BUSINESSWEEK ONLINE : JULY 5, 1999 ISSUE
INTERNATIONAL -- ASIAN COVER STORY

Honda's Yoshino: 'Traditionally, We Build Small and Grow Big' (int'l edition)


This past year has brought astounding change to the world's automotive industry. The Daimler-Chrysler merger has set off a chain reaction. Ford has now snapped up Volvo. And Nissan has turned to France's Renault for rescue. Yet Honda Motor Co., the world's No. 8 auto maker with $52 billion in revenues, wants to go it alone. In a recent interview with Tokyo Correspondent Emily Thornton, Honda President Hiroyuki Yoshino explained the carmaker's plans to go its own route as well as some of the thinking behind Honda's overall strategy. Here are edited excerpts of their conversation:

Q: Daimler has joined with Chrysler, Ford has bought Volvo, Nissan has joined with Renault. Does Honda have any plans to partner?
A:
Nothing.

Q: How do you see the global automotive industry shaking out over the next several years? And how will Honda fit into this picture?
A:
The most important thing [for us] is to supply the products which customers like to buy. We are not interested in what others are doing. I don't see much merit coming out of having a certain extent of common parts. Every component has to go through very quick changes in these rapidly changing times. Costs can be cut by many other means. The most important thing is whether we can deliver the products which customers would like to buy.

Q: Is record growth still a realistic expectation for Honda?
A:
We have plans for several new plants. A second line in the U.K. A new plant in Alabama. And renovations in our plants in Japan. We have a pretty good future, even though we may see reduced profits this fiscal year mainly due to the exchange rate. It's natural to be effected by the exchange rate. We don't worry so much about that.

Q: Yet your goal has been to become less effected by exchange rates. How do you hope to achieve that?
A:
The first way is to strengthen our domestic performance. In order to reduce the effect of the exchange rate, we have to increase our domestic sales.

Q: Right now, you have one of the highest operating profit margins in the industry. So there has started to be some concern that there is not much more room for improvement.
A:
After we have completed the two new assembly lines in the U.K. and in the U.S., I think we will be in pretty good shape again. And the investment is not as much as others'. Our investment is pretty small. So the return will be quicker.

Q: How critical are the renovations you're planning along the Suzuka assembly line in Japan? Since the fixed costs and capacity will not change, what are you hoping to achieve?
A:
One of the major parts of the innovation in the plant this time is to put in more common equipment. Not equipment that is particular or exclusive to a particular model. Then when we introduce one model after another, our investment will be much lower and our lead time will be much shorter. The future savings in our investment over time will be tremendous. The issue is facilities. So even if a platform is different, the fixing point will be common for all models.

Q: You recently announced a midterm plan for Honda. What assumptions are you making in that plan.
A:
The Japanese auto market will be stagnant this year again, and it will turn up a little bit next year. But it will not be as big an increase as we have had in the past. I hope North America will continue to be strong. And Europe may not be so bad. Asia is coming back again. The worst time is over now. Except for certain countries like Indonesia.

Q: What does all this mean in terms of what customers want in each of these regions from Honda?
A:
That's what we'd like to know [laughs]. I'm asking our people to grasp customer needs more precisely. Japan is the most difficult market because there is such quick change. The role cars are playing in the life of Japanese people is a little different from those in the U.S. or Europe. In Tokyo, we don't use cars every day. So what people want from cars is naturally different.

Q: Where do you see Honda's greatest opportunities for growth?
A:
This year it will be minicars in Japan. Our plan this year in Japan is to increase our sales by 40,000 or 50,000 units. And in North America, mainly thanks to the new Odyssey [minivan], we expect an increase of around 70,000 or 80,000 units. With some other models, the increase will be more than 70,000 or 80,000.

Q: Will North America be the greatest area of growth five years from now?
A:
We also have Europe. Or it could be Asia. We have so much excess capacity in Asia now. As you know, our production volume overseas will be more than in Japan this year. I don't know of any other manufacturers, maybe one or two, whose home market production is less than its production overseas.

Q: Do you think Honda should become a full-line manufacturer?
A:
Maybe not. Maybe a full-line manufacturer is not appropriate for us. We are just producing what we think customers want to have, except for pickup trucks. We don't intend to get into pickup trucks in the foreseeable future. We have done some studies, of course. But we just simply chose other things.

Q: Last summer, you were concerned about a potential downturn in the U.S. market. When I asked you about the possibility of a new factory in North America, you seemed to think that would never happen. What changed your mind?
A:
Before we announce a new plant, we say something different from what we're thinking, of course [laughs]. One of the biggest factors that made us decide on a new plant was the very good success of the Odyssey. Initially, we intended to have an SUV [sport-utility vehicle] produced on the second line in Canada. But the success of the new Odyssey eliminated that plan. That line will be a full load with the new Odyssey. This year, in February or March, when I tested a new vehicle under development, the staff on that project asked me where they could produce this excellent vehicle. There was no room for that vehicle in the second Canadian line because of the success of the Odyssey. That was one of the triggers.

Q: What is the most critical element to improving your brand image in Europe?
A:
Satisfying German customers. They have some special requirements. They drive cars very fast. So wind noise, for example, or wiper performance at a high speed is quite important for them while those requirements are low in Japan or relatively low in the U.S. The American customer places the emphasis on comfort or reliability. For Americans, it's the bigger the better. But that's not the case with the Europeans. If we can satisfy German requirements, we can satisfy most other European requirements.

Q: Some alliances have recently formed for developing next-generation technologies. Toyota and GM are racing against Ford, DaimlerChrysler, and Ballard Power Systems to develop fuel-cell cars. What are Honda's plans?
A:
Generally speaking, fuel-cell technology is still unknown from the stand point of economy and reliability. For example, [how a fuel cell will perform in] very low temperatures or something like that. Much has to be done before that technology can really be put into practice. Also, there will need to be some dramatic inventions of other technologies to cope with fuel-cell technology. So you cannot rely or believe too much in fuel-cell technology now. Maybe in two or three years, we can say more about that. Anyway, we are working hard ourselves in parallel with some cooperative development with component manufacturers.

Q: And why do you think it's better to go on your own instead of joining a group and sharing the costs?
A:
Because it's quicker. And it's under our control. We're working together with our component suppliers, of course. Having common components with other auto manufacturers would put restraints on us.

Q: Is that how you feel about all future technologies?
A:
There are some areas, infrastructure-related issues [where there might be room for cooperation]. We don't like to buy our engines from others.

Q: And you think that you can afford this approach?
A:
So long as we can generate the current level of profit.

Q: How critical do you believe it is for Honda still to make engines for products ranging from lawnmowers to cars?
A:
That's very important. Technology-wise, power-product engines, motorbike engines and car engines are not so different. They have pistons, cam shafts and valves.

We are one of the largest motorcycle manufacturers, and motorization in developing countries starts with motorcycles. The investment needed to build a plant to produce motorcycles is one-tenth or one-twentieth of the investment needed for producing automobiles. With that small investment, we can learn almost everything about a country. We can know a supplier's network, or the parts industry, or society. And we can establish a brand image with one-tenth or one-twentieth the investment. If we can make money with the motorcycle business, we can put that money into constructing a car plant, and we can utilize the people in motorbike production in car production and marketing.

Traditionally, we build small and grow big, even in the car business. But before that, at a small scale, we can have everything ready to go for the car business. And if a customer is satisfied with a Honda product, there is a good chance they will buy other Honda products like cars.

Q: There has been some talk of Toyota forming a holding company that would bring group companies like electrical parts maker Denso more closely under its umbrella. Are you concerned about this plan?
A:
No. Not at all.

Q: Will you continue business with Denso if it's part of Toyota's holding company?
A:
Business will continue, I guess.


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