Honda Motors 2004 World Overview

Honda Worldwide Operations -- Overview

July 30, 2004 -- Torrance, Calif. -- Honda has long viewed itself as a "mobility" company determined to create new dreams for its customers and society - and harness advanced technology to provide new and better ways to live, work and play. This focus on mobility often takes Honda in unique directions.

Today, Honda is not only one of the world's leading producers of motorcycles, automobiles and power equipment. Honda is challenging itself to create advanced technologies that create new value for its customers and society. This involves extensive research & development focused not only on improving existing product lines, but also exploring new areas of mobility.

Honda has independently developed a turbofan jet engine and HondaJet - a concept small business jet. The turbofan engine is the basis of an agreement with General Electric Co. - which will work with Honda to bring it to market - to innovate the small jet market.

Honda engineers created the world's most advanced humanoid robot ASIMO (Advanced Step in Innovative MObility) to someday help people in need. ASIMO, which can walk forward and backward and climb stairs, was created to function in real-world environments after more than 16 years of research and development.

From the earliest days of the company, the willingness to pursue new dreams for the customer has been at the core of the company. Honda expresses this as "The power of dreams." The key is that "power" comes not only from new ideas, but the determination to make these ideas come true for the customer.

Global Sales

In 2003, Honda reached approximately 17 million customers worldwide for its three core business lines - motorcycles, automobiles and power equipment. By March 2005, Honda plans to earn 20 million customers annually worldwide.

Significantly, Honda has been achieving this global sales goal independently, through an ongoing commitment to innovation, a new level of outstanding quality for its products and services, and by efficiently networking together its growing global operations.

6-Region Global Structure

Speed, flexibility and efficiency are key attributes of Honda's global organization - strengths gained from the company's 6-region global structure. Based upon Honda's core philosophy of producing products close to the customer, Honda began a new global strategy focused on regional operations in the early 1990s - this now includes six regions including Japan, North America, South America, Europe/Middle East/Africa, Asia/Oceania and China.

Expansion of Honda's global production and R&D operations now includes more than 120 plants in 29 countries and R&D centers in each region . Management based in each region has the autonomy to make decisions based on local customer and community needs. But, with a global viewpoint, each region works in a complementary way - creating a true global network that supports the needs of customers worldwide.

Honda is able to achieve a heightened level of speed and flexibility in meeting customer needs through "global networking" - the efficient exchange of products, components and the expertise of Honda people - between Honda operations worldwide.

Manufacturing Flexibility

In the pursuit of its "Green Factory" concept, which aims at more efficient and environment-friendly manufacturing operation for the next generation, Honda continues to innovate its production facilities worldwide to its flexible "New Manufacturing System" to reduce the time and cost required to bring new models to market. Honda's major plants worldwide now have the capability to shift production models with higher flexibility based on market demand.

Safety Leadership

Honda has a well-established history of leadership in the development and application of advanced safety technologies and the real world safety performance of all its products. Now, based on its commitment to offering 'Safety for Everyone' through technology and innovation, Honda is improving safety for drivers and passengers of small and large vehicles as well as for riders of motorcycles and ATVs, and for pedestrians.

Honda began introduction in 2003 of the all-new Advanced Compatibility Engineering (ACE) body structure, which enhances occupant protection while making them less aggressive toward other vehicles. The ACE body design debuted on the Life mini-vehicle in Japan and will be applied to all new vehicle platforms worldwide over the next six to seven years.

Honda opened its $64 million state-of-the art indoor vehicle-to-vehicle crash safety testing facility in Tochigi, Japan in 2000. It has been playing a critical role in the development of many of crash safety improvements. In 2003, Honda established another $30 million major crash safety research facility in the U.S. in Raymond, Ohio, including the world's most sophisticated high-resolution crash barrier block and the world's first pitching crash test simulator.

Honda has also been a leader in airbag technologies such as the first upwardly deploying front passenger airbags and the first use of front side-airbags with occupant position detection sensors to reduce the risk of injuries caused by airbag deployment.

In its efforts to improve safety for all road users, Honda will further expand the use of features designed to reduce injuries to pedestrians including specially designed hood structures, hood hinges, front frame construction and breakaway wiper pivots. These features are already in use in millions of Honda vehicles worldwide. Honda has independently developed the POLAR II pedestrian dummy to lead this research effort. Honda has made it available to government and other organizations in the U.S., Japan and Europe in the cooperative effort to improve pedestrian protection.

Environmental Challenge

Honda has long been a pioneer in global auto industry in the development and application of leading edge environmental technologies that produce lower emissions and higher fuel efficiency -while delivering the fun, performance, quality and reliability that customers expect. This commitment means developing products powered by the cleanest gasoline internal combustion engines, advanced gas-electric hybrid powertrains and alternative fuels like natural gas and new clean technologies such as fuel cells.

Honda became the first automaker in the world to market a fuel cell vehicle certified by the U.S. EPA and the state of California - and first introduced the "FCX" in 2001 simultaneously both in Japan and the U.S. Honda has also developed its own fuel cell stack and will introduce it in the breakthrough Honda FCX fuel cell vehicle beginning in calendar year 2005. This remarkably compact and advanced fuel cell stack is designed to operate at temperatures as low as -4oF - one of the most significant technical barriers to the mass-market application of fuel cell technology.

In fall 2004, Honda will introduce a new Accord Hybrid - this will bring to three the number of gas-electric hybrid models offered by Honda (along with the Insight and Civic Hybrid).

The environmental challenge does not apply only to automobiles. For 2-wheel vehicles, Honda produces only 4-stroke engine motorcycles for on-road use with improved environmental performance over 2-stroke engines. And Honda was the first company with an entire line of higher performance outboard motors to meet the EPA's year 2006 emission standards.

The Racing Spirit

Fifty years after announcing its first challenge to enter the international racing scene, Honda continues its commitment to motorcycle and automobile racing activities throughout the world. Honda power earned an incredible 15 wins in 16 races in the challenging Moto GP World Championship motorcycle series in 2003. And Honda continues to compete on virtually every available motorcycle racing circuit, including Superbike, Supercross and Motocross racing in the U.S.

In auto racing, Honda races on the challenging Formula One Grand Prix in this third era of the company's fabled F-1 racing heritage. Honda is also involved in open-wheel racing with the Indy Racing League (IRL) - an oval track series based in North America.

Importantly, at Honda, racing means not only winning championships on the race track, but the training of Honda engineers who will deliver fun and performance to vehicles enjoyed by Honda customers.

Creating New Value for Customers . . . and Society

By maintaining the commitment to develop original advanced technologies, increasing flexibility on a global scale, while making the most efficient use of global resources, Honda is continuing to pursue its goal of earning 20 million new customers per year by March 2005. By creating new value - and by focusing on local manufacturing and product development, an environmental commitment and advancing safety - Honda hopes to gain recognition throughout the world as a company that society wants to exist.

Honda North America Operations -- Overview

July 29, 2004 -- Torrance, Calif. -- September 2004 marks the 25th anniversary of the first product assembled by Honda in North America. From that first motorcycle built in Ohio in 1979, Honda now has 12 major plants in the region, producing a range of products and components including cars and light trucks, motorcycles, ATVs, personal watercraft, lawn mowers and engines.

More than 75% of the cars and light trucks Honda sells in the U.S. were built in North America. Increasingly, many of these products are developed in America as well, including the Honda Civic Coupe, Element and Pilot - and the Acura TL and MDX.

Since the establishment of American Honda Motor Co., Inc. in 1959, as Honda's first overseas subsidiary, Honda has invested more than $8 billion in sales, manufacturing and R&D operations in North America.

Production

Honda's North American auto production capacity has increased to 1.4 million units, using domestic and globally sourced parts. Honda purchased more than $10 billion in parts and materials from North American suppliers for the fiscal year ending March 2004. Research & Development Honda's growing R&D operations in America now have the ability to develop three auto models simultaneously. Honda's new Automotive Safety Research Facility in Ohio includes the world's most sophisticated high-resolution crash barrier block and world's first pitching crash test simulator. Safety Honda's 'Safety for Everyone' commitment to provide high levels of safety protection:

Virtually all Honda and Acura vehicles will get front side airbags, side curtain airbags and anti-lock brakes as standard equipment by the end of 2006. All Honda and Acura SUVs and minivans will be equipped with Vehicle Stability Assist (VSA) and side curtain airbags with rollover sensors by the end of 2006. Honda's Advanced Compatibility Engineering body (see page 1.1) will be applied to all new vehicle platforms in the U.S. over the next 6-7 years, beginning with the 2005 Honda Odyssey and Acura RL. Honda will further expand the use of features designed to reduce injuries to pedestrians from the current industry-leading eight models. Environment Honda has a long history of environmental leadership:

More than 60% of 2004 model year Honda and Acura vehicles meet the U.S. EPA's strict Tier2 Bin5 emissions requirements - well ahead of the EPA phase-in schedule. Honda was the first to market a gasoline vehicle (Civic) meeting the Low Emission Vehicle (LEV) standard in all 50 states; the first to sell a gasoline Ultra Low Emission Vehicle (ULEV) and "Super" ULEV (Accord). Honda will introduce its third gas-electric hybrid car in America in 2004 with the Accord, following the Insight (1999) and Civic Hybrid (2002). Honda leads the industry in fuel economy according to the EPA Corporate Average Fuel Economy (CAFE) rankings.

Honda Japan -- Overview

July 29, 2004 -- Torrance, Calif. -- The continued growth of Honda's 6-region global strategy has resulted in two separate and distinct roles for Honda's Japan operations - meeting the needs of local customers and strengthening the growing autonomy of overseas operations.

Facing stiff competition and a difficult economy in Japan, Honda has focused considerable attention on developing unique products for its customers in Japan, while continuing to focus on the flexibility and efficiency of the production facilities that produce these products and the sales networks that market them.

Further, in line with the "Made by Global Honda" strategy of making the most efficient use of global resources, Honda continues to play a vital role as a "global headquarters" - developing product and production technologies and coordinating their distribution and implementation to best serve each region's needs.

Sales/Product

Honda launched the new third-generation Japan version of the Odyssey minivan in fall 2003. A new low-floor platform aimed at fitting standard multi-level parking facilities, Honda's Advanced Compatibility Engineering safety body design, an improved powertrain and other advances make Odyssey a new benchmark. Honda continues to apply the "Made by Global Honda" approach to the Japan market, importing the Today scooter from China and the Fit Aria automobile from Thailand. Honda became the world's first automaker to supply a fuel cell vehicle to private corporations in 2003, an important step for data collection both for fuel cell vehicles and the hydrogen infrastructure. Honda introduced a new scooter in Japan featuring the world's first electronically controlled fuel injection system ('PGM-FI') for use in 4-stroke, 50cc motorcycle engines. The PGM-FI system offers improved fuel economy and a reduction in emissions below levels required by Japanese government regulations. All Honda scooters for sale in Japan will be converted to PGM-FI by 2007. Production

Honda has transferred responsibility for production of specialty, low volume cars, including the NSX, Insight and S2000, from the Takanezawa Factory in Tochigi to a new small volume production line at its Suzuka Factory in summer 2004, together with engine production for those models. Honda will now have a more efficient system for niche car production - producing engines, transmissions, and bodies in one location. Honda's flexible New Manufacturing System is in place at all of Honda's auto and motorcycle plants in Japan - using standardized equipment and processes to minimize model-specific investment. Part of Honda's "Green Factory" initiative, the new system also reduces waste and energy use. Research & Development

Honda R&D was established as a separate company in 1960 to provide Honda engineers the freedom to pursue the best technologies for Honda customers. Even as Honda continues to localize R&D activities in each region around the world, Honda R&D in Japan remains at the core of the company's research efforts and product development - developing fundamental technologies, powertrains and platforms. Honda introduced the world's first Collision Mitigation Brake System (CMS) and Honda's E-Pretensioner - two technologies on the forefront of pre-crash safety help prevent collisions through risk assessment and driver warning functions, while mitigating the impact on occupants and vehicle damage in a collision Honda's also developed the Variable Cylinder Management System (VCM), which idles three cylinders of a V6 engine during cruising to achieve a balance of high performance and superior fuel economy.

Honda Asia/Oceania -- Overview

July 29, 2004 -- Torrance, Calif. -- Honda's motorcycle and automobile operations are growing rapidly in the Asian region -- and Honda's increased involvement in its sales and production operations in the region has the company making more efficient use of these resources as part of a regional supply network in Asia - and, globally, as part of the "Made by Global Honda" concept.

Motorcycle

Honda is experiencing remarkable growth of its motorcycle business in the region, with the sales reaching almost 6 million units. Honda's cumulative motorcycle production in Indonesia reached 10 million units in 2003, the first country outside of Japan to reach this milestone. Honda's operations in Thailand also reached the 10 million mark in early 2004. In a further effort to meet the needs of local customers, a new motorcycle R&D facility will be added in Thailand by the end of 2004 to strengthen the existing R&D activities. Honda also conducts motorcycle R&D in Indonesia, Singapore, Vietnam and India. In 2003, Honda began exporting a scooter made in India to Europe. Automobile

Honda has increased its commitment throughout Asia, including increasing its capital participation in automobile operations in a number of countries, particularly Indonesia, Malaysia and Thailand. Utilizing Honda's complementary supply network within the ASEAN region, in 2002, Honda began the reciprocal supply of the Stream from Indonesia to Thailand, and the Accord from Thailand to Indonesia. Also, the City model for Indonesia and the Jazz model for Malaysia are supplied from Honda's plant in Thailand instead of through local production. In the Republic of Korea, Honda established its first automobile sales subsidiary to begin auto sales in early 2004. Global Supply Network

Fully utilizing Honda's experience in motorcycle production, and through cooperation with parts suppliers, Honda is enhancing the function and responsibility of its Asian operations to serve as export hubs for products, components and transmissions within the region and to Honda's global operations.

Honda's automobile exports from Thailand reached 37,000 units in 2003 to more than 30 countries, including Japan. Manual transmissions produced in the Philippines, and automatic transmissions, continuously variable transmissions and engine valves produced in Indonesia are exported globally - roughly 30% of these transmissions go to Honda's European operations. At the Malaysian plant, production of CVJs (Continuous Velocity Joint) and powertrain components are exported to auto plants within the ASEAN region.

Honda China - Overview

July 29, 2004 -- Torrance, Calif. -- In the face of the challenging opportunities in China, Honda has taken steps that will enable it to respond quickly to changes in the business environment of this rapidly growing consumer market. China became Honda's sixth regional operation within its global organization in April 2003. In December 2003, Honda established a new wholly-owned subsidiary - Honda Motor (China) Investment Co., Ltd. - that consolidates the regional headquarters functions. This operation is responsible for developing Honda's overall business strategy in China. This includes facilitating the integration of Honda's growing operations in China into the efficient "Made by Global Honda" concept of sharing global resources.

Motorcycle

Honda began building motorcycles in China in 1982 through a licensing agreement. Honda is now well-positioned to take advantage of the 11 million-unit Chinese motorcycle market - with sales now exceeding .1.1 million units in 2003. Honda exports motorcycles made in China to Japan, Africa and the Middle East. These motorcycles are made using parts from multiple countries. In 2002, Honda established a motorcycle R&D operation in China to focus more closely on local customer needs. Automobile

Honda began auto production in China with the Accord in 1999 at its Guangzhou Honda joint venture. The plant added production of the Odyssey minivan (Japanese version) in 2002 and the Fit Saloon in 2003. Guangzhou Honda now has a production capacity of 240,000 vehicles annually. Honda also produces an equal amount of engines in China. Guangzhou Honda is also responsible for distributing automobiles through a Honda-exclusive dealer network in the country. Honda is constructing a new auto plant in China - Honda Automobile (China) Co., Ltd. - with its joint venture partners Guangzhou Motor and Dongfeng Motor that will produce 50,000 small cars (Jazz for Europe) per year exclusively for export. Another auto production joint venture, Dongfeng Honda Automobile (Wuhan) Co., Ltd. was established in 2003 and production of the CR-V began at a remodeled plant in April 2004. Annual production volume is forecast at 30,000 units. Power Products

Honda began producing power products in China in 1995 through the joint venture company Honda-Mindong Generator Co., Ltd. Currently, there are two plants producing Honda power products in China. In 2001, Honda began exporting one China-made generator model made to Japan. The export of general purpose engines from Jialing-Honda Motors Co., Ltd. in Chongqing to Australia began in 2003.

Honda Europe/Middle East/Africa -- Overview

July 30, 2004 -- Torrance, Calif. -- Despite a severe business environment over the past few years, Honda has begun realizing its potential in the European auto industry, based on an increased focus on offering products that meet the needs of local customers, achieving higher capacity utilization of Honda's auto plant in the United Kingdom, and innovating sales activities throughout Europe.

Honda's European activities are coordinated by Honda Motor Europe, Ltd. (HME) in the UK, together with its sub-regional headquarters in Germany and France. HME has responsibility for supporting and strategically coordinating all Honda's European business activities, including Production, Sales, Marketing and Service Operations. The motorcycle and power equipment business also have separate regional headquarters for Europe in Italy and France, respectively. Situated close to the major market for each of the products in the region, those headquarters provide strategic decision making for the business lines, coordinating with an overall European strategy by HME. Honda's research and development functions are carried out by Honda R&D Europe with major centers in Germany and the UK.

Sales

Honda's 2003 European car sales outperformed the market, as sales rose 11% to 217,469 units, against a market fall of 1.3%. This sales momentum continued through early 2004. The improvement was led by sales of the new Accord, the B-segment Jazz model (known as "Fit" in Japan), and the CR-V. The successful Accord lineup includes the Accord Sedan (Saloon), an estate version -- the Accord Tourer -- and the all-new diesel versions of the Sedan and the Tourer equipped with Honda's first in-house diesel engine -- a 2.2-liter turbo-charged powerplant that meets the EU2005 requirements. In recognition of the importance placed on carbon dioxide emissions in UK vehicle taxation, particularly in the company car sector, Honda is also making available two high fuel economy variants of the 2.0 liter Accord, the Econo and Comfort, specifically for the UK. Honda also added an IMA gas-electric hybrid model to the Civic line-up in 2003 - one year after launching Civic 3- and 5-door models with a diesel engine. The Civic Diesel is equipped with a 1.7-liter Isuzu-made diesel engine. Making effective use of Honda's global manufacturing resources, Honda is now marketing motorcycles made in India, Thailand and Brazil in Europe. Honda produces and sells 125cc and 150cc scooters with fuel injection systems. In Africa and the Middle East, a high quality, low priced scooter manufactured in China is marketed to customers who previously could not afford motorcycles. Production

Honda's European car plant - Honda of the U.K. Manufacturing (HUM) in Swindon, - achieved record production of 184,702 cars in 2003, up 4.5% from the previous year. Innovating the original plant at HUM to Honda's flexible New Manufacturing System has enabled it to join Honda's Global Supply Network. This factory now plays an important role in Honda's Global Supply Network, as more than 86,000 units produced at HUM were exported outside of the region in 2003 - including the CR-V to North America, and the Civic 3-door to Japan and North America. Utilizing the strength of Honda's Asian operations by importing high quality and low cost powertrain components from Asia (excluding Japan) has further enhanced the cost competitiveness of HUM-built vehicles.