Honda: Plans rapid sales expansion in emerging countries
Strengthens localized production and development capabilities to gain competitive advantage
Honda Motor Co., Ltd. (Honda) plans to sell six million vehicles in the world in the fiscal year ending March 2017 (FY 2016). This includes three million vehicles to be sold in emerging countries (more than twice the number sold in FY 2012). Honda stands somewhat behind other leading automakers in exploring business opportunities in emerging countries. Therefore, Honda has decided to work toward maximum localization of production, development and parts procurement in emerging countries, thereby allowing itself to deliver competitive models that meet local needs at affordable prices. Global development and production scheme of the all-new Fit is implemented following the localization scheme.
Please see MarkLines Report "Honda's China production increased to meet 2015 projections" (posted May 2013)" for details on Honda's business in China.
Honda releases medium-term strategy (1): The all-new Fit to be developed in six regions (posted December 2012)
Honda: Aspiring to sell 3 million vehicles in emerging countries in FY 2016
In the press conference held in September 2012, Honda President announced the company's medium-term business strategy under which Honda was to sell six million vehicles in the world in the fiscal 2016, including three million in emerging countries. Honda is an automaker that grew on its footprints primarily in Japan and North America. Therefore, Honda was a slow starter, compared to Toyota and Nissan, in its presence in emerging countries.
In Honda's forecast for FY 2013, the company is to sell 1,625,000 vehicles in emerging countries, which accounts for 54% of its sales goal of three million vehicles in FY 2016. Meanwhile, Honda plans to build new plants and add new production lines in Malaysia, Thailand, Indonesia, India, Brazil, etc., between 2013 and 2015 (reported in the latter half of this report).
Honda: Vehicle sales in mature markets and emerging markets
|FY 2008||FY 2009||FY 2010||FY 2011||FY 2012||FY 2013 Outlook||FY 2016 Target|
|Ratio of emerging markets||31.7%||35.4%||36.3%||33.4%||35.4%||36.7%||50.0%|
|Toyota's ratio of emerging markets||37.1%||39.3%||43.0%||46.3%||45.1%|
|Nissan's ratio of emerging markets||33.3%||37.2%||41.4%||42.8%||43.6%||43.6%|
|Source: Respective automakers' financial statements and corporate profiles|
|(Notes) 1-1.||Mature markets refer to Japan, North America and Europe. Other regions are referred to as emerging markets or countries. Mexico is included in North America by Honda and Nissan, in Latin America by Toyota (Toyota sells around 50,000 vehicles a year in Mexico, which accounts for less than 1% of its global sales).|
|1-2.||Sales by joint-venture companies in China are included in the sales of the three automakers respectively.|
|2-1.||Sales by Honda represent "Honda group unit sales" which consists of sales of assembled vehicles by Honda and its consolidated subsidiaries (A) and sales of equivalent production parts to the equity method affiliates (B) up to FY 2010; (A) and sales by equity method affiliates (C) after FY 2011.|
|2-2.||Of the three million vehicle sales forecast for emerging countries in FY 2016, Honda plans to sell 1.2 million vehicles in Asia other than China, an increase by 1 million vehicles from FY 2011.|
|3.||Figures for Toyota are sales of both the Toyota and Lexus brand models in calendar years taken from "Toyota's overseas vehicle sales by regions" (excluding sales of Hino and Daihatsu products).|
|4.||Figures for Nissan are "global retail sales."|
Honda Group Unit sales by region
|FY 2009||FY 2010||FY 2011||FY 2012||Apr.-Jun. 2012||Apr.-Jun. 2013||FY 2013 Outlook||FY 2016 Target|
Source: Honda's Financial Results
To concurrently develop all-new Fit in six regions globally toward 20% cost reduction
Honda released in September 2013 the third-generation Fit and Fit Hybrid in Japan. The new Fit comes in three types, namely the Fit (hatchback), City (sedan) and a compact SUV, and is fitted with the gasoline, hybrid or diesel-fueled powertrain. Honda plans to produce and sell 1.5 million of them in the world in FY 2016, nearly twice as many from the FY 2011level. The three types share over 50 % to nearly 70% of their main components.
Honda implements the "global operation reform" initiative starting with the new Fit series. Honda's research and development company, Honda R&D Co., Ltd., used to be responsible for developing all Honda vehicles around the world. This style of developing has been changed under the reform initiative to concurrently developing vehicles in six regions, namely Japan, North America, Europe, Southeast Asia, China and South America. Nearly 70% of the design concept of the new vehicle will be shared across markets and the remaining 30% will be developed locally after preparing "locally optimized design drawings." This style of development will not only meet specific needs in respective regions more directly but also allow greater parts localization which leads to cost reduction. Toward this goal, Honda has been strengthening development capacities in Thailand, India, Brazil and a few other countries.
The earlier Fit was not as profitable as expected and even suffered loss in certain regions. It is said that the all-new Fit for advanced countries will be produced at Honda's Yorii Plant in Japan and a new plant in Mexico. Both plants are specifically designed for producing small cars to raise the overall efficiency. The new Fit for emerging countries will have high local content ratios. As a result, costs will be reduced by 20% in either case and Honda claims the new Fit will prove profitable in all markets. The Fit is produced at ten sites in eight countries and areas including Japan, and sold in 123 countries and areas.
Reducing costs of the all-new Fit by 20%
|The Fit for advanced countries||Costs for making the all-new Fit for advanced countries will be reduced as they will be produced at a new plant designed exclusively for small cars. The Fit for the Japanese market are produced at Yorii Plant, Honda's most advanced plant in Japan. The Fit for North American markets will be produced at a new plant in Mexico starting in 2014 after introducing expertise from Yorii Plant. Imports from Japan will be discontinued at that point.|
|The Fit for emerging countries||The local content ratio will be raised whenever possible. For instance, the local content ratio in terms of parts count will be increased from 70 % to 90% to lower the price of the new model in India. Similarly, the ratio will be raised from 70 % to 80% in China, and from 50 % to 60% in Brazil. The vehicles will be designed to allow local production as much as possible and parts will be procured locally.|
The all-new Fit produced at the newly-constructed Yorii Plant in Japan
|Built for small car production||The Yorii Plant with an annual capacity of 250,000 vehicles is designed for small cars exclusively in pursuit of the highest possible efficiency. The plant's expertise will be rolled out to the plant in Mexico, then to the new plant in Thailand which is slated for production starting in 2015. Eventually, the expertise will be disseminated to other Honda plants in the world.|
|Energy-saving performances||The most energy-consuming painting process has been shortened from the conventional four-coat three-bake processes to only three-coat two-bake processes. A localized air-conditioning system has been introduced where it will reach only open spaces occupied by workers. As a result, the energy consumption has been reduced by 35% compared to that at the Sayama Plant.|
|Automation||The production process was re-examined and the line length was shortened to reduce the initial investment cost. Another cost reducing effort concerns the assembly process. For example, previously, the vehicle's door had been removed by hand before assembling the instrument panel. This extra step was automated to reduce overall costs.|
|Full-scale production to start in November||Since Yorii Plant is a newly-constructed plant, it started operation in July 2013 initially with the existing Freed minivan. The new Fit is being produced at Suzuka Plant until it is transferred to Yorii Plant in November 2013.|
To increase orders with mega-suppliers for next Civic
Honda has announced plans to continue the "reform" initiative that started with the Fit through the next Civic, CR-V and Accord which will be released in 2015 to 2017. Honda requested mega-suppliers around the world for cooperation in achieving its goal to increase the order ratio with them from 16% as of 2011 to 40% in 2020. Honda will even have certain parts and modules developed externally by suppliers.
Increasing orders with mega-suppliers to achieve 30% parts cost reduction
|In November 2012, Honda invited 25 mega-suppliers to a special meeting held in the U.S. and announced plans to increase its ordering ratio with them from 16% in 2011 to 40% by 2020. The plan was proposed on conditions of substantial reduction of parts cost by the mega-suppliers who are capable of supplying parts to all Honda plants around the world including those in emerging countries. The plan applies to the new Civic, CR-V and Accord, which will be released for sale from 2015 to 2017. It calls for 30% reduction in parts cost.|
|To realize the plan, Honda will develop a platform sharable among the Civic, CR-V and Accord, and modularize their parts so that 40 % to 50% of parts by value can be shared among these models (it is said that the ratio of common parts of existing models is only several percent between the Civic and the Accord that are built on different platforms, and around 20% between the Civic and CR-V that share the same platform). Honda may even have certain modules developed from the initial stage by suppliers. Honda has set production quantities of the three models at 700,000 to 800,000 units a year each, or around 2.4 million units in total, in 2016.|
Sources: Nihon Keizai Newspaper dated Jan. 5, 2013, Sep. 5, 2013 and Nikkan Kogyo Newspaper dated Mar. 27, 2013, Aug, 6, 2013 and Sep. 6, 2013
Strengthening production capacities and development structures in emerging countries
Honda is vigorously increasing production capacities in its previously less highlighted markets such as Thailand, Indonesia, India and Brazil. The company is also strengthening development functions in those countries to develop products that are tailored to local needs while increasing local content ratios. Other than what is reported below, the second production line in Malaysia is starting production within 2013 with annual capacity of 50,000 vehicles. This will double capacity of Honda's plant in Malaysia to 100,000 units. Honda plans to sell 1.2 million vehicles in Asia in 2016.
Thailand: To achieve annual production of 420,000 units in 2015 and annual sales of 300,000 units in 2016
Honda was forced to suspend operation in Thailand for half a year due to the floods starting in the fall of 2011. The company built a new plant in a flood-free area. At the same time, Honda is increasing production capacity of the existing plant which will boost its capacity in Thailand by 50 % from 280,000 units in early 2013 to 420,000 units in 2015. The company plans to sell 300,000 units in the local market and export the remaining 120,000 units.
As for Honda's development and design initiative, its development site in Thailand played the leading role with the Brio-based sedan, Brio Amaze (in Thailand) and Amaze (in India). The Brio-based seven-seater MPV is also being developed in Thailand. Honda plans to develop the next Brio model entirely in Thailand.
In Thailand, Honda launched the Brio in May 2011 and the Brio Amaze sedan in November 2012. Thanks in part to these two models, Honda's passenger car sales in Thailand from January to June in 2013 increased to 131,458 units placing Honda to the top in the passenger car sales race with a market share of 35.5%.
Thailand: Building a new plant to increase the total capacity to 420,000 units in 2015
|Constructing a new plant in Prachinburi Province||Honda is investing approximately THB 17.15 billion in constructing a new plant with annual capacity of 120,000 units in Prachinburi Province, Thailand (announced in February 2013). The plant will feature a highly efficient production system with a shortened manufacturing process and the cutting-edge production technologies in the painting and welding processes. The new plant is scheduled to start production of the all-new Fit and other small vehicles in 2015.|
|The new plant will occupy 2.65 million square meters and the company has acquired triple as large a site from that of the existing plant in Ayutthaya. The Ayutthaya plant has little room for expansion and all large investment in the future is likely to be directed to the new plant.|
|Increasing capacity at the existing plant to 300,000 units||Production capacity of the Ayutthaya plant was increased from 240,000 units to 280,000 units in January 2013, and will be increased further to 300,000 units in 2014. As a result, Honda's production capacity in Thailand will increase by 50% from 280,000 units to 420,000 units in 2015.|
|Additional initiatives including exports||Approximately 300,000 units from the annual production capacity of 420,000 units will be sold locally in Thailand, and the remaining 120,000 units will be exported. Honda plans to further increase production capacities and expand the lineup in view of the continuous growth of the small car market in Thailand and increasing exports to the ASEAN, Oceania and Middle East.|
Transferring development activities entirely to Thailand starting with the next Brio
|Developing the Amaze and Brio MPV||Honda's development base in Thailand, Honda R&D Asia Pacific Co., Ltd., is already staffed with several hundred employees. The Brio Amaze, the hatchback Brio-based sedan launched in November 2012, was developed by them who also led the development of the Amaze launched in India. The MPV model slated for launch in 2014 is being developed jointly by the Thai and Indonesian development specialists (to be produced and sold in Indonesia).|
|Transferring the Brio development function||Honda will entirely transfer its development function for the next Brio model to Thailand including the development of the base model. The Brio is defined as its Asian strategic car which is scheduled for market launch around 2017,|
Top share in the passenger car market at 35.5% in the first half of 2013
|Launch of the Brio Amaze||The all-new compact sedan, the Brio Amaze that debuted in November 2012, is less than 4 meters long (3990mm) in size. It was certified by the Thai government as another eco-car after the Brio.|
|Top share in the passenger car market in the first half of 2013||Honda Automobile (Thailand) Co., Ltd. sold 131,458 passenger cars in Thailand in the first half of 2013, representing a 2.7-fold increase year-over-year with the top share in the Thai market at 35.5%. The best-selling Honda car was the City at 53,174 units, followed by the Jazz at 16,572 units, the Brio Amaze at 14,956 units, the Brio at 2,735 units, etc.|
Indonesia: Constructing a new plant to produce the Brio MPV and other models
A new plant with annual capacity of 120,000 units is being constructed in the premises of the existing plant in Indonesia. The new plant is to start production in 2014 which will triple Honda's capacity in Indonesia from 60,000 units to 180,000 units. The company will also increase the local content ratio from approximately 50% to 80%.
In September 2013, Honda announced the all-new Brio Satya which qualified the Low Cost Green Car (LCGC) program by the Indonesian government. The company will also produce the Brio-based MPV to increase its portfolio addressing the MPV market that accounts for the largest part of the passenger car market in Indonesia.
Indonesia: Constructing a new plant, producing the Brio MPV as well
|Constructing a new plant||Honda is investing IDR 3,100 billion to construct a new plant with annual capacity of 120,000 units within the premises of the existing plant in Indonesia. Production at the new plant will start in 2014 which will triple Honda's production capacity in Indonesia from 60,000 to 180,000 units. The new plant will produce small-sized cars including the Brio which is already being produced in Thailand and India. Exports to ASEAN countries are also likely. The new plant will also produce the Brio-based MPV.|
|Launching the LCGC-compatible Brio Satya||In September 2013, Honda announced the all-new Brio Satya that complies with the Low Cost Green Car (LCGC) program being promoted by the Indonesian government. The Brio Satya, slated for launch in November, is produced at the plant in Indonesia with 85% local content ratio. The Brio imported from Thailand will also be released for sale under the model name of the Brio Sports after a few design changes.|
|Increasing local content ratio to 80%||Honda has defined Indonesia as a major operational site in the ASEAN region next to Thailand. As such, Honda will increase its development capability in Indonesia and build a more efficient production structure there. At the same time, Honda will increase its local content ratio from approximately 50% to 80% to offer high quality products at an affordable price and more speedily to the market.|
India: Production at the second plant to start in 2014 doubling annual capacity to 240,000 units
Production of assembled vehicles at the second plant in India had been suspended ever since it was completed in 2008. Production will resume in 2014 after which Honda's annual capacity in India will double from 120,000 to 240,000 units.
Honda was having a hard time in India as its production model, the Jazz (Fit), was relatively high-priced and as Honda had no diesel models that accounted for a major part of the Indian market. However, in April 2013, Honda released its first diesel-fueled vehicle, the Amaze. It is selling well and the plant will start three-shift operations in November 2013. Honda plans to introduce diesel-fueled variants in other models as well and increase the total sales from 73,000 units in 2012 to 300,000 units in 2016.
India: Second plant to start operations in 2014 to double annual capacity to 240,000 units
|Tapukara Plant to start operation in 2014||Honda's second automobile plant in India (Tapukara Plant) was completed in 2008. But production of completed vehicles had been suspended entirely due to the world's economic situations and only body panels and engine parts have been produced there. The plant started producing diesel engine parts in 2013 and will start an assembly line and forging line operation in 2014 with annual capacity for 120,000 vehicles. Honda will invest INR 25 billion for this project. Honda's annual capacity in India at the first and second plants combined will double from 120,000 to 240,000 units.|
|Diesel engines produced locally||The gasoline engine production line at the first plant (in Uttar Pradesh) was partially modified to manufacture diesel engines using parts that are produced at the second plant. Diesel engines account for more than 50% of the vehicles in India but Honda had not released diesel-fueled vehicles.|
|The Amaze that debuted in April 2013 is powered by a 1500cc diesel engine and was developed mainly by Honda's development function in Thailand. The Amaze, produced at the first plant, is selling well and the two-shift operation will be changed to three-sift operation in November. The monthly production then will increase from 6,000 to 9,000 units.|
|Honda plans to make diesel-fueled variants available with the Jazz (Fit in Japan), Civic, Accord and all other models being produced at the first plant.|
|Strengthening development structure||Honda's R&D division in India currently has several tens engineers and the company plans to increase the number to around a hundred in the near future. Their task will be to localize the specifications of Honda's global strategic cars and increase outsourcing of their parts with local suppliers. The local content ratio is 90% with the Amaze and less than 80% with other models. Honda plans to increase the ratio to over 90% with all models.|
Brazil: Building a second plant, investing JPY4 billion in R&D in two years
Honda has plans to bolster up its business in Brazil that happens to be the fourth largest market in the world. Toward that goal, Honda will build a second plant with annual capacity of 120,000 units and start production there in 2015. This will double Honda's annual capacity in Brazil to 240,000 units.
Additionally, Honda plans to invest BRL 100 million in research and development initiatives in the next two years and increase the number of researchers to several hundreds. This will enable Honda to reflect local needs more directly in its research and development activities and enhance its parts localization. According to Honda, the compact car, positioned a rank lower than the Fit, will be developed locally by the research function in Brazil instead of introducing the Brio that is already sold in Asia. Another notable plan is to import the Acura brand vehicles and sell them in Brazil starting in 2015.
Brazil: To build a second plant, complete new R&D facilities
|Constructing a second plant||Honda is investing approximately BRL 1 billion to construct a second automobile production plant in Brazil and start production there in 2015 with annual capacity of 120,000 units (announced in August 2013). The new plant is located in Itirapina in the state of Sao Paulo, which is about 100km northwest of Honda's existing plant in the city of Sumare. The new plant will produce the new Fit and other small models. Honda's annual capacity in Brazil will double from 120,000 to 240,000 units.|
|The new plant will employ shortened production processes and introduce the latest technologies in the painting process to address environmental concerns. Moreover, Honda aspires to establish a highly efficient production system there through making the optimum use of automation technologies.|
|Strengthening R&D function||Honda announced plans to invest BRL 100 million in the next two years in enhancing its research and development function in Brazil (announced in October 2012). Honda will complete new research and development facilities within 2013 and increase the number of researchers from approximately 100 as at the end of 2012 to several hundreds.|
|These enhancement plans are a part of Honda's "global operation reform" initiative calling for concurrent development of new models on equal terms by six regions. Their goals are research and development that reflects local needs and increased localization of parts procurement. Honda will refresh the Fit, City and other compact car lineup in Brazil in 2014 and thereafter and introduce compact SUV which is of high demand in Brazil.|
|Developing cheap compact cars in Brazil||Honda is delivering the Brio and the Brio Amaze for customers in Asia who are seeking small cars that are more affordable than the Fit. As far as Brazil is concerned, Honda will focus on serialized variants of the Fit to build a firm customer base. At the same time, Honda's development function in Brazil will work on developing small cars that are cheaper than the Fit.|
Asia: growing contributor to operating profit
Honda's "Geographical Information" shows that North America remains the greatest contributor to the company's sales and operating profit. Its performance in Asia (other than China that falls under the equity method classification) is also growing steadily. Its level of contribution to Honda's operating profit in particular rose above 70% of that of North America after FY 2012.
|(in millions of Yen)|
|FY 2009||FY 2010||FY 2011||FY 2012||Apr.-Jun. 2012||Apr.-Jun. 2013|
Source: Honda's Financial Results (Note) The sales and operating profit from local production in China are not included in the above data. The net earnings of Honda's Chinese business are reflected in the equity interest and current net earnings of the consolidated results.
Production Forecast by LMC Automotive: Honda Group production forecasted to 5.32 million in 2016
|(LMC Automotive、July 2013)|
According to LMC Automotive's forecast in July 2013, Honda's global light vehicle production in 2012 increased to 4.05 million units, up by 39% from the previous year. LMC Automotive forecasts the trend to continue, and for the group's global output to improve to 4.32 million units in 2013. Like other Japanese carmakers, LMC Automotive anticipates a slowdown in the Japanese market, but for demand in China and India to grow significantly. Thus the group's global production is expected to reach 5.32 million units by 2016.LMC notes that Honda has relatively aggressive expansionary plans over the next several years with product and geographic diversification being important drivers of the expansion.
Honda's light vehicle production in Japan will maintain 1.0 million units level until 2016 while overseas production will be increased to 4.38 million units from 3.26 million units in 2013. LMC Automotive points out, "since November 2012, the Japanese yen has weakened to 95JPY/1USD. The present exchange rate is still far stronger compared to the pre-crisis level of 110-120JPY/1USD, and carmakers are already expanding their overseas production capacity. As a result, it is unlikely that production will suddenly return to domestic production sites in Japan."
Honda Group Production Forecast by country and by make (LMC Automotive)
|Source: LMC Automotive "Global Automotive Production Forecast (July, 2013)"|
|(Note) 1.||Data indicates figures of only small-size vehicles, including passenger cars and light commercial vehicles with a gross vehicle weight of under 6 tons.|
|2.||All rights reserved. Reproduction of any data will require permission of LMC Automotive.|
|3.||For more detailed information or inquiries of forecast data, please contact LMC Automotive.|
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