Select Committee on Trade and Industry Appendices to the Minutes of Evidence


Memorandum submitted by Honda Motor Europe Ltd


  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.


  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.


  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.


  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.


  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.


    —  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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