In 1998, the automobile market in the Asia/Oceania region shrank 16% to 4,290,000 units. This decline proved temporary, as the market showed a gradual recovery. In 2002, the market reached 6,870,000 units, a record high for the second consecutive year.

The automobile market in the ASEAN region has expanded continuously since it hit bottom in 1998. In 2002, the market rebounded to 1,310,000 units, close to the sales level before the currency crisis. Within this environment, Honda's automobile unit sales outperformed the growth of the market and totaled 91,000 units in 2002.
Under the challenging circumstances surrounding the currency crisis, Honda managed the situation through various countermeasures, including the timely introductions of new products and increased cost competitiveness. Based on the diversifying needs of our customers, Honda launched new models such as the City, Civic, Accord, and CR-V. Honda also greatly improved its cost competitiveness. Making active use of trade agreements within the Asian region, such as the AICO (ASEAN Industrial Cooperation) and the CEPT (Common Effective Preferential Tariff), we raised our local procurement ratio and "inter-group complementary supply ratio".
The third measure we adopted was to establish an organization that ensures rapid decision-making, coordinating Honda's entire business resources in the areas of development, manufacturing and sales. As a part of this effort, the automobile businesses in Malaysia, Indonesia, the Philippines, and Thailand are now managed by Honda subsidiaries. In the ASEAN region, as in other regions, Honda intends to expand its business by introducing products that meet local market needs and improving cost competitiveness.

Honda began its automobile business in China in 1994 with the establishment of a joint venture parts manufacturing company called Dongfeng Honda Auto Parts Co., Ltd. Today, our automobile business in China is centered on two joint venture companies; Guangzhou Honda Automobile Co., Ltd., which manufactures and distributes automobiles, and Dongfeng Honda Engine Co., Ltd., which manufactures automobile engines. In 2002, the overall automobile market in China grew by 40% to 3,250,000 units, including 1,130,000 passenger cars. In 1998, Honda began its automobile business in China with an annual production of 30,000 units. In 2002, our annual production grew to 59,000 units. In short, Honda has made a dramatic growth with cumulative production of 150,000 automobiles in just four years.
We attribute Honda's strong auto sales in China to our marketing strategy. When we started our automobile business, the most important strategic issue was the selection of the target customers and the model to be produced within the annual capacity of 30,000 units. We launched the latest U.S. version of the Accord, targeting the affluent class that emerged along with the reforms and market liberalization that were taking place in China. And, our sales expanded steadily as the Chinese economy developed.
At the same time, over the past few years the profile of automobile users in China has changed significantly along with the expansion of the automobile market. Previously, the main users included government agencies and offices, foreign companies and taxi services. Individual users accounted for only 20% of the total. In 2002, however, the percentage of individual users grew sharply, to 58%. When individuals became the majority customers, after-sales service such as maintenance became more important.
Honda has sought to establish a sales network to quickly respond to this change with the focuses on (1) automobile sales, (2) after-sales service, (3) supply of parts, and (4) the provision of sales information. We consider the establishment of this sales network as one of the key factors of Honda's expanding automobile business.

Profile of Passenger Car Users in China		Chinese Passenger Car Market

In addition, Honda's concept and vision of manufacturing have been shared among our local partners and associates, which we believe is another key aspect of our growth. This includes the importance of the activities to focus on high quality products at the factory. Further, we have developed our business with a close relationship with the local community. For example, we have promoted a "green factory" approach by applying sewage processing standards at our factories that are stricter than the local requirements.
Guangzhou Honda began mass production of automobiles at the end of 1998. At the end of 1999, it reached an annual production volume of 30,000 units. The production capacity has been gradually increased since the year 2000, reaching 60,000 units in 2002, and 120,000 units in the spring of 2003. Guangzhou Honda represents Honda's "small born" concept of starting small and growing with the needs and capabilities of the local market.
During the year 2003, Guangzhou Honda will launch the Fit Saloon in the compact car segment in response to the needs of the growing market. In conjunction with this plan, we are working to double the current production capacity there again to 240,000 units during 2004.
In this way, we think that Honda will be able to bring joy to its customers and continue expanding by taking advantage of our strengths in the growing Asian market.

Note;
All the years in this chapter are on calendar basis unless otherwise specified.