Honda Targets Toyota's Hybrid Dominance

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In November, it produced more cars in a single month, 363,532, than at any time in its history. "We think Honda looks attractive from a long-term investment perspective," Tatsuo Yoshida, an analyst at UBS (UBS) noted in a recent research note. Yoshida, who projects Honda's net earnings will rise 9.6% to $7.9 billion this year, rates Honda a "buy".

In the U.S., which accounts for about 41% of Honda's global auto sales, the new Accord, introduced in September, and the opening of new factory in Indiana next fall (the company's seventh U.S. plant) will help Honda continue to gain sales in an otherwise shrinking market. One factor: stubbornly high gasoline prices will help sales of Honda gas sippers. "If you look at the overall trend there's a shift towards smaller cars and fuel efficiency. Those are the customer requirements that will support our products," says Koichi Kondo, Honda's North American chief, who sat alongside the CEO at the Shinagawa conference. Fukui also reiterated that Honda will introduce its new, clean, diesel engine technology into the U.S. in 2009—around the same time it begins launching new hybrids.

But other regions of the world will be Honda's biggest source of growth in the months ahead. In Europe, Asia and South America, the company is set to post strong gains this year and, aided by numerous new plants, expects to do so again in 2008. In China, where sales rocketed 30% this year, the company projects further growth of 17% to 490,000 units in 2008. In the rest of Asia, not including Japan, it's a similar story with sales predicted to rise 20% to 415,000. In India, Honda doubled capacity to 100,000 this year and has begun building a second auto plant, which will be operational from 2009. Another new plant in Thailand will begin production in the second half of next year.

In Europe, fueled by rising demand in Russia and Central Europe, sales are expected to end 2007 23% higher than a year earlier at 380,000 and should reach 420,000 by the end of 2008. And in South America, where sales are projected to rise 30% in 2007 at 118,000, Honda is adding capacity at its Brazilian plant and, last month, began construction of new factory in Argentina. With so much activity across the globe, the Honda chief's vision of overall growth despite localized weakness makes a lot of sense.

Rowley is a correspondent in BusinessWeek's Tokyo bureau .