The Business of Honda

[Ponyboy]

I thought it’d be interesting to create a thread discussing Honda’s financial performance and business strategy and operations. There is a treasure trove and a sea of meaning behind business strategy and operations that can be uncovered by taking a look at what various ratios, press releases, and metrics reveal.

Things to discuss would be stock price, financial statements, key performance indicators, stats, market share, new models, old models, marketing, Honda vs. competitors, etc – not just strictly financial news but anything to do with Honda’s business.

Here are a few points of reference:

Honda web site

Honda Investor Relations

Honda Annual Report - 2013

Honda Financial News Aggregations Sources:

Google Finance

Yahoo Finance

SEC Filings

Reuters Research

Earnings Conference Call Transcripts

Couple of interesting notes:

• North America is Honda’s biggest market in terms of units sold and revenue. However, Asia, which is a distant third, is now close to eclipsing Japanese sales. If Asia ever eclipses the US in terms of revenue, Honda would seem to have no choice but to make that economic market a bigger priority. It’s growing at a 65% annual rate.
• 90% of Hondas and Acuras sold in the US are made in the US. What an amazing statistic.
• Honda Market Cap (01.01.13) is 74 billion. This is greater than GM, Ford, Chrysler, Nissan + Renault, and Mitsubishi. Toyota is at 193 billion. Honda faired the worldwide economic collapse well.
• Capital Expenditures have continued to increase - almost 30% in 2013. Global production capacity has increased to 5.5 million with 1.92 within the US.

So with that, I hope some good conversations get started and we all get better informed about the company that created our beloved NSX.

 

[scorp965]

Who else produces Sportscars, Sportsbikes, Jet Aircraft, and Robots?

Who else makes cars and bikes? BMW?

 

[Ponyboy]

Let's see:

* BMW makes motorcycles and cars. Actually, like Honda, BMW made motorcycles before automobiles.
* VW went on a buying spree a few years ago and bought Ducati.
* Suzuki produces both though, well, they used to. Auto sales ceased in NA at the end of '12.
* KTM makes both but their sports car (X-Bow) is so niche, it'd be a stretch to compare the above three.

One of the great things about Honda is their vision which hasn't been lost (in general). As evidenced by their entry into other forms of transit, they aren't a car or motorcycle company, they're a personal transportation company. They've been "Blue Ocean" before it was even a term.

 

[Ponyboy]

Interesting article on Honda's new MC-ß and some more evidence of being a "transportation" company.

http://www.autoblog.com/2014/01/02/honda-mc-prototype-review-quick-spin/

 

[xsn]

I thought it’d be interesting to create a thread discussing Honda’s financial performance and business strategy and operations. There is a treasure trove and a sea of meaning behind business strategy and operations that can be uncovered by taking a look at what various ratios, press releases, and metrics reveal.

Things to discuss would be stock price, financial statements, key performance indicators, stats, market share, new models, old models, marketing, Honda vs. competitors, etc – not just strictly financial news but anything to do with Honda’s business.

I have not researched it, but their jet project does not seem to have gone very well. I know there have been extensive certification delays. What has caused the problems/delays, what is the outlook, and how much of a drain is it in the mean time? And perhaps most importantly, it seems like what was an empty field when the project started is set to be fairly crowded by the time they are actually ready to deliver aircraft, so how does their product stack up to the competition that didn't really even exist at the outset? What is their order commitment list like?

 

[Ponyboy]

Put together some comparable Profitability ratios for reference:

Honda Motor Company Profitability Ratios - Year End 03/31/2013

HMC Automobile Industry
P/E Ratio 21.1 8.6
Gross Profit Margin on Sales 25.60% 16.80%
Net Profit Margin (Pre-tax) 4.90% 4.10%
Net Profit Margin (After-tax) 3.70% 5.20%
Operating Expense to Sales 94.50% 97.30%
Operating Profit to Sales 5.50% 2.70%
Basic Earning Power 3.60% 3.10%
Return on Assets (After-tax) 2.70% 3.90%
Return on Equity 7.30% 15.60%

For me, the most notable ratios are the gross profit margin, net profit margin (before tax), and ROE. Honda's gross profit margin is huge in comparison to the industry but the net is much closer to the industry after business expenses are deducted. Gross has ranged from 25% to 27% for the last several years. Net profit margin is greater than the industry but dramatic profitability doesn't seem to be a Honda characteristic. IMHO, this is a reflection of the importance of capital expenditures for Honda and production capacity to meet sales forecasts.

ROE sucks. But it's always been less than the industry except during the '08 worldwide financial collapse (3.4% vs. -24.3%). Still, the market must think fairly high of Honda as it's P/E ratio is considerably better than the industry and has been for the last several years.

Will likely include these type of figures in Excel in the future.

 

[Aaron94T]

Who else produces Sportscars, Sportsbikes, Jet Aircraft,

The sports car thing just ruled out Honda. Though that CRZ is a real screamer...

 

[Ponyboy]

I have not researched it, but their jet project does not seem to have gone very well. I know there have been extensive certification delays. What has caused the problems/delays, what is the outlook, and how much of a drain is it in the mean time? And perhaps most importantly, it seems like what was an empty field when the project started is set to be fairly crowded by the time they are actually ready to deliver aircraft, so how does their product stack up to the competition that didn't really even exist at the outset? What is their order commitment list like?

Unfortunately, I'm not too privy re: the HondaJet. Although I do know that they passed FAA Type Inspection cert last month. I think the only thing that remains is flight testing. From what I can tell, Honda's annual statement only makes one mention of HondaJet so I can only suppose that the program expenses are covered in the R&D portion of their "Power Products and Other Businesses" division as part of "Fundamental Research."

IIRC, there are six planes in production with the intention to double the workforce in North Carolina once the planes are able to be sold. I know AHFC will be developing term loans for prospective buyers as well. 1.9% interest and they pay your tax, tag, and title?

 

[BATMANs]

Honda needs to do 2 things to grab much more market share:

1. Everything is RWD or AWD
2. Make a V8 with VTEC

 

[Ponyboy]

Fixed.

Honda needs to do 2 things to grab much more market share TEN YEARS AGO:

1. Everything is RWD or AWD
2. Make a V8 with VTEC

 

[BATMANs]

Roger that..... but no point in looking back.

Really it should be 20~ years ago when they introduced VTEC. That should have been the time that they introduce RWD and V8 across their line up.

 

[LJSB]

Suzuki does bikes and cars too.

 

[Ponyboy]

ICBW, but I believe Suzuki stopped selling cars in the US in Nov/Dec '12.

In other news, Honda sales are great! Except Acura in Dec. Though they are up 5.9% for the year.

http://www.honda.com/newsandviews/article.aspx?id=7530-en

 

[jond]

"Honda is the Most Durable, Longest Lasting Brand in its Class for Past 25 Years

01/10/2014 - TORRANCE, Calif.

Honda brand is #1 in class for product longevity
No other mainstream brand had a higher percentage of vehicles on the road from 1988-2012.

Honda vehicles are the most durable and longest lasting of any mainstream automotive brand*, according to Polk vehicle registration statistics from 1988-2012. No other mainstream brand had a greater percentage of vehicles on the road than the Honda brand. In the mainstream segment, an industry best 75% of all Honda vehicles sold in the last 25 years were still on the road.

"One of the most important considerations for a new vehicle purchase is how long that vehicle will last and this study demonstrates that Honda quality and reliability is not just part of our hard-earned reputation but represents our industry-leading performance on the road," said Michael Accavitti, senior vice president of automobile operations for American Honda Motor Co., Inc. "If consumers want the most durable, longest lasting mainstream brand, Honda vehicles are the clear choice."

The quality and reliability of Honda vehicles is a major factor in their long-standing leadership in earning key industry value awards. For instance, for the second year in a row, Honda won ALG's top honor of Best Mainstream Brand in its annual Residual Value Awards for vehicles that are predicted to retain the highest percentage of their original price after a conventional three-year period. Honda has won the top honor more than any other automaker -- a record 8 out of 11 years they've awarded a mainstream brand. In 2013, Honda also earned multiple awards for individual models for Best Resale Value from KBB.com and Best Retained Value from Edmunds.com.

* Durability based on longevity. Longevity based on IHS Automotive, Polk U.S. vehicles in operation registration statistics 1988-2012 for Honda and non-luxury competing brands.
"

http://www.hondanews.com/channels/c...-lasting-brand-in-its-class-for-past-25-years

 

[BATMANs]

. *Over 96% of all Subaru vehicles sold in the last 10 years are still on the road today.

http://www.subaruchicago.com/why-choose-subaru-.htm

 

[NSX9]

What sums it up for me is when there was a group of us "NSX tourists" standing around the entrance to the Honda museum at the end of 2010 on the main stand next to the original F1 car was a little old generator in pride of place. Looked like a current model but was probably 20 years old, brilliant engineering. That little generator sold along with a zillion lawnmowers, outboards, pumps, tillers and small motorbikes is probably what paid for the company to develop (at a loss) the halo car we now drive. Would be the same with the jet.
Pretty good business model really! !

 

[RYU]

Are you single handedly trying to increase the per share of your HMC holdings Shawn? Haha! kidding...

I'm considering putting $$$ in mREITs this year and just collect the dividends. Getting too darn busy to manage my portfolio. Made a good amount of $$ on GM though. Bought some before during their bankrupcy fire sale a few years ago.

 

[Ponyboy]

Are you single handedly trying to increase the per share of your HMC holdings Shawn? Haha! kidding...

Nailed it. Just thought it'd be interesting to create a thread about the financial prospects of Honda. Actually, I first started looking at them when I wanted to see if I could figure out how much Honda was actually spending in F1 when Fukui got out of the sport.

I stopped managing my portfolio a long time ago. Now I just buy companies I have an interest in provided their Net Income and profitability ratios are decent (and even then I have my exceptions).

 

[Ponyboy]

Good news for the US economy: Honda is the first Japanese automaker to be a net-exporter from the US.

http://www.autoblog.com/2014/01/29/honda-first-japanese-carmaker-net-exporter-from-us/

Over the last decade or so, many foreign automakers have challenged the idea of what defines an "American car," but Honda took things a step further last year by exporting more cars out of the US than it imported in. Reuters is reporting that in 2013, a total of 108,705 Honda and Acura models were exported from the US with only 88,357 being shipped in. This gives Honda a net exporter status here, and makes it the first of such among the major Japanese automakers.

Honda's US imports have been dropping over the last five years while its exports have been steadily increasing. In 2008, the report indicates that Honda shipped 187,000 vehicles to the US and exported only 20,000, and even by 2012 Honda still favored imports with 136,000 imports and 74,000 exports. The article says that US-made Honda and Acura vehicles were exported to 50 countries with most ending up in Mexico, but the big news is that the Honda's US production set a record in 2013 with 1.3 million units built.

 

[Ponyboy]

Honda doubles 3rd quarter profit. Cliffs: weak yen makes export revenue 25% greater. In other news: their revenue from operations in 3 months is almost on par to their total from fiscal 2013. And they've almost doubled their cash from financing activities from last fiscal with a portion going to LT investments and then Plant/Property/Equipment. Interesting things in store?

http://www.detroitnews.com/article/...da-3Q-profit-doubles-sales-get-weak-yen-boost

Tokyo — Honda’s quarterly profit doubled from a year earlier as sales got a big perk from a weak yen.

Honda Motor Co. reported on Friday a 160.7 billion yen ($1.58 billion) net profit for the October-December fiscal third quarter, up from 77.4 billion yen the year before.

The maker of the Fit subcompact, Odyssey minivan and Asimo humanoid posted a 25 percent jump in quarterly sales to 3.02 trillion yen ($29.6 billion).

A favorable exchange rate helped Honda’s fortunes. The dollar has been trading above 100 yen compared with about 80 yen a year earlier. A weak yen helps lift the value of Japanese exporters’ overseas revenue.

About 425 billion yen ($4.2 billion) of Honda’s sales and other operating revenue was due just to a favorable currency for the quarter.

Honda stuck to its previous forecast for a 580 billion yen ($5.7 billion) profit for the fiscal year through March 31, 2014, up 58 percent from the previous fiscal year, on 12.1 trillion yen ($118.6 billion) sales, up nearly 23 percent.

Tokyo-based Honda, like other Japanese automakers, has bounced back from troubled years, such as the 2011 tsunami and earthquake in northeastern Japan that devastated parts suppliers and disrupted production.

Honda was also hurt by flooding in Thailand in late 2012. Anti-Japanese sentiment that flared up in China eroded sales in that key growth market last year.

Honda said its results were helped by cost cuts and the launch of new models, in addition to the help it got from a weak yen. It sales grew in North America, Japan and the rest of Asia.

During the quarter, Honda sold 1.08 million vehicles around the world, up nearly 10 percent from a year earlier. It also reported an 11 percent jump in motorcycle sales.

It expects to sell nearly 4.39 million vehicles for the fiscal year through March 2014, up 9 percent from 4.01 million in the previous year. Although the forecast is upbeat, it’s lower than its earlier forecast of 4.43 million vehicles, as it expects fewer sales in North America, Asia and Europe.

For the nine months through December 2013, Honda’s net profit gained nearly 39 percent to 403.5 billion yen ($4 billion). Nine-month sales soared 23 percent to 8.75 trillion yen ($86 billion).

Toyota Motor Corp., the world’s top automaker, reports earnings Tuesday, while Nissan Motor Co. reports Feb. 10.

 

[Ponyboy]

Honda Motorsport Program Overview for 2014.

http://world.honda.com/news/2014/c140207Motorsports-Overview/index.html

Sadly, no news about their US program outside of Indy. Would be nice if Ito acknowledged the TLX-GT and NSX-GT programs.

 

[Ponyboy]

There's been a lot of interesting news about Honda recently and I've been remiss on posting it. However, the biggest piece of news is Acura splitting from Honda as it's own autonomous brand. This is GREAT NEWS!

All of the brand equity gleaned from Honda has long been used and now, the brand will be "free" from design constraints (direction) set by Mother Honda.

http://www.autoblog.com/2014/03/11/honda-spinning-off-acura-official/

http://www.autonews.com/article/201...plits-marketing-and-sales-operation-by-brand#

During the call, Accavitti said the automaker wants Acura to stand on equal footing with its luxury rivals rather than being an entry- or midluxury brand. Acura will focus on ride and handling, leverage its Super-Handling All Wheel Drive technology and prioritize design, describing the direction as “luxury done the Acura way.”

“We see Acura as being every bit of a luxury brand as the Germans or the other Japanese or the domestics, to be honest,” Accavitti said. “We may have lost focus somewhere along the way from a product perspective, but that is strengthening. We have commitment from the very highest levels of Honda Motor Co. to give this brand what it needs to be more successful.”

During the call, Mendel acknowledged the “on again, off again” criticisms of the Acura brand, and said these new moves reflect a recognition that Acura needs greater focus and resources to achieve its potential.

“There’s a greater recognition that we need dedicated resources and a dedicated organization to pull that through and not get ‘averaged out’ when you compare it to the Honda brand,” Mendel said. “There’s a lot of recognition that Acura should be and can be a much stronger brand than it is today, and that’s what I think you’re seeing us do.”

 

[Osiris_x11]

Stylish designs that offer exciting performance are what sell. Unique platforms, RWD, autonomous automotive divisions, marketing, blah-bla-bha aren't the issue. Acura sold in droves, their Legends, TLs, Integras, and NSX'es (early-on).

Acura needs a sporty, luxurious coupe. Acura needs the RL to have more distinctive personality. Acura needs the TLX to be better looking than the Accord. Acura needs the ILX to define its purpose. Acura needs the NSX-v2 to be devastatingly purty not just all-world performing. The Acura SUVs sell because it's next-to-impossible to screw-up such in North America.

The revised Civic, redesigned Accord, new'ish Odyssey & Pilot, brand-new CRV, faultless Fit, and even the still-fresh CRZ are all hot (IMVHO). But, Acura... hmmm!

 

[docjohn]

Ask the average non car person anywhere in the US why they would would buy a honda..and they will most likely say reliability.Ask why they would buy an acura....and I wonder what the answer would be.:wink: Acura needs to make sure that its autonomy does not erase the only collateral benefit it has by being a tarted up honda.

 

[Ponyboy]

Stylish designs that offer exciting performance are what sell.

Ask why they would buy an acura....and I wonder what the answer would be.:wink:

And the above, IMHO, are reasons why Acura has struggled and why it makes good sense (at least reasonable sense) to separate leadership and management functions. For me, the biggest pivot is that Honda has decided to make a concerted effort to invest and focus on the Acura brand…globally.

Hopefully, this means Acura will have it's own vehicle development budget. If Acura is supposed to compete, I'd imagine higher HP powertrains and comparable luxury features…at least.