Summary of 2007 Mid-Year CEO Speech
TOKYO, Japan, July 18, 2007 - During the current 3-year mid-term, which began in spring 2005, Honda has carried out various plans and initiatives under the themes of "strengthening the foundation for growth and advancement on a global scale" and "development of advanced technologies and products that create new value for the joy of our customers."
Honda will further accelerate its effort to strengthen the core characteristics that make Honda unique in each business area and steadily make progress within the following areas, which are the three pillars that will enable Honda to make another great leap forward in the future.
1) Strengthening the foundation for global growth
2) Accelerating our effort in Japan to strengthen the core characteristics that make Honda unique
3) Strengthening Honda's effort to reduce its environmental footprint
1. Strengthening the foundation for global growth
Further Strengthening the Business Foundation of North American Operations
• In June 2007, Civic was ranked as the industry's best selling compact-class vehicle in the U.S. Due to strong sales of models such as CR-V and Fit, sales in the U.S. are steadily increasing.
• A new auto plant in Indiana, U.S. and a new engine plant in Canada are scheduled to begin production in fall 2008.
• In fall 2007, the Honda auto plant in Mexico will begin production of the CR-V. The annual production capacity of the plant will be expanded from the current 30,000 units to 50,000 units.
• As a result of these capacity expansion measures, in fall 2008, Honda's total annual automobile production capacity in North America will reach 1.62 million units.
• In the area of R&D, the Acura Design Studio opened in California in May 2007.
• In November 2007, Honda will celebrate the 25th anniversary of manufacturing cars in the United States. Honda became the very first Japanese auto maker to locally produce passenger vehicles in America in 1982. Today, Honda's North American production accounts for almost 80% of all automobiles Honda sells in the U.S. Honda will continue efforts to establish a business structure that enables us to quickly and flexibly respond to the expectations of our customers.
Strengthening European Business
• Honda's automobile sales growth in Europe during the first six months of the year (Jan.-Jun. 2007) outpaced all the other major manufacturers, owing to the popularity of the UK-built Civic and the CR-V models.
• Due to the increase in demand for these UK-made Hondas, Honda's Swindon, UK, automobile plant has shifted to full production rate of 250,000 per annum beginning February 2007.
• In order to meet the higher demand for Honda's diesel engine, the UK engine plant added the processes of machining cylinder head and engine block beginning in November 2006, expanding on its diesel engine assembly operations.
• Honda's automobile plant in Turkey will increase its annual capacity, from the current 30,000-unit level, to 50,000 units per annum by early 2008, thereby increasing Honda's total annual vehicle output in Europe to 300,000 units.
Expanding Business and Strengthening Business Foundations in Growth Areas: Motorcycle Business
Asia
• India: Honda Motorcycle & Scooter India is planning to expand its annual production capacity from the current 1 million units to 1.2 million units by 2010. Honda's total annual motorcycle production capacity in India will be expanded to exceed 5.6 million units by 2010.
• Vietnam: In May 2007, annual production capacity of the Honda plant in Vietnam was expanded from the previous 860,000 units to 1 million units. In order to respond to the rapidly growing demand, Honda decided to invest US$65 million to build a second motorcycle plant which is scheduled to become operational in the latter half of 2008, with annual production capacity of 500,000 units. High-value added models such as automatic transmission models will be produced at this new plant.
• Honda has been introducing models equipped with PGM-FI (Honda's Programmed Fuel Injection) which offers excellent environmental performance to one country after another in Thailand, Indonesia, India, China, and Vietnam. Honda will continue acting in an environmentally responsible manner by expanding the installation of PGM-FI to more models.
South America
• Brazil: Honda's cumulative motorcycle production in Brazil is expected to reach 10 million units at the end of July 2007. Honda will expand its annual production capacity in Brazil to 1.5 million units by the end of 2007.
• Argentina: The local production of a second model, NF100Wave, will begin in fall 2007.
• Peru: In September 2007, a new Honda plant in Peru with an annual production capacity of 25,000 units is scheduled to become operational.
• As a result of these capacity expansion measures, Honda's total annual motorcycle
production in South America will be expanded to approximately 1.54 million units by the end
of 2007.
Expanding Business and Strengthening Business Foundations in Growth Areas: Automobile Business
India
• Annual production capacity of the existing Honda auto plant in India will be expanded from the current 50,000 units to 100,000 units by the end of 2007.
• A second auto plant in India with annual production capacity of approximately 60,000 units (investment of approximately US$230 million) will become operational at the end of 2009. As a result, Honda's annual production capacity in India is expected to exceed 150,000 units by 2010
Thailand
• In April 2007, an engine parts plant began operation in Thailand, and a Honda subsidiary which produces stamped body panel service parts will begin operation in fall 2007. In addition to the Thailand domestic market, these parts and components produced in Thailand will be supplied to other countries, primarily in the Asia/Oceania region, to strengthen Honda's business structure in the area of quality, cost, and logistics.
• Looking ahead toward expansion of domestic sales and exports, Honda began construction of a second auto plant in Thailand. An investment of approximately 6.2 billion baht (approximately 23 billion yen), the new plant will become operational in the latter half of 2008 with annual production capacity of 120,000 units (at full capacity). As a result, Honda's annual automobile production capacity in Thailand will be doubled from the current 120,000 units to 240,000 units.
South America
• Brazil: The annual production capacity of Honda's auto plant in Brazil will be expanded to 100,000 units by the end of July 2007.
• Argentina: Honda will invest approximately US$100 million to build a new automobile production plant in Argentina with an annual production capacity of 30,000 units, scheduled to become operational in the latter half of 2009. The new plant will also begin exporting products to other countries in the South America region and play a key role in Honda's production network in South America along with the Honda auto plant in Brazil.
China
• In April 2007, Honda Automobile (China), the export plant which produces products for European markets began fully utilizing its annual production capacity of 50,000 units. When Guangzhou Honda's second auto plant became operational in September 2006, Honda's total automobile production capacity in China reached 530,000 units annually.
• A new company, which manufactures transmissions and other powertrain components, became operational in March 2007, contributing to Honda's efforts to promote further localization and improvement of cost competitiveness.
• Sales of the all-new CR-V, which was introduced in April 2007 and is produced by Dongfeng Honda, and the Acura MDX have been strong. Honda is steadily expanding business and strengthening its business foundation in China.
• Guangzhou Honda Automobile Co., Ltd., a Honda joint venture company in China, will establish a wholly-owned automobile R&D subsidiary, Guangzhou Honda Automobile Research & Development Co., Ltd. With investment of approximately 2 billion R.M.B. (approximately 30 billion yen), the new company will build a full-scale automobile R&D facility with a test course. The company will develop a product which will be marketed under an original brand of Guangzhou Honda targeting the start of sales in 2010.
• Guangzhou Honda received government approval to begin engine production.
2. Accelerating our effort in Japan to strengthen the core characteristics that make Honda unique
Establishing manufacturing systems and capabilities in Japan that support the growth of regional operations and lead Honda globally
Strengthening R&D Capabilities
• In addition to the reorganization of Honda's R&D structure, conducted in April 2006, Honda will build a new R&D center in Sakura, Tochigi scheduled to begin operation in 2009.
Strengthening Japan Production
• Honda recognizes that the role of Japan, which supports expanding regional operations, will become increasingly important.
• New automobile production plant in Yorii (scheduled to become operational in 2010) will establish a high quality and high efficiency manufacturing system by applying the latest technologies and will be responsible for evolving such manufacturing systems horizontally to other Honda operations worldwide.
• New engine plant in Ogawa (scheduled to become operational in summer 2009) will produce advanced engines, which enables Honda to respond to the increasing demand for fuel efficient vehicles and further advance Honda's production technologies.
• Kumamoto Factory will be advanced as the ultimate source of expertise to support the ability of Honda's motorcycle production operations worldwide to produce high quality products and handle advanced technologies.
• Hamamatsu Factory's automatic transmission (AT) production will be strengthened, and the factory will be advanced to assume global leadership in the area of AT production technology.
Strengthening Mini-Vehicle Business
• Yachiyo Industry Co., Ltd., a Honda consolidated subsidiary has decided to acquire the land adjacent to its Yokkaichi Factory for the purpose of establishing the optimal production system for mini-vehicles including engines and component parts to further improve the competitiveness of its mini-vehicle production.
• Although the detailed plans are still to be finalized, the company plans to begin with the establishment of an engine assembly facility, which will enable the company to achieve synchronous production of automobiles including the engine and the complete automobile, which in turn will help the company improve the efficiency of production and logistics.
Establishing A Sales Channel from the Customer Viewpoint
• Based on our starting point of focusing on the customers' point of view, Honda's domestic sales channels were integrated into one Honda Cars channel as of March 2006.
• We are currently making progress in strengthening our sales channels through various initiatives including re-establishing an optimal sales network suitable for a one-channel approach, enlarging the dealership locations in metropolitan areas, and opening of new dealership locations which incorporate the new concept of Honda Cars, etc.
• In the product area, the highly acclaimed Fit, which was ranked as the best selling car among new vehicle registrations in 2002, and has achieved cumulative worldwide sales of 2 million units (at the end of June 2007), will undergo a full model change this fall.
• Coinciding with the introduction of the all-new Fit, Honda will near completion of the changeover of its integrated dealer network to the identity of Honda Cars and establishment of sales network in metropolitan areas by this fall. Honda will work toward strengthening of the Honda brand and devote intensive efforts to expand sales.
• Based on a comprehensive evaluation of the current market environment, Honda will reassess its basic plan and delay the introduction of Acura brand in Japan for two years or so from its original plan of fall 2008.
3. Strengthening Honda's effort to reduce its environmental footprint
Environmental Commitment
• In May 2006, Honda announced 2010 global CO2 reduction targets for its products and production facilities. Moreover, in June 2007, Honda newly set and announced 2010 environmental footprint reduction targets for business activities in Japan including reduction targets for CO2 emissions from logistics activities, and substances with environmental impact, as well as various targets in the area of resource recycling.
• As a company-wide effort on a global scale, Honda will accelerate its efforts and be ahead of the time as a company which will always be at the forefront in the area of the environment.
The Next-Generation Environmental Technologies
The Next-Generation Diesel
• Honda will introduce a next-generation diesel engine, which will meet the U.S. EPA's Tier2 BIN5 emission standard requiring NOx emission levels equivalent to a gasoline-powered vehicle, to the U.S. in 2009. Moreover, Honda decided to introduce this next-generation clean diesel engine with excellent environmental performance to Japan.
Hybrid
• Honda will offer a new dedicated hybrid vehicle in 2009 at a price level lower than the Civic Hybrid.
Flexible Fuel Vehicle (FFV)
• Honda added a FFV variation to the product lineup of Civic and Fit produced and sold in Brazil, and began sales of these models at the end of last year. The cumulative sales of Civic FFV and Fit FFV have already exceeded 10,000 units, and the ratio of FFV version among overall Civic sales in Brazil exceeded 50% (as of June 2007).
Creation of Energy
Ethanol Production Technology
As for the development of technology which will more efficiently produce ethanol from stems and leaves of plants such as straw, an experimental plant was built within Honda's Fundamental Technology Research Center in May 2007, and R&D efforts to establish the mass-production technology of bio-ethanol will be further accelerated.
Cogeneration
Honda's compact home-use cogeneration unit has been used in approximately 50,000 households in Japan since its introduction in 2003. In March 2007, the sales of this compact home-use cogeneration unit began in the U.S.
Solar Cell
In June 2007, sales of Honda's solar cells began primarily in the Kanto area. Starting from this fall, Honda Soltec will mass produce solar cells at its plant with annual capacity of 27.5 megawatts at full production, resulting in the expansion of sales throughout Japan.
Activity to Promote Traffic Safety / Aviation Business
Renovation of Traffic Education Center at Suzuka Circuit
• The Traffic Education Center at Suzuka Circuit will re-open in early August this year with major enhancements of its educational facilities.
• The new facility incorporates the latest technologies. One example of such technologies is a new program which records driving data through GPS, analyses the data, and identifies and improves driving habits or common driving practices.
Aviation Business
• Honda Aero Inc,. a wholly-owned subsidiary of Honda, decided to build a production plant for its small-size jet engine, HF120.
• Honda Aero Inc, will produce the jet engine based on the commission from GE Honda Aero Engines, a joint venture with GE. The new jet engine plant will be located in Burlington, North Carolina.
• In addition to the HondaJet which will be delivered to customers starting 2010, the HF120 jet engine will be installed to the Spectrum Aeronautical "Freedom" which will go on sale in 2010. Honda's dream toward the sky will continue making progress in the areas of both aircraft and the engine.
While continuing to strengthen its business foundation and pursue new dreams for the future, Honda will further accelerate efforts to strengthen the core characteristics that make Honda unique in each business area and demonstrate spirited initiative to take on challenges to develop advanced technologies and products that create new value for the joy of our customers.
While here in the States we’re still hanging on to the use of 3.0-liter+ V6 naturally aspirated engines for our mainstream models, in Europe, car manufacturers are in the process of downsizing engine capacities and developing a new generation of turbos and compressors to compensate for the loss of engine displacement.
