Honda
Corporate History & Strategy

Soichiro Honda was born in 1906 in Iwata District, Shizuoka Prefecture. His family ran a blacksmith shop, and he grew up in an environment surrounded by machinery from childhood. In 1922, he became an apprentice at Art Shokai, an automobile repair shop in Tokyo. During the reconstruction following the Great Kanto Earthquake the next year, as automobiles rapidly proliferated in Tokyo, he acquired practical skills in engine disassembly and maintenance. After six years of training, he became independent in 1928 through a franchise arrangement as Art Shokai's Hamamatsu branch, and by age 25, the repair shop had grown to employ 50 workers and generate monthly profits of 1,000 yen.

However, as the number of automobile repair businesses in Hamamatsu increased and competition intensified, Soichiro Honda decided to exit the repair business. Instead, he shifted to manufacturing piston rings, an engine component, and established Tokai Seiki Heavy Industry in 1938. Manufacturing piston rings required specialized knowledge of casting, but Soichiro Honda established the production technology after approximately nine months of development while attending Hamamatsu Technical College. The transition from mechanic to parts manufacturer represented a shift from downstream maintenance to upstream component manufacturing in the automotive industry.

The primary customer for piston rings was Toyota Motor Corporation, and through this business relationship, Toyoda Automatic Loom Works acquired 40% of Tokai Seiki's shares in 1942. During wartime, the company produced piston rings for automobiles, ships, and aircraft, positioning Tokai Seiki as a parts supplier within the Toyota group. However, when the Mikawa earthquake damaged the factory during the war and military demand was lost at war's end, continuing Tokai Seiki's operations became extremely difficult. By 1945, when Soichiro Honda turned 39, the question of how to envision his next venture had become pressing.

In 1945, Soichiro Honda sold all his shares in Tokai Seiki to Toyoda Automatic Loom Works, choosing to leave the Toyota group. While continuing as a Toyota subcontractor parts maker was an option, Soichiro Honda intended to build an independent business from scratch rather than remain within the keiretsu. The share sale secured 450,000 yen in cash, but in the immediate postwar period, procuring materials had to go through the black market, and discovery could lead to arrest. For this reason, Soichiro Honda did not immediately start a business and instead took approximately one year of "sabbatical."

In October 1946, Soichiro Honda founded the "Honda Technical Research Institute" in Hamamatsu. The business concept was to repurpose surplus military communications engines for civilian use. He purchased small communications engines and attached them to bicycle frames, starting a business manufacturing and selling power-assisted bicycles. The technical skills cultivated as an auto mechanic and the metalworking expertise gained at Tokai Seiki served as the technological foundation for small engine production.

At the time of founding, he did not venture into manufacturing complete motorcycles, instead specializing in producing and selling auxiliary engines for bicycles. In immediate postwar Japan, public transportation recovery was delayed, and bicycles were the primary means of transportation for ordinary people. Products that motorized these bicycles by attaching engines captured the urgent demand for transportation and sold well. In September 1948, the business was incorporated as Honda Motor Co., Ltd. with capital of 1 million yen, and Soichiro Honda assumed the presidency.

After incorporation, Honda's engine and motorcycle sales continued to perform well, but the company struggled with collecting payment from customers amid the postwar chaos. In August 1949, through an introduction by Managing Director Takeshima, Takeo Fujisawa joined Honda's management, establishing a division of labor where Soichiro Honda handled development and production while Takeo Fujisawa managed sales and finance. This two-person system became the prototype of Honda's management structure and functioned for approximately 25 years until both retired simultaneously in 1973.

Following Fujisawa's participation, Honda decided to expand to Tokyo, opening a Tokyo sales office in 1950 and establishing an assembly plant in Jujo, Kita Ward, Tokyo. Securing a production base close to the consumer market indicated a transition from a local Hamamatsu manufacturer to a nationwide manufacturing enterprise. Around the same time, a banking relationship was established with Mitsubishi Bank's Kyobashi Branch, forming the financial foundation that would support large-scale capital investments in later years.

In August 1949, production of the Dream motorcycle began, completing the transformation from a bicycle-mounted engine maker to a finished motorcycle manufacturer. Expanding the business domain from selling engine units to manufacturing complete vehicles initiated the accumulation of technology and equipment necessary for integrated production from design to assembly. The skills Soichiro Honda cultivated as an auto mechanic, the metalworking expertise acquired at Tokai Seiki, and the small engine design experience gained during the founding period formed the starting point for Honda as a finished motorcycle manufacturer.

By 1949, Honda was growing its business through the manufacture and sale of auxiliary bicycle engines and motorcycles. However, in the postwar economic environment, collecting payments from customers did not proceed smoothly, and cash flow remained unstable. Soichiro Honda was focused on engine development and production as an engineer, but he also needed to handle management tasks such as payment collection and negotiations with business partners, and the inability to concentrate on technical development became a constraint on business expansion.

At the time, Honda was a small enterprise with only several dozen employees, and the organizational management structure was still undeveloped. While product quality and sales performance were strong, the development of management foundations—such as cash management, sales network construction, and building relationships with banks—had not kept pace with technical development progress. As production scale expansion was anticipated with the growth of the motorcycle market, the participation of a management partner who could exclusively oversee finance and sales emerged as a prerequisite for business continuity.

In August 1949, through an introduction by Managing Director Takeshima, Soichiro Honda met Takeo Fujisawa, who then joined Honda's management team. A division of labor was established where Soichiro Honda handled development and production while Takeo Fujisawa managed sales and finance. Shortly after joining, Fujisawa reorganized the payment collection operations and restructured the commercial relationships with business partners. The role division—where the engineer concentrated on technology and the management administrator oversaw finance and sales—formed the basic structure for Honda to function as an organization during its founding period.

Following Fujisawa's participation, Honda decided to expand to Tokyo. In 1950, the company opened a Tokyo sales office and established an assembly plant in Jujo, Kita Ward, Tokyo, building a production and sales infrastructure oriented toward the Tokyo metropolitan area as a consumption market. Around the same time, a banking relationship was established with Mitsubishi Bank's Kyobashi Branch, forming the financial foundation that would support large-scale capital investments in later years. The transformation from a Hamamatsu workshop to a Tokyo-based manufacturing enterprise was driven by Fujisawa's management decisions.

By 1952, Soichiro Honda had set capturing global motorcycle market share as a management objective. However, at the time, Japanese manufacturing sites used domestically produced machine tools for processes such as cutting, and their machining precision was limited. Maintaining consistent part quality required dependence on the skills and experience of veteran craftsmen, and building large-scale production lines with inexperienced workers was constrained by machine tool performance limitations. To expand motorcycle production volume, improving the performance of machine tools themselves was recognized as a prerequisite.

Additionally, Honda envisioned future overseas motorcycle exports and entry into the automobile business as part of its management strategy. Since automobile parts machining required greater precision than motorcycles, it was necessary to introduce high-precision machine tools at the motorcycle mass production stage and accumulate production technology know-how. At the time, Toyota Motor and Nissan Motor dominated the domestic automobile market, and entry required massive capital investment and accumulated production technology. Honda positioned its motorcycle business capital investment as preparation of the technological foundation for future automobile entry.

Meanwhile, Honda at this point was merely a small enterprise with capital of 60 million yen and several hundred employees. While a banking relationship with Mitsubishi Bank's Kyobashi Branch had been established, available equity capital was limited, and the financial foundation was insufficient to withstand large-scale capital investment. Executing the scale of machine tool imports that Soichiro Honda envisioned would require complete dependence on bank borrowing, and failure to recover the investment would jeopardize the company's very survival. A significant gap existed between the constraints on management resources and the management objective of targeting the global market.

In 1952, Honda decided to make a large-scale capital investment importing high-performance machine tools from Europe and the United States. Suppliers included Switzerland's Maag and Georg Fischer, and America's Cincinnati, with the total machine tool order reaching approximately 450 million yen. This was approximately 7.5 times the company's capital of 60 million yen—an investment decision unprecedented among industry peers. The imported machine tools were said to have machining precision two to three times that of domestic products, and the bulk of the procurement funds were financed through borrowing from Mitsubishi Bank's Kyobashi Branch.

Simultaneously, Honda began establishing new mass production facilities for motorcycles. In March 1952, the company acquired a 3,600-tsubo idle factory site in Wako, Saitama Prefecture, and in 1953 began integrated production of the Dream motorcycle at the Yamato Factory. Adopting a belt conveyor system, a production structure of 3,000 units per month was established, while the Hamamatsu factory specialized in producing the Cub bicycle-mounted engine, creating a product-based division of labor. As of August 1953, Honda's total company workforce reached 1,891, with approximately 1,000 workers stationed at the Yamato Factory.

This investment decision led to the assessment spreading within the industry that "Honda has gone mad." Not only motorcycle manufacturers but also automobile makers were astonished that a small company would import machine tools worth several times its capital. However, Soichiro Honda explicitly stated that the purpose of the investment was not domestic competitive advantage but to export products made with imported machines to earn foreign currency. The concept of earning dollars with machines purchased using the nation's dollars was at the foundation of this investment decision.

As a result of depending on short-term borrowings from Mitsubishi Bank for machine tool import funding, Honda's equity ratio had fallen to 6.7% by February 1953. Against assets of 1.77 billion yen, liabilities reached 1.65 billion yen, with equity of only 120 million yen. When an economic downturn hit in 1955 and motorcycle sales volume declined, repaying the short-term borrowings with their near-term maturities became difficult, and Honda fell into a financial state approaching technical insolvency. The industry recognized the investment decision as a failure, and the company's survival was in doubt.

What averted this crisis was the decision by Mitsubishi Bank, the main bank, to continue lending. Mitsubishi Bank's decision to maintain financial support for Honda enabled deferral of short-term loan repayments, preventing a cash flow collapse. After weathering the recession, the mass production system gained traction, and rural prosperity drove up motorcycle sales. With the business recovery, Honda executed its listing on the Tokyo Stock Exchange in December 1957, enabling capital market fundraising.

After the stock listing, dependence on borrowings gradually decreased through accumulated retained earnings from motorcycle sales expansion and capital market fundraising. By August 1960, the equity ratio had reached 44.1%, a dramatic improvement from 6.7% in 1953. The high-precision machine tools imported from Europe and America enabled uniform parts machining by inexperienced workers, serving as the production technology foundation that supported subsequent motorcycle exports and automobile entry. The investment worth 7.5 times the company's capital ultimately became the starting point for Honda's mass production system and technology accumulation.

Throughout the 1970s, U.S.-Japan trade friction intensified, and North American exports of Japanese motorcycles and automobiles were developing into a political issue. Since establishing its North American subsidiary in 1959, Honda had employed a business model of exporting products manufactured at domestic Japanese factories, but as the prospect of strengthened U.S. import restrictions on Japanese goods became increasingly realistic, questions arose about the sustainability of an export-dependent business structure. The North American market was Honda's largest sales destination for automobiles, and securing stable market access became the most critical management issue.

In this environment, starting in 1974, a group of young Honda employees launched an internal study group on "global strategy for production bases," and serious consideration of overseas local production began. At the time, no Japanese automaker had a complete vehicle production facility in North America, and local production was an unprecedented challenge. Amid anticipated issues such as differences in labor practices, building parts procurement networks, and maintaining quality control, decisions were needed on which region to enter and at what scale.

For Honda, local production in North America was not merely a defensive response to trade friction but also a strategic investment in building a global production system. Honda's domestic production bases, centered on the Suzuka and Sayama factories, handled motorcycle and automobile manufacturing, but considering profitability deterioration from exchange rate fluctuations and rising transportation costs, securing production facilities proximate to major sales markets was essential for maintaining medium- to long-term competitiveness. The success or failure of North American local production would determine whether Honda remained an export-oriented Japanese manufacturer or transformed into a company with a global production system.

In 1977, Honda decided to begin local motorcycle production in North America and signed a factory attraction agreement with the state of Ohio. In March 1978, Honda of America Manufacturing (HAM) was established as the local production entity, and after approximately one year of factory construction, motorcycle production began in September 1979 in Marysville, Ohio. The market entry strategy was to start with motorcycles to accumulate local manufacturing know-how, then gradually expand to automobiles.

In January 1980, Honda became the first Japanese passenger car manufacturer to decide on local automobile production in the United States. Expanding the Marysville plant, which was already operating as a motorcycle production facility, the company began producing the Accord automobile in November 1982. Core components such as engines and transmissions were imported from Japan, while bodies and pressed parts were manufactured in-house at the local plant. Construction of local procurement networks progressed with support from Japanese suppliers expanding overseas.

The market entry approach Honda adopted was a phased one: first establishing a motorcycle factory to begin small-scale operations, establishing local labor practices and quality control methods, then expanding to automobiles. By allowing a transition period of approximately three years from the start of motorcycle production to automobile manufacturing, it was possible to reflect local production management experience in the automobile launch. As the first North American local production by a Japanese automaker, a market entry strategy of phased risk management was adopted in an unprecedented environment.

Throughout the 1980s, Honda continued to make incremental automobile production investments in Ohio. At the Marysville plant, a second production line was activated in 1986, and by 1989, annual production capacity of 360,000 units was established. The primary production model was the Accord, and production scale was gradually expanded in response to strong North American sales. In 1985, production of motorcycle engines began at the Anna Engine Plant, and the following year, automobile engine production also commenced, raising the local procurement ratio for core components.

In December 1989, the East Liberty plant was established approximately 50 kilometers from Marysville, and production of the Civic sedan began. The plant established annual production capacity of 150,000 units by 1993, giving Honda two complete vehicle factories in Ohio. In fiscal 1992, cumulative North American local production reached 450,000 units, centered on 350,000 Accords and 100,000 Civics. For Honda, whose largest sales market was North America, establishing a local production system represented a structural transformation of its business.

Cumulative investment from the 1978 establishment of the local entity through approximately 1992 reached an estimated $2.57 billion. A production system comprising two complete vehicle plants, one engine plant, and one motorcycle plant was the result of a decision to commit a substantial portion of Honda's management resources to North America. Being the first Japanese automaker to commit to North American local production set a precedent that Toyota, Nissan, and other companies subsequently followed in expanding their North American production. Honda completed its structural transformation from an export-oriented motorcycle manufacturer to a global automobile manufacturer with a North American production base.

By the late 2010s, Honda's domestic automobile sales volume was in a long-term declining trend. Japan's domestic passenger car market continued to shrink against the backdrop of declining birth rates, an aging population, and well-developed public transportation in urban areas, and Honda's domestic production capacity was in excess relative to actual sales. The two-site production system at the Saitama Works—Sayama and Yorii factories—had annual production capacity of approximately 1.06 million units, but maintaining utilization rates at each factory had become a challenge due to declining domestic sales.

The Sayama Factory was Honda's first dedicated automobile factory, established in 1964 as a mass production base for four-wheeled vehicles. More than 50 years had passed since operations began, and equipment aging had progressed. Meanwhile, the Yorii Factory, newly established in 2013, was equipped with state-of-the-art production facilities and surpassed the Sayama Factory in production efficiency. The economic rationale for maintaining two complete vehicle factories domestically was being questioned.

In October 2017, Honda announced its plan to cease automobile production at the Sayama Factory by the end of fiscal 2021 and consolidate operations at the Yorii Factory. Domestic passenger car production was revised downward from approximately 1.06 million to approximately 810,000 units annually, a production realignment involving a reduction of approximately 250,000 units. Vehicle models produced at Sayama, including the Odyssey, were transferred to Yorii, consolidating domestic complete vehicle production into a single Yorii Factory site.

The closure of the Sayama Factory proceeded in phases. After halting complete vehicle production in fiscal 2021 and transferring it to Yorii, parts production including engines and pressed components continued at the Sayama Factory. Transfer of these parts production operations to Yorii was completed by fiscal 2023, and the Sayama Factory was officially closed in June 2024. This marked the end of approximately 60 years of history for Honda's first automobile factory, established in 1964.

Sayama Factory employees were reassigned to the Yorii Factory and other locations, but as the transfer involved production cuts, the emergence of surplus personnel was unavoidable. In July 2021, Honda launched the "Life Shift Program," an early retirement incentive program targeting regular employees aged 55 and older across the company. The program attracted approximately 2,000 retirees, far exceeding the initial target of 1,000. Special retirement allowances totaling ¥42.8 billion were recorded.

The closure of the Sayama Factory and consolidation into Yorii improved the efficiency of Honda's domestic automobile production system. However, the declining trend in domestic sales itself continued, and the production base reorganization was characterized as an adaptation to a shrinking market. Honda's automobile business was in the process of redefining the role of domestic production within a global structure centered on North America and China as primary markets.

Honda established a local production entity in Swindon, UK in 1985 and began complete vehicle production in 1992. However, the company's automobile market share in Europe remained below 1% for an extended period, and the sales expansion that had been the premise for local production was never achieved. The Swindon factory had annual production capacity of 250,000 units, but actual production hovered around 160,000 units, with approximately 60% of production being exported to North America and Japan to maintain utilization rates.

In the European market, local manufacturers such as Volkswagen and Renault held strong sales networks and brand power, creating high entry barriers for Japanese manufacturers. Honda attempted vehicle launches and marketing enhancements aimed at expanding European sales, but these efforts did not lead to improvement in market share. The raison d'etre of the Swindon factory as a European production base had been fundamentally questioned over the 30 years since entry.

In 2014, Honda suspended one production line at the Swindon factory, initiating production downsizing. As sales recovery in Europe remained unlikely, the decision to close the Swindon factory was officially made in February 2019. The UK's withdrawal from the EU, which had progressed since 2016, also affected the business environment, but Honda explained that the factory closure decision was unrelated to Brexit.

On July 30, 2021, the Swindon factory was closed, and approximately 3,500 employees were laid off. This closure represented the elimination of Honda's only complete vehicle production facility in Europe and a complete withdrawal from European local production. It ended 36 years of European local production history dating back to the 1985 UK entry.

The closure of the Swindon factory shifted Honda's global production system to a three-pole structure of Japan, North America, and Asia. Vehicles for the European market were switched to exports from Japan, and Europe became a sales market where Honda held no production facilities. The economic rationale for maintaining a factory with annual capacity of 250,000 units in a market with less than 1% share was poor, and the withdrawal decision itself contributed to improving the profitability structure.

However, this outcome also raises questions about the 1985 entry decision. European local production was initiated as a response to trade friction, but the factory was maintained for over 30 years without building an adequate sales base. The 3,500 layoffs at withdrawal and 36 years of investment were the consequences of establishing a production facility without adequately verifying competitiveness in the European market at the time of entry.

From the late 2010s, Honda had been advancing the reorganization of its domestic production system. The company announced the closure of the Sayama Factory in 2017 and closed the UK Swindon factory in 2021, executing production base consolidation both domestically and overseas. While the Sayama Factory's production functions were transferred to the Yorii Factory, the reorganization involved a reduction of approximately 250,000 units annually, and surplus personnel were expected, particularly in production departments. Additionally, as expansion of development investment for the transition to EVs was required, the need to review the existing workforce composition was growing.

Honda's domestic employees included substantial personnel allocation not only in manufacturing departments but also in headquarters administrative and R&D departments, and factory closures alone could not achieve company-wide workforce optimization. As personnel cost burdens for veteran employees centered on those aged 55 and above increased, organizational rejuvenation and fixed cost reduction were recognized as management priorities.

In July 2021, Honda established the "Life Shift Program" as a temporary early retirement incentive measure, offering enhanced severance packages to regular employees aged 55 and older. For employees utilizing the program at age 55, three years' annual salary was added to retirement benefits—generous terms. The initial recruitment target was approximately 1,000 employees. However, the number of applicants significantly exceeded expectations, with ultimately approximately 2,000 to 3,000 employees reportedly retiring under the program.

The early retirement incentive program was implemented over approximately two years and discontinued in September 2023. Honda recorded special retirement allowances of ¥36 billion in the fiscal year ending March 2022 and ¥6.8 billion in the fiscal year ending March 2023, totaling ¥42.8 billion in special losses. The fact that more than twice the planned number of retirees applied suggests that not only were the program terms attractive, but uncertainty about the company's future business direction also existed within the organization.

In the 2020s, the automotive industry's transition to EVs accelerated, and manufacturers were required to make massive investments in electric vehicle development. Honda had set a target of achieving 100% EV and FCV sales by 2040, but the capital required for EV-dedicated platform development and battery procurement reached several hundred billion yen annually, and R&D cost burdens were beginning to pressure profitability. Nissan Motor, despite having pioneered electrification technology with the Leaf, faced declining sales volumes, while Mitsubishi Motors was highly dependent on the ASEAN market and reaching the limits of standalone EV development investment.

The three companies faced different management challenges, but what they shared was the difficulty of continuing to bear EV-related development costs independently. Honda had canceled its joint EV development plan with GM in 2023, making the construction of new partnerships an urgent priority. Nissan's performance deteriorated rapidly in 2024, with market share losses in North America and China threatening management stability. As automotive industry consolidation progressed globally, cooperation among domestic manufacturers emerged as an option.

On December 23, 2024, Honda, Nissan Motor, and Mitsubishi Motors officially announced that they had begun discussions aimed at business integration. The central concept was the establishment of a joint holding company, with a framework envisioned in which Honda would take the lead role in the umbrella company. Information about the business integration had already been leaked through media on December 18, and the formal announcement was made in consideration of market impact. If the three companies integrated, combined annual sales would reach approximately 8 million units, creating the world's third-largest automotive group after Toyota and Volkswagen.

Concurrent with the announcement of discussions, Honda announced a share buyback of approximately ¥1.1 trillion. This represented approximately 23% of outstanding shares—a large-scale capital return—and was a message to shareholders that the company considered the current stock price undervalued while factoring in corporate value enhancement through the business integration. The substantive aim of the integration was sharing R&D costs for EV development and cost reduction through common parts procurement, with the concept of sharing a development platform for software-defined vehicles among the three companies.