A swot analysis of Honda will show us that its; Also it diversifies revenues by operating in a number of markets. They include Automobile market(80. 2% of revenue in 07), Motorcycle market(12. 4%), Power product and other(3. 8%) and financial services(3. 7%). Performing well in all these markets not only provides protection from loss in one market but also provides benifits from other market and all this led to a revenue stream of around $94 billion.
Leading market position and brand, Honda is one of the leading manufacturers of Light vehicles in the world, it is the third largest in Japan and is the leading manufacturer of motorcycles in the world. In addition in 2007’s Fortune magazine’s list of America’s most admired companies Honda was ranked as number 6 in motor vehicles and parts industry. It was also ranked 37 by Fortune Global 500 list for 2007. Leading market position helps provide economies of scale and increases bargining power. Honda also has one of the leading automobile brands in the world reacing 19th in the annual ranking of the top 100brands by Bussiness Week in 2006.
Their brand value stoodcat $17,049 million. This was achieved by consistent investment in advertising and technolically superior products, the Honda brand stands for quality and reliability. Engineering capability, Honda is synonymous with engineering excellence. The company is well known for its engineering excellence from its automobiles to robots. During 2007 they invested around $4. 7 billion in research and development. The developed the world’s first humanoid robot capable of bipedal motion and the world’s first automobile engine to meet the US clean air act requirements.
The company is also well known for its v-tech system and along with Toyota was the first to launch the hybrid car. The engineering capability of Honda is very strong even announcing a new brain-machine interface creating technology for manipulation robots using human brain activity. WEAKNESSES Unfunded employee post retirement benefits, Honda provides pension benefits and other post-retirement health and life insurance benefits to employees. During 2007 they incurred around $297. 7 million for the post rtirement benefit expenses.
By the end of March 2007 the company’s projected pension and postretirement benefit obligations stood at around $13,918. 8 million as compared to the planned assets at around $10,451. 2. Sizeable unfunded post retirement benefits would force the company to make large cash contributions to paying this which would reduce cash available for growth plans. – **Product recalls, Although Ford had to recall many vehicles in 2007, Honda recalled over 81,000 of its Accord Sedans and 27,841 of its Odyssey models in 2007 due to issues with airbags and brakes. All of these vehicles were manufactured between October 2003 and August 2004.
In addition, Honda Motor had to notify the Ministry of Land, Infrastructure and Transport that they were recalling 129,159 minivehicles for free repair due to manufacturing defects in the same month the Odysseys were recalled. The Acty, Vamos and Vamos Hobio models which were reportedly taken in for repair to their rear doors, also had a risk of cracking in their exhaust system and body frames that had not been welded properly, according to the Ministry of Land, Infrastructure and Transport. The many product recalls in 2007 indicate an inadequate quality assurance and quality control systems.
Lower inventory turnover ratios, Honda registered a weak inventory in 2006 in comparision to the industry average and its main competitors. At the end of 2006 Honda’s turnover ratio was 7. 1 which was considerably lower the the industry average of 10 and that of Toyoya(11. 2) and General motors(11. 2). Having a lower inventory turnover increases the company’s holding costs and reduces its margins. OPPORTUNITIES Opportunities in India and China, There is a growing demand for more powerful cars and motorcycles in India and China.
This is a great oppurtunity for Honda to diversify it’s business away from more saturated markets. China is currently the world’s third largest car market after the US and Japan. However due to the increase in personal incomes and better roads in China, vehicle sales are expected to grow by 15-18% by 2010 which would reach 6 to 7. 4 million. This huge increase could leave China as the largest market by 2015. Honda began manufacturing Jazz compact cars in China three years ago targeting the European market and is expected to ship 42,000 units overseas this year, up from 24,600 in 2006.
This is due to Honda’s decision to take advantage of lower production costs in China by boosting its vehicle exports by 70% this year. In the same month Honda announced that it is spending up to $491 million on a second plant in Tapukara in the state of Rajasthan which is about 70km from New Delhi. It’s annual capacity will be 60,000 units and that will be scaled up to 200,000. The plant will roll out it’s first car in the last quarter of 2009 and it will also make Honda’s small car for India. The facility will also have a Research and Development department and a components plant. Increasing demand for hybrid cars, Demand for hybrid vehicles is increasing Worldwide because of stringent emission standards, higher fuel costs and growing environmental awareness. Hybrid engines are more fuel efficient and less polluting than ordinary gasoline and diesel engines. Honda plans to invest $69 million to build a new plant in Japan to boost its capacity to produce key components for hybrid cars. The new plant will quadruple the company’s output for electric cars to 200,000 unots a year.
The plant is scheduled to open this year and they also expect to bring a new hybrid model out by 2009 – Recent initiatives, Since July 2007 Honda has declared many diferent initiatives to try and boost its production capacity around the world from 3. 9 million to 4. 7 million vehicles by 2010. Asia and Southa America are two emerging markets and Honda plans to take full advantage of the new business oppurtunities they will bring. Honda will build second car assembly plants in both Thailand and India, along with their first car factory in Argentina.
The assembly plant in Thailand will cost the company an estimated JPY23 billion to build and which was planned to begin operations before the end of the current year. The new plant will have the capacity to manufacture 120,000 vehicles annually and will result in Honda being able to maunfacture 240,000 vehicles a year in Thailand. Honda also plan to build a second assembly plant in India by the end of 2009. This plant is estimated to cost $230 million to build but will double Honda’s existing output capacity to 150,000 vehicles annually by 2010.
In South America, Honda will spend $100 million to build a new assembly facility in Buenos Aires to add to the car plant they already have in Brazil. The new plant in Argentina, which is planned to start production in the second half of 2009, will have an annual capacity of 300,000 vehicles. The vehicles wil be exported to markets all across South America Aside from the new plants, Honda also announced a new research and development center will be built onto their joint venture in China(Guangzhou Honda Automobile). It will cost approx.
JPY30 and is being built specifically to design a new car for the chinese market. It’s launch is currently set for 2010. As for North America , Honda plan boost their revenue by building a second car assembly factory in Indiana and an engine plant in Canada in the autumn of this year. This should bring Honda’s car production capacity up to 1. 62 million units by this autumn. In Europe, the annual capacity of the plant in Turkey has been increased from 30,000 to 50,000 units. This means Honda now has the capacity to roll out 300,000 vehicles a year. Aviation business, Honda announced plans to enter into aviation business from automobiles and motorcycles by investing $27million in a North Carolina plant to build engines for small business jets. Construction of the factory and a headquaters is set to begin this year in Burlington, North Carolina, Fumitaka Hasegawa. Honda is the world’s biggest engine manufacturer and have now committed $127 million for aviation facilities, including $40 million for a Greensboro, North Carolina, plant to build the eight-person Honda Jet. Honda has said it has more than 100 orders for the $3. 5 million aircraft. Honda’s entry aviation business makes the company more diversified and should improve revenue. THREATS Increasing raw material prices, Honda’s primary raw materials are mainly steel and aluminium. However, there has been a rise in the price of aluminium and steel and this in turn has increased the company’s raw material costs. For example in 2007 the company’s cost of sales rose by 12. 2% to apprx. $66. 7 million, mainly due to the increase in the cost of steel, aluminium and other precious grade metals.
In global terms, the price of primary aluminium ingot has been increasing since 2005 as has the price of cold rolled steel. The steel industry has been demonstrating increasing monopoly with Mittal Steel taking over Arcelor and becoming the worlds largest steel conglomerate and Tata Steel taking over Corus, making Tata Steel the fifth largest steel maker in the world. This may lead to an increase in prices. These rising prices may increase the operating cost of the company and would thus affect the company’s margins. Tightening emission standards, The European Union adopted Euro3 and Euro4 as comprehensive emissions regulations for passenger vehicles and heavy and light commercial vehicles in 1999, they were implemented in 2000 and 2005 accordingly. In 2005 they created a new emission standard to come in in 2009. In states across America they are adopting the ZEV(Zero Emission Vehicle) and in China they adopted Step3 and Step4 which are very similar to the Euro3 and Euro4. Step 3was adopted in 2005 and Step4 will be implemented in 2010. Tightening emission standards will require Honda to rework its vehicles at a considerable cost
The ELV directive, The End of Life Vehicle (ELV) directive, a legislation enacted by the European Commission in 2003, places several obligations on the vehicle manufacturers in order to decrease the waste generated in the disposal of old vehicles. The directive places an obligation on the manufacturer to make vehicles that can be at a minimum of 95% recyclable and also to establish collection networks to collect used vehicles. This forces honda to make design and engineering changes to vehicles to make them 95% recyclable and incur huge costs in establishing and running collection networks for taking back used vehicles.