Honda's profit improvement plan: Scaling down plant size to run at full capacity

Reducing the number of global model variations to one-third and development man-hours by 30%

2019/10/17

Summary

Passport
All-new Passport SUV launched in North America in early 2019 (Source: Honda)

 This report describes the profit improvement plan of Honda's automobile business. In summary, Honda will reduce its global production capacity of automobiles by 573,000 units from 5.55 million units in March 2016 to 4.977 units by 2022 (reducing 693,000 units globally, while increasing 120,000 units in China). Honda expects its global capacity utilization rate, excluding China, to increase from the 90% recorded in 2018, and to be producing at full capacity by 2022. By 2025, Honda plans to decrease its production costs by 10% compared to 2018.

 By 2025, Honda will reduce the number of global model variations to one-third of the current level, and regional models will be consolidated and reduced to strengthen the portfolio. Furthermore, introducing the Honda Architecture in its development process will increase development efficiency and expand parts sharing for production models beginning with global models to be launched in 2020, and reduce the number of development man-hours by 30% for production models by 2025.

 With the recent slowdowns in China, the U.S. and Europe, Honda’s FY 2018 financial results showed a 12.9% decrease in operating profit (JPY 726.3 billion) and an operating margin of 4.6%. The operating profit of the automobile business was JPY 209.7 billion (margin of 1.9%), which was lower than the operating profit of the motorcycle business of JPY 291.6 billion (13.9%). In particular, consolidated operating profit was JPY 42.3 billion (1% profit margin) in the fourth quarter of 2018, and its automobile business reported an operating loss of JPY 53.0 billion (-1.8%).

 Honda has stated that improving the profitability of its automobile business is the company’s top priority. The company believes that the aforementioned strengthening of the operational structure of its automobile business is required before it fully invests in funding for CASE technologies related to its automotive business. Honda's CASE strategy will be addressed in a separate MarkLines report.


Related report:
Honda's electrification strategy: Launching the "Honda e" compact EV in Europe and Japan (Mar. 2019)
Honda: Partnering with IT companies in Japan, the U.S., and China on advanced technologies(Oct. 2018)
Honda's Product Plans: Aggressive introduction of electrified vehicles(Sep. 2018)