Honda remains the most independent of all automakers. Over the years it has steered clear of alliances and mergers, instead preferring to plough its own furrow, sticking to the blueprint laid down by the company’s founder, the late Soichiro Honda.

This has proved a double-edged sword. While Honda has developed an efficient and flexible global manufacturing network, it has remained somewhat quirky. A reluctance to develop diesels, for example, has limited Honda’s ability to penetrate European fleets over the years, though this is now finally being addressed.

Sales performance in 2012

Honda’s global spread, including a strong presence in North America and throughout Asia, saw it perform strongly in 2012. Honda sold a record 3.817 million vehicles globally last year, up 19% year-on-year as it recovered from the effects of the Japanese Tsunami and Thailand floods of 2011.

Sales grew in its largest market, the US, and many Asian markets, though European sales fell 7% thanks to continued tough conditions, and sales in China were adversely affected by anti-Japanese sentiment among Chinese people.

Global production in 2012

Worldwide production in 2012 showed a year-on-year increase for the first time in two years. Japanese production rose for the first time since 2010, while production outside set an all-time record for calendar year production.

Japanese domestic market

Sales in Japan rebounded sharply to 745,165 vehicles, a 48% y-o-y jump, partly a reflection of the effects of 2011’s devastating Tsunami. Honda had three cars in the domestic top 10: Fit (Jazz in Europe) was the third best-selling car of 2012, with sales of 209,281 units, with Japan-market Freed and Step WGN in fourth and ninth respectively with sales of 106,316 and 63,707 units. Sales of mini-vehicles experienced a year-on-year increase for the first time in six years, since 2006, with the N BOX at number two in the sector, with sales of 211,162 units.

Honda has raised its sales target in Japan by 16% for the next fiscal year (ending March 2014) upwards by 16% its sales target in Japan for the next fiscal year (ending March 2014) to 850,000 vehicles. This could be a cautious forecast – according to the Nikkei newspaper, sales in Japan are expected to jump 22% in the year ending March 2014, boosted by increased demand for mini vehicles.

Honda also plans to gain more market share next year with its redesigned Fit subcompact and adding SUV and sedan versions starting next fall, along with a hybrid Accord. Honda expects sales to increase through the year, and plans to sell 350,000 units in the first six months and 500,000 units in the second half of the 2013-14 fiscal period.

Export strategy

Exports from Japan continued to decline as Honda’s overseas production facilities continue to serve local markets. Exports continued to decline, following a fall in 2011. Honda continues to reduce its exports from 54% of total Japanese production six years ago to around 20% last year, equivalent to 214,000 units.

Honda wants to cut back on the number of cars it exports from Japan in a bid to counter the strength of the Yen, which in 2012 added up to US$1,200 to the cost of each car exported. Although the Japanese Government has this year moved to counter this, the trend toward fewer Japanese exports and more local build at transplants will continue.

Honda plans to shift all production of US-bound Fit (Jazz) hatchbacks from Japan to Mexico in 2014. The company exported 67,000 of the model last year, with 40,000 going to the US. And although Honda is ending UK production of the Jazz from 2014, European versions are unlikely to be sourced from Japan. Some of the previous generation models came from the export-only joint venture plant in China, while Honda’s new Indian plant is another option.

North America

In 1982, Honda became the first of the Japanese automakers to produce cars in North America when the first Accord rolled off the assembly line at the Marysville, Ohio, car plant. Since then, Honda has invested around US$12.5bn in its North American manufacturing operations, including more than US$1.2bn in the past two years. The most recent spend was US$200m in new investments in its Russells Point, Ohio, transmission plant and Anna, Ohio, engine plant, which will add 200 new manufacturing jobs.

Honda now builds cars, engines and transmissions in North America at seven vehicle plants, three vehicle engine plants and two transmission plants, with capacity of 1.63m vehicles per year. By 2014, when it starts production at its eighth North American car plant, now under construction in Celaya, Mexico, North American capacity will be 1.92m units. A compact SUV to compete with the Nissan Juke, based on the 2013 Detroit Show ‘Urban SUV’ concept, will be produced in Mexico. This will be launched in Japan at the end of 2013, followed by North America and Europe in 2014.

Honda also will increase exports from North America. Major components exports will be bolstered by almost 70% in 2013 to assembly plants in South America, Europe and Asia. By the end of 2014, Honda says it will become a net exporter of vehicles from North America – exporting more than it imports – as its plants in the US, Canada and Mexico take on a larger responsibility for the introduction of global models sold in multiple countries.

Honda recently began exporting US-made vehicles in Korea after the rising Yen made exports from Japan uncompetitive. It exports to 40 countries and shipments in 2013 are expected to reach around 100,000 Honda and Acura vehicles.

While Honda has undoubtedly been successful in the US, its fleet penetration is extremely low. The brand remains primarily a retail brand, with just 2% of 2012 sales – approximately 28,000 cars – being sold to fleets. This compares poorly with Toyota or Hyundai, which sell around 10% of their total sales to fleets, or Nissan, which sells 15% to fleets. Ford, fleet leader in 2012, sold 30% of its total volume to fleets – a total of 674,000 cars.

European recovery in 2013

Honda sales have rebounded in the first quarter of 2013, despite the overall fall in European new car registrations. In Q1, the brand registered 40,499 units in Europe – up 16.3% compared to the same period in 2012. This is against an overall fall in new car registrations in the EU of 9.8% compared to the first three months of 2012. Honda Q1 sales were particularly strong in the UK, its European manufacturing base, with registrations up 23.0%.

Honda puts its European recovery down to strong customer demand for recently launched models. Honda Motor Europe President, Manabu Nishimae, said: ‘Economic conditions in Europe remain very challenging. Nonetheless, we have been encouraged by good customer demand for our new models such as the CR-V and the 1.6-litre diesel i-DTEC Civic.’

Honda will continue to strengthen its range in Europe by adding the 1.6-litre i-DTEC engine to the CR-V in autumn 2013. A new Civic Tourer model will join the range in early 2014. Both these new derivatives will be built at the Honda UK Manufacturing (HUM) facility in Swindon, south-west England.

Swindon has suffered during the recession – at the height of the financial crisis in 2009 it stood idle for four months while stocks were balanced. But last year Honda announced a US$400m investment at the plant, aimed at reaching a target volume of 250,000 units annually within three years. Nevertheless, continued uncertainty in European markets has resulted in 800 layoffs at the plant this year.

Production in 2012 was double 2011 levels, at 183,000 units, of which 60% was exported to 60 markets worldwide. HUM builds the Civic, and started production of the new CR-V SUV late last year. It is also producing the new low-CO2 1.6-litre diesel engine for Civic and, CR-V models. Currently it builds the Jazz subcompact, but the next-generation model will not be British-built.

European fleet sales

Honda has traditionally been a retail brand, and its presence in the fleet market has been hampered by the lack of a competitive diesel engine. This is about to change with the addition of a new 94g/km CO2, 78mpg 1.6-litre diesel Civic, replacing 2.2-litre versions. The all-new powerplant has been developed exclusively for Europe, and is being built at Swindon.

In the UK, for example, Honda’s annual fleet sales have fallen from a peak of more than 39,000 in 2008 to less than 18,000 last year. Early indications are that the new engine, together with a more targeted approach with leasing companies and large corporate clients, is having a positive effect. In Q1, Honda’s UK fleet sales are up 10% in an overall fleet sector that has grown by 3%.

A return to pre-recession fleet sales levels will take time, however. Corporate sales manager, Lee Wheeler, said a six-year target of growing fleet sales to 30,000 was the broad plan. New models, such as the Civic Tourer and a two-wheel drive CR-V will help the growth plan.

Long-term growth ambitions

Honda has ambitious growth plans that should take its global output to more than 6 million vehicles over the next five years. Last year Honda President, Takanobu Ito, outlined Honda’s worldwide targets for the fiscal year ending March 2017.

He said emerging markets would drive growth, including India and China, as Honda plans to strengthen its line-up of cheaper models aimed at these regions. Indeed, Ito said that by 2017, 50% of Honda’s sales were expected to come from emerging markets.

China

Honda has two large-scale joint ventures with two major Chinese automakers – Dongfeng Motor and Guangzhou Automobile. Despite the recent problems regarding Japanese goods in China, these are both extremely successful and growing rapidly.

Despite a second-half decline in Japanese car sales, Dongfeng Honda’s sales rose 10.5% to a record 282,000 units in 2012, compared with an average growth of 6.8% seen in the overall passenger vehicle market. Top-selling model was the new CR-V SUV, of which 169,000 were sold in 2012, 5.6% more than in 2011. Meanwhile, in 2012 sales of the Civic rose 2.1% to 79,700 units, and Dongfeng Honda released its first MPV model last year, the Elysion.

In July 2012, Dongfeng Honda officially launched operations at its second auto plant, which has a capacity to manufacture 100,000 vehicles a year and has raised overall annual production capacity of the JV to 480,000 units.

Meanwhile the Guangzhou-based JV, called Guangqi Honda Automobile (GHAC), has started construction of a third production line and an engine plant within the existing Zengcheng plant site. It is scheduled for operation in 2015 with initial capacity of 120,000 units, expandable to 240,000 units.

When the third plant is fully open, GHAC’s overall capacity will be increased from the current 480,000 units to 600,000 units. Honda’s combined capacity in China through the two JVs will reach 1.2m units – it is targeting sales of that level by 2015, double the level achieved in 2011.To achieve this, more than 10 new models will be launched in China between 2013 and 2015, including Hybrid vehicles.

China market problems

Honda’s attempts to build a strong base in China have taken a blow in recent months after anti-Japanese sentiment flared up over a territorial dispute between the two countries.

The dispute centres on a group of tiny islands in the East China Sea – known as Senkaku in Japan and Diaoyu in China. The islands for years have been controlled by Tokyo but are also claimed by Beijing. The islands were privately owned, but were bought by the Japanese government, a move that provoked violent anti-Japanese demonstrations across Mainland China in late 2012.

A number of Honda and Toyota dealerships were burnt down and Japanese cars were smashed up in the streets. For Honda, the result was a 35% drop in year-on-year sales in September 2012 to 76,100 units, resulting in production cutbacks at Honda’s Chinese plants, which switched to shorter working hours and slower line speeds.

There are indications that the situation has now settled down. While sales still showed a drop in April 2013, the most recent figures, for May 2013, show Honda’s Chinese joint ventures with Dongfeng and Guangzhou sold 54,564 cars in the country during the month, up 4.6% over May 2012.

Thailand

Honda has several manufacturing plants in the Asia-Pacific region, including facilities in Malaysia, Indonesia, Vietnam and the Philippines. These are relatively small-scale operations building, in many cases, cars from CKD kits.

However, encouraged by generous government subsidies, Honda Automobile (Thailand) Co (HATC) has invested heavily in Thailand, where it currently manufactures Brio, Amaze, Jazz, City, Civic, Accord and CR-V at a large plant in Ayutthaya Province.

This plant was affected by the floods of 2011, and was forced to close until March 2012. It is now operating at its full capacity of 280,000 units, a level it reached at the end of January 2013. To meet rising demand, Honda plans to expand the plant's capacity to 300,000 units in 2014.

HATC is now building a second assembly and engine plant with an annual production capacity of 120,000 units. Located in the Prachinburi Province, the new plant is scheduled to become operational in 2015. Construction will begin in July 2013. Honda says Prachinburi will be its most advanced manufacturing facility in the Asia and Oceania region, adopting innovations from Honda’s latest Yorii auto assembly plant in Japan.

The plant will primarily focus on building small and sub-compact models, as stipulated by Thailand’s eco-car incentives scheme, which offers incentives to invest in new capacity, including tax-free holidays of up to five years and duty-free import of manufacturing equipment for companies investing in new facilities to produce a minimum of 100,000 small ‘eco-cars’ cars per year for sale domestically and for export.

India

Late last year, Honda Cars India (HCI) announced it would spend a further US$600m on its Indian operations over the next 5-10 years, almost doubling its total investments in the country.

This includes a second manufacturing plant, which is currently being built at Tappugada in Rajasthan province at a cost of US$464m. HCI will start manufacturing vehicles at the new plant before April 2014.

Its car production capacity will be 120,000 units a year, the same as the Greater Noida plant in the state of Uttar Pradesh, thus doubling Honda’s Indian capacity. Shigeru Yamazaki, senior vice-president and director, marketing and sales of HCI, said the company planned to introduce five new models by 2015.

Honda has needed to act in India, where its sales have been declining. Between 2009 and 2011, Honda India saw its market share decline to 1.6% from 3.2% as sales fell to 47,548 units from 62,337. Analysts said Honda did not adapt to fast-changing customer preferences for smaller, more affordable vehicles and diesel engines.

Honda has stopped building the Civic in India as sales are falling, with other Honda models such as the City proving more popular. The Civic’s segment has been in decline, falling 29% in the 2012-13 fiscal year, and Civic sales plunged 70% to just 685 units during the same period.

Now, a new compact Brio range, designed specially for emerging markets, along with the Jazz/Fit hatchback will play a key role in Honda’s Indian comeback. Brio has performed well since its introduction in 2012, lifting total sales 35% to 73,300, Honda’s best performance since it began operations in India. The carmaker has about 3.9% of the total passenger car market in the country, placing it fifth.

Brio-platform models will use a new Indian-built, 1.5-litre, diesel, which will be manufactured at its plant in Tapukara, Rajasthan. The diesel engine plant has a capacity of 163,000 units. It will initially build engines with about 80% local content, expected to rise to 90%. Honda also plans to export engine components from this plant to Europe.

The company plans to widen the Brio and Jazz model. The Brio platform consists of the Brio, the Amaze sedan and a planned seven-seater MPV, while the Jazz platform supports the Jazz, the City sedan and a planned compact SUV.

Honda is also considering a low-cost budget car for the Indian market, below the Brio compact, which could be based on one of its Japan-market 660cc Kei cars. This would compete with budget models including the Tata Nano, Maruti Alto and Hyundai Eon.

Brazil

Honda’s existing factory in Sao Paulo opened in 1997, and has a maximum output of 140,000 cars. The plant builds Fit, City and Civic models, and is close to full capacity – and as a result, Honda is evaluating more than a dozen locations in Brazil for a possible second factory in the country.

Honda's share of the Brazilian car market – the world’s fourth largest – grew from less than 1% before its local factory opened in 1997 to more than 4% in 2008. But its market share has slipped in recent years as rivals ramp up production.