History of Honda Motor Company

The power of dreams! As Honda's slogan, it doesn't take long to realize how a young man's dream turned Honda into what it is today. Honda is the seventh largest automobile manufacturer in the world. It is also the largest motorcycle manufacturer. Honda was founded in 1948 by Soichiro Honda, who later died in 1991. Soichiro never used his slogan, the power of dreams, to sell his products; he believed that well-built products would sell themselves. Soichiro use to work as a mechanic, it's from there that he taught himself how to be an engineer. He drafted designs in hope to sell them to Toyota but he was unsuccessful. That didn't stop him from pursuing his dream. He continued to perfect his designs and was willing to pawn everything he had to chase this dream. Soichiro eventually used a small engine on a motorcycle to build a car, this idea created Honda's Technical Research Institute. From there marked the beginning of Honda Motor Company. The company currently has assembly plants located all over the world, but is headquartered in Tokyo, Japan.

Since 1948 Honda surpassed Nissan in 2001 and became the second largest Japanese automobile maker and in 2008 it surpassed Chrysler as the fourth in the United States. Even with their success they were still not prepared for the global financial crises of 2008. Even though the crisis was caused by U.S. credit and housing markets, it affected the automobile industry tremendously. As other automobile manufacturers like the Detroit Big Three (General Motors, Ford, and Chrysler) and Toyota's sales decreased, Honda reported a 1% increase.

Honda shares trade mainly on the Tokyo Stock Exchange and the New York Stock Exchange. They began trading publicly in 1957; just nine year after Honda was founded. They currently have 1.8 billion shares outstanding.

Automotive Industry Analysis

Market Structure

The automotive industry designs, develops, markets, manufactures, and sells motor vehicles. Since this industry takes a lot of capital to start up and gain market share, they have very few sellers. This type of industry is considered an oligopoly. Currently the automotive industry has 49 manufactures worldwide.

Macro Analysis

The automotive industry is one of the most important economic sectors. "In the US the automotive industry can influence economic change up to as much as 40% but contributes about 4% of the economy's GDP" (Helmut, 1994). More than 9 million people are employed by the auto industry. For every autoworker there are seven other jobs create in other industries. Manufacturers use computer chips, textiles, aluminum, copper, steel, iron, lead, plastics, vinyl, and rubber to make vehicles. A car is the second most important possession to the vast majority of people. Any economic change has a major impact on not only the automobile industry but their related industries.

Many political factors affect this industry. Government regulation such as the Clean Air Act and the Vehicle Air Pollution and Control Act forced manufacturers to meet guidelines on automobile emission. With growing concern for environmental safety, many manufactures have innovated new vehicles to meet this concern. Government also imposes regulations on the safety of vehicles.

Market Forces

Threat of New Entrants

Since the automotive industry is an oligopoly Honda has no threats of new entrants. There are seller entry barriers that make it hard for another company to raise enough capital to compete with others in the market. The main barrier is economies of scale. It would be inefficient for another auto maker to enter the market because of how much it cost to make each vehicle and they would need to acquire a substantial market share, which would be impossible.

Bargaining Power of Suppliers and Buyers

The bargaining power for suppliers is very low. Since there are so many different raw materials that go into making a car, there are many different suppliers. When there are a lot of suppliers Honda can easily switch to a new supplier if they don't agree with the terms.

The bargaining power for buyers is moderately high. Buyers can easily sell their old vehicle and purchase a new one for a relatively low cost. Honda depends on buyers to purchase their cars to stay in business. Buyers are able to dictate terms of purchasing a car, because if they don't agree with the terms they can easily go to another dealership. Since the auto industry is an oligopoly the customer has to purchase a vehicle from a select group of dealers,