Honda

Profile editor: 
Phil Mattera
Company Snapshot: 

Honda Motor was one of the great entrepreneurial success stories of post-war Japan. The company grew from a modest operation making engines for motorizing bicycles, into the world's leading motorcycle producer, and then into one of the most aggressive automakers. The company made major innovations in engine design--including ones that drastically cut polluting emissions--and played a leading role in opening the huge North American market to Japanese producers. Honda became so firmly entrenched in the United States—from which it receives more than twice its revenue in Japan--that its operations there became regarded by many as a U.S. company. Honda is now battling with Toyota for market leadership in hybrids and other highly fuel-efficient cars. While generally acting as a progressive force in the environmental arena, Honda has been less enlightened in its policy toward the collective bargaining rights of its employees.

Ownership status: 
Publicly traded
Number of employees worldwide: 
181,000
Chief executive officer: 
Takanobu Ito
Global Fortune 500 rank: 
51
Tel: 
+81-3-3423-1111
Net Income: 
US$1.4 billion
Total revenue: 
US$101.9 billion
Corporate accountability
Labor: 

In the early years of the company, when workers were virtually being pulled in off the street to increase production, founder Soichiro Honda ran the factory with an iron fist. He is even reputed to have "motivated" slow-learners by assaulting them with a wrench.

It is thus not surprising that in 1953 Honda's workers formed a union. Company acceptance of collective bargaining paid off a couple of years later when Honda faced severe financial difficulties. To help the company over the hurdle, the union called on members to relinquish days off and to work long hours.

The honeymoon was not permanent. In 1957 a dispute over wages led to a strike and later a lockout, which some workers resisted by occupying the roof of the company's headquarters. Honda responded by firing several union leaders, but this action was later overturned in court. Since then the company has enjoyed relatively harmonious relations with the All Honda Workers' Union, which is affiliated with the Japan Council of the International Metalworkers' Federation.

Honda imported a cooperative (but non-union) style of employee relations to the United States in 1979 when it began producing motorcycles, and then automobiles, in Ohio. The company deliberately chose a rural area where it could attract employees who had not previously worked in auto plants. This made it easier to engender the esprit de corps and cooperative environment (everyone was called an associate) thought to be necessary for efficient operation.

The United Auto Workers targeted the Ohio facility for organizing, and the union won a battle over the right of UAW supporters to wear union hats and buttons along with their Honda uniforms. The company claimed to be neutral about unionization, but the UAW charged that management had sponsored an anti-union group, and otherwise attempted to discourage support for the UAW. An election scheduled for 1985 was postponed because of these charges, which were made to the National Labor Relations Board. After the NLRB dismissed the charges, the UAW decided to withdraw its call for an election.

Honda also faced charges of discriminating against women and blacks in its hiring practices. In 1988 the company agreed to pay $6 million to settle a discrimination suit brought by a group of 370 people who said they had been turned down for jobs because of race and/or sex.

In 1999 the Teamsters union launched an organizing drive at Honda’s Ohio operations, but soon announced that it was delaying plans to seek a representation election. The UAW continued to monitor conditions in those plants, and in 2002 the union publicly criticized the company over what it said was a high rate of worker injuries.

After Honda’s 2006 announcement of a new assembly plant in southern Indiana, the UAW protested the company’s decision to accept applications only from workers living in 20 surrounding counties. The union charged that this policy excluded thousands of laid-off autoworkers living in the traditional automotive centers farther to the north. A 2008 article by Roger Bybee in Dollars & Sense pointed out that the policy also ensured that there would be little racial diversity at the plant—which received more than $140 million in subsidies—given that the population in the hiring area is overwhelmingly white.

In 2009 Honda followed the lead of other Japanese automakers in offering buyouts to workers at its U.S. operations.

In Britain, Honda declined voluntary recognition of the Amalgamated Engineering and Electrical Union, but in December 2001 the union won an overwhelming victory in a representation election among some 4,000 workers at the company’s plant in Swindon. Members of the union, now part of Unite, voted in 2009 to accept temporary pay cuts to help save jobs amid the economic downturn.

Honda was also resistant when workers at its subsidiary, Honda Motor Cycle & Scooter India, began to organize a union in 2005. The company fired several union leaders, suspended 50 activists, and initiated a lockout. In the following weeks, hundreds of workers clashed with police, resulting in many injuries. Finally, the company agreed to recognize the union and reinstate the dismissed and suspended workers.

In May 2010 Honda became one of the prime targets of a labor uprising at various foreign-owned factories in China. Striking workers at Honda’s transmission rejected the company’s offer of a 25 percent wage increase and ended up winning a hike of more than 30 percent. This inspired walkouts at other Chinese Honda plants.

Racial Discrimination:

A 2004 Consumer Federation of America report showed that American Honda Finance Corporation tended to charge higher finance markup charges to African-American borrowers than to white customers. In 2005 the company and several banks settled a related lawsuit by agreeing to limit markups, and to offer loans with no markups to up to 2.4 million minority customers.

Environment and product safety: 

As far back as the 1960s, Honda engineers were preoccupied with the issue of automobile emissions. When the U.S. Clean Air Act of 1970 made emission control an imperative, Honda approached the problem differently than other automakers. Instead of relying on catalytic converters to treat the hydrocarbons and carbon monoxide emissions, Honda sought to reduce pollutants at the source. It developed an auxiliary combustion chamber in which the ratio of air to fuel was low, while the ratio was raised much higher than normal in the main chamber. The system, known as Compound Vortex Controlled Combustion, or CVCC, was introduced in the early 1970s, and was the first to meet the standards of the Clean Air Act.

Honda continued to increase engine efficiency, and in 1991 announced that its 1992 Civic VX would receive a fuel-efficiency rating of an astounding 55 miles per gallon (mpg) for highway driving and 48 mpg for city driving. The company also displayed a prototype of a two-seat passenger car that could get 100 mpg.

Honda diverged from its competitors in declining to oppose stricter fuel-economy and emissions standards in the United States. Even though the company gave in to pressure to begin producing SUVs and minivans in the 1990s, it argued in favor of stricter standards for those types of vehicles.

To compete with Toyota’s popular Prius hybrid, Honda has focused on developing hydrogen-powered fuel-cell vehicles such as the FCX Clarity--even though the infrastructure for such cars is not yet available. It has also been seeking a bigger market share for its own line of hybrids, which it has announced will be expanded in 2010.

The company’s environmental record is not completely clean. In 1998 Honda agreed to pay up to $267 million to settle U.S. government allegations that it programmed millions of its cars to ignore spark-plug failures that could result in much higher emission levels. The company paid a civil fine of $12.6 million and $4.5 million to fund environmental projects, while spending up to $250 million to serve and repair the vehicles involved.

Corruption:

A 1993 exposé in the New York Times revealed that U.S. Honda dealers were routinely pressured to give expensive gifts to get their full complement of cars to sell. The company quickly fired the executives said to be involved. Many of these executives, including a senior vice president, later pleaded guilty to bribery-related charges.

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History

Soichiro Honda, the son of a blacksmith, finished eight years of school, and then went to Tokyo in 1922 to serve as an apprentice in an auto repair shop. After a while he began spending his free time building racing cars, and was soon entering his creations in competitions.

In 1937 Honda started a business to produce piston rings, but his lack of familiarity with casting created serious obstacles for the enterprise. Honda solved the problem by enrolling part-time in a technical school, and by 1941 the company was supplying piston rings to Toyota Motor, which bought a 40 percent share of the company. During the war Honda also made parts for ships and airplanes.

After the war Honda sold the rest of the company to Toyota and used the proceeds to spend a year at leisure and then to start a new business. Operating under the grandiose name Honda Technical Research Institute, the company used recycled military engines to make motorized bicycles, a vehicle that was especially popular with the black marketeers at the time, given the shortage of automobiles.

After getting financial backing from Takeo Fujisawa, Honda renamed the firm Honda Motor Co. in 1948, and began designing a motorcycle. With Fujisawa running the business side and Honda the technical end, the company finished the prototype of what became known as the Dream Type D in 1949 and began production the following year. The Type D was not a great success, so Honda set himself to work on a new motorcycle with a more powerful (5.5 hp) engine. Designated the Type E, the new product was an instant hit. Demand was so strong that the company expanded its workforce at breakneck speed, hiring virtually everyone who responded to Honda Motor's constant help-wanted advertising.

The company was also buoyed by the popularity of the compact engine, the Cub Type F, that it created for giving motorized bicycles more oomph. Taking advantage of the cash flow generated by the advance payments made for many of its products, Honda Motor embarked on a bold expansion drive, which included the construction of two large new factories and the purchase of the most modern machine tools from the United States.

After overcoming some technical problems with his engines in the mid-1950s, Honda embarked on the development of a new motorbike that he thought would be the product to create a mass market for two-wheelers. The result was the 4.5 hp Super Cub, which many consider Honda's masterpiece. The bike had a light design that made it attractive to those who were not motorcycle enthusiasts. It had a polyester resin body, electric ignition, and was cheap to maintain.

The company, which was now the leading Japanese motorcycle producer, once again went out on a limb to expand its capacity. It built the largest motorcycle factory in the world. Honda Motor also began to enter foreign markets, focusing first on Southeast Asia, and then, with financial help from the Japanese government, on the United States. American Honda Motor Co. was established in 1959. One of the major goals of the U.S. operation was to change the image of motorcycles, which were commonly associated with delinquents and other anti-social types. Using an ad campaign that focused on the message "You Meet the Nicest People on a Honda," the company built up a large volume of business.

Honda Motor also entered the European market, establishing a moped factory in Belgium that was the first Japanese manufacturing facility in a developed country. During this period Honda and Fujisawa decided they wanted to add cars and light trucks to their product line. Returning to the activity of his youth, Honda moved toward the auto business by starting to design racing cars. Then he insisted that the company develop an air-cooled engine, despite the belief of most of his engineers that it would be difficult to control engine temperature and emissions without water cooling technology.

Honda had his way, and in 1967 the company introduced its first mass-produced automobile to the domestic market. The air-cooled N-360 minicar, the first Japanese car to employ front-wheel drive, was an immediate success. The company brought out the 1300, with a more powerful air-cooled engine two years later, but it was so expensive to produce that money was lost on each one sold. Honda pushed the company to concentrate on developing an even higher-performance air-cooled engine, but Fujisawa and the company's engineers, concerned that such a system would be unable to meet newly enacted emission controls in the United States, finally got Honda to relent.

The company faced a crisis in 1970 when the newly formed Japan Automobile Users' Union demanded heavy damages from Honda for the family of a man who had died in a crash while driving an N-360. This case helped create public controversy over defects in the products of all the car makers. Although the head of the Automobile Users' Union was later convicted of trying to extort large payments from the auto companies, the negative publicity surrounding the affair caused Honda's sales to plummet.

Honda quickly bounced back, however, with the introduction of the Civic, which contained the innovative CVCC engine that greatly reduced emissions. It also had the advantage of being able to use leaded or unleaded fuel (unlike cars with catalytic converters) at a time when unleaded gasoline was often unavailable. The Civic's enthusiastic welcome was a milestone for Japanese producers in the United States and for U.S. acceptance of small cars. At this high point of the company's fortunes, Honda and Fujisawa retired, and Kiyoshi Kawashima took over as president. In 1976 the company went upscale from the Civic and brought out the Accord, followed by the sporty Prelude.

In 1978 Honda began producing motorcycles in the United States (in Marysville, Ohio), and four years later the company became the first Japanese company to assemble automobiles in the U.S. The heavily robotized plant quickly reached its capacity of 150,000 Accords, and then doubled that capacity while beginning production of the Civic as well. Later Honda began producing engines for the cars in Ohio, once again leading the way in the extension of Japanese manufacturing in the United States. In 1985 output of Honda's Ohio operations surpassed American Motors, making the Japanese company in effect the 4th largest U.S. automaker. Taking into account both its Ohio output and its imports, Honda also shot ahead of Toyota and Nissan to gain the highest U.S. market share of any foreign-based carmaker. In 1989 the Honda Accord became the best-selling car in the United States--the first time a foreign car had ever attained that position. But after three years, it was surpassed by the Ford Taurus.

During this period Honda indirectly entered the European market by licensing Britain's Rover Group to use Honda designs to produce and market cars in Europe. The two companies later formed a further alliance to co-produce a larger car to be sold as the Honda Legend and as the Rover Sterling. (The relationship was phased out after BMW took control of Rover in 1994.)

In order to market a line of luxury cars in North America, Honda created a new division called Acura in the mid-1980s. The Legend was put under its auspices, along with the Integra. The Legend, introduced in 1986, was the leading wedge in the assault by Japanese carmakers on the high end of the market. It was soon overshadowed, however, by Toyota's Lexus and Nissan's Infiniti entries. Honda then went after another segment of the auto market by announcing in late 1990 that it would produce a station wagon version of the Accord in the United States.

Amid the recession of the early 1990s Honda's U.S. production began to slump, and the company did not come near reaching its ambitious goals for exporting U.S.-made cars back to Japan. Faced with problems both at home and in its largest export market, the company in 1991 underwent a management reorganization that gave top officers more direct control over auto operations.

Honda continued to lose ground as the U.S. market moved away from smaller cars toward minivans and sport-utility vehicles. Eventually, the company decided to go with the flow. It began producing SUVs and minivans at its plant in Ontario, and in 2001 it opened a plant in Alabama (with the help of $248 million in state and local subsidies) to take over production of its Odyssey minivan for North America. The plant later started making SUVs as well. In 2004, however, Honda had to recall hundreds of thousands of those vehicles with transmission problems, at a cost of some $369 million.

The company tried to bounce back with the introduction of its first U.S. pickup, the Ridgeline, but rising oil prices caused it to turn back to smaller cars such as its hybrids and the fuel-cell-powered vehicles it has been developing. In March 2009 it took direct aim at Toyota’s popular Prius with the introduction of what it called “the world’s first affordable hybrid.” In July 2009 Honda announced that it would expand its line of hybrids, and predicted that all its vehicles could be hybrids in 20 years’ time.

Financial information
Fiscal year: 
2009
Fiscal year: 
2009
Major lines of business/segments: 

Automobiles (80 percent of 2009 revenues). Honda sold more than 3.5 million motor vehicles in its 2009 fiscal year, more than 40 percent of them in North America. They are produced by Honda at two sites in Japan and in the United States (Ohio, Alabama and Indiana), Canada (Ontario), Britain (Swindon), Thailand, India, and Brazil.

Motorcycles (12 percent of revenues). Honda produces a wide range of motorcycles, ranging from the 50cc class to the 1800cc class. Its motorcycle line consists of sports (including trial and moto-cross racing), business and commuter models. Honda has also produced all-terrain vehicles (ATVs) since 1984, personal watercraft (PWC) since 2002, and multi-utility vehicles (MUVs) since 2008. Honda’s motorcycles are produced at its Kumamoto factory in Japan and by subsidiaries in countries including Italy, Spain, Thailand, Vietnam, the Philippines, India, Brazil, and Argentina.

Power products (4 percent of revenues). This segment includes the production and sale of power tillers, portable generators, general-purpose engines, grass cutters, outboard marine engines, water pumps, snow throwers, power carriers, power sprayers, lawn mowers, and lawn tractors (riding lawn mowers). In 2003, Honda introduced a compact home-use cogeneration unit. Honda began sales of thin film solar cells made of crystalline silicon for home use in 2007, and for public and industrial use in 2008.

Financial Services (4 percent of revenues). This segment consists of retail lending, leasing to customers, and other financial services, such as wholesale financing to dealers.