Honda's unit sales of automobiles amounted to 3,925,000 units, up 7.5% from the previous fiscal year, primarily because of increased sales in North America, Europe, Asia and Other Regions.

Revenue rose 6.8% from the previous fiscal year, to ¥9,489.3 billion, reflecting the rise in the number of units sold and the positive impact of currency translation effects.

Operating income posted a gain of 10.4%, to ¥661.6 billion. This was due mainly to the positive effects of higher revenue, cost reductions, price increases and currency effects. These positive factors offset such negative developments as higher sales incentives in North America, the sharp rise in raw material costs, higher SG&A expenses, changes in the model mix as well as increases in R&D costs and depreciation.

Total automobile demand in Japan* (as measured by the number of registrations of regular vehicles (661cc or higher) and mini-vehicles (660cc or lower)) through December 2007 was below the level of the previous year for 21 consecutive months, thus creating severe market conditions. In fiscal 2008, total demand declined from the previous fiscal year, to approximately 5,320,000 units. Of this total, regular vehicle registrations remained below the level of the previous year throughout the fiscal year and amounted to approximately 3,430,000 units, despite the positive impact on sales of the Tokyo Motor Show in the latter half of fiscal 2008 and the introduction of new models by various automakers. Registrations of mini-vehicles amounted to about 1,890,000 units, also below the level of the previous fiscal year. This was partly because of a decline of the positive impact of the introduction of new types of mini-vehicles, in spite of the continued interest among drivers in owning these vehicles.

Amid this operating environment, Honda's unit sales in Japan during fiscal 2008 declined 8.5%, to 615,000 units. This was partly due to the decline in the sales of the Zest and Life in the mini-vehicle category, despite strong sales in the regular vehicle category where sales of the Stream and CR-V continued to be strong, and sales of the new models such as the Fit and Inspire were robust.

The second-generation Fit , which was introduced in October 2007, features advances in packaging, utility, drivability and environmental responsibility. Also, the new Fit was selected as the Car of the Year Japan 2007-2008 by the Japan Car of the Year Executive Committee, as the first-generation Fit had previously achieved. The Fit has been widely acclaimed by a broad range of customers, and cumulative sales from the time of the introduction of the first-generation Fit through November 2007 have exceeded one million units. In terms of the number in domestic car registrations, the Fit placed first in fiscal 2008.

In calendar 2007, total demand in the United States declined from the previous year, to 16,150,000 units. A decline in new car demand became clear toward the end of the year as consumer interest in purchasing new automobiles declined substantially due to such factors as the increase in oil prices and the turmoil in financial markets stemming from the subprime mortgage crisis. In addition, the market continued to shift from light truck models, such as large sport utility vehicles (SUVs) and pickup trucks, toward more fuel-efficient small-size passenger cars and crossover utility vehicles (CUVs).

Amid these operating conditions, unit sales of Honda automobiles in North America during fiscal 2008 rose 3.5%, to 1,850,000 units, despite a decline in sales of the Pilot , as sales of the small-size Fit and the CR-V in the CUV category continued to be strong, and a favorable sales performance was recorded for the core Accord and Civic models.

In the production area, in Mexico, where sales are expanding steadily, Honda shifted the model for production at the factory from the Accord to the CR-V , which is in strong demand in its domestic market, while also increasing production capacity from 30,000 units a year to 50,000 units in September 2007.

Total demand in Europe* in calendar 2007 amounted to approximately 15,960,000 units, about the same as in calendar 2006. This was because the total demand in Germany, Europe's largest market, was below the levels of the previous year for 12 consecutive months, despite the continuing growth of the markets in Central and Eastern European countries. Total demand in Russia in calendar 2007 showed strong growth, to about 2,580,000 units, as a result of strong economic conditions accompanying the rise in prices of crude oil and other resources that Russia possesses as well as the rapid expansion of automobile loan financing in that country.

Amid this operating environment, during fiscal 2008, Honda's automobile sales increased 20.7%, to 391,000 units. Factors accounting for this performance were the expansion in sales of diesel-powered cars as well as favorable sales for the new model CR-V , which was introduced in January 2007, and the three-door Type S as well as Type R models in the Civic series, and strong sales of the sedan-type models, such as Accord and Civic four-door sedans, especially in Russia.

In the area of production, Honda of the U.K. Manufacturing Ltd., our consolidated subsidiary, expanded the production shifts from February 2007 to meet the expanding demand for the Civic and CR-V . As a result, the output for fiscal 2008 increased 29.7%, to 247,000 units, and the cumulative production at the plant reached two million units in February 2008.

In Asia, total demand in principal countries* in calendar 2007 increased, to approximately 14,330,000 units, as a result of stable economic expansion.

Unit sales of Honda automobiles in Asia** during fiscal 2008 expanded 21.8%, to 755,000 units.

By country, sales of the Civic and the new CR-V that were introduced in early 2007 showed favorable expansion in Indonesia, India and other countries. In China, sales were strong for the City and Odyssey by Guangzhou Honda Automobile Co., Ltd., an affiliate accounted for under the equity method, and for the Civic and CR-V which was introduced in April 2007 by Dongfeng Honda Automobile Co., Ltd., also an equity-method affiliate.

In production, Honda began construction of a second plant in Thailand in July 2007, which will have a maximum annual production capacity of 120,000 units with an eye to further expansion in demand both in Thailand and other parts of Asia and Oceania. In addition, construction of a second plant in India, which will have an annual capacity of 60,000 units, began in July 2007, and work on expanding the capacity at the existing first plant from 50,000 units to 100,000 units was completed in January 2008. Through these expansion activities, Honda is preparing to respond to rising demand for its automobiles. To note, cumulative production in Thailand reached one million units in December 2007.

In calendar 2007, major markets in the Other Regions geographical segment expanded against a background of increasing crude oil and other raw material prices. Compared with the previous year, the Brazilian automobile market* grew to approximately 2,460,000 units, while the Australian market** expanded to approximately 1,050,000 units. Markets in the Middle East and South American markets other than Brazil also experienced overall expansion.

Amid these operating conditions, Honda's unit sales in the Other Regions during fiscal 2008 expanded 26.6%, to 314,000 units. In Brazil, sales of Civic and Fit flexible fuel vehicle (FFV) models which are able to operate on 100% ethanol or a mixture of gasoline and ethanol were quite robust, while in other countries, sales of the CR-V and Civic were strong.

In the production area, to meet expanding demand in Brazil, in July 2007 Honda increased the annual production capacity of its Brazilian plant from 80,000 units to 100,000 units. Also, in Argentina, Honda began construction work in November 2007 on a new plant that is scheduled to go into operation in the latter half of calendar 2009 and will have an annual capacity of 30,000 units. This new plant will respond to expanding domestic demand in Argentina, and, together with Honda's Brazilian automobile plant, will form the automobile production bases for the South American market.

Honda has set a target for fiscal 2009, ending March 31, 2009, of expanding total unit sales of automobiles 5.5%, to 4,140,000 units.

In Japan, conditions in the automobile market are expected to remain challenging, but Honda will work to further expand sales of models showing strong sale performances, including the new Fit and the new Inspire , and will also implement measures to strengthen the product lineup and expand sales as we introduce new models, such as the Freed , in May 2008. In addition, in the marketing and service field, Honda is working to accelerate the strengthening of its sales and service structures through the consolidation of sales channels and continues to strive to maximize lifetime customer satisfaction. In fiscal 2009, Honda has set a target of selling 620,000 automobiles in Japan, 0.8% higher than in fiscal 2008.

A substantial decline is forecasted for the total demand in the U.S. market in 2008 amid the uncertainty about future trends in the economy, including concern about the effects of the subprime mortgage crisis spreading to the real economy and rising gasoline prices. Under these difficult market conditions, Honda will continue to focus on models that already have favorable sales performances, including the Accord , Civic and CR-V , while also adding four new models, including the all-new Acura TSX and Honda Pilot , which were introduced in spring 2008, as well as the new Honda Fit and Acura TL , which are scheduled for introduction in fall 2008. Through these marketing activities, Honda intends to respond to the needs of its customers in North America by offering them new products featuring industry-leading levels of fuel efficiency, quality and reliability.

Although conditions currently facing Honda are challenging, in its production activities it will implement measures to increase local production and strengthen its base in North America. To this end, Honda is moving ahead with construction of its new Indiana plant in the United States with annual capacity of 200,000 units and a new automobile engine plant in Canada. Work on both these plants is proceeding smoothly with a target start-up date in fall 2008.

In Europe, continued market growth is expected in Russia, the Ukraine and the countries of Central and Eastern Europe. Honda will work to expand sales of the CR-V and Civic , which are experiencing favorable sales performances, and introduce the new Accord with full model changes in June 2008 and new Jazz with a full model change in September 2008. Through these and other initiatives, Honda will strive to increase the appeal of its products and expand sales in the European region.

The new, eighth-generation Accord for the European market will solidly establish Honda's position in this segment. The new Accord will be available in three types, with 2.0-liter and 2.4-liter i-VTEC gasoline engines and with a newly developed 2.2-liter i-DTEC diesel engine, which Honda is massproducing for the first time. These Honda automobiles meet the Euro 5 emissions standards, scheduled to go into effect in 2009, ahead of the requirement.

Along with these initiatives to enhance the appeal of Honda products, Honda is taking steps to expand its marketing network, especially in the fast-growing Russian market, and has set a goal of having approximately 70 dealers in operation within a few years.

In the production area, to respond to the expansion in sales of diesel engines in the European region, Honda will expand diesel engine production from Japan to Europe step by step and further localize its European operations.

Honda is aiming for a 20.2% increase in annual sales in Europe in fiscal 2009, to 470,000 units.

In Asia, the Chinese market is expected to experience further growth, and many observers are looking for the total automobile market (passenger vehicles + commercial vehicles) to exceed 10 million units in calendar 2008. In other parts of Asia, especially the countries of Southeast Asia, market expansion is expected to continue. In these markets, Honda will focus on the Civic and CR-V that are experiencing favorable sales performances, while also endeavoring to increase the appeal of its products and increase sales through full model changes on core models, such as the new Accord , introduced in Asia from the end of 2007, and new Jazz , to be introduced during 2008 to 2009.

To respond to the market expansion in India, Honda is aiming to continue to expand its sales network to 160 dealers over the next three years. Similarly, in China, Guangzhou Honda and Dongfeng Honda, affiliate companies accounted for under the equity method, are expanding their sales networks. At the same time, the Acura brand marketing network is being expanded along with activities to build the brand. In the Chinese market as a whole, the goal is to have a network of 700 dealers in total for the Honda and Acura brands by the end of 2008.

In the production area, to meet growing demand in Southeast Asia, Honda is scheduled to start production at a new plant in Thailand in the latter half of 2008.

In fiscal 2009, Honda's target for unit sales in the Asian region as a whole is 920,000 units, an increase of 21.9%.

In Other Regions, Honda is expecting further market expansion, as economic conditions remain favorable in Brazil, Australia and countries of the Middle East. In addition to continued favorable sales of the Civic and CR-V models, Honda is expecting an additional sales increase of the new Accord . As a result, Honda is aiming for growth in the unit sales in Other Regions in fiscal 2009 of 14.6% over the previous fiscal year, to 360,000 units. On the production side, to respond to strong demand in Brazil, Honda is working to expand annual production capacity of its Brazilian plant from 100,000 units to 120,000 units by August 2008.