The Honda Way is unpredictable, contrarian — and successful

Automaker's go-it-alone attitude serves it well

The U.S. auto industry has the usual way of doing things. And the Honda Way.

It is not a corporate mission statement or prescribed set of company rules. It is more like a reminder floating in the corporate culture that Honda must see around corners better than competitors.

For outsiders, Honda's decisions in North America can seem downright contrarian. At its foundation, the Honda Way is a strong engineering ethic of efficiency and economy. It is a religion of doing more with less, whether spending on new factories or squeezing horsepower out of four-cylinder engines.

It also has an air of rebellion.

Founder Soichiro Honda's entry into the auto business in Japan in 1963 exemplified Honda's go-it-alone attitude. The Japanese government, through the Ministry of International Trade and Industry, had opposed Honda's expansion from motorcycles to cars, hoping to protect the orderly profit outlook for Japan's existing automakers.

But Soichiro Honda believed in his own profit outlook.

Enter the Civic

Another contrarian example was the N600, the automaker's entry into the United States in 1969. The small, underpowered N600 competed with American family sedans and muscle cars — a seemingly futile effort.

But the N600 quickly morphed into the small-engine Civic just in time to capitalize on the U.S. consumer's demand for fuel efficiency after the 1973-74 oil crisis.

Deciding in 1979 to manufacture cars in the United States appeared to be another dubious notion. Like other Japanese manufacturers, Honda relied on its close-knit Japanese suppliers, none of which had a U.S. plant.

Moreover, Honda's Japanese workers were trained to do multiple jobs, unlike American auto workers. The company had no engineering resources in North America. And anti-Japanese public sentiment was simmering as Ford, General Motors and Chrysler laid off workers because of market share lost to Honda and other Japanese competitors.

Honda's president in the late 1970s, Kiyoshi Kawashima, summed up the decision this way: A U.S. factory probably didn't make sense for a relatively small foreign carmaker with meager resources. But it was a risk Honda needed to take.

Now, the United States is Honda's largest, most profitable market.

Scott Whitlock, who was executive vice president of Honda of America Manufacturing Inc. in the 1980s and 1990s, says: "There was a larger philosophy behind this decision, and behind many of our decisions.

"We refer to it as 'the Honda Way.' Some of it is confidential, although it is well-understood inside Honda. It was a commitment to make products of the highest possible quality at an acceptable cost.

"And that probably sounds very simple. But when you accept it as your direction, it begins to drive the way you make decisions."

The Honda Way also meant that while other U.S. automakers plowed investment into booming V-8 engines in the 1990s, Honda refrained. Instead, it extracted more power from four- and six-cylinder engines, a strategy that is paying dividends as consumers seek green products.

It meant that while automakers merged and acquired competitors in the 1980s and '90s, Honda flew solo. It even lost a fledgling partnership with Britain's Rover Cars when a more aggressive BMW AG stepped into the picture to buy Rover.

Honda's strategy proved prescient when many of the industry's biggest mergers, such as Daimler and Chrysler's, proved to be financial fiascos.

It meant that while other automakers set up new U.S. ventures by recruiting big talent away from other auto companies, Honda did not. It preferred to train its own personnel.

It meant that while others spent heavily on new production capacity to go after U.S.-dominated truck segments, Honda added capacity in smaller numbers and kept most of it focused on safer product segments, such as the Civic.

When Honda finally produced its first pickup truck, it would be the low-volume Ridgeline, based on the chassis of the Odyssey minivan.

Most automakers locked arms to resist congressional efforts to raise U.S. fuel economy requirements in 2007. Honda broke ranks to say it would have no problem reaching the tougher requirements.

"The Honda Way shows up in a lot of different experiences," says Chuck Ernst, senior vice president of Honda Manufacturing of Alabama LLC in Lincoln, Ala. "The point where all these things come together is that we try to focus on the customer," he says. "Even here, at the plant, there is not a day that goes by where someone will ask the question in a meeting, 'What would the customer want us to do?'

"And we'll stop to consider it."

High U.S. content

Whitlock says that when he was a Honda executive at Marysville, Ohio, this approach manifested itself in several real-world decisions that outsiders might have found odd.

Despite the relative ease of importing production parts from established Japanese suppliers, Honda embarked on a local-sourcing campaign that boosted the U.S. parts content of its vehicles to more than 90 percent — higher than many Chrysler vehicles in the early 1990s.

Despite the simplicity of keeping its U.S.-made cars in the U.S. market, Honda of America entered the export trade and in 1994 shipped 105,511 vehicles from North America back to Japan and other markets in a bid to help ease U.S.-Japanese trade friction.

Honda of America also invested in a complete array of engine manufacturing processes here, all the way down to pouring molten iron ore at a new foundry for critical iron parts. Why bother?

Honda's critics said Honda was not a true American automaker — that it was merely a Japanese importer using an American factory to do light assembly. Honda hastened to reassure its U.S. customers otherwise.

Says Whitlock, "It was important to our customers that we did what we did."

You can reach Lindsay Chappell at lchappell@crain.com.