Investing in America ... 25 Years of New Challenges Remarks for Takeo Fukui

9/7/2004 9:58:39 PM

Detroit Economic Club

Good afternoon ladies and gentlemen. It is an honor for me to represent Honda in the city of Detroit. Of course, I have visited Detroit many times ... working at our emissions lab in Ann Arbor ... or meeting with our suppliers. But my last visit to Cobo Hall was for the Auto Show. So, it is a real pleasure to be here on a warm day in September, rather than in January.

I am on my way to an event in Ohio to celebrate the 25 th anniversary of the first Honda product made in America. Coming here, I began to think about what led Honda to establish production operations in the United States ... and why Honda continues to remain confident about the U.S. as a place to build products ... to invest ... and to innovate.

Of course, this is the biggest market in the world ... and America has always been open to new competition. But, more importantly, the United States has always been a place where Honda has learned new things that have made us a better company ... and a better corporate citizen. America is a relatively young nation. But your frontier spirit has led to many innovations for mankind ... including the invention of mass production ... and creating the auto industry. It is a great place to learn!

Honda began learning from America more than 50 years ago. We were just one of several hundred small motorcycle companies in Japan. And Honda management wanted to rise above this crowd through better technology. They decided to import the world's best machine tooling for our use in Japan. In November 1952, our founder, Soichiro Honda visited the U.S. for the first time. Most of the places he visited were in the American Midwest, including here in Detroit. A main purpose of his visit was to buy production equipment for our plant in Japan. 30 years later ... this story came full circle. Because in 1982 ... we started assembling passenger cars in Ohio. This was in the heart of the area where many of those original machines were born.

But this American equipment enabled us to create high precision engines. And the improving engine technology gained from American machinery, gave Honda the ability to take its next step into the world. In 1954, Mr. Honda challenged his young company to look outside Japan. He said Honda would enter and win what was then the world's most important motorcycle race -- the Tourist Trophy race on the Isle of Man in the U.K. We had no formal racing experience. And people were shocked that we would take such a bold step.

But Mr. Honda viewed the challenge of racing and global competition as the perfect tool to energize the company. It took seven years. But, in 1961, Honda achieved the goal - not only winning this international race, but .... in the process. ... the entire company adopted a global viewpoint.

Just as Honda began participating in international racing ... our founders made the decision to begin sales outside Japan as well. They chose America as the location for Honda's first overseas subsidiary. They thought that if Honda could succeed in the U.S., we could succeed anywhere in the world.

We began with our motorcycle business. And Honda bikes actually helped establish a new market in America by creating a positive image for the motorcycle. Then we looked to the automobile industry. But just as we entered this business we encountered a new challenge - the U.S. Clean Air Act. Again, we learned from America ... this time about the biggest ongoing challenge the industry has faced ... air quality issues caused by vehicle emissions.

This was actually when I joined Honda in 1969. I remember many in the industry said the Clean Air Act requirements were impossible. Or that more time was needed to develop new technology. Honda simply saw this as a challenge where each carmaker started from scratch. I joined a new team of engineers. Our challenge was to find a technical breakthrough to improve the quality of the air we breathe ... while still meeting the needs of the customer. We even quit Formula One auto racing to focus more resources on this challenge.

Our racing experience helped our development of lean burn engine technology ... producing fewer emissions based solely on the combustion process. And in October 1972, we introduced the new engine in the Civic ... making Honda the first company to meet the Clean Air Act - and without a catalytic converter.

We learned a tremendous lesson from this experience ... about staying ahead of environmental issues. And we have continued to apply these lessons since that time. Honda has consistently introduced low emission vehicles ahead of requirements. We have advanced fuel economy ... including hybrid cars. And we were the first company to gain EPA certification of a fuel cell vehicle. We have even applied environmental technology in other countries, where it is not required. This commitment is based on that first lesson of the U.S. Clean Air Act.

Importantly, the success of the Civic with the cleaner burning engine technology helped to launch Honda as a successful automaker in America. And this success enabled us to pursue a new dream. Honda has long followed a philosophy of building products close to the customer. In this way, we can better serve our local customers. We contribute to the local economy. And we grow together with the local community.

It was 25 years ago this week, that Honda began building products in America ... when a small motorcycle called the Elsinore came off the assembly line at our Motorcycle Plant in Marysville, Ohio. That day - September 10, 1979 - a fax message was sent to Japan to announce the successful start-up. A reply came back immediately. It said "Congratulations. Please proceed with auto production." And three years later in 1982, we became the first Japanese automaker to start vehicle production in America.

We brought our own unique approach to working with people ... and to manufacturing ... focused on teamwork with our associates and suppliers. We are pleased to be here today ... having succeeded in manufacturing high quality products in this competitive market. 25 years ago, some experts didn't have confidence in Honda's decision to build products in the U.S. But I would say the opposite has been true. The contributions of our associates, our suppliers and our local communities ... have given us the confidence to reinvest in America over the past 25 years.

Honda has now invested more than $8 billion dollars in 12 plants and other operations in North America. And almost 8 out of 10 vehicles we sell here are made in these plants. But I would say that the key investment is not in facilities and equipment. Rather, what is important is our investment in the skills and ideas of the people working for Honda in North America.

At Honda, we believe it is important to have a corporate culture where people have the freedom to dream ... and then commit themselves to realize those dreams. This is the Honda Way. Here in North America, our associates have really embraced this spirit.

I recall when I was president of Honda of America in Ohio in the mid-90s. Up to that time, when we introduced a new model, we launched it at a "mother plant" in Japan ... slightly ahead of the U.S. ... then applied this experience here. However, for the '98 Accord, our team wanted to conduct a new model launch for the first time ... without such a lead mother plant.

Initially, I opposed their idea. After all, the Accord is Honda's most important model in the U.S. - and the previous system had been very successful. But our associates felt strongly that they could accomplish their goal. They believed it would further advance Honda's capabilities in North America. So, they challenged those of us in management. They explained how they would accomplish this model change ... by working closely with R&D engineers and American suppliers very early in the development process.

Frankly, I recognized this as a sign that we were succeeding in America. Our associates were reaching a new level of maturity. And they were challenging us to do something new. It also made a good business case for the future of Honda's North American operations. The `98 Accord was the first U.S. built Accord with a unique design for the U.S. market. As Honda was growing in this market, we could see that in the future ... an increasing number of models would be designed exclusively for North America ... including light truck models. And the launch of this '98 Accord in Ohio was a big success.

Since that time, we have launched five all-new light truck models exclusively in North America. Last month, we launched an all-new Odyssey minivan at our plant in Alabama that is only three years old.

Now, the majority of Honda's light truck lineup is not only made here. The Honda Pilot and Element and the Acura MDX have also been designed and developed by American engineers in our U.S. R&D centers. And a new Honda Sport Utility Truck is currently in development here in the U.S. The growth of Honda's R&D centers in America has had a profound impact on the scope of our local parts sourcing activities. We have good, long standing relationships with a number of U.S. suppliers. And for models developed in North America ... we look primarily to our suppliers in North America to compete for that business.

Honda now has more than 600 supplier partners in North America ... representing annual purchases of more than $12 billion dollars in parts and materials. Over the past two decades, we developed our own unique approach to working with suppliers. We have been very consistent about our requirements for quality, cost and delivery.

But in our view, we aren't just buying parts. We want collaborative relationships ... with shared responsibilities. Our experience has shown that these partnerships provide tremendous benefit ... where Honda and suppliers can learn from each other. Sharing insights so that both Honda and the supplier benefit - builds trust ... respect ... and a spirit of cooperation for the future.

As we expanded the number of models developed and produced here in North America ... we also needed more local tooling support. Yet, we recognized that North American companies in this area were facing challenges to remain competitive with global markets. So, four years ago, our purchasing group in Ohio established several collaborative relationships with four Midwest tool makers ... two are located in Grand Rapids, Michigan ... one in Ohio ... and one in Windsor, Canada.

Our U.S. associates have helped introduce these tool makers to advanced technology and lean management systems. This has led to joint development of new hybrid tooling technology. These are dies and molds that combine the best of both worlds ... the lower cost tooling die methods found in Japan ... with more flexible die methods used in North America.

As a result, these companies have achieved global competitiveness close to that found in low cost labor markets. And they are using this to provide value to their other customers. This is increasing the competitiveness of the North American tooling industry. And ... once again ... gives us confidence in American manufacturing.

Through the development of local operations including sales, manufacturing and R&D, we now have achieved a high level of autonomy in North America. This was also clearly demonstrated in the successful startup of production at the new plant in Alabama. Associates who first learned the Honda Way in Ohio and Canada - have moved to Alabama. They are not only teaching how to build products. They are sharing Honda's corporate culture with a new generation of associates. Associates from Ohio also have traveled to Honda plants in England and Mexico, sharing their experience to help improve quality and efficiency.

Thus, what we started here 25 years ago, has even helped shape Honda's global strategy. Today, we have six regional operations around the world - each with production, R&D and sales functions. The autonomy we have achieved in North America is serving as a model for this global organization. Now, we are taking this strategy to a new level ... by networking the resources of each region together. We call this "Made by Global Honda" because we can view our worldwide manufacturing operations as one supply source. Then we make the most efficient use of our global resources to quickly meet the needs of local customers.

But the auto industry has become very competitive. Each automaker now must be able to change quickly to meet the needs of the market. Over the past several years, our associates in Ohio have conducted major innovation projects at our plants to achieve this. Rather than just looking back at the first 25 years, they focused on achieving new levels of quality, flexibility and efficiency for the future. As a result, 25 years after starting production in America, I would say we still do not have any old plants.

In fact, today, in Ohio, Honda of America Manufacturing is announcing a new commitment that takes advantage of this flexibility. Since we began auto production in 1982, our Ohio plants have focused primarily on production of passenger cars such as Accord, Civic and the Acura TL. But I am proud to announce that we will add production of an all-new SUV in Ohio. We already build the Element light truck there. Now, we will add an all-new Acura SUV. Along with the model mix produced at Honda's other plants in North America, this will position us for the future ... providing added flexibility to meet the needs of our customers for both cars and light trucks.

This new Acura SUV also will provide even greater opportunities for Honda and suppliers to work together on the development of a new product.

There are many ways to look at Honda's 25 years of manufacturing in the U.S. We have learned so much ... and gained so much ... from our experience in America. And we have shared our own unique approach to working with people ... and to manufacturing ... focused on teamwork with our associates and suppliers. Today, quality, flexibility and teamwork are now common strategies for everyone.

As an industry, there are many challenges ahead ... ever-increasing demands for safety and environmental technologies ... new information technologies... and global competition. But I believe that the U.S. manufacturing industry has a strong, fundamental competitiveness. We should all be confident in that.

In 1978, Mr. Honda was asked why Honda chose Ohio as the site for our first U.S. factory. He answered simply: "God guided us." I cannot say whether we really had divine guidance. But I will say that it was good advice.

Honda chose to build products here because we were confident we could build quality products for our customers. Now ... our continued confidence in America is based on what we have learned here ... what we have developed here ... and on the ideas and innovations that have resulted. So, 25 years later, we continue to invest ... to innovate ... and to learn in America.

Thank you for your attention. Good afternoon.