APPENDIX 7
Memorandum submitted by Honda Motor Europe
Ltd
REALITY
The European Commission conducts car price enquiries
twice a year for the purpose of monitoring price equalisation.
Because the prevailing exchange rates are used to calculate prices,
they differ each time as exchange rates move constantly. However,
the reality of business is that Honda needs to take a longer perspective
in setting the prices of its cars sold throughout the EU market,
in the best interest of its customers. For this reason, Honda
tries to maintain uniform prices. It is therefore impractical
to force a single company with a single European manufacturing
base in the UK to absorb price fluctuations that occur as a result
of constant movement of currency rates, a factor over which, a
company has no control.
In the light of the current situation where
there are multiple currencies—euro and sterling—within
the single EU market, it is becoming increasingly difficult for
Honda to meet the 2002 deadline to unify prices within the EU.
If prices need to be unified, then so should currencies, or else
Honda is forced to absorb the constant and ever changing currency
rates, while Honda's business of designing, developing, manufacturing
and marketing cars is a much longer process.
SUMMARY
The impact of the Sterling Euro exchange rate
affects almost every part of Honda's UK operations. With around
60 per cent of Swindon output being exported—45 per cent
to Eurozone and 15 per cent to other countries, profitability
is severely compromised.
The price competitiveness of UK based component
suppliers has been undermined by the continued rise of Sterling
against the Euro. As supply contracts for new models are placed,
Honda will increase European sourcing from Eurozone.
There is a national shortage of engineers and
other professions and Honda is having to recruit from most parts
of the UK to meet its requirements.
The uncertainty in the UK retail market caused
by the Competition Commission Report and its aftermath has directly
compromised Honda's sales growth plan with UK built cars and consequently
reduced production volume at Swindon. It has also compromised
dealer investment plans on a national basis.
OVERVIEW
Established in 1948, Honda is one of today's
leading manufacturers of cars, and the largest manufacturer of
petrol engines and motorcycles in the world. The Company is recognised
internationally for its expertise and leadership in developing
and manufacturing a wide variety of products, ranging from general
purpose engines to speciality sports cars that incorporate Honda's
highly efficient internal combustion engine technology.
By following a corporate policy that emphasises
originality, innovation and efficiency in every facet of the Company's
operations—from product development and manufacturing to
marketing—Honda strives to attain its goal of satisfying
its customers—Honda has to be the best.
Successful customer focus has been the foundation
of Honda's growth in major global markets such as the United States.
Through a world-wide commitment to advancing
this goal, Honda and its many partners who share in this commitment
have succeeded in creating a global network comprising of 119
production facilities in 33 countries that supply products to
most industrialised countries in the world.
Honda's strength lies in its ability to utilise
global resources to flexibly and effectively meet the various
challenges that each region must overcome.
Honda has always had a strategy of producing
within the markets where demand exists. Manufacturing is a long-term
commitment requiring not only investment in the facility and associates,
but also in Dealers, Suppliers and local communities.
When operating conditions are not favourable,
Honda makes every effort to take rapid action in order to eliminate
negative impact, utilising our global presence. By this method
Honda will maintain its independence.
To achieve global competitiveness, quality,
cost and delivery must be achieved for the UK operation to enable
sales to continue in Europe and for any future possibility to
export outside of Europe.
Market and economic conditions are the same
for Honda as for all other car makers. The sterling Euro exchange
rate will continue to have an effect on profit (approximately
60 per cent of Swindon product exported—45 per cent to Eurozone
and 15 per cent to other countries).
There is a national shortage of engineers and
other professions and we are forced to recruit from all areas
of the UK. This brings additional problems particularly focussed
on the high cost of housing in the area, making re-location prohibitive
for many people.
The Competition Commission Report and ensuing
Draft Orders from the DTI have created uncertainty in the market.
Unrealistic price expectations amongst UK consumers has also been
fuelled by media speculation. As a result, Honda's showroom traffic
has been severely reduced. Honda had planned a major increase
in sales of UK built models designed specifically for the European
market, such as the newly introduced Accord five door. However,
only a modest increase has been achieved. Consequently, production
volumes at Swindon of cars for the UK market have been reduced.
To secure what we have already and to protect
our future investment Honda has to take drastic action in the
European region.
FUTURE EUROPEAN
STRATEGY
To minimise the impact of currency fluctuation,
and to return to a profitable operation, we will further strengthen
the autonomy of our European operations. The following actions
are being taken:
New Models
— Production of the CR-V sports utility
vehicle started at Swindon from June 2000, to meet European customer
demand (previously imported from Japan), utilising Honda's New
Flexible Manufacturing System.
— Towards the end of 2000 production
of a new Civic range, equipped with many class leading features
will commence in the existing plant.
— Production of the new Civic is also
expected to start in the new second Swindon plant.
— In 2002, production of a new B segment
car is expected to commence in the new plant.
Productivity
Capacity expansion at Swindon is scheduled to
increase from 150,000 units to 250,000 units per annum, with the
locally produced portion of total sales increasing from around
40 per cent to cover 70 per cent in fiscal year ending 31 March
2004.
— Productivity improvements at Swindon
through continual improvement to the new global manufacturing
system which will provide the flexibility to produce different
models on a single line eg recent addition of CR-V to Swindon.
— Cost control activity through supplier
rationalisation. An increase in local procurements in Continental
Europe and changes to some existing sources within Europe in order
to adapt to the continued weakness of the Euro. European component
sourcing for new Civic will rise from 25 per cent Euro zone to
35 per cent and we anticipate it will be around 50 per cent for
future new models.
— Honda will begin exporting Swindon
built product outside the region to further enhance the global
supply network, but this is entirely dependent upon the competitiveness
of the UK build product.
— The utilisation of "Digital
Manufacturing Circle" system of designing, developing and
manufacturing and the introduction of value engineering to significantly
reduce new model cost.
— Our car manufacturing operation in
Turkey will become a supply source to Eastern Europe.
— Increased local production of motorcycles
in Italy and Spain, increased local production of power products
in France and general purpose engines in Italy and increased local
parts supply from Belgium.
Sales
— Streamlining of its sales operations
into three sub-regional groups in order to achieve more efficient
and market orientated operations (started in October 1999).
— Further development of dealer networks
to mirror the excellent UK performance of high customer retention
and satisfaction, starting with Germany.
— New model introductions together
with Honda's existing successful models, will enable sales to
increase from this years projection of 250,000 to 350,000 in the
financial year ending 31 March 2004.
7 July 2000
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