A must-know investor’s guide to Honda Motor Company

Initiating coverage: Honda Motor Company

Honda Motor Company (HMC) designs, builds, and sells automobiles worldwide. It’s the ninth-largest automobile manufacturer in the world based on units sold in 2013.

Honda’s global market position reflects how the company has a few very strong products. In the U.S. market, the Honda Accord, Civic, and CR-V are among the top-20-selling vehicles and have been for years, according to www.motorintelligence.com. This reflects in the company’s history.

Past driving future

Honda was founded by an inventive and industrious son of a blacksmith, Soichiro Honda, who apprenticed himself at age 15 in 1922 to a bicycle repair shop that also repaired motorcycles and cars. His enthusiasm for cars led him to racing and manufacturing engine rings. He studied metallurgy for two years in the evening while working days for the company he apprenticed with. After the war, he restarted his own business by buying surplus radio generator engines and attaching them to bicycles. By 1949, Honda was selling motorcycles instead of converted bicycles. Soichiro Honda’s manufacturing ideas focused on doing work up front to make the assembly and consumer experience less troublesome, enhancing the consumer experience.  Honda launched its motorcycles in the U.S. in the early 1960s.

Breaking through with advertising

The tagline provided by Grey Advertising, “You meet the nicest people on a Honda,” turned the negative associations of motorcycles around for Honda. Honda motorcycles became popular with students and parents. Honda became the first non-U.S. company to to sponsor the Academy Awards.

Honda launched U.S. car sales in 1969. The company got off to a slow start but used intensive customer surveys and follow-ups to improve its products. The high gas prices from the oil embargo of 1973 boosted the adoption of the newly introduced Honda Civic, which was the most fuel-efficient car in the U.S. The Civic also had the cleanest engine—the first to pass the standards set by the U.S. Clean Air Act. In 1986, Honda won J.D. Power & Associates’ overall customer satisfaction award and Honda launched the Acura brand.

But wait… There’s more

While automobiles are the company’s largest revenue producer, Honda also manufactures 27 million engines a year for a range of products, including motorcycles, ATVs, generators, marine engines, and lawn and garden equipment. Honda has a joint venture with General Electric for the manufacture of jet engines. Honda was approved by the FAA for sale of its aircraft in 2010. Honda has significant R&D (research and development) and non-automotive businesses, including humanoid robots and thin-film solar cells. It’s a significant R&D and design house attached to an automobile manufacturer. The technologies developed on the two separate platforms are shared.

Roadmap

In this series, first, we’ll look at Honda’s strategy. Then, we’ll dig into the company’s revenue and earnings to see how Honda compares to other industry players. Next, we’ll look at the company’s financing structure. Then, we’ll turn to the equity markets to see how Honda is valued against its peers. We’ll look at the risks and opportunities for Honda. So this series is an overview of Honda and how it stacks up against its peers, including General Motors (GM), Toyota (TM), and Volkswagen (VOW). Investors may also gain industry exposure through the exchange-traded fund CARZ.