Honda Motor Company Limited (Honda Giken Kogyo Kabushiki Kaisha)

1-1, Minami-Ayama, 2-chome
Minato-Ku, Tokyo 107
Japan
81-3-3423-1111
Fax: 81-3-3423-0511
U.S. Headquarters: Honda North America, Inc.
1290 Avenue of the Americas
Suite 3330
New York, New York 10104
U.S.A
(212) 765-3804
Fax: (212) 541-9855

Public Company
Incorporated: September 24, 1948
Employees: 28,000
Sales: US$33 billion
Stock Exchanges: Tokyo Osaka Niigata Nagoya Kyoto Fukuoka Supporo Hiroshima New York
SICs: 3751 Motorcycles, Bicycles & Parts; 3711 Motor Vehicles & Car Bodies

Prior to 1960 the image of the motorcyclist in America was that of an unsavory teenager who belonged to a group of unruly characters known by such names as “Hell’s Angels” and “Satan’s Slaves.” In general, motorcyclists were regarded by the American public as troublemakers who wore leather jackets. By the mid-1960s, however, Honda Motor Company Limited and its American subsidiary had successfully transformed that image, and at the same time established the company as the leading motorcycle manufacturer in the world. During the 1970s and 1980s, Honda also established itself as one of the world’s preeminent car manufacturers. With its best-selling Honda Accord, the popular Civic, and the upscale Acura, the company became a sales leader in the American automotive industry.

In 1959 Honda established an American subsidiary, named the American Honda Motor Co., which was in sharp contrast to other foreign manufacturers who relied on distributors. Honda’s strategy was to create a market of customers who had never given a thought to owning a motorcycle. The company started its enterprise in America by producing the smallest, lightweight motorcycles available. With a three speed transmission, an automatic clutch, five horsepower (an American cycle had only two and a half), an electric starter and step-through frame for female riders, Honda sold its unit for $250 retail compared to $ 1,000-$ 1,500 for the American machines. Even at that early date Honda was probably superior to other companies in its productivity. By 1959, with sales of $55 million, Honda was already the largest motorcycle manufacturer in the world.

Honda followed a policy of developing the American market region by region. The company started on the West Coast and moved eastward over a period of five years. During 1960 2,500 machines were sold in the United States. In 1961 it established 125 distributors and spent $150,000 on regional advertising. Honda’s advertising campaign, which was directed to young families, included the slogan, “You meet the nicest people on a Honda.” This was a deliberate attempt to disassociate their motorcycles from the image many American’s had of mo-torcylists. Honda’s success in creating a demand for lightweight motorcycles was impressive. Its U.S. sales skyrocketed from $500,000 in 1960 to $77 million in 1965. By 1966 the market share revealed the ascendancy of the Japanese manufacturer and its success in selling lightweight motorcycles.

Any description of the company’s success must take into account the unusual character of its founders Soichiro Honda, and his partner, Takeo Fujisawa. Soichiro Honda’s achievements as a mechanical engineer are said to match those of Henry Ford’s. Working in his machine shop in 1938, Honda concentrated his efforts on casting a perfect piston ring, and finally succeeded in casting a ring that met his standards. Two years after rejecting Honda’s first batch of piston rings, the Toyota Corporation placed a large order, but because the country was preparing for war, Honda was unable to obtain cement to construct a factory to mass produce piston rings. Undaunted, he built the plant by learning how to make his own cement.

Honda’s factories survived the bombing attacks during World War II but were then destroyed by an earthquake. Undaunted, Honda sold his piston ring operation to Toyota and went on to manufacture motorbikes. He had designed his first bike in the early postwar years when gasoline was very scarce and the need for a low fuel consuming vehicle was great.

To form a company, Honda joined efforts with Takeo Fujisawa. Honda and Fujisawa had known one another throughout the 1940s and in 1949 Fujisawa provided the capital, as well as the financial and marketing strategy. Honda’s motivation for establishing this company was not purely commercial but to provide a secure financial base so that he might pursue other ambitions. In 1950, after his first motorcycle had been introduced in Japan, Honda stunned the engineering world by doubling the horsepower of the conventional four-stroke engine. With this technological innovation, the company was poised for success. By 1951 demand was brisk, yet production was slow. It was primarily due to design advantages that Honda became one of the four or five industry leaders by 1954 with 15 percent of the market share.

The two owners of the company had different priorities. For Fujisawa, the engine innovation meant increased sales and easier access to financing. For Honda, the higher horsepower engine opened the possibility of pursuing one of his central ambitions in life—motorcycle racing. Indeed, winning provided the ultimate confirmation of his design abilities. Success came quickly, and by 1959 Honda had won all of the most prestigious motorcycle racing prizes in the world.

Fujisawa, throughout the 1950s, attempted to turn Honda’s attention away from racing to the more mundane tasks of running a successful business venture. By 1956, as the technological innovations gained from racing began to pay off in vastly more efficient engines, Fujisawa prompted Honda to adapt this technology for a commercial motorcycle. Fujisawa had a particular segment of Japanese society in mind. Most motorcyclists in Japan were male and the machines they used were primarily an alternative form of transportation to trains and buses. There were, however, a large number of small commercial establishments in Japan that still delivered goods and ran errands on bicycles. The finances of these small enterprises were usually controlled by Japanese housewives who resisted buying conventional motorcycles because they were expensive, dangerous, and difficult to handle. Fujisawa suggested to Honda that, with his knowledge of racing, he might be able to design a safe and inexpensive motorcycle that could be driven with one hand (to facilitate carrying packages).

In 1958 the Honda 50cc Supercub was introduced. It featured an automatic clutch, three-speed transmission, automatic starter, and the safe, friendly look of a bicycle. Its inexpensive price was due almost entirely to its high horsepower but lightweight 50cc engine. Overwhelmed by demand, the company arranged for an infusion of capital in order to build a new plant with a 30,000 unit per month capacity. By the end of 1959 Honda had climbed into first place among Japanese motorcycle manufacturers. The company’s total sales that year of 285,000 units included 168,000 Supercubs.

Honda had experimented with local southeast Asian markets in 1957 and 1958 with little success. The European market, while larger, was heavily dominated by its own name brand manufacturers, and their popular mopeds dominated the low price, low horsepower products. Fujisawa decided to focus attention on the United States market.

In the spring of 1963 an undergraduate advertising major at University of California, Los Angeles submitted, in fulfillment of a course assignment, an advertising campaign for Honda. Its theme was: “You meet the nicest people on a Honda.” Encouraged by his instructor, the student submitted his work to a friend at Grey Advertising. Consequently, the “Nicest People” campaign became the impetus behind Honda’s sales. By 1964 nearly one out of every two motorcycles sold in the United States was a Honda.

As a result of the growing number of medium-income consumers, banks and other consumer credit companies began to finance the purchase of motorcycles. This involved a shift away from dealer credit, which had been the traditional purchasing mechanism. Seizing the opportunity created by a soaring demand for its products, the company set in motion a risky plan. Late in 1964 Honda announced that soon thereafter it would cease to ship motorcycles on a consignment basis and would require cash on delivery. Management prepared itself for a dealership revolt. Yet, while nearly every dealer either questioned or complained about the decision, not one relinquished his franchise. By this one decision, Honda transferred the financial authority (and, the power that goes with it) from the dealer to the manufacturer. Within three years this method became the basic pattern of the industry and the Honda motorcycle had the largest market share of any company in the world. By 1981 Honda’s total motorcycle production reached some 3.5 million units and one-third of those were produced or sold outside of Japan.

As early as 1967, when Honda was on its way to becoming the world’s leading motorcycle manufacturer, it also began to produce cars and trucks. In addition, the company started to manufacture portable generators, power tillers, lawn mowers, pumps, and outboard motors. In 1967 and 1968 the company introduced two lightweight passenger cars which performed poorly in both the Japanese and American markets. It was not until 1973 and the introduction of the Honda Civic that the company became a real presence on the international automobile market. The world was in the grip of the oil crisis, and the energy-efficient Japanese compacts suddenly found a worldwide market.

In 1976, as sales of the Honda Civic surpassed the one million mark, the company introduced an upscale, higher priced model named the Accord. Sales of the Accord grew rapidly, not only in Japan, but especially in the United States. In 1982, as a result of the burgeoning American market for Japanese cars, production of the Accord was started at Honda’s Marysville, Ohio, manufacturing plant. As the Accord became more and more popular with middle-class Americans looking for high-quality, reliable, and affordable cars, management was convinced that the company could succeed in entering the luxury car market. In 1986, Honda introduced the Acura, which immediately garnered large sales throughout Japan and the United States. By the end of the 1980s, Honda had developed into one of the leading car manufacturers in the world.

Honda’s success continued into the early 1990s. The Accord was the most popular and best-selling car in America from 1990 to 1992. Sales were astronomical, with two cars sold in the United States for every one sold in Japan. No one could have predicted that by 1993 Honda would have passed Chrysler Corp. to become the third largest seller of cars in the United States. In addition to car sales, the company’s motorcycle unit even broke new ground: in 1992 Honda organized the first joint venture to make motorcycles in China. Many industry analysts say this agreement will give Honda an initial foothold in what could become the world’s largest and most lucrative motorcycle market.

Yet Honda’s success in such a competitive market as the automotive industry could not continue indefinitely. With increasing sales of Pontiac’s Grand Am, Ford’s Taurus, and Toyota’s Camry, sales of Honda’s Accord slipped 35 percent in 1993. In the luxury car market, sales of Honda’s Acura decreased 17 percent, battered by competition from Toyota’s Lexus and Nissan’s Infinity. Honda even lost a significant portion of its share of the Japanese market. Exacerbating its loss of market share was the widely publicized scandal that high-ranking Honda managers accepted payoffs as high as $100,000 from dealers who wanted Honda franchises and certain types of special treatment.

With over 40 percent of its worldwide sales in the United States, Honda started to fight back on American soil. After Soichiro Honda died in 1991, the company initiated a comprehensive reorganization. Led by Nobuhiko Kawamoto, the company’s president and chief executive officer, Honda reorganized its Japanese, European, and North American units into autonomous operations to improve cost effectiveness. In order to introduce more Americans into company management, Honda arranged for 50 employees from its Ohio plant to spend two to three years working in Japan. The company has also expanded its sales training in the United States, and introduced dealer incentives of up to $1000 per car in order to move some of its inventory. Finally, Honda introduced its first four-wheel drive vehicle to compete with already established models such as Isuzu’s Rodeo.

Honda products are manufactured by 43 plants in 40 countries. BL Ltd. (formerly British Ley land), Britain’s largest car manufacturer, which is owned by the government, decided to manufacture one passenger car model under license from Honda. In this particular case, Honda sold a technical license to BL Limited. The company also has joint agreements with South Africa, Yugoslavia, France, and China.

Although Honda has trimmed its overhead, incorporated more Americans into management of the company, and introduced new models, none of these changes will alter one salient fact— namely, that the worldwide car industry is saturated and will remain extremely competitive for both the short and long term. Ironically, Honda might have to get used to the squeeze American car manufacturers felt during the 1970s and 1980s, when Japanese competition almost forced them out of business.

Principal Subsidiaries:

Honda Research and Development Co. Ltd.; Honda Engineering Co. Ltd.; Honda International Sales Corp.; Honda SF Corp.; Honda Minami Tokyo Co. Ltd.; Honda Motor Service Co. Ltd.; ACT Trading Corp.; Press Giken Co. Ltd. (98.2 percent); Seiki Giken Co. Ltd. (98 percent); Honda and Co. Ltd. (86.6 percent); Honda Research of America, Inc.; Honda Sogo Tatemono Ltd. (70 percent); American Honda Motor Co.; Honda of America Mfg., Inc. The company also has subsidiaries in the following countries: Australia, Belgium, Canada, France, The Netherlands, Thailand, United Kingdom, and West Germany.

Further Reading:

Ramsey, Douglas K., The Corporate Warriors: Six Classic Cases in American Business, Boston: Houghton Mifflin, 1987.

Sakiya, Tetuus, Honda Motor: The Men, The Management, The Machine, Tokyo: Kadonsha International, 1982.

Taylor, Alex, “The Dangers of Running Too Lean,” Fortune, June 14, 1993.

—updated by Thomas Derdak