The Rise and Fall of Honda
Honda Civic. Honda Accord. Honda CR-V. There’s no car company beloved by so many owners for
practical and reliable cars than Honda. Personally, my first car was an early 2000 Honda Accord.
With its alert steering and fluid handling, sometimes I felt I was in a sports car hearing
the engine rev even though I was actually in a family sedan! Honda has always been the
underdog throughout its history, exceeding everyone’s expectations. But few know the
difficulties Honda faces now as one of the last few remaining independent car companies
in the world.
Honda is an amazing company, and I could literally spend days talking about them. But we’ll
try to keep things short and cover a few key points. In this video, I’ll deep dive into
the rapid rise of Honda and give you the Company Insight - how the Company rose to greatness
in the US, stumbled on roadblocks and now faces serious competition in an environment
it has never seen before. But before we begin, if you guys enjoy videos like this, please
take a quick second, click that LIKE button, subscribe button and notification bell to
know when new videos come out each week. With that in mind, thanks so so much for helping
on that and now let us begin the video.
The Beginning. Honda 101.
So we all know Honda now as one of the biggest producers of vehicles in the world. This company
produced more than 27 million cars and trucks in the US since 1982. The question is, how
did they grow this big?
Honda, officially the Honda Motor Company, was established in Japan in 1948. The men
behind this phenomenal company were Soichiro Honda and Takeo Fujisawa. The two created
the vision for the company, focusing on innovation and superior engineering. Founder Soichiro
Honda once said, “We only have one future, and it will be made of our dreams, if we have
the courage to challenge convention.” And that’s how the company started, with building
motorcycles, which instantly became a success. Dreaming Big from the Start
Within seven years, Honda started to grow rapidly and became the top manufacturer in
the Japanese motorcycle industry. Seeing this successful moment, Honda wanted to expand
their products overseas as they were looking for additional growth opportunities. At first,
Honda was only interested in expanding in Southeast Asia. However, after doing market
research in the United States, the Company completely shifted its focus. Kihachiro Kawashima,
who was in charge of international sales, saw the huge opportunity in America as the
land of the automobile. His view was shaped around his discovery that cars were an absolute
need amid the fast expansion outside the cities and that the United States lacked a viable
network of railroads. (Which is absolutely true by the way, and maybe the topic of another
Company Insight video). He also concluded that motorcycles in the US were seen merely
as extras compared to cars, like toys one could use for leisure or, if one was daring
enough, racing. He came back to Japan reinvigorated and determined to succeed in the US with motorcycles
at first. His pitch was simple – if you succeed in the United States, you’ll succeed
worldwide. If you fail in America, you’ll never succeed internationally.
A True Startup from the Beginning Like a young startup, Honda sent a small team
to the West Coast in 1959 and to save money, the entire team shared a one-bedroom apartment
and stacked motorcycle crates by hand in the company's warehouse. Although huge in Japan,
Honda was nobody in the US and their products struggled at first - their motorcycles proved
to be too fragile for the sustained speeds and long distances on American roads. They
burned their entire $1 million investment from the Minister of Finance in Japan, but
luckily created their first hit product, the Honda Super Cub, which was a hybrid between
a scooter and conventional motorcycle. It was easy to use, super fuel efficient at 200
miles per gallon, quiet, trendy and affordable at only $249. Today, the Honda Super Cub is
considered the Model T for motorcycles, having sold more than 60 million vehicles and still
being sold in fifteen countries even today. Unique Advertising
By 1961, Honda was expanding its network to over 500 dealers across the US and finally
had the budget to spend on advertising. Honda was always different and that was the case
even when it came to advertising. Their first large scale marketing rollout for the Honda
Super Cub was actually created by a UCLA student. Rather than the trademark leather jacket biker
image, the Honda Super Cub showed suburban dressed people with their kids, cargo, and
pets with the tagline, "You meet the nicest people on a Honda." Later ads had the Beach
Boys chimed in with their "Little Honda" pop tune extolling the simple joys of riding a
Honda Super Cub. This marketing campaign was a huge success and showed that Honda approached
everything from different and innovative perspectives. Right Product Solving the Right Problems
Naturally, Honda wanted to expand to automobiles. They were already manufacturing cars in Japan
and in 1969 launched the Honda 600 Sedan, which was a mini car in the US followed by
the Z600, which was the coupe version of the sedan. Sales were promising but not spectacular.
In 1972, Honda launched the Honda Civic, which was met with huge success. The car was the
first 3 door hatch-back ever created and had innovative engineering and what was considered
roomy interior at the time. Later models also had the new Honda CVCC engine technology,
which I’m sure many auto enthusiasts know inside out. The Civic’s success lead to
the Honda Accord in 1976 as a car with more room, power and quieter than the Civic. Both
cars became big successes, with help supported by new emissions control regulations in the
1970’s, the shift from leaded to unleaded gasoline, and the oil crisis that lead to
sky high gasoline prices. Honda’s success in cars continued and manufacturing plants
were gradually shifted from motorcycles to cars.
The Introduction of Acura In 1986, Honda became the first Japanese company
among Toyota and Nissan to introduce a luxury car brand, Acura. With the Acura Integra and
Acura Legend, many Honda owners upgraded their cars and Honda was able to capture the premium
market as well. From 1989 the Accord was the best-selling car in America and the Honda
Accord and Honda Civic lead to many other cars that Honda introduced over time, beating
American car manufacturers like GM and Ford at their own game. With solid growth around
the globe, Honda has spent the last two decades expanding its business into new markets, going
boldly into realms ignored by most vehicle manufacturers, and keeping the competition
honest. Today, Honda is the world's largest engine producer and considered one of the
best automobile engineering companies in the world. We could spend another few hours talking
about how great Honda is, but I want to talk about some recent roadblocks and some of the
challenges they’re facing today. Challenge #1: Profitability Over Quality
The 2012 model Honda Civic was a disaster. There’s no way to sugar coat it. Honda took
one of their best-selling cars and decided to skip on quality while using many of the
same components and systems as the previous year’s model, including the front and rear
suspension systems and the front section of the car. Designers and engineers were told
by HQ to make the car smaller and cut production costs to increase profit margins.
That Civic model went on sale in the year of 2011 and eventually ended with a ton of
criticism. Influential magazine Consumer Reports even dropped the car from its recommended
list for the first time since it began rating vehicles in 1993. Civic fans stated that the
car was equipped with a poor-quality interior and uneven ride. Although all the issues of
the Civic were later fixed with a redesign, the fact that the car was even released was
really concerning. I had always felt before that Honda was the least commercial of all
the auto companies in terms of taking advantage of their customers (I’m thinking of the
Ford Pinto and all the identical cars GM released under the GM, Pontiac, Buick sub-brands),
and the 2012 Civic left a bad aftertaste in my mind. Has Honda quality come down? It seems
more and more people are questioning Honda’s legendary quality and reliability now than
ever before, especially after the 2012 Civic. Challenge #2: The Future of Cars is Electric
The automobile industry is in the process of completely evolving. Honda was once at
the forefront of electric and hybrid cars, especially with its weird, kinda dorky looking
Honda Insight back in 2000. The Honda Clarity EV was also introduced in 2008 and was one
of the first hydrogen fuel-cell EV cars, but it was discontinued for 2020. Today when you
think of electric cars, you no longer think of Japanese cars, but you think Tesla. Also,
when you think innovation and the wow factor, you think Tesla, not Honda anymore. To make
matters worse, in addition to Tesla, there are Chinese car manufacturers like Nio, which
have deep pockets being supported by the Chinese government. The problem for Honda is that
electric vehicles require heavy investment into R&D, engineering and technology, and
since Honda is a smaller car company they do not have as much resources as other automobile
manufacturers to invest in electric car technology. Analysts estimate Tesla will spend around
$50 billion in combined capex and R&D from 2021 through 2025, while GM is targeting a
spend of $27 billion over a similar horizon. This makes it difficult for a smaller company
like Honda to compete as cars move away from a pure manufacturing business to a more technology
driven one. Even Apple has hinted in 2021 on rumors of building an Apple Electric Vehicle
Car. That would be a disaster for Honda if Apple decided to work with Hyundai. In April
2020, Honda announced that it would be partnering with General Motors to build two electric
vehicles. Later, they also announced that the GM R&D partnership would deepen. Although
this will definitely help Honda lower R&D costs and save on investment, even as a Honda
fan, I wonder what this signals for Honda and whether it will be beneficial for them
in the long term. Most Honda buyers would never consider buying a GM car after all…
Challenge #3: Competition from Korea Before 1998, Hyundai and Kia were completely
irrelevant in the auto market in the United States. However, that all changed when Hyundai
offered it’s 10-year, 100,000 mile warranty and followed by Kia shortly thereafter as
well. This was a major gamechanger in the auto industry at that time. No other car company
had guaranteed their quality for so long. After this, the Koreans became a serious competitor
each and every year as the quality of their products approach that of Honda and the Koreans
continue to undercut Honda on pricing. 20 years ago, the Hyundai Elantra was no threat
to Honda. But this year, for example, the Hyundai Elantra was the 2021 North American
Car of the Year. Now, the Hyundai Elantra is a direct threat to the Honda Civic along
with the entire Hyundai lineup to all of Honda’s cars. Furthermore, the new Genesis brand,
which is the luxury carryover from Hyundai, offers incredible value and is a direct threat
to Acura. Should Honda slow down innovation or let their guard down on quality, Hyundai
and Kia are now ready to take its place. Conclusions
And that brings us to today. From declining quality, struggle in competing with the new
wave of electric vehicles and increased competition, Honda is in a much more difficult position
than its ever been. But that doesn’t mean you should count Honda out. After all, this
car company has always been able to out-innovate and thrive in all situations its been put
in against competitors much bigger and with deeper financial pockets than them. If you
were the CEO at Honda Motors, what would you do now? What do you think Honda’s options
are now? I’d love to hear your thoughts. So with that said, thank you so much for watching
my video. There was a significant amount of research and work that went into making this
video possible, so if you wouldn’t mind giving the video a LIKE or sharing it with
your friends, it would really help out a lot. I appreciate it and thank you again for watching.
I’ll see you again next week on Company Insight.