Honda Motor Company Limited History

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Company History:

Honda Motor Company Limited is perhaps best known as an automaker--it is the third largest automaker in Japan--but the company has its roots in motorcycles, and is the world's top motorcycle manufacturer. Its best market is in the United States, where the majority of its sales are generated. Honda's automobile product line accounts for approximately 90 percent of its sales, and includes well-known U.S. top-sellers such as the Accord, Legend, Civic, Prelude, and the luxury Acura. The Accord is the second most purchased car in the United States, although it actually ranks first on the country's list of most stolen (and thus, "in demand") vehicles. Honda also produces motorcycles such as the Super Cub, Foresight, and Shadow 750. Furthermore, the company's power products division makes other items that bolster annual sales, such as agricultural and industrial-use machinery, portable generators, outboard motors, and all-terrain vehicles.

The Early Years

Any description of Honda Motor Company's history and success must take into account the contrasting inclinations of its founders--Soichiro Honda and his partner, Takeo Fujisawa. Soichiro Honda's achievements as a mechanical engineer are said to have matched those of Henry Ford. Working in his Japanese machine shop in 1938, Honda concentrated his early efforts on casting a perfect piston ring. He soon succeeded in casting a ring that met his standards, and attempted to sell it to the Toyota Corporation.

Toyota rejected Honda's first batch of piston rings, but two years later the company finally placed a large order. At that time, however, Honda ironically found himself facing a major obstacle that came as a result of the order's large size--a shortage of cement. Because Japan was preparing for war, Honda could not secure the cement and materials needed to construct a factory to mass-produce piston rings. Furthermore, he could not produce the quantity of piston rings necessary using his facility at that time. Undaunted, Honda learned how to make his own cement and soon constructed the new facility.

Honda's new factories survived the bombing attacks during World War II, but were unfortunately later destroyed by an earthquake. At that time, Honda sold his piston ring operation to Toyota and went on to manufacture motorbikes instead. 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. After the destruction of his piston ring manufacturing facilities, he decided to attempt selling his motorbike on a larger scale.

To form a company, Honda joined efforts with investor Takeo Fujisawa, whom he had known throughout the 1940s. In 1949 Fujisawa provided the capital, as well as financial and marketing strategies, to start the new company. Honda's motivation for establishing the company--unlike Fujisawa's--was not purely commercial, but was instead to provide himself with a secure financial base so that he might pursue other ambitions such as motorcycle racing.

Innovations in the 1950s

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 four or five industry leaders. By 1954 Honda had achieved a 15 percent share of the motorcycle market.

Still, 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 more successfully pursuing his motorcycle racing ambitions. Indeed, winning provided the ultimate confirmation of his design abilities. Success came quickly, and by the end of the 1950s Honda had won all of the most prestigious motorcycle racing prizes in the world.

Throughout the decade, however, Fujisawa attempted to turn Honda's attention away from racing and instead toward 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--with a particular segment of Japanese society in mind. At that time, 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 only one hand (to facilitate carrying packages).

In 1958 the Honda 50cc Super Cub 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, yet 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, with sales of $55 million. The company's total sales that year of 285,000 units included 168,000 Super Cubs.

Expansion into the United States in the 1960s

The success of the Super Cub in Japan prompted Honda to consider expanding its target market to other geographic regions. The company had already experimented with local southeast Asian markets in 1957 and 1958, however, 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 market. Thus, Fujisawa decided to focus Honda's attention on the U.S. market.

Prior to 1960, the image of the motorcyclist in the United States was that of an unsavory teenager who belonged to a group of unruly characters known by names such as "Hell's Angels" and "Satan's Slaves." In general, the U.S. public regarded motorcyclists as troublemakers who wore leather jackets. In the 1960s, however, Honda Motor Company worked to successfully transform that image, and at the same time establish the company as the leading motorcycle manufacturer in the world.

In 1959 Honda established a U.S. subsidiary--American Honda Motor Company, Inc.--an action 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, most 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 a 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, American Honda was probably superior to its competitors in the area of productivity.

Honda followed a policy of developing the U.S. market one region at a time. 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, 125 distributors were established, and $150,000 was spent on regional advertising. 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.

Honda's advertising campaign, which was directed at young families, included the slogan, "You meet the nicest people on a Honda." This was a deliberate attempt to disassociate its motorcycles from the image many Americans had of motorcyclists. The slogan's creation was an interesting story itself. In the spring of 1963 an undergraduate advertising major at the University of California, Los Angeles (UCLA) 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, and as a result, by 1964 nearly one out of every two motorcycles sold in the United States was a Honda.

Transitions into Automobile Manufacture

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 facilitated 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 into 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. Meanwhile, management prepared itself for a dealership revolt. Instead, while nearly every dealer either questioned or complained about the decision, not one relinquished its franchise. Therefore, through this one decision Honda was able to transfer 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.

Meanwhile, as Honda was becoming the world's leading motorcycle manufacturer, in 1967 it diversified and 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 U.S. 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.

Three years later, 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 U.S. market for Japanese cars, production of the Accord was started at Honda's Marysville, Ohio, manufacturing plant. Meanwhile, Honda's total motorcycle production had reached some 3.5 million units per year, with one-third being produced or sold outside of Japan.

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.

Stumbling Blocks in the Early 1990s

Honda's success continued into the new decade. The Accord was the most popular and bestselling car in the United States from 1990 to 1992. U.S. sales were astronomical, with two cars sold in the United States for every one sold in Japan. When Honda began selling cars in the late 1960s, no one could have predicted that Honda would ever surpass Chrysler Corporation to become the third largest seller of cars in the United States. It happened, however, in 1993. Furthermore, in addition to car sales, the company's motorcycle unit even broke new ground: in 1992 Honda organized the first ever joint venture to make motorcycles in China. Many industry analysts predicted that the agreement would give Honda an initial foothold in what could become the world's largest and most lucrative motorcycle market.

Yet Honda's success in an arena as competitive 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, Acura's sales decreased 17 percent as well, 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 located 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 also expanded its sales training in the United States, and introduced dealer incentives of up to $1.,000 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.

Although Honda trimmed its overhead, incorporated more Americans into the management of the company, and introduced new models, none of these changes altered one salient fact--namely, that the worldwide car industry was saturated and would remain extremely competitive for both the short and long term. Ironically, Honda would have to endure the same squeeze that U.S. car manufacturers had felt during the 1970s and 1980s, when Japanese competition almost forced them out of business.

The End of the Century and Beyond

In order to compete in the tough automobile industry environment, Honda focused much of its attention on research and development in 1993 and 1994. As a payoff, the company received a substantial amount of positive press related to its efforts. First, in 1993 it was noted that Honda's power product engines were the first to meet new California emission regulations. Later that year, Honda's experiments with alternative power sources for automobiles led the company to win the world's largest Solar Car race--the World Solar Challenge--with its Honda Dream. The following year, the company began selling the CUV-ES electric scooter on a limited basis, and Honda's BP90 outboard motor received the IMTEC Innovation Award.

In 1995 Honda followed these feats with the introduction of the first gasoline-powered vehicle to meet Ultra Low Emission Vehicle (ULEV) standards. Around the same time, a new version of the Civic was introduced, featuring a three-stage VTEC engine and Multi Matic characteristic. By then, cumulative world production for the Civic had reached ten million units, and cumulative world production of all Honda automobiles had surpassed the 30 million unit mark. Late that year, Honda introduced another vehicle to its product line--the sport utility vehicle CR-V.

Honda also attempted to bolster U.S. sales through efforts to engineer and manufacture some of its U.S. products in that country, using American labor. In 1996, the Acura CL--which had been developed and produced in the United States--went on sale. That same year, the Valkyrie--a U.S.-made large-size custom motorcycle--was introduced. Honda won the World Solar Challenge once again in 1996.

The next year brought with it Honda's creation and application of a new 360-degree universally inclinable ultra-small four-stroke engine, as well as the manufacture of more automobiles with low emissions characteristics. Also in 1997, the company reached the cumulative production milestone of 100 million units for its motorcycle line, and of 30 million units for its power product line. Honda's sales continued to rebound, and the growth led the company to open production facilities in many new locations around the world. For instance, in 1997 alone, new production lines of different Honda products were started in India, Vietnam, Turkey, Indonesia, and Brazil. In 1998 Honda once again signed a joint venture agreement in China--this time to produce and sell cars.

Soon thereafter, Honda made headlines when its U.S. workforce began publicly voicing a potential desire to join unions. Up to that point, Honda had been a unionless enterprise, surrounded in the United States by most other U.S.-based car companies who were supported by unions such as the United Auto Workers (UAW) and the Teamsters Union. In fact, no other Japanese-owned automobile company had ever approved and instituted a union structure before. Among some of the complaints against the company by workers were working conditions, retirement plans, and special treatment of temporary workers. Nevertheless, many Honda employees quoted in U.S. media at the time seemed to voice the opinion that there was no significant need for Honda workers to become unionized.

In 1999 Honda poised itself to introduce to the U.S. market a new low-emission, fuel-efficient automobile made out of an aluminum and plastic mix. The new car, named the Insight, was powered by both gasoline fuel and electricity, and was estimated to achieve an amazing 84 miles per gallon of gasoline. Honda was not the first carmaker to come up with such a vehicle; Toyota had previously introduced a similar car to the market in Japan--the Prius. But Honda's late 1999 introduction of the Insight in the United States was set to beat Toyota's original plans for a year 2000 entry into the U.S. market.

As the end of the century approached, Honda was doing quite well but still had weaknesses to surmount. It had come to be known as one of the most efficient car companies in the world. Its strengths were in its research and development know-how, its high level of technological advances, and its global reach--Honda was selling markedly more units abroad than in its own country. Yet the company was beginning to rely more and more on its U.S. sales, which by the end of the decade accounted for nearly 85 percent of Honda's profits. Furthermore, there was too much reliance on the success of the company's Civic and Accord models, which could pose trouble in the future if production glitches occurred in either line. It would be Honda's ability to effectively deal with those potential problem areas that would determine its success in the 21st century.

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.; American Honda Motor Co.; Honda of America Mfg., Inc.; Honda Research of America, Inc.; Honda Motor (China) Co., Ltd.; Press Giken Co., Ltd. (98.2%); Seiki Giken Co., Ltd. (98%); Honda and Co., Ltd. (86.6%); Honda Sogo Tatemono, Ltd. (70%).

Further Reading:

• Clark, Tanya, "How Honda Thrives," Industry Week, October 5, 1998.
• "Handicapping Honda," Business Week Online, July 5, 1999.
• "Honda Vs. the Giants," Business Week Online, July 5, 1999.
• "Honda's Yoshino: 'Traditionally, We Build Small and Grow Big'," Business Week Online, July 5, 1999.
• Kerwin, Kathleen, "We Just Kind of Sneak Up on You," Business Week Online, July 5, 1999.
• Miller, Karen Lowry, "How Not to Buy a Car Company," Business Week Online, July 5, 1999.
• "Newest Honda Claims 84 Miles Per Gallon," Philadelphia Inquirer, July 7, 1999.
• 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: Kodonsha International, 1982.
• Taylor, Alex, "The Dangers of Running Too Lean," Fortune, June 14, 1993.
• Thornton, Emily, Kathleen Kerwin, and Keith Naughton, "Honda: Can the Company Go It Alone?" Business Week Online, July 5, 1999.
• "Unions Square Off over Honda Plant," Detroit Free Press, May 13, 1999.

Source: International Directory of Company Histories, Vol. 29. St. James Press, 1999.