President's Message
In the fiscal first quarter, ended June 30, 1996, the Company's operating income,
income before income taxes and net income increased significantly compared with
the corresponding period last year.
The increase in Honda's sales was mainly generated by steady automobile sales
in Japan as well as in North America; in particular, sales of recreational vehicles
(RVs) in Japan contributed greatly to boost total unit sales of automobiles. In
addition, the Company's ongoing rationalization measures to cut costs and expenses
were major factors behind favorable operating income.
As a result, Honda's consolidated operating income for the quarter increased 162.0%
from the corresponding period a year ago, totaling ¥68.6 billion ($627 million).
Income before income taxes and net income amounted to ¥76.0 billion ($695
million) and ¥45.7 billion ($417 million), increases of 303.1% and 283.4%,
respectively.
The Company's consolidated income statement data for the quarter included a pre-tax
gain of ¥10.4 billion and an after-tax gain of ¥5.0 billion on the nonmonetary
exchange of common shares of The Bank of Tokyo, Ltd. ("BOT") held by
Honda for common shares of The Bank of Tokyo-Mitsubishi, Ltd. following the merger
of BOT with The Mitsubishi Bank, Limited on April 1, 1996.
On a per share basis, net income per Common Share for the quarter was ¥46.91($0.43),
while net income per American Share (each share represents two Common Shares)
was ¥93.82 ($0.86).
 Review of
Operations
In reviewing our operations during the first quarter, I would like to briefly
touch upon several activities Honda performed to strengthen our business in Japan
and overseas.
Japan
Our automobile sales in Japan have been robust since the introduction of the Odyssey
in 1994, and were propelled further by the enhancement of our model lineup in
the RV segment. In particular, the success of the Step WGN (Wagon), which was
introduced in May 1996, contributed to increased total vehicle sales. Besides
the Step WGN, the Orthia and the CR-V sport utility vehicles (SUVs) also showed
higher sales in the Japanese automobile market that resulted in a 21.0% year-to-year
increase during the first eight months of the 1996 calendar year. Furthermore,
a new minivan model, code-named SM-X, is scheduled to be launched in Japan late
this year. All of these RV models have been developed based on our high-volume
Civic or Accord models, resulting in substantial reductions in development and
production costs. We believe these efficiencies make our RV models even more price-competitive.
North America
In North America, we are seeing a continuation of market improvement in sales
in the light-vehicle segment. Combined sales in both the Honda Division and the
Acura Division in the United States totaled 565,338 units, up 6.4%, during the
first eight months of the 1996 calendar year. Acura Division sales have done particularly
well, rising 9.8% through August 1996, owing to favorable sales of the TL sedan
series and the U.S.-built CL coupe. As for Honda Division sales, total vehicle
sales in July and August were hampered by an acute shortage of the Civic models
due to its overwhelming popularity. Sales growth for the year would have been
much stronger if it were not for the Civic shortage. So far, all of the current
Civics for the North American market have been produced exclusively in our Ohio
and Ontario plants, which have operated at full capacity. In order to alleviate
this shortage, we plan to supplement our American vehicle supply with Civics built
in our Suzuka plant in Japan. Sales of the present Accord series, which will enter
its fourth model year this coming October, have continued to show strength in
the marketplace, with unit sales increasing 7.4% through August. The Passport
SUV also enjoyed firm growth in the United States, rising 4.9% during the eight-month
period.
Our American model lineup will see significant additions in the latter part of
this calendar year. One is the three-liter, V-6 version of the Acura CL coupe,
and the other is the CR-V SUV for the Honda line. The all-new V-6 engine that
will be equipped on the 3.0 CL is our first V-6 engine manufactured in the United
States. The all-aluminum engine--capable of producing 200 horsepower, thanks to
Honda's Variable Valve Timing and Lift Electronic Control (VTEC) mechanism--is
the lightest in its class. The CR-V, already the best seller in Japan, is expected
to make strong inroads into the American SUV market. We anticipate further sales
growth in North America with these exciting products.
In the area of manufacturing in North America, the Anna, Ohio, engine plant recently
completed a 190,000-square-foot expansion to accommodate production of the new
V-6 engine. This addition enables the Anna plant to produce, from scratch, a total
of 900,000 four- and six-cylinder engines and related drive train components each
year. When combined with other projects currently ongoing in North America, Honda's
cumulative investment in the Americas will be $4 billion, and total employment
will include more than 20,000 associates.
I am very happy to report Honda's triumph in capturing the Manufacturers Championship
title in the 1996 PPG Indy Car World Series. The Honda Indy V-8 engine, which
was equipped in six Indy Car machines for the 1996 season, scored a total of 251
points to clinch the title. Needless to say, it was the combined efforts of the
drivers, their teams and the engine itself that deserve credit for this great
feat.
Europe
In July 1996, Honda established a new European motorcycle headquarters and R&D
division for scooters, in Rome, Italy. The scooter market in Europe has been expanding
dramatically, and Italy is both the center of this market and the leader in market
trends. Therefore, with the establishment of these new organizations, combined
with the existing motorcycle factory in Atessa, Italy, Honda will integrate its
key functions of R&D, manufacturing, sales and marketing in Italy, enabling
the Company to meet the needs of its European customers.
Honda also announced three new joint ventures between three of our affiliated
companies and Unipart Industries, the manufacturing division of UGC Ltd., in July
1996. Each joint venture will produce essential parts for automobiles, such as
pressed body components, exhaust systems and manual transmission gearbox components.
These joint ventures reflect the culmination of many years of working closely
together and demonstrate our fundamental commitment to establishing long-term
relationships with our suppliers. Through initiatives such as these, Honda will
establish a self-reliant business in Europe.
Asia and Others
In Asia, motorcycles play an important role as a primary means of personal transportation.
Sales of motorcycles, particularly in the small-commuter category, continued to
be favorable in the People's Republic of China, Indonesia, Thailand and Malaysia,
and this trend is likely to be maintained in accordance with the forecasted growth
of Asian economies. Development of models will further be enhanced to meet the
diversity of consumer demands for motorcycles.
In April 1996, we introduced a new car named the City, a 1,300cc sedan, in Thailand.The
City was specially developed to respond to the demand for automobiles in Asian
markets, and we expect to sell 20,000 units in Thailand in fiscal 1997. The City
is also planned to be manufactured in five other Asian countries--Malaysia, Indonesia,
the Philippines, Taiwan and Pakistan--by March 1997.
In other parts of the world, in June 1996 we announced that a new auto plant to
produce a Civic four-door model will be established in Turkey in the autumn of
1997. Annual production will be 30,000.
Looking Ahead
In summary, Honda--currently riding a crest of favorable sales in the RV segment
in Japan--enjoyed firm growth in the automobile business. Nevertheless, we understand
that the overall business climate surrounding our automobile business is still
unpredictable due to intensified competition in worldwide markets. With new, attractive
model offerings, we will grow to achieve our goals. As always, we appreciate your
continued support.
September 1996
Nobuhiko Kawamoto
President and Chief Executive Officer
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