HONDA MOTORS

Honda Motors

Table of Contents

Introduction4

Ananlysis5

Strategic Analysis14

Business Summary14

Overall performance in FY Mar. 200515

Production Process Improvement through the New Manufacturing System15

Honda plans to continue overseas production16

Competitors17

Ford17

Toyota17

Daimler -Chr ysler18

General Motors18

Nissan19

Risks19

COGS/Sales26

SG&A/Sales, R&D/Sales, Interest/Debt, Dep./PP&E, Tax rate26

Why do they value Honda as if it were a THEM Company?27

Valuation Analysis27

Comparative valuation methods27

P/E valuation28

Sales (Geographical Breakdown)28

Operating Income (Geographical Breakdown)28

PEG valuation29

M/B valuation30

Price / Sales valuation30

Assumptions of EBO and DCF Analysis Cost of Equity and Equity EBO Valuation of Honda Motor Company DCF Valuation31

Aggressive sales booking31

Smoothing volatility of earnings using accruals32

Conclusion33

References35

Introduction

Honda Motors, initially a maker of motorbikes, succeeded in becoming an automobile producer after all others, in the mid-1960s, by implementing a strategy of innovation and flexibility and by constructing an industrial model enabling it to avoid or limit the risks peculiar to that strategy. The firm's success owed much to the mechanical and commercial imagination of himself. Based on the long-standing philosophy of, "building products in the markets where they are sold," Honda now has more than 100 manufacturing facilities in 33 countries. (Aoshima, 2002, 605-628)

The successful Honda model as a whole could continue to function dynamically without strong high-technology challenges that engineers could meet in the form of automobiles that succeeded in the market. But still, there is a need for a continued search for 'holy grail' technologies that would be needed to make the Honda model work through the fast changing times. (Aoshima, 2002, 605-628) Notwithstanding Honda's leading technological position in the world automobile industry, it remained to be seen whether the Honda research and development engineers could at last create a 'breakthrough product' which would translate this leadership into significant competitive advantage; there were now strong echoes of the late 1960s, which produced the CVCC engine. If there was to be no such breakthrough, a key element of the industrial model that had guided Honda's trajectory for fifty years would remain unproven. The aim of this paper is to carry out a critical analysis and evaluation of the strategies adopted by Honda Motors to date, with the information provided and other materials researched.

Ananlysis

Honda was unusual in having already created an industrial model by the time it entered the automobile industry. Twelve years after it was founded in 1948, Honda had become the world's largest motorcycle manufacturer, on the basis of a strategy which focused on product innovation and production flexibility and on the mass production of products which had in effect opened new market segments. (Aoshima, 2002, 605-628) The issues that Honda handled so successfully are the central questions of strategy. Honda had to consider what markets to enter, how to position their products within these markets, how to build relationships with dealers and component manufacturers. The subject of strategy analyses the firm's relationships with its environment, and a business strategy is a scheme for handling these relationships. (Argyres, 2007, 1332-1344) Such a scheme may be articulated, or implicit, pre-programmed, or emergent. A strategy--like that of Honda --is a sequence of united events which amounts to a coherent pattern of business ...