Honda’s Changing Balancing Act: Industrialized to Emerging Market Production

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Publication Type:

Conference Paper

Source:

Gerpisa colloquium, Paris (2011)

Abstract:

 As the only Japanese OEM producing two-wheels, four-wheels and wings with major manufacturing bases in both in Japan and the USA as well as several emerging economies, Honda has been largely shielded from major downturns resulting from the global financial crisis. Although a global decline of around 3.5% in 2010, Honda reported increased sales in Brazil, India, China, Thailand and Indonesia while the Japanese and US market reported record decreases. As is the case for all Japanese OEMs the strong Yen has been a major challenge in order to keep the balance sheets in the black. Drops in profit up to 40% have been reported as a result of the strong currency despite major cost-cutting efforts. The strong yen has not only have an impact for exporting vehicles from Japan but also for repatriating vehicles from overseas to declining Japanese market.

In the Japanese domestic market JAMA (Japan Automobile Manufacturing Association) reported that 2010 is the lowest sales of cars in 33 years (since fiscal year 1977) which will even go lower once the tax incentives and subsidies for fuel-efficient vehicles ends.
In China, Honda hit record sales in 2010, an increase of 12.2% this despite strikes and collective actions in several assembly plants against working conditions. In addition Honda is launching a new brand in China, Li Nian, in a strategic alliance with Guangzhou Auto Group.
In India, Honda reported increased sales and in its joint venture with Indian partner Honda Siel Cars India will develop a super-mini designed to cash in on the booming Indian car market. Honda also had to deal with several recalls of its vehicles in India.
 
In Brazil, Honda enjoyed increased sales of the locally produced Fit despite recalls of faulty pedals.
 
Honda is shifting production overseas to be closer to the growth potential of emerging markets much like it started manufacturing in the US market in the mid-1980s. Honda will shift more production to other parts of Asia, particularly when it comes to compact cars, because of the intense global cost competition and the yen's strength against the dollar. The improved quality of components produced in emerging countries is supporting this strategic move which has created some uneasiness inside Japan.
Honda announced the release of electric vehicles in 2012, however, gasoline and hybrid vehicles will continue as the mainstay vehicles for the time being. Prices are still much higher than for gasoline vehicles, though government subsidies for EVs will bring down the actual price. Honda, which places hybrids as their main focus within the category of environmentally friendly vehicles realizes that it will be necessary to build EVs in order to maintain a strong presence in the every powertrain option.
In conclusion, Honda weathered the global financial crisis pretty good but was helped but strong sales in its motorcycle division offsetting declines in its automotive division. Honda’s proverb might be that in prosperous times people buy four wheels instead of two wheels and in times of economic hardship people move from four wheels to two wheels but the bottom line is that they still will buy wheels. The fact that Honda is the only major OEM with the two-wheel/four wheel option makes them unique (different from BMW).

Copyright© Gerpisa
Concéption Tommaso Pardi
Administration Géry Deffontaines

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