Summary of 2004 Year End CEO Speech
The business environment is becoming more difficult due to several factors including the escalating price of crude oil and sudden fluctuations in currency exchange rates. In this increasingly competitive environment, Honda maintains its focus on being a company that society wants to exist. We will also focus on strengthening the core elements that make Honda unique in each area of its activities including R&D, production and sales and service.
- Honda will develop a strong and robust corporate structure to buffer the company from exchange rate fluctuations and other changes in the business climate by increasing the self-sufficiency and autonomy of each regional operation and by improving quality, cost and delivery in our parts sourcing efforts.
- Honda will further enhance its sales and service by focusing on its customers. Our highest priority is customer satisfaction.
- Honda will strengthen its R&D efforts by looking more than 10 years into the future. Honda's goal is to continuously provide advanced products to our customers.
Initiatives for 2005
2004 Worldwide Sales Forecast: 10.7 million units (up 23% from 2003)
Annual production in India reached 3.1 million units, while the annual production capacity in Indonesia will expand to 3 million units when a third plant becomes operational. In China, both Sundiro Honda's Tianjin plant and Wuyang-Honda's Guangzhou plant will be replaced by more advanced plants by the beginning of 2005 and spring 2006, respectively. In addition, a Shanghai branch of Honda Motor (China) Investment Co., Ltd., which functions as the regional headquarters, will begin operations in the spring of 2005. The Shanghai branch will promote further localization and work to strengthen our motorcycle business in China in conjunction with the modernized manufacturing facilities.
ATV production in North America will be consolidated at the South Carolina plant, while production of models such as the TRX450R will be transferred from Ohio to the Kumamoto plant in Japan, in order to further strengthen Japan's function as the global hub in supporting expansion of overseas operations. The Forza model manufactured in Kumamoto has been well received due to its advanced S-Matic transmission and other features, and it became the industry's best selling motorcycle in 2004 (excluding 50cc models). The end of a ban on tandem riding on highways and the introduction of a license for automatic transmission models in Japan will have a positive impact on the sales of Honda's large scooter line-up which includes the Forza, Silver Wing, PS250, Fusion, and Foresight.
2005 Worldwide Motorcycle Sales Plan: 12.5 million units (up
17% from the previous year's plan)
In the fall of 2005, the Civic, with annual sales of more than 500,000 units worldwide, will undergo a full model change. Honda's automobile business has advanced in step with the Civic. The Civic is now manufactured in Japan, North America, South America, Europe and Asia. Civic is a truly global car and will be produced in all six regions of Honda's global operations when China begins Civic production in 2006. The Civic is a key model for Honda and will continue to drive Honda's automobile business forward with its next full model change.
Based on Honda's commitment to "build products close to the customer," we have proactively pursued the localization of production. In the last three years, overseas auto production increased by more than 500,000 units. In order to strengthen our corporate structure to enable us to deal flexibly with currency exchange rate fluctuations and changes in the economic environment of each country, Honda will promote local production of engines and key drivetrain components, which require a high level of precision manufacturing.
Honda will invest a total of US$270 million dollars in the U.S. for powertrain production.
- In Georgia, Honda will establish an automatic transmission plant with an annual production capacity of 300,000 units.
- In Alabama, production of crank shafts and connecting rods will be added.
- In Ohio, local production of high precision transmission gears will begin - the first time for it to be done in the U.S.
With the increased capacity at Guangzhou Honda's second plant, which is now under construction, the expanded capacity at Dongfeng Honda in Wuhan, and the capacity at the newly built export plant, Honda's total annual production capacity in China will be doubled from the current 270,000 units to 530,000 units by the latter half of 2006. To support these expansions, Honda Engineering China will begin operation of a new facility to produce dies and conduct tests for mass production technologies in the fall of 2005.
By the end of 2005, casting and machining of diesel engines will be transferred from Honda Engineering to the Suzuka plant to increase mass production capability.
In each region, Honda will increase its exchange rate toughness and achieve qualitative improvements in quality, cost and the delivery competitiveness of parts by accelerating the localization of the production of powertrain components and manufacturing support functions.
Automobile - Japan:
2004 Domestic Sales Forecast: 740,000 units (up 1% from 2003)
In the spring of 2005, Honda will introduce a new model that offers new values in the small wagon segment. Teamed with the all-new Civic, Honda will strengthen its product lineup. E-dealer systems, now installed at all dealers, will fully conform to the Automobile Recycling Law at the beginning of 2005. This system enables Honda dealers to provide consistent service nationwide from the first price estimate to auto inspection and maintenance. Honda will fully utilize such IT systems to further improve its sales and service to achieve a 2005 sales goal of 770,000 units. Further, Honda is committed to put even greater focus on our customers and maximize the lifetime satisfaction of the cumulative 8.8 million Honda owners.
Automobile - North America:
2004 U.S. Sales Forecast: 1, 376,000 units (up approximately 2% from 2003)
In the spring of 2005, Honda will begin sales of the "Ridgeline" - Honda's proposal for a next generation light truck. Civic, with annual sales of approximately 300,000 units in the U.S., will undergo a full model change in 2005 as well. Combined with these new models, Honda will enhance its product lineup to meet a wide range of customer needs - from passenger cars to light trucks.
The U.S. sales plan for 2005 is set at 1.45 million units based on our plan to launch new products with excellent fuel efficiency and environmental performance and to reach full capacity on the second production line in Alabama. In addition, a new Acura SUV will be launched at our Ohio plant in 2006.
Honda will strengthen the foundation of its automobile business in North America by enhancing its product lineup and by strengthening its production operations.
Automobile - Europe:
2004 European Sales Forecast: 253,000 units (up 16% from 2003)
Total automobile production at the Swindon, UK plant is expected to exceed 190,000 units in 2004. All-time records are expected both for production and sales.
Sales of the Accord Diesel, introduced at the beginning of this year, has reached 20,000 units, which has helped increase total Accord sales in 2004 to 50,000 units, compared to 35,000 units in 2003. Looking ahead, Honda will launch the CR-V Diesel at the beginning of 2005, aiming to double sales of the vehicle. Further, the FR-V Diesel will be launched by the summer of 2005. By introducing these diesel models in segments with a high ratio of diesel sales, Honda will be better able to meet customer needs. The European sales plan for 2005 is set at 275,000 units.
The all-new Civic, which will go on sale at the beginning of 2006 in Europe, will also be equipped with a Honda diesel engine to expand the market for the vehicle. In order to meet growing demand in Europe created by our enhanced diesel product lineup, Honda will dedicate the entire CR-V production capacity of the UK plant to meeting demand in the European market. At the same time, Honda also decided to discontinue exports of the CR-V from the UK to the US by beginning local production of the CR-V at one of its plants in Ohio, starting with the next generation CR-V.
Automobile - China:
The Chinese market is currently experiencing a temporary slow down; however, the mid-to-long term growth potential of the China auto market is still favorable and the market is expected to increase in size by 10 to 15% per year. China is moving into a truly competitive era and Honda has been working to establish a strong brand presence that clearly differentiates it from the competition in the areas of sales, service, and products. As a result, we have successfully established a business where demand always exceeds supply. Honda will continue to grow its business in China by introducing an all-new Odyssey in 2005 and all-new Civic in 2006 and by further strengthening our sales channels.
Automobile - Asia Oceania:
2004 sales are expected to exceed previous year sales in most countries in the Asia Oceania region including Korea, where sales through Honda dealerships began this year. Total sales in the Asia Oceania region for 2004 will reach 275,000 units - a 36% increase from the previous year. In India, the annual production capacity will be expanded to 50,000 units from the current 30,000 units. Production capacity also will be expanded in Indonesia, from the current 40,000 units to 50,000 units, as sales of the Fit have been strong since its introduction this year. The total Asia Oceania sales plan for 2005 is 310,000 units.
Honda's total worldwide automobile sales for 2004 are expected to reach 3.16 million units (up 9% from 2003), with sales of 3.4 million units (up 8% from 2004) planned for 2005.
Power Product Business
2004 Worldwide Sales Forecast: 5.5 million units (up 10% from 2003)
-New engine series
Honda's proprietary electronic control technologies will be utilized to build a cleaner next-generation general-purpose engine with improved ease of use, high fuel efficiency, and low noise. This new engine will be introduced in 2005.
Domestic sales of Honda's cogeneration systems showed a major increase in 2004, exceeding 9,000 units versus sales of 3,300 units in 2003. Honda's cogeneration systems now provide electricity and heated water to more than 10,000 homes. Also, our cogeneration system was awarded the 2004 Prize for Natural Gas Industry Innovation in Germany. To take advantage of growing interest in our cogeneration system overseas, Honda plans to expand sales by promoting sales in overseas markets.
-New plant for production of general-purpose engines
Honda's new general-purpose engine plant, with an annual production capacity of 1.25 million units, will begin production in Kumamoto next month. Production of general-purpose engines in Japan will be consolidated in this new plant to further improve production efficiency.
The worldwide sales plan for power products is set at 6 million units (up 9% from this year).
It is important to allocate adequate resources to our long-term research in order to continuously develop unique Honda technologies. At Honda, we strive to "advance scientific technologies which are innovative and unique," and pursue development in areas including humanoid robotics, aviation, advanced materials and electronics. Advanced technologies in the areas of electronics and materials are essential to today's automobile development. Honda believes that highly sophisticated and unique technologies such as control systems, image processing, sensory recognition, and aerodynamics, which we cultivate in our ASIMO and HondaJet R&D activities, will be a source of our competitive advantage in areas such as automobile development.
Honda just announced new technologies for ASIMO. Our new technologies increased response speed four times and enables ASIMO to quickly evaluate its environment and respond nimbly. We have also achieved human-like running with ASIMO, which is another step forward in our aim for ASIMO be useful in an office environment. We will continue to advance humanoid robotics and ASIMO.
Honda established a joint venture with GE this year, which is a step toward the commercialization of our turbofan engine. GE-Honda is currently in talks with several air frame manufacturers as potential customers.
Honda positions the fuel cell as a power source for the future. In the U.S., a Honda FC Stack-equipped FCX was certified for commercial use in July, and the lease agreement of two units to the state of New York was signed in November 2004. The FCX also was certified in Japan this month, and a lease contract was concluded with the Hokkaido Government.
Looking more than 10 years into the future, Honda seeks to continue to be the industry's technology leader by developing technologies with free, independent thinking and creative ingenuity.
Environment & Safety
Honda's goal is not to simply comply with regulations, but to pass on the joy of mobility to future generations. Honda proactively develops and introduces environmental and safety technologies. With the objective of realizing safety for everyone, we consider safety for everyone on the road, including drivers, pedestrians, other vehicles and motorcycles.
Following completion of our goal to introduce four-stroke engines to all models (except specialized models), Honda has decided to equip even more environmentally-friendly programmed fuel injection (PGM-FI) to all newly launched scooters in Japan by the end of 2007, and to most motorcycles worldwide by the end of 2010.
In the area of safety, Honda will equip all new 250cc class or larger touring and sports motorcycles and large scooters with an advanced "combined brake system," incorporating a conventional brake with an anti-lock brake system by end 2007. And by 2010, all Honda motorcycles 250cc class or larger, except off-road models, will be equipped with this type of brake.
In Japan, all Honda automobiles now comply with the 2005 emission regulations. Eleven models are certified as "Ultra" low emission vehicles and 16 models are certified as "Excellent" low emission vehicles. The unit percentage of "Ultra" and "Excellent" low emission vehicles totals 82% of all Honda vehicles, an industry leading penetration level. In the area of safety, the Odyssey, Elysion, and Edix have already been certified as complying with the "pedestrian head protection standard" which will be implemented in Japan as of September 2005.
In the U.S., the Accord Hybrid, equipped with a V6 hybrid engine went on sale this month. This vehicle employs our Variable Cylinder Management system which improves fuel efficiency and reduces greenhouse gas emissions. The Accord Hybrid is Honda's third hybrid vehicle following introduction of the Insight and Civic Hybrid.
As for safety, anti-lock brake systems will become standard equipment for all Honda and Acura vehicles in the U.S. and Canada by the end of 2006, while front side airbags and side curtain airbags will be standard equipment on virtually all Honda and Acura vehicles. In addition, we have begun installing side curtain airbags and roll-over sensors as standard equipment on all light truck models.
Based on ASV-2, announced in 2000, Honda began introducing safety technologies such as a lane-keeping assist control, our Collision Mitigation Brake System, and intelligent night vision in our mass production vehicles. Next year, we will reveal ASV-3, which features even more advanced safety technologies.
Honda's mission is to be the leader in safety and environmental technologies, always looking one step ahead.
- World Outdoor Trials Championship: In 2004, Takahisa Fujinami became the first Japanese to win the championship title. The Ministry of Education, Culture, Sports, Science and Technology of Japan honored Fujinami with the Sports Contributors Award.
- MTB Down Hill: RN01 won the JCF Japan Series and NORBA Series in the US.
- World Grand Prix_Honda won the 125cc and 250cc classes. In MotoGP, Honda won the Constructor's Championship, but finished second in the Rider's Championship. Honda begins the 2005 race season from the position of having to catch the leading rider. We will do our best to regain that title.
- IndyCar_Honda won 14 of 16 races and the "triple crown" of driver, manufacturer, and rookie driver championships.
- F1: Honda made great progress to finish in 2nd place for the Contructors title, compared to 5th place the previous year. Honda will make a 45% capital investment in B.A.R. With this new relationship, Honda will challenge for the World Championship.
Just as our racing activities are filled with behind the scene challenges and various successes and failures before we reach the spotlight on top of the podium, our operations in each region will be tested in today's challenging environment and this will necessitate total commitment all the way down to the production of parts and to the strengthening of our global operations.
To this end, Honda is pursuing initiatives to revisit our origins as a company, to strengthen the core points that make Honda unique in each area, and to strengthen our initiative, technology and quality to become the number one company in providing "joy to our customers."
What we mean by "strengthening the core points that make Honda unique" is that each individual associate advances and solves issues and problems based on the viewpoint that only those at the spot can possess, and that each associate proactively moves forward on their own initiative. In this way, Honda will represent the combined power of all ndividual associates who work to make their own dreams come true.