Honda bets scientists in secret engine lab can outsmart Toyota
Published: Wednesday, 21 June, 2006, 09:56 AM Doha Time
TOKYO/DETROIT: In 1973, junior engineer Takeo Fukui helped put Honda Motor Co on the US map with a Civic subcompact that met clean-air standards without a $1,000 tailpipe filter known as a catalytic converter. He was 28.
Today, as Honda’s chief executive officer, Fukui, 61, is racing to repeat his triumph at a lab 68 miles (109km) north of Tokyo.
There, engineers are building a diesel engine for 2009 that Honda says will meet both new US limits and more stringent California rules on soot and nitrous oxide emissions and still use 30% less fuel than gasoline models.
Honda allows no media visitors to the lab.
Fukui is guarding it as his secret weapon as US gasoline prices soar to an average $2.87 a gallon and global warming worries 62% of Americans, a March Gallup Organisation Inc poll found.
“People want cars that emit less pollutants, use less fuel and protect their occupants,’’ says John Casesa, an auto industry consultant at Casesa Shapiro Group LLC in New York. “These trends play directly to Honda’s strengths.’’
Companies around the globe are catching green fever, jockeying to persuade customers and investors that they’re good citizens of the Earth.
London-based BP Plc, Europe’s largest oil company, is also the third-biggest maker of solar cells that convert the sun’s rays to electricity. In May, General Electric Co, the world’s second-biggest company by market value, agreed to work with China to develop wind power equipment, jet engines with lower emissions and more-efficient locomotives.
China says it plans to spend 1.5tn yuan ($187.5bn) in the next 15 years to boost renewable energy.
Honda increased its annual research budget for the year ending on March 31, 2007, to a record ¥545bn ($4.72bn), 6.8% more than a year earlier and a 17% leap from ¥467.7bn in the year ended in March 2005.
Fukui is seeding everything from fuel cells to humanoid robots, to a business jet whose fuselage is made of composite plastics that are 10% to 15% lighter than aluminum.
Honda acquired patents to high-yield rice genes last year. It’s trying to learn the basics of genetic science with the aim of making ethanol from sugar cane to run cars, says Motoatsu Shiraishi, 59, president of research and development.
Honda’s common theme in what may seem random forays into quirky fields is to move people and things efficiently, thus conserving energy and reducing waste.
“We’d like to have the brand image as the world’s biggest contributor to the environment,’’ Fukui says during an interview on the 10th floor of Honda’s Tokyo headquarters, where he works with 19 other executives in one large room.
Fukui says Honda has an advantage over car-making rivals because its engines power lots of things, from motorcycles, where it’s No 1 in the world, to lawn mowers. That gives Honda flexibility in an auto industry slump.
“Developing our business along the lines of mobility will improve the toughness of Honda against economic fluctuations,’’ says Fukui, a motorcycle fan who sports an amulet that identifies a rider’s blood type in case of a crash.
Honda makes the most of its environmental strategy, even if the game plan sometimes takes unexpected turns. It earned the crown as the top organic soybean processor in Ohio after determining that shipping empty auto-part crates from US plants back to Japan was wasteful. It hired local farmers to grow soybeans and now sends the crop home in once-empty containers.
In February, Honda started selling a dietary supplement made from fermented soybeans that helps dissolve blood clots. John Mendel, Honda’s US sales chief, says the far-ranging research can appear haphazard.
“This is something that bugs investors, because they don’t know where we’re going,’’ he says. Investors will tolerate the strategy as long as Honda stays true to its values, he says. “We want people to ask, ‘Will the world need Honda in the year 2010?’ and we want them to answer, `Hell yes,’’’ he says.
Honda’s shares reflect optimism about the company’s future. They gained 31% during the 12 months ended on June 19, to ¥7,170 on the Tokyo Stock Exchange.
Honda’s American depositary receipts, each of which would represent one of Honda’s Japanese shares after a 2-for-1 stock split that was scheduled for July 1, rose 24% to $31.02.
Shares of Toyota Motor Corp, Japan’s largest carmaker and Honda’s biggest rival, rose 49% to ¥5,840. Shares of General Motors Corp, the world’s No 1 auto company, fell 26% to $26.35 in US trading during the same time.
“Investors are buying Honda’s shares with a 10-year perspective of the strength of its competitive technology, including gas-electric hybrids,’’ says Masayuki Kubota, who oversees $2.1bn at Tokyo-based Daiwa SB Investments Ltd, explaining the lag against Toyota. “Even its conventional engines are more efficient than GM’s or Ford’s.’’
Eric Noble, president of Car Lab, an Orange, California-based consulting firm that conducts technical evaluations of most new cars and trucks, concurs.
“The view is that the people with the best engine technology are Honda and Yamaha in terms of total efficiency,’’ Noble says, referring to Shizuoka, Japan-based Yamaha Motor Co, the world’s No 2 motorcycle company and a designer of some high-powered engines for Ford Motor Co and Toyota. “Among garden-variety cars, it’s Honda,’’ Noble says.
In time, investors will pay the same premium for Honda’s shares as for Toyota’s, predicts Michael Bruynesteyn, an analyst at Prudential Equity Group Inc in New York.
Another reason for Honda’s share price lag against Toyota is that being an environmental advocate hasn’t been cheap.
Honda spent $3,193 per vehicle worldwide for research, development and capital expenses in 2005. That’s $256 more than the $2,937 at Toyota and almost double the $1,611 at GM, says John Murphy, a Merrill Lynch & Co auto analyst in New York. Mendel says it’s money well spent. – Bloomberg
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