Honda releases medium-term strategy (1)

The all-new Fit to be developed in six regions

2012/12/21

Summary

 Honda published its medium-term strategy in September 2012 announcing plans to sell more than three million vehicles in mature markets, another three million vehicles in emerging markets, six million vehicles in total, in FY2016 (sales in FY2012 are expected to be 4.12 million units).

 Honda's medium-term strategy calls for "global operation reform" through "concurrent development by all six regions," "adoption of locally optimized design drawings" and "improvement of production efficiency." Another key initiative of the strategy is the further advancement of the powertrain technological reform that Honda announced as "Earth Dreams Technology" in November 2011.

 The "concurrent development by all six regions" and "adoption of locally optimized design drawings" initiatives are being realized with the development of Honda's global strategic model, the all-new Fit. Regarding the powertrain technical development, Honda is developing three new hybrid systems that will reach the market in 2013.

 This report mainly contains the concurrent development of the all-new Fit in all six regions, the three new hybrid systems and rearrangement of the domestic sales and production structure in Japan. Honda's overseas operation will be covered in the next report.

 Honda's medium-term strategy announced in September 2012 is outlined at the end of this report.

Honda Group Unit Sales by region Urban SUV Concept
The all-new Fit-based "Urban SUV Concept" to be exhibited
by Honda at the 2013 North American International Auto Show


Related report: "Two million mini vehicles expected in Japan in 2012" (posted in December 2012)



Promoting localized development in a global scale while Suzuka Factory will be responsible for developing mini vehicles in Japan

 Honda's product development in emerging markets had been successful by introducing products sold in advanced markets. But the situations have changed in the past few years and the automakers are facing demands for products that directly reflect national and regional needs in emerging countries as well.

 Honda's development structure used to be concentrated in the Honda R&D Co., Ltd., located in Tochigi Prefecture, Japan, where development of the vehicles for North American market was prioritized. From now on, Honda R&D will remain responsible for global products but no longer for local products. The local products will be developed at respective production sites from scratch. As for mini vehicles, the development engineers have been relocated to Suzuka Factory that are now fully responsible from procurement to production of mini vehicles.

 As for its overseas operation, Honda plans to introduce or strengthen the practice of local development in emerging countries and the company is already increasing the number of engineers overseas. By doing so, Honda is building a new structure that will enable local products more promptly than before in the respective markers. The next-generation Accord and Civic models will be developed in the U.S. which is the largest market for the both models (details to be covered in the next report).

 



All-new Fit model to be developed concurrently in six regions

 Honda has adopted a new structure for concurrently developing its global models in all six regions. Each development site will create a "locally optimized design drawing" and develop a product accordingly that will meet specific local needs.

 The first under the newly adopted direction is the new Fit which is now being developed concurrently in all six regions. According to Honda, "the success of its medium-term strategy depends on the all-new Fit series."

The All-new Fit model being developed concurrently in all six regions with a full lineup of derivative models and targeted sales over 1 million vehicles a year

"Concurrent development by all six regions" and "locally optimized design drawing"  Honda is "developing vehicles concurrently in six regions" by preparing "locally optimized design drawings." The six regions are Japan, North America, Europe, Southeast Asia, China and South America. Until now, Honda's vehicle development took place mainly in Japan and it took two years for a global roll-out of a particular model. The lead time for roll-out will be reduced to one year under the new initiative.
 All six regions are participating in the development process from an early stage. Nearly 70% of the design concept of the vehicle will be shared across markets and the remaining 30% will be developed locally after preparing "locally optimized design drawings" to ensure prompt launch of new products that meet local needs (for example, high-grade Fit for customers in advanced countries, affordably-priced Fit for those in emerging countries).
Derivative model development  The same platform will be used to develop a CUV in addition to the Fit/Jazz (hatchback) and City (sedan) toward global roll-out within two years. The CUV will be sold mainly in Europe and North America, and the sedan (City) mainly in Southeast Asia and India. Honda will have a total production scale of a million units a year of the vehicles that share the platform at an early stage of market launch to increase parts order quantities thereby increasing the overall price competitiveness.
 Honda will exhibit the all-new Fit-based "Urban SUV Concept" at the North American International Auto Show being held in Detroit in January 2013.
Domestic production at Yorii Plant  The all-new Fit will be produced at Yorii Plant in Saitama Prefecture that will become operational in mid-2013. The new Fit will be released for sale in Japan first in the world in the autumn.
Overseas production  Honda is planning overseas production in Mexico, Brazil, China, Thailand, Indonesia and India for global market launch in several stages. According to Honda, the all-new Fit will not be produced in Europe but exported there from regions other than Japan.

(Note) Roll-out of derivative models applies also to the Brio being sold in Thailand and India. A hatchback styled Brio was launched in Thailand in May 2011 and a Brio Amaze sedan was launched in November 2012. Honda plans to introduce a minivan as well.

 

 



Developing three Honda SPORT HYBRID systems

 In November 2012, Honda announced a summary of three Honda SPORT HYBRID systems, each having unique characteristics, as part of its new-generation powertrain technology dubbed "EARTH DREAMS TECHNOLOGY." The existing title of "IMA" (Integrated Motor Assist) has been ended and replaced by "SPORT HYBRID" to stress an ideal balance between driving performance and fuel efficiency.

 Toyota has a unique hybrid system having two motors and a power split device that comprises planetary gears. This system applied to all Toyota hybrid vehicles. In contrast, Honda uses three different hybrid systems selectively to best suit the car's characteristics.

 Hybrid vehicles are in high demand for Honda to clear the increasingly strict fuel efficiency requirements in the U.S. Starting with the next-generation Accord, the company plans to strengthen its R&D structure and develop gasoline-fueled and hybrid vehicles in the U.S.

Honda's three SPORT HYBRID systems

One-motor system  The one-motor system, dubbed Honda SPORT HYBRID Intelligent Dual Clutch Drive, comprises a 1.5-liter Atkinson cycle engine, a 7-speed DCT (Dual clutch transmission) with a built-in high-output motor, and a lithium-ion battery to improve efficiency by more than 30% compared to the conventional IMA system. The DCT was chosen because of the sportier feel it gives than the AT or CVT.
 The motor is connected to the odd-numbered counter-shaft of the DCT. The odd-numbered and even-numbered counter-shafts are connected to the same output shaft, therefore the power of the motor is transferred to wheels even when the engine is connected to the even-numbered counter-shaft. The system is outlined below:
* The combination of the motor and the engine realizes sporty driving during acceleration and high-speed cruising.
* The engine is disengaged during startup and low- to medium-speed cruising to realize highly-efficient EV driving.
* The engine is disengaged also during deceleration to increase energy regeneration thereby increasing fuel efficiency.
 The company successfully increased the motor driving range by improving the hybrid system. Honda also intends to increase the regenerative energy recovery efficiency and achieve the industry's highest fuel economy among hybrid vehicles. The new system will be adopted first in the all-new Fit being launched in Japan in 2013.
Two-motor PHV system  The SPORT HYBRID Intelligent Multi Mode Drive / Plug-in combines a newly-developed engine dedicated for hybrid vehicles and an electric CVT coupled with two built-in motors (for generation and driving) and a lockup clutch, along with a 6.7kWh lithium-ion battery. The system has an EV driving range of 10 to 15 miles and a total range of over 500 miles. According to Honda, the system is suitable for mid-sized vehicles and will be installed in North American models in early 2013 and introduced later in the Japanese market as well.
 The system continuously switches the operation among three driving modes to realize the world's highest PHV efficiency (115 MPG-e):
* EV drive: Driving by the electric motor using the battery energy and regeneration during deceleration.
* Engine drive: Medium- to high-speed cruising with the engine alone, which reduces friction by disengaging electric power transmission.
* Hybrid drive: Urban cruising and powerful acceleration with the motor using electricity generated by the engine.
 The PHV to be introduced in Japan will be fitted with the compact, externally chargeable inverter based on Honda's proprietary generator technology.
 Above information is taken from Honda's announcement about a two-motor PHV system. The hybrid vehicle to be introduced in the summer of 2013 will use a nearly identical system.
Three-motor system  The three-motor system, called SPORT HYBRID SH-AWD (Super Handling-All Wheel Drive), combines a V6 engine and the high-output three-motor system to realize acceleration performance that belongs to a V8 engine with fuel efficiency better than that of an inline 4-cylinder engine. The system will be installed in the Acura RLX in the latter half of 2013 and in the Acura NSX in 2014 in North America. It will be used also in Japan in the post-Legend model in 2014.
 The front wheels are driven by a combination of the newly-developed V6 3.5-liter direct-injection engine and the newly-developed 7-speed DCT with a built-in motor. The rear wheels are driven by two motors that are installed in the rear.
* The two motors for driving the rear wheels are controlled separately, which makes independent control of torque distribution to the rear wheels possible for sharper cornering maneuver.
* The system also introduces a unique control where, depending on the radius of the curve, the energy generated by the inside wheel is recovered in the form of electric energy and applied to the outside wheel to self-generate torque necessary for the vehicle to make the turn.
 The all-new Acura NSX will be fitted with the same hybrid system as the RLX but the drive system is reversed in terms of front and rear from that on the RLX because of the mid-ship engine layout. The front wheels are driven by two motors and the rear wheel driven by the engine and a motor.
(Notes) 1. The Canter Eco Hybrid, launched by Mitsubishi Fuso Truck & Bus, is also fitted with a 6-speed DCT with the motor engaged with an even-number gear.
2. Based on its body size, the Civic is in between a one-motor system and a two-motor system. However, it most likely will be fitted with a one-motor system for cost consideration.

 

 



Set to sell 1 million vehicles in Japan in FY2016, with mini- and compact-sized vehicles accounting for 70 to 80%

 Honda aspires to sell one million vehicles in Japan in FY2016 with mini vehicles accounting for 50% and mini and compact-sized vehicles accounting for 70 to 80%. The company plans to produce one million vehicles in Japan, reduce exports, and sell all vehicles in Japan if possible.

 Among Honda's mini vehicles, the N series models launched in December 2011 were well received in the market. As a result, Honda's domestic sales of mini vehicles from January to November 2012 increased by 2.6 folds from 114,486 units (market share 8.2%) for the same period a year earlier to 295,389 units (15.9%).

 Mini vehicles accounted for more than 50% (50.9%) of its domestic sales in September 2012 when the "eco-car tax credit" provision was removed, and for 61% in November when the N-ONE, the third model in the N series, was released for sale.

 Thanks to the brisk sales of its mini vehicles, Honda is likely to rise above Nissan to the second position in domestic sales race in Japan at the end of 2012. Honda sold 700,407 vehicles while Nissan sold 620,809 vehicles in the period of January to November 2012.

Honda's sales of mini- and non-mini vehicles in Japan

FY2008 FY2009 FY2010 FY2011 Apr.-Sep.
2012
September
2012
October
2012
November
2012
Mini
Share
189,109
32.6%
158,429
23.9%
154,210
25.3%
165,666
27.6%
160,370
44.1%
27,173
50.9%
23,885
54.4%
30,601
61.0%
Non-mini 391,037 503,841 454,270 434,918 203,472 26,186 19,999 19,542
Total 580,146 662,270 608,480 600,584 363,842 53,359 43,884 50,143
Source: Honda's monthly report on automobile production, sales and export, Results for October and November 2012 are provided by Japan Automobile Dealers Association and Japan Mini Vehicles Association.
(Notes) 1. The eco-car tax credit for FY2012 ended at 18:00 on September 21.
2. In terms of the domestic sales of mini passenger cars in Japan in November 2012 when Honda launched the N-ONE, the third model in the N series, Daihatsu led the industry at 36,048 units (with 32.6% market share), followed by Suzuki at 28,221 units (25.5%) and Honda tied at 28,197 units (25.5%).

 

Sales structure in Japan: Strengthening Small Stores and large-scale stores alike

 Honda plans to strengthen both the "Small Stores" where mini- and compact-sized vehicles are sold, and larger-scale stores where a full lineup of Honda vehicles are displayed.

Reconstructing domestic sales structure

Opening more Small Stores  To coincide with the launch of the N BOX, Honda has started nationally refurbishing the former Primo family of dealerships that primarily sold mini vehicles, and converting them into "Small Stores" that mainly sell mini- and compact-sized vehicles. The Small Stores showcase a broad lineup of mini- and compact-sized vehicles and are styled in a friendly fashion for female customers as well. There are 208 stores as of November 2012 and Honda plans to increase the number to 250 by the end of 2013 to meet the growing popularity of mini- and compact-sized vehicles that account for 70% in the domestic market.
 The operational know-how of the Small Stores is partially adopted in other small-scale stores as a measure to boost sales of mini- and compact-sized vehicles.
Opening large stores  Honda's dealerships tend to be small in size as many started as motorcycle shops. Judging that "small dealerships are not attractive to potential customers of upper-class cars," Honda has decided to develop large-scale dealerships in each region where basically a full lineup of Honda vehicles are displayed. There are a number of large stores already in local cities, where preparing necessary land is easier. Honda is currently making special effort in large cities as well. In February 2012, for instance, Honda opened a 5,000 square meter store in Adachi Ward, Tokyo. Another plan is in progress in an existing store in Mitaka City, Tokyo, to expand the ground by 2.8 folds to 5,900 square meter.
(Notes) 1. In March 2006, Honda reorganized 2,400 dealerships into the "Honda" channel of dealerships, comprising the former Primo dealerships (1,494 stores in Japan mainly selling mini- and compact-sized vehicles), the Verno dealerships (399 stores selling SUVs and sports cars), and the Clio dealerships (511 stores selling higher-class vehicles). The decision was to sell Honda vehicles regardless of the make at all dealerships.
2. Because of the above decision, however, the dealerships shied away from the least profitable mini vehicles. For this reason, and also because of the shortage of new model launch, Honda's mini vehicle sales fell sharply from 283,000 units in FY2006 to only 154,000 units in FY2010.
3. In Honda's anticipation about the present mini vehicle market in Japan, customers are likely to downsize from small-sized to mini vehicles. Consequently, Honda has decided to sell both mini- and compact-sized vehicles alike at Small Stores to meet the prevailing market trend.

 

 



Production structure in Japan: Maintaining 1 million vehicles production at home

 Honda intends to keep 1 million vehicles production in Japan to maintain current employment and production infrastructure. With the start of production of mini passenger cars at Suzuka Factory and of the all-new Fit at Yorii Plant, Honda will rearrange its three assembly plants in Japan.

 To avoid the influence of the yen's appreciation, Honda is endeavoring to increase business efficiency by transferring production of vehicles that used to be exported from Japan to its plants overseas, and discontinuing domestic production of upper-class passenger cars. Honda plans to maintain 1 million vehicles production in Japan by supplying highly competitive mini- and compact-sized vehicles to boost domestic sales and make up for the decrease of exports.

Reconstructing production structure in Japan

 Suzuka Factory to concentrate on production of mini passenger cars. The Yorii Plant, which will become operational in July 2013, will concentrate on production of the new Fit and other small-sized vehicles. At the Sayama Plant of Saitama Factory, two existing production lines will be consolidated to one to establish a highly-efficient production system capable of producing more than ten different models seamlessly on the same line.
Suzuka Factory  Honda started production of the all-new mini passenger car, N BOX, at Suzuka Factory in the fall of 2011, and production of the N BOX+ and N-ONE followed. Honda will add five models of mini passenger cars by 2015 at Suzuka Factory which will become a highly-efficient plant dedicated to mini vehicles.
 Development and procurement staff have come together at Suzuka Factory to establish a streamlined system from development to procurement, production and sales of mini vehicles. While mini vehicles are typically less profitable with low unit prices, Honda has established closer cooperation between production and development functions and realized profitability higher than that of the Fit.
Sayama Plant,
Saitama Factory
 One of the two production lines at Sayama Plant will be transferred to Yorii Plant together with workers. Sayama Plant will have a highly-efficient production system capable of producing more than ten different models seamlessly on the same line.
Yorii Plant,
Saitama Factory
 Yorii Plant will be completely built and be fully operational in July 2013 and start producing the all-new Fit and other small-sized vehicles (annual capacity of approximately 200,000 units). Honda has enough domestic production capacity aside from the Yorii Plant, but Honda decided to finish building the plant since Sayama Plant is growing outdated beyond the point of renovating it with the latest equipment.
 Yorii Plant will be fitted with the most advanced equipment and play the leading role in the global production operations of Honda group.

 

Transferring export vehicle production from Japan to overseas

Fit for the U.S.  Production of the Fit exported to the US. (40,000 units were exported in FY2011) will be transferred from Japan to Mexico starting with the next model slated for market launch in 2014 (Honda's Mexican plant is to become operational in 2014 and dedicated to small-sized vehicles).
Civic HV
for the U.S.
 Honda has ended production of the Civic for the U.S. in Japan (the Civic sold 254,716 units in the U.S. in the period of January to October 2012, including 7,916 units imported from Japan). Production of the Civic Hybrid will be transferred from Japan to the Indiana Plant, U.S.
 Annual capacity of the Indiana Plant will be increased from 200,000 to 250,000 units in early 2013 and the plant will start production of the Civic Hybrid. Production of gasoline-fueled vehicles will also be increased.

Production of upper-class vehicles for domestic market discontinued

Legend/Acura RLX for domestic market  Production of the Legend for domestic markets at Sayama Plant ended in June 2012. Production of the Legend's sister model, the current Acura RL for the U.S. market, has also ended.
 The Acura RLX (the next RL) will be produced in the U.S. The gasoline-fueled model will be launched in the spring of 2013 and the model fitted with the SPORT HYBRID SH-AWD will be launched in the second half of 2013. The next Legend fitted with the SPORT HYBRID will be launched in Japan in 2014 (most likely imported from the U.S.).
Inspire for Japan, Accord for the U.S.  Production of the Inspire for domestic markets at Sayama Plant ended in July 2012. Production of the sister model, the Accord for export to the U.S. market, has also ended (the Accord sold 275,980 units in the U.S. in the period of January to October 2012, only 216 units of which were imported from Japan).
 The Accord PHV will be produced at the Sayama Plant and released for sale in early 2013 nearly concurrently in the U.S. and Japan. The HV version (ordinary hybrid vehicles) will be launched in the summer in the U.S. Production of the Accord PHV and HV will be transferred from Japan as soon as the plant in the U.S. becomes ready.
(Notes) 1. The Legend sold 236 units, and the Inspire sold 623 units, in Japan from January to October 2012.
2. The next Acura NSX fitted with the SPORT HYBRID SH-AWD also will be produced in the U.S. This means the three-motor type hybrid vehicles will be produced in the U.S. for both models.

 

 



Consolidated results: Honda expects unit sales of 4.12 million units and sales amount of 9,800 billion yen in FY2012

 Honda's financial performance during the April to September period of FY2012 registered a substantial increase in revenue and profit with a 53.1% increase in unit sales to 1,995,000 units, the highest ever for the first half results in any fiscal year.

 However, Honda announced a downward revision in the full-year result for FY2012 on account of the relations with China. The revision calls for 180,000 units less in unit sales, 500 billion yen less in the consolidated net sales, and 100 billion yen less in net operating income, compared to the original forecast.

 Honda's earnings forecast after the downward revision includes unit sales of 4.12 million units (up 32.6% from last fiscal year), net sales of 9,800 billion yen (up 23.3%) and net operating income of 520 billion yen (up 2.2 times).

 Honda's forecast for capital investment was increased by 20 billion yen from 580 billion yen as originally planned for the fiscal year to 600 billion yen.

Honda Group Unit Sales by region

(thousand vehicles)
FY2008 FY2009 FY2010 FY2011 Apr.-Sep.
2011
Apr.-Sep.
2012
FY2012
Outlook
Japan 556 646 582 588 225 354 710
North America 1,496 1,297 1,458 1,323 494 854 1,740
Europe 350 249 198 158 75 83 205
Asia 793 950 1,008 837 406 563 1,155
Other regions 322 250 266 202 103 141 310
Worldwide 3,517 3,392 3,512 3,108 1,303 1,995 4,120
Source: Honda consolidated results
(Notes) 1. Honda Group Unit sales through FY2010 is the total of the finished vehicle sales by Honda and consolidated subsidiaries (A) and sales volume of the production parts sold to the equity method affiliates (B). Honda Group Unit Sales after FY2011 is the total of (A) above and the unit sales by the equity method affiliates (C). Therefore, these figures include those sold by the joint venture companies in China.
2. Unit Sales outlook for FY2012 was published in October 2012 concurrently with the financial statement for the second quarter (this also applies to the consolidated earnings forecast given below).

 

Honda's consolidated results

(million yen)
FY2008 FY2009 FY2010 FY2011 Apr.-Sep.
2011
Apr.-Sep.
2012
FY2012
Forecast
Net sales and revenue 10,011,241 8,579,174 8,936,867 7,948,095 3,600,488 4,707,195 9,800,000
Operating income
thereof: Automobiles
189,643
24,543
363,775
126,758
569,775
264,550
231,364
(77,206)
75,090
(105,369)
276,880
137,798
520,000
Income before taxes 161,734 336,198 630,548 257,403 105,854 301,040 540,000
Net income 137,005 268,400 534,088 211,482 92,226 213,956 375,000
Capital investment
Depreciation
R&D costs
599,100
408,200
563,100
329,700
366,600
463,300
311,300
325,200
487,500
406,500
293,700
519,800
132,100
141,200
237,800
250,700
131,100
266,100
600,000
285,000
555,000
Average rates (USD)
Average rates (EUR)
101 Yen
142 Yen
93 Yen
130 Yen
86 Yen
114 Yen
79 Yen
108 Yen
79 Yen
113 Yen
79 Yen
101 Yen
80 Yen
103 Yen

Source: Honda's consolidated results

 

 



Honda's medium-term strategy in summary (announced in September 2012)

Global sales plan

Targeted sales in FY2016 Mature markets  Sales will rise from 2.06 million units in FY2011 to more than 3 million units.
Emerging markets  Sales will triple to more than 3 million units, including 1.6 million units in China, up by 1 million units from the quantity in FY2011 (in spite of the worsened Japan-China relations, Honda has no plan to change its strategy for China), and 1.2 million units in Asia, up 1 million units.
Global total  Honda plans to sell more than 6 million units.

Development and production structural renovation

Global operation reform Concurrent development in six regions  Please see "All-new Fit model being developed concurrently in all six regions" of this report.
Locally optimized design drawings
Improvement of production efficiency  Please see "Domestic production structure: Maintaining 1 million vehicles production at home" of this report.

Technical development (further advancement of Earth Dreams Technology)

 Honda will further advance its "Earth Dreams Technology," a next-generation powertrain technology reflecting the improvement of the engine and the transmission and the advancement of electromotive technologies applied to motors and other components, all contributing to the enhancement of both driving performance and fuel efficiency at a high level.
Gasoline engines  Honda will continue developing internal combustion engines with fuel efficiency increased to the ultimate level. The newly-developed engine series will be adopted sequentially starting with the all-new Accord launched in the fall of 2012 in the U.S.
Diesel engines  Honda is developing a 1.6-liter turbo diesel engine. A single turbo version will be adopted on the Civic to be sold in Europe, and also on the CR-V. A twin turbo version will be used on upper-class models powered by 2.0-liter or larger gasoline engines.
 Starting in FY2013, diesel engines will be produced locally in India and fitted in the locally manufactured vehicles (Honda reportedly will produce diesel engines with displacement of around 1.5 liters).
CVT  Three types of CVT are newly developed and adopted for a broad variety of mini, compact and mid-size vehicle classes. The CVT for the mini class was first adopted in the N BOX launched in Japan in December 2011. The one for the mid-size class was adopted in the new Accord with the four-cylinder 2.4-liter engine model launched in the U.S.
Hybrid vehicles  Please see "Developing three Honda SPORT HYBRID systems" of this report.
Battery EVs Fit EV  The Fit EV was released for lease sales in the summer of 2012 in Japan and the U.S. Honda will continue its efforts to develop EVs for their further market penetration in line with changes in energy situation.
Micromini EV
"micro commuter"
 Honda is in the process of developing an all-new style of personal mobility vehicles taking advantage of its expertise as the automaker having both motorcycle and automobile technologies. Demonstration testing of such vehicles will start in Japan in 2013.
 The prototype, unveiled in November 2012, accommodates two adults or one adult and two children at a time. Built on the "Variable Design Platform," the body and the interior of the micro commuter can be developed and produced easily to meet specific use and requests. The maximum cruising range is about 60km.
Fuel cell electric vehicles  A new fuel cell electric model, reflecting further technical progress and substantial cost reduction, will be launched sequentially in Japan, the U.S. and Europe starting in 2015.

Source: Honda Press Releases 2012.9.21/2011.11.30

 


Source: Honda financial statements, press releases and media reports

<Automotive Industry Portal MarkLines>