Honda-The Power of Dreams
Summary of 2008 Mid-Year CEO Speech

TOKYO, Japan, May 21, 2008 – A new 3-year mid-term plan began in April of this year. The basic idea for this 3-year plan is to establish a corporate structure necessary to sustain our strengths and that will enable us to grow globally in the future, and begin such efforts initially under the leadership of our operations in Japan.



Two concrete directions are set as followings;

1) To create world-leading environmental technologies, bring them to life as products, and offer them to more customers.
2) To achieve a significant advancement toward the next generation of manufacturing systems which will enable Honda to create such advanced products. 


Japan will play a central role. The goal of our efforts will be to mature technologies and products in Japan, which put Honda at the forefront in the area of environment, and evolve them from Japan to the world along with the advancement of our manufacturing systems and capabilities.

Toward this end, various measures will be taken with a focus on the following three core areas;

1) Strengthening motorcycle business
2) Innovation of automobile manufacturing in Japan
3) Hybrid strategy to achieve full-scale market penetration


1. Strengthening motorcycle business
[ Importance of motorcycle business / 50th anniversary of Super Cub ]
· Honda began its business with motorcycles, entered into the global market with motorcycles, and established a business foundation which later enabled Honda to enter into the automobile business.

· Motorcycle business is the driving force of Honda’s growth and expansion, and it is one of the key strengths of Honda that other automakers do not have.

· Honda currently sells more than 13 million motorcycles annually including commuters which provide an essential means of transportation for people in their daily lives as well as recreational large-size motorcycles which provide the joy of riding.

· Among such Honda motorcycle products, the Super Cub model that represents Honda is celebrating its 50th anniversary this year.

· The Japanese-born Super Cub has maintained its original creative concept and basic style, but has continuously advanced as a model that accommodates the needs and preferences of people in different areas around the world. As a result, the Cub series achieved cumulative worldwide production of 60 million units (as of the end of April 2008).

· Demand for motorcycles as a means of transportation is expected to continue to grow mainly in Asian and South American nations. In addition, considering the global high price of crude oil, there is a good chance that motorcycles will be considered not only in developing countries but on a global basis.

· Honda will create motorcycle products which reflect the unique characteristics of Honda and exceed the expectations of customers while striving to develop another model which creates a new motorcycle category and market as did the Super Cub.


[ Strengthening motorcycle production ]
· Toward this end, it is important to strengthen motorcycle production. The new motorcycle plant at Honda’s Kumamoto Factory, which began operating in April 2008, will play a key role.

· The goals of the transfer of motorcycle production from Hamamatsu, the birthplace of Honda, to Kumamoto are; 1) to improve efficiency by consolidating production and 2) to strengthen Honda’s ability to build motorcycle products which offer new value with even higher quality.

· Moreover, Honda will thoroughly strengthen its manufacturing operations at the starting point in Japan, dramatically enhance its competitiveness, and leverage this enhanced competitiveness to further grow and advance its global motorcycle business.

· Production at the new motorcycle plant at Kumamoto Factory will reach its full-capacity in the first half of 2009.

· In order to efficiently produce approximately 60 models, from commuters to large-size motorcycles, Honda conceived and built from scratch highly efficient and ideal production lines to accommodate the unique characteristics of each model.

· In addition to employing various state-of-the-art equipment, reducing the number of production processes and increased automation are used for mass production models. The new plant will produce motorcycles on three main lines which achieve a high level of human resource efficiency and high flexibility. The new plant also has 15 cell lines where high value added products are assembled completely by a small team of associates.

· These cell lines make it possible to build a product with enhanced attractiveness and quality. At the same time, a cell line has a significant benefit in the area of human resource development as it is ideal for the advancement of associates’ skills and sharing of production know-how.

· Through these initiatives, including a 20% improvement in workforce efficiency compared to the existing plant, Honda will strive to establish a strong motorcycle production system which will remain highly competitive even if the exchange rate of the Japanese yen to the U.S. dollar is in the 90s.

· The new plant also is an environmentally-responsible plant which reduces CO2 emissions by approximately 20% compared to the existing plant through various efforts including utilization of natural energy.

· As the leader plant within Honda’s global motorcycle production network, and as a source of Honda’s strength to create products that will exceed the expectations of our customers around the world, Kumamoto Factory will be a driving force of motorcycle business growth in the future.


[ Strengthening technological and product attributes ]
· In the area of environmental technology, installation of PGM-FI (Honda’s Programmed Fuel Injection) on all scooters sold in Japan is now virtually completed, and PGM-FI will be installed on to all Honda motorcycles sold in Thailand by the end of 2009. Honda plans to install PGM-FI on most of its motorcycles worldwide by the end of 2010.

· In the area of safety technology, Honda will install a motorcycle airbag system and ABS (Antilock Brake System) on more products. Honda plans to install ABS in all 250cc or larger class models worldwide, except off-road models, by the end of 2010.

· In advancing nations, Honda will introduce a new model, in the most popular 100cc class, which achieves high fuel efficiency, high performance, and low cost. Sales of this new model will begin first in Thailand in summer 2008 and then in other Asian countries.

· In advanced nations, Honda will introduce its innovative environmental and safety technologies including a Variable Cylinder Management (VCM) system for motorcycles which significantly improves fuel efficiency as well as electronically-controlled combined ABS (C-ABS), an advanced brake system which further improves stability while braking.  Moreover, Honda will improve the product attractiveness of medium-to-large size models and strengthen those aspects of a product which contribute to the joy of riding .

· Motorcycle R&D will also be strengthened with a determination and passion to create the Super Cub of the next generation.


2. Innovation of automobile manufacturing in Japan
[ The thinking behind manufacturing reform in Japan ]
· In addition to the new motorcycle plant in Kumamoto, several next generation production plants will begin operation in Japan over the next three years, including Hamamatsu Factory which will undergo renovation, Yachiyo Industry’s new mini-vehicle production plant, Honda’s new engine plant in Ogawa and the new auto plant in Yorii.

· In regions outside of Japan, a new auto plant in Indiana, in the U.S., a new engine plant in Canada, and a second auto plant in Thailand will begin operation in the latter half of 2008.

· Honda has been promoting the autonomy of regional operations in order to enhance customer satisfaction in each region and to improve business efficiency. However, in order to further strengthen Honda’s competitiveness and product attractiveness, it is necessary, as in the case of motorcycle business, to have a strong Japan operation which will further refine and advance production technologies in Japan and evolve such technologies to regions outside of Japan.

· In the early 2000s, Honda introduced at Suzuka Factory and Sayama Plant a flexible production system which is capable of producing multiple vehicle models based on market demand. This system was evolved to regions outside of Japan, and Honda established a global production system which is complementary among various regions.

· As a result of this introduction of the New Manufacturing System under the leadership of Japan, Honda became capable of flexible production on a global level which accommodates changes in market demand.

· In order for Honda to continue providing high quality and highly attractive products to customers around the world and to sustain its advancement and growth in the future, new innovation of manufacturing is necessary. Honda realizes that the time has come again for Japan to take the initiative and take on new challenges.

· The purpose of this series of manufacturing reforms is to innovate Honda’s manufacturing technologies and systems with a customer focus so that Honda can continue creating products which satisfy customers more than before. Toward this end, Honda will strengthen its manufacturing system by reorganizing its manufacturing operations in Japan and by refining Honda’s “New Value Creation.”

· One of the key roles Honda operations in Japan will play is to evolve the results of the reform globally to the other Honda operations outside of Japan.

· Yachiyo Industry will build a new mini-vehicle plant on land adjacent to its Yokkaichi Factory.  Once the new plant becomes operational, Honda’s Kumamoto Factory will transfer the production of mini-vehicle engines to the new plant. This will enable the company to establish a highly efficient production system which is capable of synchronous production of mini-vehicles including the engine and the complete automobile.

· The purpose here is to reform Honda’s mini-vehicle business by strengthening the link between products and production. In order to respond to growing demand for mini-vehicles in Japan, Honda will not only strengthen competitiveness of its mini-vehicle products but also significantly advance the mini-vehicle production plant.

· Honda is not looking just at mini-vehicle business in Japan. Completing the fundamental reform and improving cost competitiveness in the mini-vehicle market, where cost pressures and customer expectations are very severe, will enable Honda to gain a significant strength in dealing with intensifying global competition in the future.


[ Engine plant in Ogawa and auto plant in Yorii ]
· The new engine plant in Ogawa, which will become operational in the first half of 2009, and the new auto plant in Yorii, which will become operational in 2010, will play a central role in this manufacturing reform.

· Honda’s goal with these plants is to advance them as next-generation manufacturing plants and enable their success to lead to Honda’s growth on a global scale.

· The new engine plant in Ogawa will be responsible for the production of the next-generation high-performance environmentally-responsible engines which require highly advanced manufacturing technologies. At this plant, Honda plans to flexibly produce multiple engines which require different production processes, including gasoline engines, diesel engines, in-line 4-cylinder engines, and V-type engines.

· The Yorii plant will, as a leader in the area of the environment, strive to become a next-generation auto plant which pursues energy efficiency and creates new values at the same time.

· Through various initiatives including the introduction of a state-of-the-art system which optimally controls the amount of energy used for production and the recycling of energy, the Yorii plant will strive to become an environmentally-responsible and advanced auto plant which reduces the amount of energy used to produce each vehicle by more than 30% compared to production at the existing Sayama plant.

· For the assembly process, a universal design is employed to achieve a people-friendly line.

· Moreover, Honda will establish a next-generation manufacturing system capable of tracing each individual component to a complete vehicle and to a customer in order to further improve product quality and customer satisfaction.

· At the Yorii plant,in addition to improving workforce efficiency by 20%, efficiency in the area of logistics will be largely improved by establishing Delivery Control Center. Through these efforts, Honda will further improve its competitiveness.

· Striving to establish these next-generation plants which will become a leader for other Honda manufacturing operations around the world, Honda plans to invest a total of approximately 158 billion yen for Ogawa and Yorii plants.


3. Hybrid strategy to achieve full-scale market penetration
· Reduction of CO2 emissions is a means to protect the environment on a global scale. Recognizing CO2 reduction as one of the most important environmental challenges, Honda became the first automaker to announce global CO2 reduction targets for 2010 for both its products and production activities and is making efforts in various areas.

· There are many ways to reduce CO2. However, Honda believes that, in the product area, the advancement of hybrid technologies is the most practical and effective measure at this time.

· It is important to move hybrid vehicles from the current image-oriented stage to the new stage toward full-scale penetration.

· To accomplish this goal, Honda is making an all-out effort to introduce a new dedicated hybrid vehicle.

· Based on the belief that a hybrid vehicle made by Honda must satisfy and please customers by offering new attractiveness as an automobile, the new dedicated hybrid vehicle largely improved attractiveness as a car in addition to its environmental performance.

· With a convenient and compact 5-door/5-passenger size and an exterior design that employs the concept of the FCX Clarity, this vehicle will achieve unique and highly innovative characteristics as a dedicated hybrid model.

· For its hybrid system, a compact, lightweight, and highly-efficient IMA (Integrated Motor Assist) system was developed with the idea of providing motor assist when it is necessary during startup and acceleration while relying on the engine as the main power source.

· Through a newly developed platform which positions the control unit and battery underneath the cargo space, this new dedicated hybrid vehicle achieves light and comfortable driving. It is nearing final development as a vehicle that creates a new world of driving that is not offered by a conventional gasoline-powered vehicle.

· Various technologies, including a function to assist more fuel efficient driving, are being installed to achieve a further improvement of practical fuel efficiency, so that customers can actually experience the excellent fuel efficiency of this vehicle.

· Moreover, in addition to weight reduction, significant cost reduction was achieved through various measures including making key components of the system such as the control unit and battery more compact, creating a thinner motor, and further advancing the equipment and processes used to produce the motor.

· For example, a new motor production line will be added at Suzuka Factory, and per-hour production capacity of this line will be more than doubled compared to the existing line by increasing the speed of each process and increasing the ratio of automation.

· This new motor production line will become operational at the end of 2008. Total annual production capacity will be expanded to 250,000 units including 70,000 units from the existing line. Further expansion of production capacity is possible to accommodate demand growth in the future.

· Through this comprehensive approach, an even more affordable price will be achieved, so that this hybrid vehicle will be chosen rationally by more customers based on its economic benefit.

· At the same time, this will make it possible to establish a healthy structure for the success of hybrid vehicle business.

· Honda’s new dedicated hybrid vehicle will go on sale in Japan, North America, and Europe in early 2009 with expected annual global sales of 200,000 units.

· Honda will expand hybrid sales in the small class by introducing a new sporty hybrid based on the CR-Z, Civic Hybrid, and the addition of a Fit Hybrid model.

· Combined annual sales of these four hybrid models is expected to reach approximately 500,000 units.


[ Next generation fuel cell vehicle: FCX Clarity ]
· A fuel cell vehicle, which emits no CO2 and uses no fossil fuel, while in operation is an essential technology for the earth, and Honda is making steady progress toward market penetration of fuel cell vehicles.

· FCX Clarity is a world-leading next-generation fuel cell vehicle, which is, designed from scratch as a fuel cell vehicle.

· Lease sales of FCX Clarity will begin in the U.S. in July 2008 and in Japan in fall 2008.

· In the U.S. and Japan combined, Honda expects to lease several dozen FCX Clarity models per year to reach a total of approximately 200 units in the first three years.

· Honda is planning to provide FCX Clarity for the Hokkaido Toyako Summit, where advanced environmental technologies will be showcased.


Strengthening motorcycle business, which is one of Honda’s key strengths; innovation of manufacturing in Japan, which is a source of Honda’s competitiveness; and the hybrid strategy toward full-market penetration will empower Honda to continue creating products and joys which exceed customers’ expectations and to grow globally in the future.

During this 10th Mid-term business plan, Honda will make steady progress mostly through the leadership of our Japan operations.

Finally, on May 29, 2008, Honda will introduce an all-new mini-van “Freed,” to the Japanese market. With this vehicle Honda plans to accelerate its sales in Japan, following the all-new Fit, and strives to revitalize the domestic automobile market in Japan.