Worldwide Operations -- Overview

Honda has long viewed itself as a "mobility" company determined to create new dreams for its customers and society through innovations in product design and performance using advanced technology developed from the initiative of Honda associates throughout the world. Today, Honda is not only one of the world's largest engine manufacturers and a leading producer of motorcycles, automobiles and power equipment - but is leading the world in advancing the safety and environmental performance of products that, increasingly, are made in local markets around the globe.

Global Sales

In 2005, Honda reached more than 21.2 million customers worldwide through its three core business lines - motorcycles, automobiles and power equipment. Honda has been expanding its customer base through an ongoing commitment to innovation, a new level of outstanding quality for its products and services, and by efficiently networking together its growing global operations.

6-Region Global Structure

Speed, flexibility and efficiency are key attributes of Honda's global organization - strengths gained from the company's 6-region global structure. Based upon Honda's core philosophy of producing products close to the customer, Honda began a new global strategy focused on regional operations in the early 1990s - this now includes six regions including Japan, North America, South America, Europe/Middle East/Africa, Asia/Oceania and China.

Expansion of Honda's global production and R&D operations now includes more than 124 plants in 28 countries with growing R&D centers in each of the six regions. Management based in each region has the autonomy to make decisions based on local customer and community needs. But, with a global viewpoint, each region works in a complementary way - creating a true global network that supports the needs of customers worldwide.

Honda is able to achieve a heightened level of speed and flexibility in meeting customer needs through the efficient exchange of products, components and the expertise of Honda people between Honda operations worldwide.

Manufacturing Flexibility

In the pursuit of its "Green Factory" concept, which aims at more efficient and environment-friendly manufacturing operation for the next generation, Honda continues to innovate its global production facilities to its flexible "New Manufacturing System" to reduce the time and cost required to bring new models to market. Honda's major plants worldwide now have the capability to produce multiple models and to quickly and efficiently shift production based on global and regional market demands.

"Safety for Everyone"

Honda has a well-established history of leadership in the development and application of advanced safety technologies and the real world safety performance of all its products. Now, based on its commitment to offering "Safety for Everyone" through technology and innovation, Honda is improving safety for all road users, including drivers and passengers of small and large vehicles, motorcycles and also for pedestrians.

Honda began introduction in 2003 of a unique new frontal body architecture called the Advanced Compatibility Engineering (ACETM) body structure. The ACE body structure enhances occupant protection while also enhancing compatibility with other vehicles. Already standard on many Honda vehicles, the ACE body design will be applied to all new vehicle platforms worldwide over the next four to five years.

Honda opened its $64 million state-of-the art indoor vehicle-to-vehicle crash safety testing facility in Tochigi, Japan, in 2000. It has been playing a critical role in the development of many crash safety improvements. In 2003, Honda established another $30 million major crash safety research facility in the U.S. in Raymond, Ohio, including the world's most sophisticated high-resolution crash barrier block and the world's first pitching crash test simulator.

Honda has also been a leader in airbag technologies such as the first upwardly deploying front passenger airbags and the first use of front side-airbags with occupant position detection sensors to reduce the risk of injuries caused by airbag deployment to children and small statured adults. Honda was a leader in the adoption of dual-stage, dual-threshold air bags that utilize both crash severity and seat belt use to optimize airbag deployment.

In its efforts to improve safety for all road users, Honda is expanding the use

of features designed to reduce injuries to pedestrians including collapsible hood structures and hood hinges, specially designed front frame construction and breakaway windshield wiper pivots. These features are already in use in millions of Honda vehicles worldwide. Further, Honda has independently developed the POLAR II pedestrian crash test dummy to lead this research effort. Honda has made POLAR II available to government and other organizations in the U.S., Japan and Europe in the cooperative effort to advance pedestrian protection.

Following full introduction of its 2007 model year vehicles, Honda will have fulfilled the commitment of its Safety for Everyone' initiative. The completion is signaled by standard application of anti-lock brakes (ABS), driver and front passenger side airbags with front passenger position sensors, and side curtain airbags to virtually all Honda passenger vehicles- from the subcompact Fit to the Ridgeline pickup truck - as well as Vehicle Stability Assist (VSA) and rollover sensors for the side curtain airbags on all light trucks. More than 99 percent of all Honda passenger vehicles sold to date in 2006 are equipped with ABS, front side airbags and side curtain airbags.

American Honda has already applied VSA as standard equipment on all light truck models; including the Honda Odyssey, CR-V, Pilot and Ridgeline, and Acura RDX and MDX. With the addition of VSA to the 2007 Honda Element, the company achieved its goal of 100-percent application of VSA to all light truck models. For 2007, VSA will also be standard equipment on V6-equipped Accord models and Civic Si, meaning that almost 60 percent of American Honda's total fleet will feature VSA as standard equipment in the 2007 model year.

x = standard
* S2000, a specialty vehicle, is not part of the "Safety for Everyone" initiative
** Only Si models of 2007 Civic feature VSA as standard equipment
*** Only V6 Accord models feature VSA as standard equipment

Other pioneering efforts include the first small car to earn the federal government's highest crash safety rating (2001 Civic), the first small car to earn a Insurance Institute for Highway Safety "Top Safety Pick-Gold Award" rating (2006 Civic) and the first four-door pickup to earn a five-star rating for both frontal and side impacts (2006 Ridgeline).

Environmental Challenge

Honda has long been a pioneer in the global auto industry in the development and application of leading edge environmental technologies that improve fuel efficiency and reduce vehicle emissions - while delivering the fun, performance, quality and reliability that customers expect. Honda is the first automaker in the world to announce global CO2 reduction goals for its products and production activities.

In May 2006, Honda announced plans to achieve a further CO2 reduction of 5 percent or more, with the goal to achieve a total 10 percent reduction by 2010 compared to the level of 2000. To achieve this target, Honda announced the following plan:

Honda will introduce a new, more affordable dedicated hybrid vehicle suitable for family use with a global sales volume of 200,000 units. Honda will introduce this vehicle in 2009 at a price level lower than the Civic Hybrid.

Based on the current highly successful diesel engine currently sold in Europe, Honda will introduce a 4-cylinder clean diesel engine within the next three years that will meet the U.S. Environmental Protection Agency's (EPA) stringent Tier 2, Bin 5 emission standard requiring NOx emission levels equivalent to a gasoline-powered vehicle. Honda will also work toward development of a clean V6 diesel engine.

Honda will also continue to advance its leadership in internal combustion engine technology. Honda introduced the Variable Cylinder Management (VCM) system to the Accord Hybrid, as well as to the Inspire in Japan and the Odyssey and Pilot in North America. VCM improves fuel efficiency by shutting off three cylinders of a V-6 engine when the vehicle is cruising on the highway or in other situations where less power is required. The fall 2005 introduction of the all-new Civic Hybrid further advanced Honda hybrid technology with a 20-percent gain in efficiency and significantly improved real world fuel economy. Honda was the first automaker to market three distinct hybrid vehicles in North America - the Insight, Civic Hybrid and Accord Hybrid.

Honda became the first automaker in the world to market a fuel cell vehicle certified by the U.S. EPA and the state of California - and first introduced the FCX fuel cell vehicle in 2001 simultaneously both in Japan and the U.S. Honda has also developed its own fuel cell stack and introduced it in the breakthrough FCX in 2004. This remarkably compact and advanced fuel cell stack is designed to operate at temperatures as low as -4^oF - one of the most significant technical barriers to the mass-market application of fuel cell technology.

The company has also introduced a new FCX Concept vehicle that employs a new vertically oriented fuel cell stack for improved vehicle packaging and performance. A production version of the FCX Concept is slated for introduction in the next three to four years.

The environmental challenge does not apply only to automobiles. For 2-wheel vehicles, Honda produces only 4-stroke engine motorcycles for on-road use with improved environmental performance over 2-stroke engines. And Honda was the first company with an entire line of higher performance outboard motors to meet the EPA's year 2006 emission standards.

Challenges for the Future

Honda is challenging itself to create advanced technologies that create new value for its customers and society. This involves extensive research & development focused not only on improving existing product lines, but also exploring new areas of mobility.

Honda has independently developed a turbofan jet engine and HondaJet - a small business jet. The company also formed a joint venture with General Electric Co. to bring the jet engine to market - to innovate the small jet market.

Honda announced plans in July 2006 to enter the innovative HondaJet in the growing very light jet market, with the process of accepting sales orders expected to begin in the U.S. in fall 2006. Toward this goal, Honda will establish a new U.S. company to hold FAA type certification and production certification. Honda's goal is to complete type certification in about 3-4 years, followed by the start of production in the U.S.

Honda engineers created the world's most advanced humanoid robot ASIMO (Advanced Step in Innovative MObility) to someday help people in need. ASIMO can now run, walk forward and backward and climb stairs, and was created to function in real-world environments after almost 20 years of research and development.

The Racing Spirit

More than fifty years after announcing its intentions to enter the international racing scene, Honda continues its commitment to motorcycle and automobile racing throughout the world. Honda continues to compete on virtually every available motorcycle racing circuit, including the Moto GP World Championship, and Superbike, Supercross and Motocross racing.

In auto racing, Honda races on the challenging Formula One Grand Prix in this third era of the company's fabled F-1 racing heritage. Honda is also involved in open-wheel racing as the sole engine supplier to the Indy Racing League (IRL) - an oval track series based in North America. In just its third season, Honda swept the competition in the 2005 series, winning three major IRL championships - the Manufacturers' Championship, Drivers' Championship and Rookie of the Year - for the second year in a row.

In April 2006, Acura announced the first factory motorsports program in its 20-year history with plans to compete in the American Le Mans series with three teams, beginning with the 12 Hours of Sebring race in March 2007. The program marks the first complete engine design and development effort by Honda Performance Development (HPD), based in Santa Clarita, California.

Importantly, racing means not only winning championships on the race track, but the training of engineers who will deliver fun and performance to vehicles enjoyed by Honda and Acura customers.

Creating New Value for Customers . . . and Society

From the earliest days of the company, the willingness to pursue new dreams for the customer has been at the core of the company. Honda expresses this as "The Power of Dreams." The key is that "power" comes not only from new ideas, but the determination to make these ideas come true for the customer.

By creating new value - and by focusing on local manufacturing and product development, an environmental commitment and advancing safety - Honda hopes to gain recognition throughout the world as a company that society wants to exist.