Honda releases medium-term strategy (2)
North American exports to top 200,000 units after 2014
The Honda Civic after major freshening and released
for sale in North America in November 2012
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).
This report, "Honda releases medium-term strategy (2)," contains Honda's plans to increase its development and production capabilities outside of Japan, namely North America, Europe, Asia (other than China) and Brazil.
North America will remain Honda's largest market through FY2016 as the company plans to increase its sales from 1.74 million units (forecast for FY2012) to 2 million units in FY2016. To avoid the influence of the yen's appreciation, Honda plans to decrease export from Japan and strengthen North America as its new export base. Export from North America will exceed import from Japan (into North America) in 2014. Honda also plans to export its vehicles in the order of 200,000 units in the near future. To achieve these goals, Honda has plans for substantial increase of its production capacity. When its second plant in Mexico starts operation in 2014, Honda's capacity in North America will increase to 1.92 million units and maybe more.
As for Europe, Honda has been operating in deficits since FY2009. Honda is introducing newly-developed diesel engines and other products to strengthen its product appeal in Europe. The next Fit (Jazz) will not be produced in the U.K. plant and Honda will concentrate on producing the Civic and CR-V to recover profitability.
In Asian countries other than China, Honda plans to increase its unit sales substantially from approximately 200,000 units in FY2011 to 1.2 million units in FY2016.
In South East Asia, Honda will increase production capacities in Thailand, Indonesia and Malaysia, and establish a complementary supply structure in the ASEAN region to improve efficiency of production at all locations. Starting in 2013, Honda will produce diesel engines in India that will be used in small-sized vehicles.
In Brazil, Honda will strengthen the development capabilities as part of the company's concurrent development plan by all six regions. The small-sized vehicles for Brazilian market will be developed locally in Brazil.
Honda releases medium-term strategy (1) The all-new Fit to be developed in six regions (posted in December 2012)
Aspiring to sell 2 million units in North America in FY2016
North America is Honda's largest market accounting for over 40% of global unit sales, nearly 50% of net sales, and approximately 40% of operating income (over 50% in FY2009-2011). Honda's sales forecast is set at 1.74 million units in FY2012.
In 2009, Honda had 11.0% share in the light vehicle market in the United States. The share fell to 9.0% in 2011 due to the Great East Japan Earthquake and floods in Thailand, and rose again to 9.8% in the period from January to November 2012 after the company's production was recovered.
As for the Honda brand vehicles, the all-new model of its largest volume-selling car, the Accord, was launched in September 2012. Its sales fell below the 300,000 units mark from 2009 to 2011 but the company intends to sell 350,000 units a year. The Civic, another volume-selling car next to the Accord, was fully remodeled but its interior was less appealing than expected. Only 18 months after the redesign, the Civic was released after major freshening of the interior and other parts in November 2012. All models under the Acura brand will be fully redesigned in the next three years.
Honda intends to sell 2 million units in North America among the global sales target of 6 million units in FY2016. Honda will increase sales in all relevant segments. In particular, Honda intends to increase annual sales of the next Fit series to be produced in Mexico starting in 2014 from several tens of thousands units to over 200,000 units and make it a new volume-selling model after the Accord, Civic and CR-V.
Honda's sales in the US by model
|2007||2008||2009||2010||2011||Jan.-Nov. 2011||Jan.-Nov. 2012|
|RL ILX（RSX） NSX TL TSX ZDX||6,262 296 2 58,545 33,037||4,517 1 46,766 31,998 0||2,043 0 33,620 28,650 79||2,037 34,049 32,076 3,259||1,096 31,237 30,935 1,564||1,046 27,954 27,389 1,478||361 9,766 31,326 26,723 725|
|MDX RDX||58,606 23,356||45,377 15,845||31,178 10,153||47,210 14,975||43,271 15,196||38,683 13,620||45,785 25,496|
|Accord Civic Crosstour CR-Z FCX Fit Insight S2000||392,231 331,095 10 56,432 3 4,302||372,789 339,289 11 79,794 0 2,538||290,056 259,722 0 0 5 67,315 20,572 795||282,530 260,218 28,851 5,249 17 54,354 20,962 85||235,625 221,235 17,974 11,330 2 59,235 15,549 5||217,958 200,690 16,679 10,766 2 54,097 14,859 3||302,444 284,791 18,665 3,949 5 45,666 5,536|
|Honda Div. Car||784,073||794,421||638,465||652,266||560,955||515,054||661,056|
|CR-V Element Odyssey Pilot Ridgeline||219,160 35,218 173,046 117,146 42,795||197,279 26,447 135,493 96,746 33,875||191,214 14,884 100,133 83,901 16,464||203,714 14,247 108,182 102,323 16,142||218,373 11,534 107,068 116,297 9,759||196,787 11,518 95,579 104,656 8,291||255,919 3 116,854 103,482 12,515|
|Honda Div. Truck||587,365||489,840||406,596||444,608||463,031||416,831||488,773|
|Total Honda Div.||1,371,438||1,284,261||1,045,061||1,096,874||1,023,986||931,885||1,149,829|
|American Honda Motor||1,551,542||1,428,765||1,150,784||1,230,480||1,147,285||1,042,055||1,290,011|
|Total demand in the U.S.||16,154,064||13,245,718||10,431,509||11,589,844||12,778,885||11,535,196||13,136,306|
Source: Automotive News. The total demand in the U.S. represents unit sales of light vehicles.
Exporting 200,000 units from North America after 2014, more vehicles than those imported to North American from Japan
In December 2012, Honda celebrated the millionth automobile embarking for export from the U.S. Honda currently exports eleven models including the Accord, Civic and Pilot built at four U.S. locations, to more than forty countries (quantities exported from North America to areas other than Canada and Mexico that are member countries to NAFTA). Honda intends to increase export of the models after 2013 that are currently built only in the U.S., and the Acura brand cars.
Honda exported 53,000 units from North American plants in 2011 and approximately 100,000 units in 2012. The company will export more vehicles from North America than it imports from Japan after the Mexican plant starts production in 2014. The annual export is expected to reach approximately 200,000 units in the near future.
Those automobiles produced in North America accounted for 90% of those sold in the U.S. from January to November 2012. The company is said to raise the ratio to 95% in its medium-term plan along with a substantial decrease in export from Japan to North America.
Increasing export from North America, likely to outnumber import from Japan in 2014
|Total export from Japan||707,049||650,308||250,268||305,412||235,087|
|(Those exported to North America)||414,227||346,975||144,696||199,445||161,553|
|Ratio of NA-made cars to U.S. vehicle sales volume (Note 1)||76.2%||77.0%||84.3%||87.0%||85.1%||90.0%|
Quantities produced in and exported from North America
|Production in North America||1,432,731||1,421,427||1,030,958||1,287,775||1,103,127|
|Production capacity in North America||1,630,000||1,920,000|
|Exported from North America||53,000||100,000||200,000|
|Source: Honda's monthly report on automobile production, sales and export|
|(Notes) 1.||The ratio of NA-made cars to U.S. vehicle sales volume represents "the U.S. unit sales produced in North America/the total unit sales including those imported into the U.S.". North America includes Mexico. The ratio for 2012 covers the period from January to November.|
|2.||Honda plans to strengthen its markets in North America and China where the Acura brand cars are sold. Honda will extend the efforts to other markets as well including Russia, Ukraine, United Arab Emirates, Saudi Arabia and Brazil. Most of the applicable vehicles will be exported from North America.|
Increasing production capacities in North America
Honda will increase production capacities in North America substantially to increase sales while sparing enough vehicles for export.
Honda's production capacity in North America is 1.63 million units as of 2012. Honda intends to increase capacity by 40,000 units at the Alabama plant and 50,000 units at the Indiana plant. When the second plant in Mexico starts operation in 2014 with an annual capacity of 200,000 units, Honda's total capacity will reach 1.92 million units.
All those plans, however, will still fall short of a necessary quantity if sales of the Civic and Accord grow further. Accordingly, Honda has noted that there may be further increase in capacity at its plants in the U.S. and Canada.
It has been reported that Honda plans to build a third plant in Mexico with an annual capacity of 200,000 units after the second plant gets on track.
Honda's capacity increasing plan in North America
|Second Plant in Mexico||An assembly plant is being constructed in Mexico with annual capacity of 200,000 units at the cost of 800 million dollars. The new plant will produce the Fit and derivative models starting in 2014 that will be supplied mainly to the U.S. market.|
|Alabama Plant||In early 2013, Honda will invest 400 million dollars to increase annual capacity at the Lincoln plant in Alabama, U.S., where the Odyssey, Pilot and Ridgeline are being produced, by 40,000 units to 340,000 units. When this plan is realized, Honda will transfer production of the Acura MDX from the plant in Ontario, Canada. The company intends to centralize production of the V6 engine powered vehicles to the Alabama plant to increase efficiency (see Note 3).|
|Indiana Plant||In early 2013, Honda will invest 40 million dollars to increase annual capacity from 200,000 to 250,000 units to build more Civic cars. Production of the Civic Hybrid will also be transferred from Japan.|
|Third Plant in Mexico||When the second plant in Mexico gets on track, Honda reportedly plans to build a third plant with annual capacity of 200,000 units as at the second plant, and start production in 2016 at the earliest. If this plan is realized, Honda's production capacity in North America will increase to 2.12 million units.|
|(Notes) 1.||The above plans are for increasing production capacities at assembly plants. Honda is also increasing capacities to manufacture powertrains and associated components at such plants as the engine plant in Anna and the transmission plant in Russells Point, both located in Ohio, U.S.|
|2.||The Marysville plant in Ohio produces the Honda Accord and the Acura TL, a sister model to the Accord. The plant produced 336,000 units of the Accord from January to October 2012 (compared to 195,000 units in the same period a year earlier). Since production of the Accord for export at the Sayama plant in Japan ended in mid-2012, the Marysville plant became fully responsible for producing the new Accord for export and is now producing more vehicles than ever. The plant has annual capacity of 440,000 units.|
|3.||Production of the CR-V currently being exported from the Sayama Factory in Japan will be transferred partially to Canada (the CR-V sold 256,000 units in the U.S. from January to November 2012, including 39,000 units imported from Japan). The Canadian plant will specialize in the Civic and the CR-V powered by four-cylinder engines.|
Developing the next Civic and Accord in North America
Honda is pursuing a localized development in a global scale including concurrent development in all six regions of global models such as the Fit.
Honda has announced plans to make North America its base for developing and producing the Acura brand models and refresh all applicable models within three years (announced in January 2012).
Honda also plans to develop the next Civic and Accord in North America where more than half of the global sales quantities are sold.
Developing the next Civic and Accord in North America
|Honda intends to transfer its development to the United States from Japan starting with the next Civic and Accord slated for launch in around 2016 to strengthen its operation in North America. More than half of their global sales are taking place in North America and, according to Honda, developing these models in Japan has less merit today. Honda has started development of the next Civic at its U.S. subsidiary, Honda R&D Americas, Inc. All stages from designing the body and interior to the selection of procurement parts will be done mainly by American engineers. The same steps will be taken shortly with the next Accord.|
|Traditionally, Honda had approximately 9,000 engineers at one of its subsidiaries, Honda R&D Co., Ltd., with the mission to develop new vehicles for all markets. Now, Honda will gradually separate development activities for overseas markets from the subsidiary while strengthening its role of providing advanced technologies for other regions.|
|According to Honda, its development department in the United States is now staffed with approximately 2,000 engineers, including 200 dispatched from Japan, who are capable of developing gasoline-fueled vehicles including powertrains. As for electrified vehicles that have been developed centrally in Japan, Honda intends to transfer equipment and know-how required for developing electrified vehicles to the United States toward the immediate goal of developing the next Civic and Accord.|
(Note) In January 2012, Honda announced plans to develop and produce the next Acura NSX, fitted with the three-motor type hybrid system, in the United States.
European operation: Strengthening market appeal and aiming to start full operation at the U.K. plant by 2015
Honda is operating under deficits in Europe since FY2009 due to the sluggish economy and the weak euro with only 50% capacity use at its U.K. plant.
The U.K. plant has been operating in a single shift but both of the two lines have resumed two-shift operation at the start of producing the new Civic and the new CR-V. Honda aspires to sell 205,000 units in Europe in FY2012.
The next Fit (Jazz) will not be produced at the U.K. plant as it will concentrate on producing the Civic and CR-V. Honda will make appealing derivatives available under each make, including diesel-fueled versions and Civic wagon. The company plans to produce them to the plant's full capacity of 250,000 units by 2015.
Honda's European operation
|FY2008||FY2009||FY2010||FY2011||Apr.-Sep. 2011||Apr.-Sep. 2012||FY2012 Outlook|
|Export from Japan (units)||142,008||45,725||40,614||31,996||16,195||9,448|
|Net sales (million yen)||1,278,902||825,472||699,298||580,792||295,470||292,450|
|Operating income (million yen)||10,201||(10,872)||(10,203)||(12,109)||(10,133)||(16,359)|
|Exchange rate (euro)||142 yen||130 yen||114 yen||108 yen||113 yen||101 yen||103 yen|
Sources: Honda's consolidated results and report on automobile production, sales and export
Strengthening operational structure in Europe
|2 lines in 2-shift operation at U.K. plant||The U.K. plant was operating in 1-shift mode at both of the two lines. One of the two lines was set to a 2-shift operation and started producing the new Civic at the end of 2011. The other line was also set to a 2-shift mode in November 2012 and started producing the new CR-V.|
|Newly-developed diesel engines||The newly-developed 1.6-liter diesel engine will be fitted in the Civic in early 2013, and also in the CR-V in the fall of 2013.|
|Civic Wagon||The Civic Wagon developed exclusively for European markets will be released for sale in 2014 (its sketch drawing was exhibited at the Paris Motor Show held in September 2012).|
|Civic Type-R||The sports type Civic, Type-R, will be released for sale in 2015 if all goes as planned.|
|Limiting production to two models for higher efficiency||The U.K. plant is producing three makes including the Civic, CR-V and Fit (Jazz). The next Fit being launched in 2014 will not be produced at the U.K. plant. Honda plans to increase imports from the exporting plant in Guangzhou, China, for sale in the U.K. The production models at the U.K. plant will be limited to two makes and Honda will increase the Civic and CR-V derivatives to improve overall efficiency.|
|Aiming for full production||Honda intends to increase the production efficiency and operate the U.K. plant in its full capacity at 250,000 units.|
Asia: Strengthening production capabilities and increasing complementary supply within the ASEAN region
Honda's medium-term strategy calls for sales in Asia other than China to increase from approximately 200,000 units in FY2011 to 1.2 million units in FY2016.
Honda has plans to increase production capacities for assembled cars in Thailand, Malaysia and Indonesia. The company intends to increase operational efficiency by restricting the number of makes in respective regions assuming complementary supply of assembled cars in the ASEAN region such as exporting the Civic, City and Brio from Thailand to Indonesia. Honda is likely to beef up its operation in Thailand as an important export base.
Increasing production capacities in Southeast Asia
Thailand: Increasing production capacity to 290,000 units in 2013, considering addition of a new plant
|Resuming production and increasing capacity at the Thai plant||On October 4, 2011, the Thai plant was shut down due to the floods and it resumed operation on March 26, 2012. Honda invested approximately 25 billion yen to renew most of the facilities, removed the production control computers to upper floors and made other changes before the plant was ready for operation. The Thai plant has an annual capacity of 240,000 units.|
|Honda plans to increase the annual capacity of the Thai plant to approximately 290,000 units within FY2013. The company will invest 2 to 3 billion yen to reinforce the welding and coating processes. Honda is also considering building a new plant in another area in Thailand while maintaining operation at the existing plant. The new plant's operation is considered to start in 2015.|
|Producing Fit HV||In July 2012, production of the Fit HV (Jazz HV) started at the Thai plant. Honda plans to sell 10,000 units yearly in Thailand and also export to Australia and New Zealand.|
|Launching the Brio Amaze||In November 2012, Honda launched the new small-sized sedan, Brio Amaze, that shares the platform with the Brio five-door hatchback that was launched in May 2011. Powered by a 1.2-liter engine, the Brio Amaze is a compact car with the overall length of 3990mm. It received an eco-car certification by the Thai government as did the original Brio. The price starts from the equivalent of approximately 1.18 million yen.|
Indonesia: Building a new plant to triple annual capacity to 180,000 units
|Tripling annual capacity to 180,000 units||Honda is investing approximately 27 billion yen to build a new plant with annual capacity of 120,000 units in the premises of the existing plant in Indonesia. Production at the new plant will start in March 2014, raising Honda's capacity in Indonesia from 60,000 to 180,000 units. The Brio that was imported and released for sale starting in August 2012 will be produced at the existing plant starting in 2013, and at the new plant after 2014. Honda plans to develop Indonesian plants as a key operational site next to Thailand.|
|Raising the local content ratio to 80%||Honda intends to improve local development capabilities, build an efficient production structure, and raise the local content ratio from approximately 50% to about 80%. The goal is to offer quality products more speedily and at more affordable prices to the market.|
|Launching CR-Z||Honda will launch a hybrid vehicle, CR-Z, in early 2013 in the Indonesian market. Indonesia will be the fourth region in Southeast Asia after Thailand, Malaysia and Singapore where the CR-Z is sold. The CR-Z will be of the same model, fitted with a lithium-ion battery, that was released for sale in Japan in September 2012.|
Malaysia: Doubling production capacity to 100,000 units
|Building a second line||In July 2012, construction work started to build a second line in the existing plant in Malacca, Malaysia. The new line, costing approximately 8.7 billion yen, will double annual capacity at the Malaysian plant from 50,000 to 100,000 units in 2013. The second line will be devoted to producing the Fit (Jazz) and other small-sized and hybrid vehicles.|
|Assembling hybrid vehicles||The Fit Hybrid was imported and sold in Malaysia starting in the spring of 2012. Honda expects to sell 10,000 units of HVs in 2012. The Fit HV is to be assembled on the existing line at the end of 2012 and later at the second line in 2013. Malaysia is the largest market in Southeast Asia for hybrid vehicles. Honda sold 4,600 units of Insight in 2011.|
India: Aiming for selling 300,000 units in FY2016
Diesel engines to be produced locally in India starting in early 2013 will be fitted in small-sized vehicles. Honda plans to increase sales in India from approximately 50,000 units in FY2011 to 300,000 units in FY2016.
|Joint venture company in India becomes a fully-owned subsidiary||Honda has reorganized its automobile business in India. The company purchased 3.16% stake in Honda's local production and sales company in India from Usha International. As a result, the company name was changed from Honda Siel Cars India Ltd. to Honda Cars India Ltd. By converting it into a fully-owned subsidiary, Honda will be able to make decisions more quickly.|
|Revising sales model lineup||Honda intends to revise its sales model lineup in India. The new Civic that was launched in North America in April 2011 and the new Accord that was launched globally in the fall of 2012 will not be sold in the Indian market. Production of the former versions of these models will continue in India (both models sell about 1,000 units each a year and Honda may end their production altogether). Honda will devote its management resources to small-sized vehicles including the Brio that was launched in September 2011.|
|Producing diesel engines||Honda is a late starter in India for lack of diesel engines. The company invested 30 billion yen to install necessary production facilities in the premises of the second plant that belongs to Honda's local subsidiary (located in Rajasthan to produce engine and other components but operation of the completed vehicle plant is being postponed). The plant will produce 1500cc diesel engines starting in early 2013 and the engines will be fitted in all small-sized vehicles sold in India.|
Brazil: Strengthening R&D structure, launching Acura brand
Honda announced plans, at the Sao Paulo International Motor Show held in October 2012, to strengthen its research and development structures in Brazil as part of the "global operation reform" addressing concurrent development by all six regions. Brazil is a large market for low-priced vehicles that rank below the Fit-class cars. Rather than introducing the Brio, an entry car designed for Asian markets, directly into Brazilian market, Honda intends to assign its development division in Brazil to the development of locally preferred vehicles after some drastic reorganization.
Strengthening development structure in Brazil, launching Acura brand
|Strengthening research and development capabilities||Honda announced plans to invest approximately 4 billion yen in the next two years to strengthen local development capabilities. The company will complete a new research and development facility within 2013 and increase the number of development staff members from approximately one hundred to several hundreds.|
|The strengthening initiative is part of the "global operation reform" addressing concurrent development of new models by all six regions. It will help the local staff design and develop vehicles that reflect local needs, adopt more locally available parts and launch new models that will meet Brazilian customers' needs.|
|Launching Acura cars in 2015||Honda has announced plans to launch the Acura brand cars in Brazil in 2015. Three Acura models including NSX, RDX and ILX were exhibited (references) at the motor show held in October 2012. Most of the vehicles will be supplied by import from the United States.|
Launching models tailored to Brazilian markets
|FIT twist||The FIT twist, the first model developed by the development team in Brazil, was exhibited at the Sao Paulo International Motor Show held in October 2012. It was released for sale in November. Based on the Fit, the FIT twist is designed as a Brazil-only model with a sporty image that features all-new front grille and roof railing.|
|Flex-fuel vehicles||Honda announced its lineup arranged according to the local trend toward flexible-fuel vehicles (FFV) including the CR-V Flex being launched in 2013 and the new Civic fitted with a 2000cc engine.|
Exporting the City from Argentina to Brazil
|Export of the City from Honda's Argentina plant to Brazil started in July 2012. Honda plans to ship approximately 6,500 units of the City FFV (worth 150 million dollars) by the end of 2012. This marks Honda's first shipment of vehicles produced in Argentina to other nations.|
Honda's global production, net sales and operating income by the region
Honda's production by the region
|FY2007||FY2008||FY2009||FY2010||FY2011||Apr.-Sep. FY2011||Apr.-Sep. FY2012|
|North America thereof: the U.S.||1,441,265 1,019,135||1,251,029 857,802||1,152,009 827,946||1,291,556 963,911||1,229,005 905,869||454,438 344,742||814,670 580,642|
|Asia thereof: China||819,251 492,008||828,851 512,076||991,999 652,596||1,085,457 687,632||834,409 636,054||399,122 270,019||609,896 349,795|
Source: Honda's monthly report on automobile production, sales and export
Honda's net sales and operating income by the region
|FY2008||FY2009||FY2010||FY2011||Apr.-Sep. FY2011||Apr.-Sep. FY2012|
|Net sales||Japan North America Europe||4,162,587 4,779,124 1,278,902||3,305,777 3,908,216 825,472||3,611,207 4,147,897 699,298||3,362,952 3,714,756 580,792||1,430,711 1,528,073 295,470||1,931,744 2,269,473 292,450|
|Asia Other||1,608,231 1,144,220||1,518,580 896,491||1,841,167 982,083||1,490,478 893,132||781,236 474,310||1,052,271 450,014|
|Operating income||Japan North America Europe||(161,616) 79,702 10,201||(29,135) 236,379 (10,872)||66,118 300,922 (10,203)||(109,834) 223,293 (12,109)||(81,203) 66,218 (10,133)||91,025 108,966 (16,359)|
|Asia Other||103,603 135,062||113,006 45,808||150,637 69,549||76,870 56,956||46,976 38,808||68,154 22,819|
Source: Honda's consolidated results (Note) Net sales and operating income from local production by joint venture companies in China are not included in the table above. Honda's equity in income of affiliates in China is reflected in non-operating income in consolidated results.
|Equity in income of affiliates||99,000||93,200||139,700||100,400||44,200||48,200|
Source:Honda financial statements, press releases and media reports
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