|Soichiro Honda, Takeo Fujishawa.
|Number of Employees
Honda is one of the leading automobile brands with a global footprint. It is headquartered in Japan and sells its products worldwide. The company has released several excellent models of cars and motorcycles, popular in both western and asian nations. In recent years, the company is enjoying continuous growth in revenue driven by higher sales. The business of Honda is divided into four segments. Automobile segment is the largest of them. The company is also investing aggressively in research and development to grow its market share in the global automobile market.
North America and mainly U.S. is the largest geographical business segment of Honda. The company also has a strong presence in its domestic market. The automobile industry is undergoing a major transformation and the evolution of technologies like AI and autonomous driving has brought several new opportunities for the auto firms. Honda also has a large number of manufacturing and assembly facilities worldwide. In the U.S. alone, the company has seven facilities. In 2019, the automobile industry has entered a challenging phase. Even in the leading markets, sales have started fallen during the first half of the year. Leading automobile brands have formed partnerships to find faster growth and respond to changing market dynamics. Honda has maintained a strong position in the motorcycle industry in Asia. However, in terms of car sales, its position in Asia and China is weaker compared to the leading rivals. There are other challenges too before Honda, as the companies structure has generally stopped it from moving nimbly. A large number of recalls have also haunted Honda over the last several years. To emerge from these challenges, the company has to take a more flexible approach and focus exclusively on research and innovation.
Read more about Honda – its strengths, weaknesses, opportunities and threats in a SWOT analysis for 2019.
Brand equity :
As an automobile business, Honda has managed a strong image. The company’s focus upon technology, customer experience and product innovation has led to strong brand equity. Apart from that, Honda enjoys high brand awareness in North America as well as Asian and European markets. Strong brand awareness has also resulted in higher market share for the brand. Among the several factors driving brand equity, Honda’s marketing strategy has also played a key role in helping the company acquire a strong competitive advantage in the automobile industry. Honda uses several marketing channels including its distribution network, digital channels and other methods of promotions like auto-shows for promoting its brand and products. Focus upon innovation has also brought superior results for Honda as it is among the most trusted brands in U.S., one of the world’s leading vehicle markets.
Honda’s global network of distributors and dealers has helped it maintain strong presence in key markets around the globe. The company is also investing in customer engagement and superior customer experience. These things also drive consumer confidence in the brand and its products. The auto industry has entered a challenging phase and focusing upon passenger safety and customer experience will also bring superior results.
Strong presence in U.S. market :
Honda is one of the leading car brands in U.S. where its focus upon mobility, robotics and AI have helped it gain higher market share. Its products including the luxury brand Acura have continued to grow in demand. Honda has established seven manufacturing and assembly plants in the United States. The locations of these plants include Alabama, Ohio, Georgia, North Carolina, South Carolina and India. Ohio has 2 Honda plants. According to sources, Honda’s market share in the U.S. was 9.1% in 2018. The company generated ¥7,480.4 billion in 2019 in net revenue from the United states.
Honda is also the first Japanese automaker to begin production in the United States. It started local automobile production in the United States in 1986 with the Honda Accord model. Later, Honda expanded its production to include light truck models. It launched the Acura brand in 1986 and established an exclusive network in the United States. Moreover, U.S. is the single largest market for Honda products that accounted for more than 45% of sales revenue of the brand in the fiscal year 2019.
Large product portfolio :
Honda has a large product portfolio that includes cars, motorcycles, aircrafts and aircraft engines as well as motor parts. The company sells a large range of automobiles that include passenger cars, light trucks and mini vehicles. The passenger cars by Honda include Accord, City, Civic, Crider, Fit/Jazz. Its light truck models include CR-V, Freed, Odyssey, Pilot, Vezel/HR-V, XR-V. N-BOX is a mini vehicle by Honda. Apart from these cars, Honda also makes a large range of motorcycles. The bikes made by Honda include tourer bikes, sports tourer bikes, adventure bikes, street bikes, as well as scooters and dirt bikes. Just as the popularity of Honda cars is higher in the U.S., the popularity of Honda motorcycles is very high in the Asian markets. Motorcycles account for only a small part of the brand’s revenue and yet their high sales signify strong brand awareness in the global market. Asian markets have seen immense growth in recent years. Economic growth has resulted in increased buying power of the middle class and the rise of an entire class of customers interested in bikes priced in the mid-range.
Honda bikes are comparatively economically priced when compared with other sports bike and street bike models selling in the Asian markets. This is also a reason behind the high popularity of these bikes in Asia. Moreover, Honda’s sales and service network in these markets is also strong which has resulted in better customer experience and led to higher sales of Honda’s motorcycle products. In the U.S., extensive reach and competitive pricing have led to superior financial results for Honda. Apart from its premium vehicle range Acura, the other cars are priced competitively. They are considered highly efficient in terms of performance and suit the lifestyle of modern customers. Three of Honda’s car models were in the top twenty best selling car models in the U.S. in 2018 including Honda Accord, Civic and CRV. The large range of cars by Honda cater to the varying needs of customers and fit well in the different lifestyles of diverse customer segments.
Other products made by Honda include Honda Jets and power products. Light Jets made by Honda have grown swiftly in popularity. These light jets are popular for their innovative designs as well as stylish look. With engines mounted over their wings, these jets deliver improved aerodynamic performance. Honda light jets became the best sellers in their class during the first half of 2019. The company delivered 17 of them till August, 2019. The over the wing engine mount configuration, apart from reducing drag occurring during high speed flights, also allows for higher fuel efficiency and faster flight speeds. Delivery of Honda Jet aircrafts began during December, 2015. Honda also manufactures a large range of power products including general purpose engines, generators, water pumps, lawn mowers, riding mowers, robotic mowers, brush cutters, tillers, snow blowers, outboard marine engines, walking assist devices and portable battery inverter power sources. For fiscal 2019, the revenue of Honda group from power products and the other businesses was ¥350.9 billion compared to ¥347.0 billion the previous year.
Strong motorcycle sales in Asia :
Economic growth in the Asian markets has accelerated in recent years. China has emerged as the largest market for automobiles and become the favourite investment destination for all the leading vehicle brands. Most leading automobile companies are focusing upon producing locally to grow their sales in China and to control operating costs. Honda automobiles has seen the highest success in U.S. followed by its domestic market Japan. However, when it comes to motorcycles, Honda motorcycles enjoy heaviest demand and sales in Asia. Compared to North America, Europe, Japan or the other regions of the world, the sales of Honda motorcycles is the highest in the Asian region. In 2018, the Honda group sold 18.224 million units of motorcycles in the Asian market and generated revenue equal to ¥1375.2 Billion. While motorcycle revenue was a small portion of the company’s total revenue in 2018 (around 13% only), the high unit sales indicate strong popularity and brand equity. It also shows strong brand awareness in the Asian markets.
Global network :
Honda’s strong global network which includes its manufacturing and assembly plants, distributor network and company’s regional offices is also a major strength of the brand that has helped it maintain its strong presence globally. Throughout the globe, from Asia to Europe and North America, the company has managed strong presence with the help of its distributors. U.S. being its core market, has seven manufacturing and assembly plants as well as a dense sales network to cater to the heavy demand in the market.
Japan has ten Honda manufacturing and assembly plants and China also has nine. Apart from its around 30 principal plants, the company also has smaller plants and regional offices located around the globe. The company itself is headquartered in Tokyo, Japan. The entire Honda group includes 435 companies of which 364 are consolidated subsidiaries and 71 are affiliate companies, accounted for under the equity method.
Automobile Sales Weak in Asian markets :
The Asian markets are the leading playground of the vehicle brands. All the major automobile companies are investing in building local infrastructure in China and other Asian markets. Several of them have entered into partnerships with the local automobile firms in China to grow their sales and manufacturing network there. China is now the largest market for automobiles. However, Honda’s penetration of the Chinese auto market is low when compared with the other leading rivals like Volkswagen, Ford or General Motors. Unless, Honda grows its penetration of the Chinese market by producing new models locally according to the local demand and consumer expectations, it may lose the race to other leading vehicle brands. Even if the China market has seen a slight decline in demand in 2019, it is still the biggest market for auto firms. Honda can develop new models exclusively targeted at the Chinese consumers. This will help Honda strengthen its customer base in the local market and combat the competitive pressure while also keeping manufacturing costs under control.
High dependence on core markets U.S. and Japan :
The entire Asian market excluding Japan accounted for less than 25% of Honda’s revenue in 2018. North America, which is the largest market for Honda products accounted for more than 50% of the company’s revenue in 2018. U.S. alone accounted for more than 45% of the revenue of the group. However, while the sales of Honda in U.S. and Japan are higher, the company depends on these two markets for most of its sales. Due to low penetration of the Chinese market, especially in the automobile segment, the company has to depend on its other two main markets. Its motorcycle sales in Asia are higher than the other regions but they constitute a very small part of its revenue which is less than 15% of total. In Europe too, the company has continued to lose market share. For reducing its dependence on the two main markets, the company would have to increase its penetration of China and the leading European markets.
For past some years, Honda has been dealing with a very high number of vehicle recalls. Between 2008 and 2017, the company had made more than 11 million recalls. While vehicle recalls on the one hand signify attention to passenger safety and product quality, on the other hand, the cars made by Honda have also continued to lose shine. Honda’s financials look in great condition but the cars including Civic have continued to fall in quality rankings. Even the CEO, Takahiro Hachigo accepted that Honda had lost its Mojo and was not the same company, it was years ago. In 2013 and 2014, the company had made five recalls back to back of its hybrid vehicles due to transmission defects. In 2018 and 2019 also, the company made a large number of recalls. It recalled around 1.6 million vehicles over Takata airbag defects in 2019. Recalls over safety and product defect issues are common in the automobile industry. However, Honda needs to take these things seriously because otherwise its car models will continue to lose shine.
Organisational structure and bureaucracy :
Of all the major problems Honda has dealt with for several years, the severest are its complex organisational structure and red tape. Red tape inside the organisation has mostly stopped it from investing in new innovations and latest technologies. Current CEO of Honda had highlighted this problem some years back. For past two-three years, he has been working upon solving it. However, unless Honda simplifies its organisational structure and gets rid of the red tape, it will start reflecting upon its bottom line sooner than expected. If Honda lost much of its shine in a decade, it was because of the bureaucracy inside the organisation and because the company could not take the right steps to secure its position in the auto industry. The environment is growing more and more challenging and the company needs to be highly flexible to respond to the fast changing environment. A simpler organisational structure will make it an agile organisation and enable it to take challenges and respond to changing customer expectations at higher speed.
Electrical vehicles :
The demand for electric vehicles is growing around the world. People want cars that are fuel efficient and free from harmful emissions. The adoption rate of plug in hybrids and electric cars has grown fast. China is leading the world as the largest market for electric vehicles. In 2018, the sales of plugin vehicles globally including plugin hybrid vehicles and all electric vehicles reached 2.1 million units. Plugin hybrids comprised 69% and electric vehicles 31% of the total sales in 2018. China was the largest market where the sales of EVs and plugins reached 1.2 million vehicles. 56% of all the sales of plugin vehicles in 2018 took place in China. In the U.S. as well, plugin sales increased by 79%. Tesla sold more than 128,000 units of its Model 3 during Q1 and Q2 of 2018. Including Model S, X and Model 3, Tesla sold more than 158,000 EVs during the first two quarters of 2018.
Honda has remained a lot less aggressive while entering the EV market compared to other leading vehicle brands. Other brands are investing aggressively in plugins and electric vehicles. Brands like BMW, Audi, Ford, Toyota etc are all investing in electrified models and forming partnerships to faster grow their share in the electric vehicle market. However, Honda’s pace is much slower in this area.
Asian markets and mainly China :
The China market has grown into the world’s largest market for automobiles. Both U.S. and China are the leading markets for automobile brands. Automobile companies are growing their penetration of China through local partnerships and by investing in local manufacturing infrastructure. Honda’s sales are high in North America but its penetration of the China market is still comparatively low. In other Asian markets too, sales of Honda motorcycles are high but that of Honda cars low. Honda has retained most of its focus on its domestic market and the United States. However, with growing potential of China as a market for cars and motorcycles, ignoring it will mean losing a major opportunity.
Apart from investing in the growth of its electric vehicle portfolio, Honda should also focus upon growing its manufacturing and sales network in China to achieve superior sales there. The automobile industry is experiencing a slight decline in 2019 but the Chinese market is still full of opportunities and not just China but other Asian markets like India, Malaysia, Singapore etc also hold significant growth opportunities for Honda.
Rather than depending upon its core products only and the core markets, Honda should try to expand its product portfolio to include more hybrids and EVs as well as invest in the latest technologies for a smoother transition into the next era of mobility.
Investing in autonomous driving technology will also prove profitable for Honda. All the leading automobile brands are investing in autonomous driving technologies. Several of them have partnered to work together on this technology. Tesla’s autonomous driving technology is considered to be the most advanced and the safest. Investing in autonomous driving technology will also help grow the demand for the existing models of Honda. Autonomous driving and IoT are considered to be the future of mobility. The transportation industry is going through a phase of transformation. To sustain demand and sales of its products, the company must invest in these technologies. Connected cars with digital interfaces and automated driving features will define the future of mobility. These technologies can grow the attraction of Honda’s portfolio.
The level of regulation of the automobile industry throughout the world has grown a lot. In the U.S., laws are stringent requiring companies to pay special attention to compliance in areas including passenger safety, product quality and labor. With higher regulation, the entry and exit barriers are higher as well as faster growth can be difficult. Incumbent players are forming alliances for growth and expansion worldwide. Moreover, the level of fines have grown and can be a significant percentage of the net revenue of a brand. From U.S. to China and Europe, legal and regulatory agencies have adopted stricter laws. Businesses have to be careful regarding tax laws and tariffs as well. Several international businesses have complained how rising tariffs are hurting their businesses.
Competitive pressure :
Growing competitive pressure also poses a big threat before the automobile brands. Higher competition has led to higher growth related pressure and increased operating costs. In 2018, Honda invested more than $7 billion in research and development. Moreover, with growing competition, brands also have to focus more on marketing as well as technology and product innovation. Some of the leading competitors of Honda include Ford, Toyota, Volkswagen, BMW and Hyundai. All of Honda’s rivals invest a lot in research and development as well as marketing. They are investing aggressively in latest technologies as well as market expansion. Honda’s automobile market share is high in Japan and U.S. but weak in Asia. With higher competitive pressure, the company’s operating expenditure has also grown higher. Operating costs of Honda grew by 4.4% to ¥15,162.2 billion in 2018 as compared to the previous year. Its costs of sales also grew by 4.8% in 2018 as compared to last year.
Growing costs of raw material and labour:
Costs of raw material and labour have grown fast in recent years which reflects in the rising operating costs and expenses of Honda. Moreover, due to growing focus on customer experience and product quality, the company is investing more in its human resources and good quality raw materials. These factors are driving the costs higher. However, keeping in mind the level of competition in the industry as well as rising expectations of customers, these expenses are essential. Honda needs to retain its market share and leading position for which it will need to invest in both the things. With growing rivalry in the automobile industry the need for talented employees has also grown.
Honda is one of the leading automobile brands in the global market. It has a large market share in both Japan and the United States. However, Honda might need to focus upon the China market to grow its sales there. Its light Honda Jet has also become a hit and was among the best selling light jets of 2019 during the first half of the year. Honda motorcycles are popular in the Asian markets. Honda’s focus on style, performance and competitive pricing has helped it acquire a large market share in the Asian motorcycle market. For faster growth Honda must focus upon technological innovation and invest in the latest technologies like AI, autonomous driving technology and digitalization. As customers’ lifestyles have changed, so have their expectations and demand.
The global automobile market has entered a challenging phase in 2019. Demand and sales have fallen compared to last year. However, the demand and sales of electric cars is growing higher in 2019 and this trend is expected to continue in the coming years. Tesla’s sales in 2019 show that the popularity of electric cars has grown. Honda too must focus upon growing its lineup of electric vehicles and hybrids. This change has come somewhat abruptly and will benefit the brands that have been investing more aggressively in electrified cars. Customer experience should also be a top priority for Honda. Honda has a large product portfolio and that gives the company some extra edge. However, it must not remain behind in the race for technology. Investing in autonomous driving and electrical cars which help it retain its position when new trends and technology are taking mobility into a new era.
HONDA MOTORS Annual Report 2019.