COMPANY PROFILE

Honda Motor Co., Ltd.

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PUBLICATION DATE: 7 Aug 2015
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Honda Motor Co., Ltd.

TABLE OF CONTENTS

TABLE OF CONTENTS
Company Overview..............................................................................................3
Key Facts...............................................................................................................3
SWOT Analysis.....................................................................................................4

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Company Overview

COMPANY OVERVIEW
Honda Motor Co., Ltd. (Honda or "the company") is one of the largest manufacturers of automobiles
and motorcycles in the world. The company also provides financial services, power products, and
other products and services. It primarily operates in North America, Asia, and Europe. Honda is
headquartered in Tokyo, Japan and employed 198,561 people as of March 31, 2014.
The company recorded revenues of JPY11,842,451 million ($118,424.5 million) during the financial
year ended March 2014 (FY2014), an increase of 19.9% over FY2013. The operating profit of the
company was JPY750,281 million ($7,502.8 million) in FY2014, an increase of 37.7% over FY2013.
The net profit of the company was JPY574,107 million ($5,741.1 million) in FY2014, an increase of
56.4% over FY2013.

KEY FACTS
Head Office

Honda Motor Co., Ltd.

2-1-1
Minami-Aoyama
Minato-ku
Tokyo 107-8556
JPN

Phone

81 3 3423 1111

Fax
Web Address

http://world.honda.com/

Revenue / turnover 11,842,451.0

(JPY Mn)
Financial Year End

March

Employees

198,561

New York Ticker

HMC

Tokyo Ticker

7267

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SWOT Analysis

SWOT ANALYSIS
Honda is one of the leading manufacturers of automobiles and motorcycles in the world. A diversified
product portfolio not only reduces business risks of the company, but also provides a strong future
growth platform. However, intense competition may lead to lower vehicle unit sales and increased
inventory, which may adversely impact the company's financial condition and results of operations.
Strengths

Weaknesses

Diversified product portfolio

Extensive production and sales network
Strong focus on research and development

High pension costs and other

post-retirement benefit obligations
Product recalls impact brand image

Opportunities

Threats

Strong outlook for the global motorcycle

manufacturing provides a growth
opportunity
Growing global automotive industry
Focus on hybrid electric and fuel cell vehicle
market

Intense competition in the global automotive

market
Volatile raw material prices
Stringent environmental and governmental
regulations

Strengths

Diversified product portfolio

Honda has a diversified product portfolio, which cushions it from business risks. The company offers
a number of products, including automobiles, motorcycles, power products and others products.
Honda's automobiles business offers passenger cars, light trucks and mini vehicles. The companys
automobiles use gasoline engines of three, four or six-cylinder, diesel engines and gasoline-electric
hybrid systems. Honda also offers alternative fuel-powered vehicles such as natural gas, ethanol,
and fuel cell vehicles.
The company's motorcycle business offers a broad range of motorcycles, ranging from 50 cubic
capacity (cc) class to 1,800cc class in cylinder displacement. Honda's motorcycles use internal
combustion engines developed by the company that are air or water-cooled, four-cycle, and single,
two, four or six-cylinder. Honda's motorcycle line consists of sports, including trial and moto-cross
racing, business and commuter models. Honda also produces all-terrain vehicles (ATVs) and multi
utility vehicles (MUVs).

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Honda's power products and others businesses manufactures a variety of power products, including
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). Additionally, the company also offers compact home-use cogeneration units.
Therefore, diversified product portfolio not only reduces business risks of Honda, but also provides
a strong future growth platform for the company.
Extensive production and sales network
Honda has an extensive production and sales network. The companys automobiles are produced
at two sites in Japan, which include the Saitama factory and the Suzuka factory. The companys
overseas production sites include those located in Ohio, Alabama, Indiana, Ontario, Swindon (the
UK), Ayutthaya (Thailand), Greater Noida (India) and Sao Paulo (Brazil). In addition, Yachiyo Industry,
a consolidated subsidiary of the company assembles mini vehicles for the Japanese market. Similarly,
Honda's motorcycles are produced at the Kumamoto factory in Japan and at production facilities in
Thailand, Vietnam, India, Brazil and Argentina.
Honda sells automobiles through a network of 740 retail dealers (2,200 shops) in Japan; 1,310
dealers in the US; 1,580 dealers in Asia (excluding Japan); and 1,150 dealers in Europe. In Japan,
Honda distributes motorcycles through approximately 6,900 outlets, including approximately 600
"PRO'S" shops and approximately 110 Honda Dream authorized dealerships. Overseas, the company
sells motorcycles through a network of 1,040 independent local dealers in the US, 14,070 independent
local dealers in Asia (excluding Japan), and 1,400 independent dealers in Europe.
Similarly, the company's power products are distributed in Japan through approximately 1,110 retail
dealers; in the US through 8,000 independent local dealers; in Asia (excluding Japan) through 3,500
independent local dealers; and in Europe through a network of approximately 2,850 independent
local dealers. With the help of this network, the company sold 4,323,000 units of automobiles,
17,021,000 units of motorcycles, and 6,036,000 units of power products, worldwide during FY2014.
While the company's extensive production base diversifies business risks, its robust distribution
network provides a wider reach, thus boosting revenues.
Strong focus on research and development
The company has been focusing on research and development (R&D) to create distinctive products.
To achieve this goal, the company's primary R&D divisions operate independently as subsidiaries,
allowing technicians to pursue their tasks with significant freedom. The company's product-related
R&D is led by Honda R&D in Japan; Honda R&D Americas in the US; and Honda R&D Asia Pacific
in Thailand. Honda's R&D on production technologies is led by Honda Engineering in Japan and
Honda Engineering North America in the US. In FY2014, the company invested JPY634.1 billion
(approximately $6.3 billion) on R&D.
Due to the significant R&D efforts, the company has been able to launch new products and
technologies in the recent past. For instance, in January 2015, Honda planned to introduce the

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worlds first predictive cruise control system known as Intelligent Adaptive Cruise Control (i-ACC),
capable of foreseeing and automatically reacting to other vehicles cutting-in to the equipped vehicles
lane. Similarly, in November 2014, the company unveiled, the Honda FCV CONCEPT, a concept
car for an all-new fuel-cell vehicle (FCV), and the Honda Power Exporter CONCEPT, a concept
model for an external power feeding device that enables AC power output from the FCV.
Furthermore, in October 2014, Honda launched a new driver-assistive system, Honda SENSING.
Additionally, in January 2014, the company in partnership with Miyakojima City and Toshiba, began
experimental test-driving of the MC-, Honda's micro-sized electric vehicle, using photovoltaic (PV)
energy as part of the Miyakojima City Small-sized Electromotive Mobility Project.
Furthermore, as of March 2014, the company owned more than 20,800 patents in Japan and more
than 25,900 patents abroad. Honda also had applications pending for more than 8,800 patents in
Japan and for more than 15,700 patents abroad. Strong focus on R&D and engineering enable the
company to develop innovative products, which allow it to remain at the forefront of its respective
businesses and differentiate its offerings in a highly competitive market.

Weaknesses

High pension costs and other post-retirement benefit obligations

Honda has pension plans and provides other post-retirement benefits. The amounts of pension
benefits, lump-sum payments and other post-retirement benefits are primarily based on the
combination of years of service and compensation. The funding policy makes periodic contributions
as required by applicable regulations.
In FY2014, the company's benefit obligations stood at JPY1,293,635 ($12,936.3 million) as compared
to plan assets of JPY1,012,039 ($10,120.4 million), resulting in an unfunded status of JPY281,596
million ($2,816 million). Benefit obligations and pension costs are based on assumptions of many
factors, including the discount rate, the rate of salary increase and the expected long-term rate of
return on plan assets. The differences in actual expenses and costs or changes in assumptions
could impact the company's pension costs and benefit obligations, including Honda's cash
requirements to fund such obligations. Thus, these obligations could materially influence the financial
condition and results of operations.
Product recalls impact brand image
Although, the company manufactures products according to globally accepted quality control
standards, the company has recalled some vehicles in the recent past due to quality issues. For
instance, in January 2015, American Honda Motor recalled 1,252 units of 2015 Honda Crosstour
hatchbacks to replace one or both of the side curtain airbags. Further in June 2014, American Honda
Motor recalled 1,038 units of 2013 Honda Fit hatchbacks to fix a defective right front driveshaft. In
the same month, the company recalled approximately 2 million Honda and Acura vehicles for a front

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SWOT Analysis

airbag inflator problem. Additionally, in March 2014, American Honda Motor recalled 9,817 units of
2014 Honda Civic LX cars in the US because of possible tire damage. Thus, in the unusual event
of a large-scale recall or product liability award could have a negative impact on the company's
performance and financial position. In addition, it would also negatively impact the company's brand
reputation in the market place.

Opportunities

Strong outlook for the global motorcycle manufacturing provides a growth opportunity
The global motorcycle manufacturing industry looks set to grow strongly in the coming years.
Asia-Pacific is by far the dominant region in the global industry, accounting for almost 70% of the
global value and over 90% of the global production volume in 2013. Many manufacturers have moved
their production operations away from mature markets and into lower cost regions, such as India.
According to MarketLine (a unit of Informa), the global motorcycle manufacturing industry generated
total revenues of $61.5 billion in 2013, representing a compound annual growth rate (CAGR) of 5.8%
between 2009 and 2013. In addition, the industry production volumes increased at a CAGR of 4.1%
for the same period to reach a total of 57.6 million motorcycles in 2013.
Furthermore, the performance of the industry is forecast to accelerate, with an anticipated CAGR
of 7.4% for the five-year period 2013-18, which is expected to drive the industry to a value of $88.1
billion by the end of 2018. The industry's volume is expected to rise to 76.8 million motorcycles by
the end of 2018, representing a CAGR of 5.9% for the 2013-18 periods.
Honda is one of the largest players in the global motorcycle market. The companys motorcycle
business produces a wide range of motorcycles, ranging from the 50 cubic capacity (cc) class to
the 1,800cc class in cylinder displacement. The companys motorcycles use internal combustion
engines developed by Honda that are air or water-cooled, four-cycle, and single, two, four or
six-cylinder. Honda's motorcycle line consists of sports, including trial and moto-cross racing, business
and commuter models. Thus, the strong outlook for the global motorcycle manufacturing market
coupled with the company's new product launches provides a growth opportunity for the company.
Growing global automotive industry
The global automotive manufacturing industry has produced relatively consistent levels of growth
overall in recent years. The industry is expected to continue to follow a similar pattern through to
the end of the forecast period in 2018. According to MarketLine (a unit of Informa), the global
automotive manufacturing industry generated total revenues of $1,521.1 billion in 2013, representing
a compound annual growth rate (CAGR) of 9.1% between 2009 and 2013. In comparison, the
European and Asia-Pacific industries grew with CAGRs of 5.4% and 7.8% respectively, over the
same period, to reach respective values of $384.2 billion and $695 billion in 2013.

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SWOT Analysis

Furthermore, the performance of the automotive industry is forecast to grow robustly at a CAGR of
7.2% for the 2013-18 periods to reach a value of $2,151.8 billion by the end of 2018. Comparatively,
the European and Asia-Pacific industries will grow with CAGRs of 5% and 8.8% respectively, over
the same period, to reach respective values of $490.2 billion and $1,061.7 billion in 2018. The
company is well positioned to exploit the growing end market to enhance its revenues and market
share. Hondas automobiles business offers passenger cars, light trucks and mini vehicles across
the domestic and international markets. Thus, the growing global automotive manufacturing industry
provides incremental growth opportunities to boost its topline performance.
Focus on hybrid electric and fuel cell vehicle market
The company has been focusing on developing cars running on hybrid electric and fuel cell
technologies. The demand for hybrid electric and fuel cell vehicles is primarily driven by the growing
global concerns about carbon emissions coupled with highly volatile fuel prices. According to industry
estimates, the sales of electric vehicle are anticipated to reach approximately 7.5 million units by
the end of 2020, growing at a CAGR of 19% for the 2014-20 periods. Honda offers a robust portfolio
of the hybrid electric vehicles (HEV). The company offers gasoline-electric hybrid systems and
gasoline-electric plug-in hybrid systems. Honda also developed a compact hybrid system that can
operate on one motor in electric vehicle (EV) mode, which was initially installed in the Fit Hybrid and
the new VEZEL Hybrid models. The company also developed a hybrid system combining a two-motor
electric mode continuously variable transmission (CVT) powertrain with lithium ion batteries for
installation in the Accord Hybrid and Accord Plug-in Hybrid models.
Honda is also focusing on the fuel cell vehicles (FCV) market to enhance its revenues in the coming
periods. According to industry estimates, fuel cell vehicles will account for 24% of the consumer
demand for electric vehicles by 2019. The company has launched vehicles running on FCVs in the
recent past. For instance, in November 2014, Honda unveiled the Honda FCV CONCEPT, a concept
fuel-cell vehicle and the Honda Power Exporter CONCEPT, a concept model for an external power
feeding device that enables alternating current (AC) power output from the FCV with maximum
output of 9 kilowatt (kW). The company is also assisting in the development of infrastructure for the
commercialization of the technology. For instance, in February 2015, the company announced a
partnership with Toyota Motor and Nissan Motor to accelerate the development of hydrogen station
infrastructure for FCVs. Moreover, in January 2015 the Japanese government announced plans to
invest JPY45 billion ($385 million) in hydrogen fueling stations and vehicle subsidies over the next
five years.
Thus, the company's strong focus on hybrid electric and alternate fuel vehicles coupled with the
growing demand from the end markets is expected to enhance its revenues and market share in
the coming periods.

Threats

Intense competition in the global automotive market

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SWOT Analysis

The worldwide automotive market is highly competitive. Honda faces strong competition from
automotive manufacturers in its various markets. The competition among various auto players is
likely to intensify in light of continuing globalization and consolidation in the worldwide automotive
industry. The factors impacting competition include product quality and features, the amount of time
required for innovation and development, pricing, reliability, safety, fuel economy, customer service,
and financing terms.
Some of the company's competitors include Audi, Bajaj Auto, BMW Group, Fiat Chrysler Automobiles,
Ford Motor, General Motors, Harley-Davidson, Hyundai Motor, Isuzu Motors, Kawasaki Heavy
Industries, Mahindra & Mahindra, Mazda Motor, Mitsubishi, Nissan Motor, Porsche, PSA Peugeot
Citroen, Renault, Suzuki Motor, Toyota Motor, TVS Motor, Volkswagen, and Yamaha Motor, among
others. Increased competition may lead to lower vehicle unit sales and increased inventory, which
may result in a further downward price pressure and adversely impact the company's financial
condition and results of operations.
Volatile raw material prices
Honda uses a variety of commodities in the production of its automotive products. Major commodities
used by the company include cast iron, stainless steel, copper, aluminum, energy and materials in
various forms such as castings, powder metal, and forgings. The prices of commodities are constantly
fluctuating. For instance, the price of global composite carbon steel was $716 per ton in 2013, which
further increased to $720 per ton in May 2014, and decreased to $644 ton in December 2014.
Similarly, the average iron ore price in 2013 was $135.79 per dry metric ton unit (dmtu), as compared
to $100.56 per dmtu in May 2014, and $68.8 dmtu in December 2014. Furthermore, in 2013, the
average price of copper was $7,214.90 per metric ton (mt), as compared to $7,113.38 mt in July
2013, and $6,446.45 mt in December 2014. Thus, the volatility in the raw material prices would
increase the company's production costs and could ultimately affect its margins if it is unable to pass
the higher production costs on to its customers in the form of price increases.
Stringent environmental and governmental regulations
The automobile, motorcycle and power product industries are subject to extensive environmental
and other governmental regulations, including with respect to global climate changes. The regulations
regarding vehicle emission levels, fuel economy, noise and safety and noxious substances, as well
as levels of pollutants from production plants, are extensive within the automobile, motorcycle and
power product industries.
For instance, in 2008, to strengthen the enforcement of laws in Japan, the 2009 Exhaust Emission
Standards were created after the passage of long-term regulation. Additionally, the Central
Environmental Council in the Ministry of Environment reviewed on the current JC08 mode for emission
test mode in 2010 and began to take the introduction of WLTP (Worldwide harmonized Light vehicle
Test Procedure) into consideration. Similarly in the US, the Environmental Protection Agency (EPA)
finalized Tier 3 regulation, the federal emission and fuel standards, in March 2014. Tier 3 requires
gasoline fuels at pump to have an average sulfur content of 10 parts-per-million, which is already
implemented in Europe and Japan. Furthermore in Europe, Euro 6 diesel engine emission legislations

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were implemented from September 2014. The new guidelines lower emission limits for diesel vehicles
as compared to the Euro 5 levels for HC and NOx. Additionally, Euro 6 requires limits on particle
numbers from gasoline vehicles with direct injection engines. Additionally, in the Chinese city of
Beijing, Step 4 emission regulations for light duty vehicles were implemented in 2008 and Step 5
was implemented in 2013. Also, the city of Beijing is considering the introduction of Step 6 emission
regulations in 2016.
These regulations are subject to change, and are often made more restrictive, particularly in recent
years, due to an increasing concern with respect to possible global climate changes. The costs to
comply with these regulations can be significant to Honda's operations. Moreover, any significant
change in the regulation structure in any of the countries Honda is operating may have a serious
impact on its operations.

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