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At the time when most carmakers were busy merging and buying-out one another, there remained one company who thought it best to keep a low profile and go at it alone. That carmaker was Honda and the move seems to have paid off. Nargess Shahmanesh-Banks set out to discover the secret to the carmaker's success.

The recent news of the DaimlerChrysler/Mitsubishi split has highlighted some of the downfalls of company mergers. Taking on an ailing carmaker may seem a good idea in the long run, but there is a price to pay on the road to recovery, and in this case the price was too high. Other mega companies like General Motors may benefit in the short term with extensive platform and technology sharing, but is arguably suffering image-wise from what many term as blatant badge engineering.

Instead Honda's isolation has been its strength. By avoiding the temptation of buying out lesser companies, and by resisting the hungry eyes of wannabe buyers, Honda has kept its integrity intact. Instead it has cleverly technologically aligned itself with other carmakers like Ford, in this case to make petrol engines.

A financial success

Honda saw record financial results for a third consecutive year. For the year ending March 2004, pre-tax profits were up by 5.3 per cent to an all-time high of €5mn ($6mn), with profit after tax rising up 8.8 per cent to a record €3.6mn ($4.4mn). Sales of cars, motorcycles and power products all increased, which led to a record turnover for the twelve-month period of €63mn ($77mn).

Honda’s global car production rose 5.9 per cent in April, to 251,985, compared to the same month last year. Main contributors to this increase were Japan, up 7.7 per cent, Europe up 7.5 per cent and Asia up 33.8 per cent. Year to date figures show a 3.7 per cent increase, to 1,049,450, with Europe up 3 per cent and Asia up 39.1 per cent.

Europe in particular was a big success for Honda, with operating profit increasing by as much as 78.3 per cent to €201mn ($247mn) on a 15 per cent increase in turnover of €7.4mn ($9mn). This was due mainly to increased car sales and a positive impact of the stronger euro against Japanese yen and the sterling.

With the new Accord leading the way, Honda's car sales in Europe were up 16.9 per cent for the first three months of 2004. Jazz also increased by 26.8 per cent to 18,007. For March, again the high selling Accord lead the field with sales up 76.8 per cent to 5,859, Jazz up 21.7 per cent to 9,400 and Civic up 5.7 per cent to 12,823.

Domestic sales increased 3.2 per cent in April compared to the same month the previous year. Life was Honda's best selling car for the month in this region with sales of 10,816 units, a 3.9 per cent increase from a year ago. Demand for Fit, Odyssey, and Mobilio remained strong too with sales of 8,957 units, 6,399 units and 5,254 units, respectively.

Record April sales of luxury marques Acura vehicles, including double digit gains for the TSX and TL performance luxury saloons, along with strong demand for the Civic and Civic Hybrid led American Honda to sales of 114,929 cars and light trucks in April, down slightly from a year ago when the company posted its best-ever April and the third best month in its history. American Honda sales for the 2004 calendar year are off a modest 1.3 percent from last year's record-setting pace at 426,730 units through the end of April.

Rating high on the product front

Honda vehicles achieved the highest ratings of any non-luxury brand according to the JD Power and Associates 2004 Initial Quality Study (IQS), a survey of new car buyers' perceptions of quality problems such as quality of workmanship, drivability, human factors in engineering and safety-related problems. Overall, the carmaker ranked fourth among all brands, topping luxury marques Lexus, Cadillac and Jaguar.

On the European front, Honda has been pretty proactive by becoming one of the founding members of the All-Terrain Vehicle Industry European Association (ATVEA). The new association has been created to promote the correct and responsible use in what is the fastest growing sector of mobility in Europe. ATVEA also aims to contribute to the development of an appropriate legal and regulatory framework regarding the design and use of ATVs at European and national levels. Additionally, it assists with ATV user education and training and cooperates with other industry stakeholders on an international basis.

Honda has also become a founding signatory of the European Road Safety Charter, a major part of the European Commission's plan to reduce road deaths by 50 per cent by 2010. By doing so, the carmaker has committed to a significant increase in the availability of its Advanced Braking System (ABS) -- an important safety development for motorcycles, mopeds and scooters -- and aims for the majority of its products to be equipped with this system by 2007.

On the US front, Honda's new assembly line in Alabama in Lincoln saw the first Alabama-built Honda Pilot sport utility vehicle. Additionally, Honda has unveiled plans to construct a paint facility at its Marysville automotive plant there. This is the largest single investment among a series of renovations and expansions at Honda’s two automotive plants in Ohio. "Honda’s growth in Ohio has provided opportunities for our associates, suppliers and neighbouring communities," says Honda of America president and CEO, Koki Hirashima.

The Marysville Auto Plant and the East Liberty Auto Plant have combined capacity to produce 680,000 cars and light trucks a year. Honda of America has invested more than €4bn ($5bn) in its four Ohio facilities that also include the Marysville motorcycle plant and the Anna engine plant. Since starting in Ohio, Honda's manufacturing has expanded in the US with automotive plants in Canada, Mexico and Alabama, an ATV and powered watercraft plant in South Carolina, and a power products plant in North Carolina.

Last year, the US manufacturing operations spent more than €10bn ($12.6bn) for parts and materials from 620 domestic suppliers in the US. Of that amount, more than half of those purchases came from 175 suppliers in Ohio.

Conquering new land

Russia, some say is the new China, relatively untouched territory for carmakers. Honda, it seems, is on the ball and has just announced the establishment of a fully owned subsidiary in the former communist nation to strengthen its local car, motorcycle and power product sales operations. The new subsidiary, Honda Motor RUS LLC, is located in Moscow.

The Russian automobile market has made a strong recovery since the economic crisis in 1998 reflected by growth in annual automobile sales from approximately 900,000 units in 2000 to 1.20 million units in 2003. Annual sales of imported automobiles quadrupled to over 190,000 units during this same period and are expected to continue expanding in the future.

New markets like China are also vital to Honda's future growth in Asia. Sundiro Honda Motorcycle Corporation, Honda's motorcycle production and sales joint venture in China, has announced that it has begun construction of a new plant in Tianjin with the goal of improving efficiency of production and logistics over the existing Tianjin facility that it will replace. With an estimated investment of €1mn ($1.3mn), the new plant will be completed by the end of 2004 with an annual production capacity of 300,000 units. The motorcycle market in China is expected to exceed 12 million units in 2004, making it the largest in the world.

On the Asian front, the carmaker has additionally launched itself in the South Korean market, kicking off its campaign with the Accord saloon. Honda's stated goal is 800 sales in the first year of operations and it expects to export the CR-V SUV by October. The Accord sold in Korea will be manufactured in Honda's plant in Saitama, Japan. Honda Korea plans to establish four dealers this year – three in Seoul and one in Pusan. Since the Asian currency crisis of 1997, the Korean automobile market has become one of the largest markets in Asia with annual sales of 1.32 million units in 2003.

Honda plans to increase production capacity in Indian by one-third to 40,000 units, encouraged by strong sales of its City subcompact. The expansion programme will be finalised in June, officials claim. There is understood to be a 2004/05 budget of about €18mn ($22mn) to fund plant investment at the local joint venture, Honda Siel Cars, and to increase local content ratios.

In the US the Civic is in high demand

Products and technology

For the Japanese car market, Honda has created a new flagship minivan, the next-generation, premium 8 passenger Elysion, featuring, what the company promises to be "the most advanced Honda technology and the highest levels of comfort and luxury for all passengers". Sales of the Elysion began throughout Japan through in May with orders rising as high as 6,300 units, according to company figures, in the two week period following its introduction, far exceeding the monthly sales forecast of 4,000 units.

The Elysion was designed to compete with the Toyota Alphard and Nissan Elgrand. Developed from the ASM concept shown at Tokyo last year, the car is a bigger version of Odyssey at 4,840mm long, 1,830mm wide and 1,790mm tall.

There are three rows of seating and an innovative low-floor platform that Honda claims results in a lower centre of gravity for better stability, handling and comfort. Despite its bulk, it has a reasonable turning radius of 5.7m.

"We achieved a performance that had never been seen for large minivans," company president Takeo Fukui says. The bigger motor is a i-VTEC unit featuring Honda's variable cylinder management system, which shifts between three- and six-cylinder combustion in response to driving conditions. It returns 9.1km per litre, the best fuel-economy performance in this class of plush people-carriers, Honda says.

All models, it is claimed, achieve a level of fuel economy 5 per cent above 2010 standards, and boast 75 per cent cleaner exhaust emissions than required by 2005 emissions standards, qualifying for Super Ultra-Low Emissions Vehicle (SU-LEV) certification in Japan.

Other new products include the Acura prototype RL luxury performance saloon that made its world debut in April at the New York show. With a 300hp VTEC V-6 engine, a new all-wheel-drive system, dynamic styling and breakthrough technology, including real time traffic information, the RL Prototype is designed to redefine the luxury performance sedan category. Most importantly it provides a preview of the direction in which Acura is taking the all-new 2005 RL luxury performance saloon, which will be introduced in the US market this fall.

Hot on the technology front is Honda's new super handling all-wheel drive system (SH-AWD), seen on the RL, and reviewed in May AE. The technology combines front-rear torque distribution control with independently regulated torque distribution to the left and right rear wheels to freely distribute the optimum amount of torque to all four wheels in accordance with driving conditions.

Remaining green

Honda remains at the forefront of 'green' technology. The carmaker famously told AE last year that it sees no point to advancing too far with diesel technology when there is hybrid to look forward to.

Latest on the alternative fuel front is news that tests on the 2005 Honda FCX fuel cell vehicle equipped with the all-new Honda fuel cell (FC) stack started in April on public roads in the US. The Japanese manufacturer also announced the delivery of two hydrogen-powered FCX vehicles to the city of San Francisco under lease agreement as part of its ongoing customer lease programme.

The 2005 FCX testing programme will begin this month in California, followed by the placement of a vehicle in the New York state in the autumn. This test programme will play a critical role in proving the cold-weather performance capabilities of the Honda FCX and the breakthrough Honda FC stack, which has the ability to start in temperatures as low as -20oC (-4oF), until recently a major hurdle in the development of a truly mass-marketable fuel cell vehicle.

Honda is a young player, having established itself as a carmaker only in 1963, late even by Japanese standards. The carmaker has once again shown record financial results, increased profits from European operations and shown an overall flair for innovation that has kept and will keep it up there with the big players. But perhaps most importantly, the Japanese player has successfully branded itself as a technologically advanced engine and vehicle maker, therefore looking ahead rather than banking on momentary stardom.