Friday, November 6, 2015
The Honda Motor Company And Export Sales To The United States
Japanese firms learned of the rising US demand for small motorcycles through a survey conducted by the Japan Machinery Federation. With the guidance of the Ministry of International Trade and Industry (MITI), the Japan Machinery Federation had begun carrying out surveys on the international bicycle, motorcycle, and auto industries in 1955, and in June 1958 it issued its first results, entitled the Overseas Market Survey Report.
The report concluded that while Japan’s auto industry was not yet capable of competing in the US passenger car market, Japan’s motorcycle producers had attained a parity of status with European manufacturers.
Furthermore, the American demand for motorcycles was shown to be rising from a nationwide level of 2.7 motorcycles per thousand people in 1957 – a figure far lower than in France, where there were already 130 motorcycles per thousand people.
After the Second World War, the motorcycle had become a popular mode of transportation for many Europeans because of its affordability, and by the mid-1950s, roughly 16 million of the 19 million motorcycles owned worldwide were in Europe.
Based on its random survey of two hundred registered motorcycle owners in San Francisco, the Japan Machinery Federation also learned that while American purchasers of large motorcycles most often rode recreationally, the riders of small motorcycles did so for the sake of their simplicity, economy, and convenience. Moreover, the collapse of the Indian Motorcycle Manufacturing Company in 1953 had left only one US motorcycle producer, the Harley-Davidson Motor Company.
This dealt British makers like Norton-Villiers, Triumph, and BSA a free hand in the US market for 350 cc to 650 cc motorcycles, for in the 1950s, Harley-Davidson’s “small” V-twin engines weighed in at 750 cc. However, the Japan Machinery Federation reported that more Americans were likely to purchase small, efficient motorcycles in the coming years. The report concluded that the US market was changing rapidly and that European competitors were likely to begin to take advantage of its growth potential.
What the Japan Machinery Federation had not yet observed, however, was that European production of motorcycles began to stagnate or decline after 1955 and that exports of European motorcycles to the United States had begun to fall as well. West Germany, for example, exported 14,300 motorcycles to America in 1957, but this number fell to just over 5,100 in the following year. Britain too, which shipped nearly 13,000 units to the United States in 1957, exported fewer than 8,700 in 1958.
Whereas European manufacturers had been able to capitalize quickly on American demand in the first half of the 1950s, their technological and cost competitiveness depended in large measure upon their sales volume in their home markets. In West Germany, motorcycle production exceeded one million units per year in 1955, but this figure fell by nearly half by 1960 as European economies improved and more consumers began to purchase passenger cars.
Furthermore, Britain’s efforts to settle its wartime Lend-Lease debts to the United States meant that the vast majority of British motorcycles were being exported to the United States during the 1960s, leaving companies such as Norton-Villiers and BSA with even smaller domestic sales. In Japan, however, production and domestic sales of motorcycles began to skyrocket in the latter half of the 1950s because the nation’s per capita income, which was roughly 25 percent of that of England in 1960, had just begun to enable consumers to purchase motorcycles. Japanese production therefore rose from just over 259,000 units in 1955 to nearly 1.5 million in 1960.
Because rising demand fuelled continuing growth in Japan’s domestic motorcycle market just when the European market was stagnating and beginning to decline, Japanese manufacturers were in a far better position to ride the wave of rising US demand for small motorcycles in the late 1950s. Their rising domestic sales enabled them (Honda in particular) to realize cost savings based upon economies of scale at a time when the European market for motorcycles was faltering. Europeans manufacturers, therefore, began to lose their dominance in the US market by the late 1950s, and as the Japan Machinery Federation concluded, an increase in American demand was imminent.
Already in 1956, Honda Soichiro and Fujisawa Takeo had travelled to Europe to investigate the market there and purchase small German, Austrian, and Italian motorcycles for study. The global manufacturing consensus at that time was that 50 cc engines had to be two-stroke machines, but Honda was not interested in producing another two-stroke vehicle. The F-Type Cub had already been phased out of production, and he wanted to build a quieter four-stroke vehicle. Fujisawa also pressed Honda to develop a vehicle that would not frighten consumers by reflecting the stereotypical image of macho outlaws, as portrayed by Marlon Brando in the 1953 film The Wild One. Therefore, in January 1957, Honda’s engineers set about designing a new four-stroke, overhead-valve engine to power a new product, which came to be named the Super Cub.
Honda’s intention was to enable delivery people to ride the motorcycle with just one hand, so he pressed his design team to incorporate a foot-operated clutch and gear-shifting lever. Chief designer Kimura Jozaburo responded to Fujisawa’s demands for a friendly design that virtually anyone could ride by incorporating polyethylene fenders and panels to conceal the engine – thus making the machinery look less fearsome. Honda further insisted that the fuel tank not get in the way of riders wearing skirts or carrying parcels, so the frame and the fuel tank were shaped so that riders would not have to straddle the machine.
Kimura also specified seventeen-inch wheels to ensure stability and a smooth ride over rough surfaces, in response to a frequent complaint of contemporary moped owners. After a series of clay models and a prototype were built, Fujisawa came to inspect the design and concluded that the firm could probably sell thirty thousand units per month in Japan. With a proposed retail price of ¥55,000, Honda would barely recoup its costs if sales were weak, but if the monthly target of thirty thousand units could be realized, the product would generate significant returns.
Production of the Super Cub C-100 commenced in 1958, and in August of that year the new model made its sales debut. The consumer response was overwhelming, and Honda incurred high costs as it struggled to assemble finished units at both its own plant in Saitama and a series of shops managed by subcontractors. In 1959, Super Cubs accounted for nearly 60 percent of the 285,000 units built by Honda, and the company began constructing a manufacturing plant at Suzuka, in Mie prefecture. Completed in the summer of 1960, the new factory was modelled on Volkswagen’s plant in Wolfsburg, West Germany, where it manufactured the popular Beetle. Fujisawa arranged to have all of Honda’s most technical work, such as welding, pressing, and plating, performed inside the Suzuka plant, rather than outsourcing to subcontractors, as the company had done to date.
The various production lines at Suzuka were synchronized and connected by conveyor systems, and the plant included equipment for automating twenty-seven different processes, including die-casting, moulding, machining, pressing, and assembly. Although automated assembly lines were already in operation in Honda’s Hamamatsu and Saitama plants, the inclusion of conveyors between the fabrication processes and their synchronization with the final assembly line was a new development. Most of the production equipment came from firms in Western Europe and the United States, but Honda also designed and built specialized machines at its own machine tool departments in Hamamatsu and Saitama. The Suzuka plant was designed to turn out thirty thousand Super Cubs per month for the domestic market, or fifty thousand if export sales demanded that the plant work on two shifts.
In September 1960, Edward Turner, a member of the board of directors of British manufacturer BSA, travelled to Japan to inspect that country’s motorcycle industry, and what he found astonished him. He commented that, since he believed that the US motorcycle market was already saturated, investment in production equipment on the scale of Honda’s new Suzuka plant was "extremely dangerous."
Fujisawa, however, was unfazed. He first arranged to sell the Super Cub directly to bicycle retailers throughout Japan on a cash-on-delivery basis, and the resulting sales boom revolutionized Japan’s small-vehicle industry in less than two years. When Fujisawa and his team designed the Suzuka plant, their calculations called for cost reduction on the order of ¥1,000 per unit, but after the plant began running two full shifts and managers were able to make the necessary adjustments to its processes, the company realized significantly more savings. Whereas Honda’s cost per unit at the Saitama plant had been ¥34,000, it fell to ¥28,000 once the Suzuka factory began running at full capacity – an 18 percent drop.
Honda’s investment in realizing such dramatic production targets was thus recovered in the economies of scale generated by the new plant, and Fujisawa’s bold expansion plan – the third of his tenure – was again successful. After the Suzuka plant went online, the Super Cub accounted for 80 percent of Honda’s production output, and driven by its success, the company’s domestic market share rose from 17.9 percent in 1957 to 58.1 percent in 1966.
Sakurai Yoshio, the former managing director of the Japan Automobile Manufacturers Association (JAMA), described Honda’s concurrent impact on the US motorcycle market:
" The strongest impression upon motorcycle history was Honda’s Super Cub. It was a small and useful 50 cc machine ... Technical skill and safety standards improved during that era. Cub-style bikes laid the groundwork for the later popularization of motorcycles. Until that time, the impression was that motorcycles were for the strong – that was the image. But when Honda went to sell bikes in the United States they used the catchphrase ‘You Meet the Nicest People on a Honda.’ This changed the image here in Japan too ... Scooters were seen as less dangerous and easier to operate than motorcycles – this brought the arrival of the 50 cc machine. "
As Sakurai noted, when Honda later founded the American Honda Motor Company, Inc., the Super Cub played a major, albeit unexpected, part in the company’s success. After receiving a copy of the US market survey by the Japan Machinery Federation in June 1958, Kawashima Kihachiro¯ and Kobayashi Takayuki travelled to the United States and toured several major cities before deciding on Los Angeles as the best location for American Honda’s new head office. Kawashima confirmed that while the import market for motorcycles over 500 cc belonged to British marques like Triumph, there was indeed room for a 50 cc machine like the Super Cub.
Upon returning to Japan, he and his staff submitted an application to the Japanese government, requesting permission to found a Honda sales subsidiary in the United States. A fully owned subsidiary was decided upon as the preferred means of entering the US market, since sales through individual overseas dealers would be too difficult to manage from Japan. The Yamaha Motor Company, in contrast, began selling its 250 cc YD-1 and 50 cc step-through motorcycle through a California dealer named Cooper Motors in 1958, but Honda wished to have full-time company representatives present in order to manage its own advertising and parts supply network in the western United States.
At that time, Japan’s Ministry of Finance controlled all applications for overseas investment by Japanese companies, and because Toyota’s underpowered Toyopet Crown automobile had already failed in the US market in 1957, the ministry was reluctant to accept Kawashima’s application to invest $500,000 in an American subsidiary. The government’s apprehension was further underscored by Honda’s own track record as an exporter: in the eight years between 1948 and 1956, its sales abroad totalled less than $95,000.
After deliberating with MITI, the Ministry of Finance agreed to permit the investment, but it placed a $250,000 cap on the venture and permitted Honda to take no more than $110,000 in cash out of the country. The rest was required to be invested in the US company’s inventory of motorcycles and parts. The total investment permitted by the government was just 10 percent of Toyota’s investment in its failed Toyopet venture.
Nevertheless, the plan was approved, and, encouraged by this news, Honda soon dispatched survey teams to investigate the markets in Australia, Europe, and Southeast Asia. Kawashima returned to Los Angeles and proceeded to purchase a former photo studio on West Pico Boulevard for around $100,000, where he established the headquarters of the American Honda Motor Corporation in June 1959. Although this left Kawashima and his team of eight employees with extremely little operating capital, potential dealers soon began to respond to the company’s advertisements in trade magazines and came to test the company’s 250 cc and 350 cc motorcycles. Forty US dealers had signed on with Honda by the spring of 1960, and the firm began distributing its motorcycles throughout the western United States. Prompted by the initiative of its domestic competitor, Yamaha too founded a US subsidiary called the Yamaha International Corporation in 1960.
Despite Honda’s head start, however, its first year was very trying. When its initial Dream and Benly model lines experienced overheating and mechanical problems, Kawashima chose to recall all of the products that had been shipped to the dealers, return them to Japan for testing, and replace them with new models. Although the company had not planned to rely solely on the Super Cub – known in the US as the Honda 50 – Kawashima was given no choice but to distribute it to dealers in lieu of its larger motorcycle lines. It sold for $250. He further agreed to distribute it through sporting goods stores and through retailers of camping and outdoor equipment, and the results were promising. Honda surpassed its sales goal of one thousand units in May 1961, and when the company ran cheerful ads in Life magazine in eleven western states in that year, the resulting wave of orders prompted it to add more staff and set up an improved parts and service network.
Honda issued an updated Super Cub C-102 in April 1962, and Kawashima’s network of 750 dealers sold more than 40,000 units in the US that year, prompting him to set a target of 200,000 units for 1963. In that year, a US advertising firm known as Grey Advertising purchased a design for a new Honda ad campaign from an undergraduate advertising student at UCLA.
The design’s slogan was the abovementioned “You Meet the Nicest People on a Honda,” and against the opinions of his executives, Kawashima bought the design at a cost of $5 million per year. Grey launched the ad campaign in eleven western states that year, with print advertisements featuring images of young, friendly, respectable people using their Honda 50s as sensible transportation. The response from consumers was enthusiastic, and sales continued to climb. Cognizant of its rival’s success, the Suzuki Motor Company also established an American subsidiary named US Suzuki in October 1963.
By that point, Honda was poised for its first nationwide television advertisement. Kawashima gambled $300,000 on a television commercial during the Academy Awards in April 1964, making Honda the first foreign corporation to sponsor that broadcast. The gamble paid off and within days, dozens of entrepreneurs nationwide were clamouring to become Honda dealers. In 1963, Honda exported over 310,000 motorcycles, fully 80 percent of which were Super Cubs destined for North America.
Honda’s exports amounted to 77 percent of Japan’s total exports of 400,385 motorcycles in that year. Suzuki and Yamaha also branched out, and the former teamed up with CCM Cycle in order to help bring its products to the Canadian marketplace in 1965. Not shy about using sex to sell its products, CCM-Suzuki billboards featured a smiling man and woman aboard a Suzuki motorcycle, along with the cheeky slogan, "Quick pick-up, Suzuki."
Despite a slump in sales during the mid-1960s, Honda’s products soon became a common sight on North American roads, and its US subsidiary was selling half a million units annually by 1970. The director of the Hamamatsu Commerce and Industry Association, Igasaki Akihiro, noted that motorcycles were already the region’s leading export by that time, putting Honda, Yamaha, and Suzuki “on the top of the industrial pyramid in Hamamatsu.”
Production values for the top industries in Hamamatsu, 1970 :
Motorcycles : ¥151,480,000,000
Weaving Looms : ¥65,000,000,000
Musical Instruments : ¥55,200,000,000
Honda had arrived in the United States determined to change the prevailing North American attitude that motorcycles were only for leather-clad outlaws, and its effort to diversify that market was a major success, but the firm proceeded initially with a cautious export plan and it expected stiff European competition. I agree with O tahara Jun’s conclusion that Honda’s identification of the opportunities in the American market was not wholly visionary. First of all, its timing was fortuitous because Honda had already identified a healthy market for its Super Cub in Japan and because the European motorcycle boom was beginning to wane. Japan’s government made amendments to the Road Traffic Control Law in 1956 that permitted riders as young as fourteen to operate 50 cc motorcycles – a decision that had prompted Honda to update its F-Type Cub and pursue the 50 cc market.
Honda was therefore fortunate to be able to apply the profits of its domestic Super Cub sales toward the development of an export manufacturing strategy. Based on the 1958 vehicle industry report by the Japan Machinery Federation, Honda simply identified an emerging market and designed a high-volume manufacturing plant aimed at satisfying both its domestic and its potential export production targets. The firm’s decision to export the Super Cub to the United States was a secondary dimension of its domestic expansion plan, which was already proceeding well in 1959.
The new plant at Suzuka was capable of producing fifty thousand units per month if a second shift was added – but there was no certainty in 1959 that the Super Cub would appeal to US consumers. Honda had concluded that it might be able to make inroads against European manufactures in the US 50 cc market, but because both motorcycles and passenger cars were larger in America, Kawashima Kihachiro had actually planned to emphasize the company’s full-size motorcycle lines. Only when Honda’s Dream and Benly models experienced problems did the company respond to inquiries about its Honda 50 and agree to distribute it through dealers and sporting goods stores. Thereafter, having hit the right note with consumers through its friendly advertising campaigns, Honda’s US dealer network grew dramatically, and the Honda 50 thus opened the door to the idea that motorcycles need not be the exclusive domain of rebels. When the expected competition from European manufacturers did not materialize, the American market belonged to Honda.
Honda’s growth in the North American market was punishing for European manufacturers, and for British firms in particular. As the Honda 50 grew in popularity and the firm began to introduce larger-displacement models to the United States during the late 1960s, technologically inferior British products soon became obsolete. The designs by BSA and Norton-Villiers failed to keep pace with Japanese innovations, and even in 1970 Triumph motorcycles lacked electric start mechanisms, failed to kick over reliably, vibrated strongly when running, leaked oil, and had outdated mechanical and electrical systems.
Meanwhile, Japanese motorcycles featured more reliable push-button start mechanisms and overhead-cam engines rather than push-rod designs, and were generally quieter, vibrated far less, and ran more reliably than rival British machines. Despite the fondness of many enthusiasts for the older, louder, more fearsome designs, consumers turned increasingly to Japanese motorcycles for their reliability, economy, and ease of operation. Nevertheless, British manufacturers believed that their market for larger motorcycles was safe, and in December 1965, BSA chairman Edward Turner told Advertising Age that the success of Honda, Yamaha, and Suzuki was good for his company.
He claimed that because Japanese makers were interested primarily in producing small motorcycles, his firm was not in competition with them. Indeed, he believed that consumers who purchased a Japanese motorcycle would very likely get a taste for riding and eventually graduate to a larger, British machine. His illusions would be shattered by the end of the decade.
At the Tokyo Auto Show in 1968, Honda introduced its first four-cylinder, 750 cc motorcycle, the Honda Dream CB750 Four. A long-rumoured design known as the Supersport, it caused a sensation that again revolutionized the industry both in Japan and abroad.
Japanese consumers clamoured to get a view of Honda’s latest effort, which was aimed directly at the market share of British manufacturers. The CB750F boasted disk brakes on its front and rear wheels, as well as a 67 horsepower engine, and it made its US debut in April 1969 to impressive reviews. Consumers appreciated the smooth acceleration, the braking power, the ergonomic design, and the Grand Prix styling, and though purists argued that the new design’s quiet ride was "too perfect," most realized that the innovative CB750 reflected the industry’s future. The network of US Honda dealers was equally impressed with its price tag of just $1,495, which was truly affordable at a time when most large motorcycles sold for between $2,800 and $4,000.
Buoyed by the confidence of its American dealers and flooded by their orders, Honda revised its production target from just 1,500 units a year to 3,000 a month. The company went on to build over 400,000 CB750s during the lifetime of the product line, a sales record that put the moribund British motorcycle industry in its grave. By 1972, BSA was in such trouble that Britain’s government ordered that it be absorbed by the Manganese Bronze Company, which owned the Norton-Villiers brands. The name BSA was dropped, but because the British Small Arms Company had purchased the Triumph marque in 1951, the new firm was named Norton-Villiers-Triumph (NVT). After some of the company’s model lines were retired and production was twice relocated, plans to salvage and combine Norton, Triumph, and BSA failed amid massive layoffs and continuing labour unrest. The Norton and BSA factories were closed in 1974, and though Triumph staggered on, it too succumbed four years later.
When the British government retained the Boston Consulting Group in 1975 and requested that it diagnose the reasons for the industry’s collapse, the consultancy found that Honda’s marketing philosophy differed greatly from those of its Japanese rivals.
Rather than relying heavily upon a single design, Honda developed a multi-product line that championed innovation and then geared its new designs to mass-production objectives in order to enjoy economies of scale. The consultants found that Honda’s initial success came with its identification of a domestic market for its Super Cub design, which Honda chose to bankroll as a potential export product by building the Suzuka plant in 1960. That facility, which had a production capacity ten times greater than demand at the time that it was built, enabled Honda to manufacture its Super Cub both for domestic and for possible export sale – a calculated investment in which Fujisawa Takeo had full confidence. Once Honda had established a beachhead in the US market, its innovative design team continued to create products that appealed to North American consumers and it advertised them effectively in pursuit of annual sales targets rather than short-term profits.
Naturally, the CB750F was also a hit with Japanese consumers, many of whom enjoyed recreational riding’s renaissance during the 1960s and 1970s as the nation’s personal incomes rose, its roadways improved, and its highways expanded. The circulation of enthusiast publications like Motor Fan and Motorcyclist kept pace with this expansion, and each month they published inspiring articles about young Japanese men and women embarking on crosscountry motorcycle caravans and camping trips (Photo 34).
Their stories of independent youth experiencing the thrill of the racetrack and the freedom of the open road were mirrored by the leading firms’ advertising strategies, which appealed to both men and women. Between 1960 and 1985, annual production by Japan’s Big Four makers rose from less than a million to 4.5 million units, and in 1985 these companies exported over 2.5 million units (see Appendix A). Today many riders in their late teens and early twenties still tour Japan’s many winding, scenic highways aided by tsuringu mapples, or “touring maps,” while others form bosozoku, or “reckless gangs” and terrorize urban areas with their noisy, accessorized machines. With the increasing popularity of mini-cars and personal computers, however, sales of motorcycles in Japan have fallen steadily since 1985.
The manufacturers rely, therefore, upon international sales, which continue to surge as developing nations step off their bicycles and onto motorized transportation for the first time. Production of the Super Cub reached over 87 million units in March 2014, making it the world’s first motor vehicle design ever manufactured in such volume. The specifications of the modern version differ little from the original 1958 model, and at the time of writing, the Super Cub is manufactured in 16 plants and sold in more than 160 countries worldwide.
This brings us to the manner in which Japan’s postwar experience of motorization is a test case for the broader pattern of development currently under way in East, South, and Southeast Asia. The explosive growth experienced by Japan’s domestic motorcycle industry in the postwar era is being eclipsed by a wave of motorization throughout Asia that is several orders of magnitude larger and more significant.
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