Honda - Company History

From surplus engines to a maker of complete machines

In October 1946 Honda Soichiro (本田宗一郎) opened the Honda Technical Research Institute in Hamamatsu, Shizuoka prefecture, to manufacture and research internal-combustion engines and machine tools of various kinds[1]. He first considered a rotary loom for weaving wide cloth, but lacked the funds; small engines the military had used for wireless sets during the war were lying about cheaply nearby, so he bought them up and switched instead to fitting them to bicycles and selling them[2]. In September 1948 the institute was succeeded by Honda Motor Co., Ltd., incorporated with capital of ¥1 million[3], with its head office and factory at Yamashita-cho in Hamamatsu, and production of bicycle engines began. That year the company’s output of the Cub bicycle engine accounted for more than half of all bicycle-engine production in Japan[4]. In August 1949 it completed the Dream Type D, carrying a two-stroke engine, and moved from being a supplier of engines to a maker of complete machines[5]. In the same month Fujisawa Takeo (藤沢武夫) joined the company as managing director, fixing the division of labour between Honda on engineering and Fujisawa on management[6].

In 1951 the Dream’s engine was replaced by a small, light four-stroke unit and the machine relaunched[7]. At the time some users were calling loudly for foreign machines to be imported and the great majority of domestic makers opposed them[8]; the company instead met them head-on with a good product. In 1952 it completed the Cub, an ultra-compact engine for bicycles, and from June 1953 began full production of the Benly, a motorised bicycle based on it[9]. In April 1952 the head office moved to Tokyo[10], and in the same year production of general-purpose engines also began[11]. Capital was raised in quick succession — to $16,667 (¥6m) in June 1952, $41,667 (¥15m) in November 1952 and $166,667 (¥60m) in December 1953[12] — and the Yamato plant in Saitama came on stream in May 1953[13]. When the shares were made public in January 1954, capital stood at $166,667 (¥60m)[14].

Machine tools bought for more than the company’s capital, and the collection system that carried them

Around 1951 private-sector operators held meetings to press the government to promote exports and to block imports at the same time. Honda Soichiro did not join them[15]. He objected strongly to the easy course of asking the government for help with exports and then asking it for protection against imports on top[16]. His reading was that if Japanese engineering were superior and its products of good quality, nobody would import foreign goods and exports would rise of their own accord; he resolved to prove by his own example that a good product knows no borders[17]. Yet superior engineering cannot take shape without tools[18]. Mass production would demand better machines still, and on that reasoning he committed to importing foreign machine tools[19]. American aid funds at the time were being directed almost entirely at unproductive consumer goods — luxury foreign cars, whisky, cosmetics — and almost nothing that contributed to production was being imported[20].

Against capital of $166,667 (¥60m)[21], the company imported $1.1M (¥400m) of machine tools from Switzerland, the United States and Germany, among them Strohm ストローム automatic lathes[22]. Either be left behind by the progress of the world and destroy itself, or take the risk, bring in the newest machines and fight[23]. If both courses were dangerous, the manager’s duty was to choose the one that offered even a little chance of moving forward[24]. In the internal monthly bulletin of October 1952 Honda Soichiro argued: The dollars my company uses to buy machines are the nation’s dollars. My wish is to use machines bought with the nation’s dollars to earn dollars back in return.[25] The premise was that the foreign currency would be recovered through exports. The imports collided with the recession of 1953 and 1954, and no bank was going to lend against a purchase that looked to everyone like an adventure[26].

The company came through on a sales method devised by executive vice-president Fujisawa Takeo[27]. Payment was collected in full within a little over ten days of shipment[28] — 75 per cent of it in cash, the remainder in the users’ own bills endorsed by wholesalers and dealers[29]. The imported machines were installed on foundations prepared in advance, so that they could be switched on and run from the day they arrived[30]: learning to handle a machine with the manual in hand would only delay the depreciation of machines bought with borrowed money[31]. Forcing men to master precision machinery they had never handled raised the level of the company’s production engineering thereafter[32]. There was a period in 1955 when Honda Soichiro was driven far enough to say: I simply cannot see any way to raise the money. There is nothing for it but to throw the whole thing up.[33]

The Isle of Man declaration, and the world’s largest motorcycle maker

In March 1954 Honda Soichiro announced to the company’s dealers that it would enter the TT races on the Isle of Man in Britain[34]. There were two aims: the calculation that without an outstanding result in racing it could never take the world motorcycle market from Italy and Germany[35], and the judgement that a victory won by engineering would give hope to the young in particular[36]. Watching the race in person in June that year, Honda Soichiro was astonished by the German NSU and Italian Gilera machines drawing three times his own power from the same displacement[37], and set up a research department as soon as he returned. In June 1957 a technical research institute was established inside the Shirako plant[38], with the president directing the pursuit of engine performance from the front.

On 2 December 1957 the company listed its shares on the Tokyo Stock Exchange[39]. Capital had risen to $1M (¥360m)[40], and the largest shareholders were Honda Soichiro with 1,184,000 shares, Fujisawa Takeo with 703,000 and Mitsubishi Bank with 400,000[41]. In August 1958 the C100 Super Cub, later regarded as the definitive moped, went on sale, and the company’s name rose at a stroke[42]. Cumulative production of this single model has passed 100 million units worldwide in the six decades since. In June 1959 American Honda Motor Company was established in the United States[43], and in the same month the company entered the Isle of Man TT for the first time, taking the team prize in the 125cc class[44]. The Suzuka plant in Mie prefecture, begun at the end of 1959 as the mass-production factory for the Super Cub[45], started operating in May 1960[46]. In 1961 it won both the 125cc and the 250cc classes and took the manufacturers’ championship[47].

A late entry that stayed out of the government’s reorganisation

In June 1963 the company began building four-wheeled vehicles[48]. It entered with two models, the T360 light truck and the S500 small sports car — a change of direction taken after it had already reached the top of the world in motorcycles. In March of that same year the government had settled on the Bill on Temporary Measures for the Promotion of Designated Industries, citing the strengthening of international competitiveness[49], and setting out a plan to consolidate passenger-car makers into a small number; joining that framework would have meant gaining scale in exchange for giving up independence. The company stayed out of the reorganisation and chose to put down roots in four wheels as an independent maker. In October 1964 Asian Honda Motor Company was established in Thailand[50], and in the same year the Sayama plant came on stream as the mass-production base for cars[51].

The N360 light passenger car, launched in March 1967, quickly took first place in domestic sales across all three categories of the N series — passenger car, light van and truck[52]. Monthly registrations reached 34,400 units in June 1968, making it the highest-volume model built in Japan[53]. From the sharply lower sales and profits reported for the term ended February 1967[54], the shift from motorcycle maker to car maker advanced, and from the term ended August 1967 the light four-wheel division was added and revenue grew markedly[55]. The four-wheel factory at the Suzuka plant, equipped with the newest mass-production plant for cars, was also completed and put into operation[56]. In September 1970 the machine-tool division of the second Sayama plant was separated off to form Honda Koki[57], giving the company the means to build its own production equipment.

Clearing the American and Japanese emissions rules with CVCC

In December 1970 the United States Congress passed the automobile emissions bill led by Senator Edmund Muskie[58]. In Japan, photochemical smog occurred at Ushigome-Yanagicho in Tokyo in 1970 and air pollution became a social issue[59]; the Central Council for Environmental Pollution Control recommended 1975 and 1976 model-year standards modelled on the Muskie bill[60]. The 1976 standard, cutting nitrogen oxides to 0.25 grams per kilometre driven[61], was held to be far harder to meet without losing vehicle performance than anyone had imagined, and the industry protested fiercely on the grounds that prices would rise[62]. In the summer of 1973 the heads of the nine passenger-car makers were summoned to the Environment Agency for a hearing[63]. There Honda Motor was quick to declare that it could meet the standard with the CVCC engine it had developed on its own[64].

CVCC stood for compound vortex controlled combustion[65]: rather than fitting a catalytic converter outside the engine to clean the exhaust, it reordered the process of combustion itself so as to suppress the formation of harmful components[66]. In October 1972 the company put a CVCC-engined car on public display[67] — the same month in which the Central Council for Environmental Pollution Control recommended emissions measures modelled on the American Muskie Act[68]. In that same year of 1972 it launched the Civic, the small car that would carry the engine. From December 1973 it led the industry in putting low-emission CVCC cars on sale[69]. The Civic was a small car designed with waste stripped out as far as possible, and with an economy that earned it the best fuel-consumption rating even in the United States[70].

When the fourth Arab–Israeli war broke out in October 1973 and the oil shock followed[71], sales across the motor industry fell by 30 to 50 per cent year on year from the end of the previous year[72]. Honda Motor alone increased its small-car sales, and by March 1974 had passed Toyo Kogyo and Mitsubishi Motors to take third place in the industry by share[73]. It was the result of product planning and engineering strength finding their mark[74]. The low-emission CVCC cars put on sale in December 1973 met the consumer mood after the oil crisis on two counts: they were cheap and the product was attractive[75]. Half-year sales of four-wheeled vehicles grew from the $2.8M (¥1bn) first recorded in the term ended February 1964 to $372.2M (¥111bn) in the term ended February 1975[76], approaching the $445.5M (¥133bn) of motorcycles in the same term[77].

Both founders retiring together, and the move to management by organisation

In October 1973 president Honda Soichiro, aged 66, and executive vice-president Fujisawa Takeo, aged 62, together stepped back from the front line of management[78], and Kawashima Kiyoshi (河島喜好), aged 45 and belonging to no founding family, succeeded as president[79]. Honda Soichiro rejected hereditary succession on the ground that Honda Motor belonged not to the Honda family but to its shareholders and to the world[80], and withdrew while results were strong. For some twenty years the two had said openly that they would leave at the best moment rather than hand the company to their own relatives[81], and by around 1970 they had divided representative authority among four executive vice-presidents[82]. Soichiro said of himself that the grime of the corporation had built up on him[83], and the actual development of CVCC, the environmental technology, had been carried by young engineers.

Management thereafter moved to a large shared executive room and a troika system — an organisation run with everyone taking part[84]. Kawashima Kiyoshi spoke of the Honda philosophy, saying that sensitivity to needs was what decided things[85], and ten years later, in 1983, he left the presidency at 55 and handed over to Kume Tadashi (久米是志)[86]. In later years Kawashima Kiyoshi concluded that the founders’ decision to reject hereditary succession had been the source of the company’s growth[87]. In July 1975 Moto Honda da Amazônia was set up in Brazil[88]; in March 1976 the Kumamoto plant came on stream[89]; and in February 1977 American depositary receipts were listed on the New York Stock Exchange[90]. The next large decision, local four-wheel production in North America, was taken under this structure[91].