Monday, April 23, 2012

Recently, the Japanese Business Journal 'BOSS' published a very long article discussing about some of the problems it sees as Honda is currently facing. While the article features the viewpoint of one specific magazine only, its uniqueness is that it features numerous quotes from what seems to be Honda insiders. A TOV member published the articles in parts on our TOV forums and I thought I will share it more widely by featuring it on 'TOVA Honda Fan'. Due to the length of the article, it was broken up into several parts by the original TOV member. This is part one.

This series of article parts has elicited a lot of discussions within the TOV forum board. The link to the thread which contains the article part in this post, plus the resultant discussion is at  TOV forums

Read the article part after the jump.

(Below is part of an article recently published in a Japanese Business Journal about the current problems facing Honda)

Muscular, but Boring

What is it that Honda and Sony used to have, which Toyota Motor and Panasonic didn’t? It’s the “edginess” of products, representing originality no other company has. Today, however, we wonder how many people find recent Honda cars, or Sony products for the matter, exciting.

An executive at Honda explains as follows:
“Cars are becoming more like household appliances and now cars as a whole have lost edginess. We cannot ignore this mainstream trend. Of course development engineers are giving new meanings and significances to the cars they develop, but in terms of powerplant performance, for example, all manufacturers are making similar cars, to be honest. Also, the reality is that fewer customers are attaching importance to powerplant performance and drivability when they make a purchase decision.

“So, what do customers value when buying a car? Today, cars have become products that are used for at least 10 years after the purchase. As such, cars are required to be easy to use, compact and offer wide cabin space, and heresy is not accepted. The traditional image of Honda as a company making extremely edgy cars is an illusion created by the media, or just nostalgia for the good old days.”

The fact that such a dry talk comes from Honda, not Toyota, is surprising, but according to Honda, its DNA is still alive, only in a different form.

For example, unlike Sony the culture of Honda is that former executives don’t give much candid advice. Just like Soichiro Honda who “cut off all ties with the company after retirement,” five presidents that followed him, including Kiyoshi Kawashima, Tadashi Kume, Nobuhiko Kawamoto, Hiroyuki Yoshino and immediate-past president Takeo Fukui (currently Executive Advisor), seldom give interviews.
Another tradition of Honda is that no president has ever become chairman, not even a behind-the-scene chairman who practically runs the company, after retiring, unlike late Norio Oga and Nobuyuki Idei of Sony did. Another difference between Sony and Honda is that, although the current president Takanobu Ito is the first leader of the company who is not specialized in engine development, the principle of putting an engineer to the top has been strictly observed at Honda.

“Every one of such traditions represents our ever-lasting ‘DNA.’ Also, Honda is decisively different from Sony in that our commitment to manufacturing has always remained the same since the founding of the company. Everyone from top to bottom is stubbornly committed to manufacturing, which is our pride as a manufacturer. Put it differently, however, we are not good at doing business away from manufacturing,” says the above executive.

But an observer of Honda has this critical comment:
“Toyota and Honda are very similar in some ways. Both are independent companies and have a strong labor union. At both companies, the top management has a sense of crisis, partly because they must make the shareholders happy, but employees are not sharing this sense of crisis.

“Honda is facing many negative factors one after another, such as the disruption of its supply chains after the earthquake, financial risks and recessions in Europe and the U.S., soaring Japanese yen, and catastrophic flood in Thailand, and employees have this funny sense of resignation or realism that they must keep our head down for now. However, once the situation turns they are the two companies whose profit will certainly increase. They both have sufficient cash on hand, higher salary levels than the industry average, and a strong union. In a sense, they are becoming Japanese GMs.”

Looking at the half-time earnings results, it is notable that Toyota has again slipped into the red. On the other hand, Honda is doing well, despite reporting a drop in profit, thanks to the strong motorcycle division. Going forward, Honda is projecting 75 yen to the dollar and 100 yen to the Euro, which are tougher exchange rate projections than any other large exporting company. In a way, this represents Honda’s strong resistance to exchange rate fluctuations and everyone recognizes the corporate strength of Honda.

Selling Ease of Use and Spacious Interior

However, Honda is only a smaller version of Toyota if it only tries to become a stronger company. Solidity as a company and attractiveness of products in the eyes of consumers are whole different things.

Having entered the market late, Honda has long depended on overseas business more than its rivals. As the domestic market continues to shrink and young Japanese are becoming less interested in cars, it seems Honda is looking at the Japanese market as something like an “added bonus.”
Without going into the details, let’s just say that Honda’s deceleration in overseas markets, especially the North American market where it has always remained strong as a pioneer, presents a significant concern. Recently, Honda finally announced that it would get serious about the Japanese market. The main battleground is the Japanese K-class car segment that already accounts for nearly 40% of the entire domestic car market in some months, and which is expected to account for more than half the market in the future.

Despite the recent announcement, Honda has been completely behind its competitors in terms of enhancing its Japanese K-class car lineup. Particularly after the collapse of Lehman Brothers that triggered the current financial crisis, Honda hasn’t introduced any impressive model other than expanding the hybrid lineup, some journalists say. This is different at rival automakers, which is the source of the “crisis” Honda is now facing.

For example, Nissan Motor, Mitsubishi Motors, Mazda and Daihatsu are weaker than Honda in terms of corporate strength and thus more likely to face dreadful situations and ordeals. However, they are actually providing more topics of conversation of late. Nissan and Mitsubishi set up a joint venture company to plan joint development of Japanese K-class cars, and also expanding OEM models.

As for “edginess” of products, Nissan is drawing the attention by introducing seemingly unique SUVs such as the “Dualis” (sold under the name “Qashqai” in Europe) and “Juke,” and generating strong sales that threaten Toyota in Europe. In the meantime, Mitsubishi’s SUV model “RVR” is receiving rave reviews by experts.

In the past, these cars with a much-talked-about styling did come from Honda. However, recently Honda is losing luster even in engine technology that used to be the symbol and life line of Honda. For example, the new “SkyActiv” engine Mazda put in its small car “Demio” achieves an amazing fuel economy of 30 km per liter for a gasoline engine. Daihatsu is also recording 30 km per liter with its new Japanese K-class car “e:S”

On the other hand, Honda has made a major shift in its strategy to promote cars, now focusing on ease of seat arrangement, spacious interior in a compact body, and expansion of hybrid models in terms of environment, among others. Honda cars have become a “traveling living room” or “moving cargo area.” Although we don’t deny the accelerating trend of cars becoming white goods, Honda as we see it now is really sad.

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