High Inflation: The Challenge of a Crisis

<< 1. The Shocking State of Motorcycles in Developing Countries
<< 2. Engine concepts drawn up overnight
<< 3. Creating a Useful Bike for Developing Countries
<< 4. Fulfilling the Expectations of a Growing Region
<< 5. From Belgium to Brazil
<< 6. The Decision to Build in Manaus
<< 7. The First Factory Manager-34 Years Old
<< 8. High Inflation: The Challenge of a Crisis

Business was not always so smooth in Brazil. The nation was struck with severe inflation in the mid-1980s, which produced a rapid decrease in the number of CG125s sold from 1986 to 1987. Added to that was a price-control ordinance that brought about a financial pinch at HDA.

"At one point," Yoshizawa said, "I feared we'd have to give up on the Manaus Factory."

During that period Yoshizawa, then the executive vice-president of Honda Motor, went to Brazil for a meeting with the Brazilian Finance Minister and Fukatsu, who was then the president of Brazil Honda. Citing a price control that had caused CG motorcycles to be cheaper than mopeds, they pleaded with the minister to approve a price increase for CGs. The negotiations were difficult. Finally, Yoshizawa stressed that the profits gained by Honda in Brazil were never allotted to Honda in Japan. The profits, he said, were reinvested into the factory at Manaus, solely because Honda had wanted to make its factory a major production base for South America.

"The finance minister finally understood Honda's corporate approach," Yoshizawa said. "He understood we were nurturing a company that was deeply rooted in the local community. Immediately afterward, he visited our factory in Manaus, and from then on things were relatively smooth. In the end, the facts had convinced him. I realized then that Honda's philosophy was a splendid one."

Today, more than twenty years after the introduction of the CG125-and following the resolution of several crises-the motorcycle is made from 98 percent local content. In fact, it has become an extremely popular model, commanding an incredible 90 percent share of the market for Brazilian-made motorcycles. The annual production of motorcycles, which started in the 18,000s, now stands at more than 280,000 units.

Inagaki, who is in the true sense the creator of the CG125, had the following to say about issues facing the Brazilian market:

"São Paulo had a well-established car culture, because of which, cars could travel fast on roads with relatively little traffic congestion. We should introduce larger motorcycles there that can have a commanding presence amid the flow of traffic. That should enhance Honda's brand image even more. On the other hand, I believe we should introduce motorcycles that could be built at half the cost of the CG125, and which could be exported to countries neighboring on Brazil. In the next generation, I believe we'll have to expand our pool of product users."
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