abandons Plans to Build Minivehicle Plant in Japan, to Focus on Hybrid Vehicles Instead—Report).
• In response to the global shift towards smaller vehicles, Honda will begin production of minivehicles at its Suzuka factory in 2012. However, it has decided to stop construction of a new ¥50-billion (US$576-million) minivehicle factory in Yokkaichi, Mie Prefecture.
• Honda will accelerate its efforts to either increase localisation rates or localise production in emerging and strategically important markets. It will strengthen its cross-factory/cross-border supply system by increasing the flexibility of its manufacturing system.

Strengthening Business in Emerging Markets

• In order to remain competitive in emerging and high-growth markets, Honda will continue its efforts to localise vehicle production by increasing local sourcing of components.
• Honda will launch its "new small car" in India in 2011 as scheduled, priced at under 500,000 rupees (US$10,618). It will also launch the same model in Thailand during 2011 as part of its Thai "eco-car" production plans. The Thai-made model will also be exported to the Association of Southeast Asian Nations (ASEAN) countries.

Outlook and Implications

This latest strategy highlights Honda's ongoing commitment to ensuring long-term financial growth amid the changing business environment, tightening emission standards, and a shifting focus towards alternatively fuelled vehicles. It is also in line with many global automakers' efforts to promote the use of alternatively fuelled vehicles, especially EVs, hybrid vehicles, and PHVs, in light of tightening emission standards in many major global markets. Despite being sceptical about future demand for EVs, Honda plans to sell such models in the United States and indeed unveiled a concept version of an EV, the EV-N, at the 2009 Tokyo Motor Show (see United States: 31 October 2009: Honda Switches Strategy to Include EVs in U.S. Market), which was intended to help it meet Californian emission standards. According to the state Air Resources Board, volume-selling automakers in California must sell about 60,000 units of PHVs and EVs in total between 2012 and 2014. Meanwhile, Honda's new PHV will be able to deliver fuel efficiency of almost 60 kilometres per litre (km/l), beating Toyota's planned plug-in version of the third-generation Prius, which will be able to achieve around 57 km/l under the JC08 Japanese test cycle2 standards.

The automaker has been making efforts to restructure its domestic production over the last several months in order to counter the higher exporting costs resulting from the strength of the Japanese yen against other major global currencies (see Japan: 8 July 2010: Toyota to Extend Product Development Time; JAMA Still "Very Concerned" over Strengthening of Yen). As part of this, it will reportedly stop selling the Legand luxury sedan, Elysion multi purpose vehicle (MPV), and the gasoline version of the Civic sedan in Japan, while it will continue selling only the hybrid version of the Civic in its domestic market (see Japan: 16 July 2010: Honda to Discontinue Two Luxury Models and Civic in Japan—Report). In addition, Honda is aiming to reduce production costs while promoting the localisation of automotive components in emerging markets in a bid to counter unfavourable currency translation effects. It is estimated that with every ¥1 appreciation in the yen against the U.S. dollar, Honda is likely to see a decline of almost ¥12 billion in operating profits. Honda produces its vehicles at 25 facilities in 16 countries and regions, with components sourced from some 2,200 facilities worldwide. The automaker reportedly procures each component from eight different suppliers; it plans to reduce this to a maximum of four suppliers in emerging markets, including India, China, and Brazil. With this move, the automaker reportedly intends to save ¥100 billion in annual costs initially. This should help it price its vehicles competitively in its key markets.

Meanwhile, Honda has also been witnessing increasing demand for its fuel-efficient vehicles in key markets, including China and the United States. In an attempt to further capitalise on growing demand, Honda is increasing its investments in emerging markets, such as China, Thailand, and India (see Asia-Pacific: 29 June 2010: Honda's Chinese Production Falls 16% Y/Y in May amid Strike Action, Plans Expansion in Thailand and China: 25 May 2010: Honda Confirms US$136-Mil. Expansion of Chinese Production Capacity, Plans Battery Development Base). Honda is likely to further strengthen its presence in emerging Asian markets by taking advantage of a trade liberalisation system established by the ASEAN to phase out an intra-regional tariff among member countries, after India reached an agreement in principle with the bloc on an economic partnership accord in 2008.