Kawashima Assumed the Presidency in the Midst of
the Turmoil of Drastic Changes in the World Economy
In the early 1970s, the framework of the global economy underwent a major shift. The U.S., the world's dominant power, was losing its economic advantages as its finances deteriorated due to the quagmire of the Vietnam War, and was being overtaken by Western European countries that had begun to unify and by Japan, which continued its rapid economic growth. In order to protect the value of the U.S. dollar, on August 15, 1971, President Nixon announced the unilateral cancellation of the direct international convertibility of the U.S. dollar to gold. In February 1973, the U.S. dollar was officially devalued, and the fixed exchange rate system collapsed and shifted to a floating exchange rate system. That was the end of the Bretton Woods system that had ensured stability in exchange rates since 1944.
These U.S. economic measures resulted in a sudden appreciation of the yen, and the Japanese stock market suffered a major plunge. Suddenly, Japanese companies were forced to change their export-dependent business model – to import advanced technologies from foreign countries and mass produce products, then rationalize the business and increase exports – which had been a strength of many Japanese companies at the time. This was a major setback for Honda as well since it had become heavily dependent on exports to the U.S., which accounted for 60% of its total sales.
In April 1971, Kiyoshi Kawashima became the President of Honda R&D concurrently serving as Senior Managing Director of Honda Motor Co. and, one year later, in April 1972, he proposed the New Honda Plan (NHP), a company-wide initiative to restructure and improve the company’s operations. By October 1973, when Mr. Honda and Mr. Fujisawa officially stepped down, Honda had grown to be a huge organization with 19.48 billion yen in capital and more than 18,000 associates. However, due to the top-down leadership style of the founders, the company did not have organizational structures or systems that facilitated coordination among different divisions and individual associates.
The “N” in the NHP represented the “Now, Next and New” (recognize what is happening now; pursue the challenges next; and create a new system and capability). Kawashima explained the five NHP policies as follows:
- 1) Strengthen good traditions Honda has amassed to date.
- 2) Organize current issues facing Honda.
- 3) Predict the future issues and prepare fundamental countermeasures for such issues.
- 4) Establish this process as a comprehensive system, not on a piecemeal basis.
- 5) Create a new corporate structure through solid implementation of such a system on an appropriate schedule.
In line with these policies, a total of nine programs and 17 projects were launched, and all Honda associates were assigned to get involved in at least one of the projects. The NHP became the starting point of business operational structures and corporate culture which supported Honda’s growth for years to come, including the NH Circle activities, which evolved from the QC (quality control) Circle activities, as well as the SED System in the area of product development.
The 17 projects of the NHP were reorganized into 11 corporate projects in 1975. Three of the 11 projects represented Honda’s global production strategy: 1) Establishment of mutually complementary manufacturing and procurement systems in Southeast Asia, 2) Motorcycle production in advanced countries, and 3) Execution of automobile business strategies outside Japan, including a global production strategy. It was around this time that Honda conducted a feasibility study for local production in the U.S., the largest market for Honda, with an anticipation that the time would eventually come when Honda would be forced to shift to an operational structure that would enable Honda to be more resilient to exchange rate fluctuations by building products close to the customer.
Adhering to its Policy of Not Increasing the Sales Price
Despite Inflation Triggered by the Oil Crisis
Cofounders, Mr. Soichiro Honda (center) and Mr. Takeo Fujisawa (right), and second president Mr. Kiyoshi Kawashima (left)
In September 1973, at the company’s 25th anniversary event, the two founders, Mr. Soichiro Honda and Mr. Takeo Fujisawa, announced their retirement. On October 29, 45-year-old Kiyoshi Kawashima assumed the position of the second president of Honda. The two founders were still in their 60s, but they did not stay on as a chairman, realizing a complete generational shift.
Almost simultaneously, the first oil crisis (the 1973 Oil Crisis) occurred, spurred by the Fourth Arab-Israeli War (Yom Kippur War) between Israel and a coalition of Arab states led by Syria and Egypt. The conflict between the U.S and Middle Eastern countries sharpened as the U.S. supported Israel, and the OPEC (Organization of Oil Producing Countries) adopted a strategy to cut its oil production in protest. Due to this sudden drop in oil production, the supermajors (the world's six or seven largest oil and gas companies) decided to raise crude oil prices and reduce supply, which had a devastating impact on the Japanese economy.
Japan was depending on imported oil for 99.7% of its oil consumption, and inexpensive oil was the lifeblood of Japan’s fast-growing economy, thus soaring oil prices put the brakes on the economic growth of Japan. Production costs of a wide variety of products in Japan soared to extraordinary levels. The price of oil as well oil-based products skyrocketed with each passing day, and new words to describe the unprecedented situation, such as “wild price spiral,” were coined.
While other automakers were raising their sales prices to cope with the situation, Honda announced its policy of "no price increase.” Kawashima explained the policy: “When prices are soaring and society is in a state of panic, we want to avoid addressing our issues by increasing product prices. As part of our company’s responsibility toward society, we would like to refrain from raising prices as long as possible by overcoming this difficult time through an improvement in our operational efficiency, an increase in exports and other corporate efforts.”
This policy explained by Kawashima received extensive coverage from Japanese newspapers and television stations, representing the corporate attitude of Honda to prioritize the customers’ “joy of buying.” This policy of not increasing sales prices resulted in enhancing the presence of Honda in society. While other automakers experienced a year-on-year decrease in sales by almost 50% in the 4th quarter of 1973, Honda sales increased 20 to 30% during the same period. In his speech for new associates who joined Honda in 1974, Kawashima said, “As long as the company works together with society and makes progress in step with society, the company will continue to exist.” This was a clear statement of the value Honda was striving to offer as a company.
Turning Adversity into Opportunity:
Planning for Globalization of Honda Production Operations
After graduating from the Hamamatsu National College of Technology (later, the Faculty of Engineering of Shizuoka University) with a degree in mechanical engineering, Kiyoshi Kawashima joined the Honda Technical Research Institute in 1947, the year before Honda Motor Co., Ltd. was established. In other words, Kawashima was the engineer who worked closest under the tutelage of company founder Soichiro Honda. At a small factory in Hamamatsu with only about a dozen associates, Kawashima and Mr. Honda worked side-by-side from dawn to dusk developing engines.
In 1954, following the issuance of the Declaration of Entry in the Isle of Man Tourist Trophy (TT) Races, Kawashima was appointed as the director of the Honda Speed Club*1 which was established to prepare for Honda participation in the TT Races. The members of the Club amassed real-world experiences in the development of racing machines and racing strategy through participation in the Asama Highland/Volcano Races.*2 In 1959, the first year of competing in the Isle of Man TT Races, Honda impressed the world by winning the Manufacturers’ Team Award. In 1961, seven years after the Declaration, Honda won the races outright and took the top five spots in both the 125 cc and 250 cc classes.
One of the team members who took on the challenges in racing under Kawashima described his leadership style: “Mr. Kawashima didn’t show any overt aggressiveness or fighting spirit. Instead, he was a man of quiet determination, making steady progress toward difficult goals.” With such a leadership style, Kawashima served concurrently as the president of Honda R&D and the Senior Managing Director of Honda Motor. Beginning in 1970, four Senior Managing Directors, namely Kiyoshi Kawashima, Kihachiro Kawashima, Michihiro Nishida and Takao Shirai, practically managed the company under their collective leadership, which was devised as the way to support Honda even after the preeminent founders step down.
In assuming the position as the second president of Honda, Kawashima told associates, “Each of us is merely an ordinary person, who does not even come close to Mr. Honda. However, we probably have at least one quality that is a little better than Mr. Honda. Let‘s work by combining such qualities. Let's figure out the way to work together and outshine one genius.”
Kawashima viewed the perilous state of the international situation surrounding Honda as an opportunity to transform the company. His goal was to clearly set the direction Honda would take to further globalize itself by extending its manufacturing operations around the world. As a part of the NHP, a feasibility study was conducted on local automobile production in the U.S. Due to some doubt about the ability to achieve profitability, as well as ensuring the same quality level as vehicles produced in Japan, the project to pursue local production in the U.S. for the NHP was shelved. However, Kawashima had not given up on the idea of establishing production operations, including local production of automobiles in the U.S.
- Honda’s first Works racing team. Each of the first through fourth teams had approximately twenty members, and Kiyoshi Kawashima was team manager.
- Proper name: ‘All Japan Motorcycle Endurance Road Race’. Also called the ‘1st Asama Highlands Race’, the ‘2nd Asama Highlands Race’, and informally the ‘Asama Volcano Race’.
Isle of Man TT race team welcomed back to Japan (1959)
Boosting the Presence of Honda as an Automaker
with the Revolutionary Low-Emissions CVCC Engine
The line-off ceremony of the first-generation Civic (July 1972)
The first-generation Honda Civic went on sale in July 1972. One year later, in December 1973, Honda launched a Civic equipped with the CVCC engine, the world’s first automotive engine to clear the stringent emissions standards set forth in the U.S. Clean Air Act of 1970 (amendments to the Clean Air Act of 1963 proposed by U.S. Senator Edmund Muskie in 1970). The Civic CVCC quickly came into the spotlight and created a major sensation when exports of the Civic CVCC began in the following year. In 1974, the Civic CVCC received the highest rating for fuel economy in testing by the U.S. Environmental Protection Agency (EPA), setting new standards for how people select their vehicles: low emissions and high fuel economy. In Japan, Civic won the Car of the Year Award for three consecutive years starting in 1972.
The Honda Civic, which blended seamlessly into streetscapes everywhere in the world, became the pioneer of global cars.
CIVIC in Action
In 1963, about 10 years before the market launch of Civic, the Clean Air Act was enacted in the U.S., the world’s major automobile market. In response, in 1965, Honda R&D put together an air pollution research group to gather information on the latest trends in U.S. air pollution regulations. In 1966, at the suggestion of some researchers, the Air Pollution Control Research Laboratory, commonly known as the AP Lab, was established with 30 members. The AP Lab decided to address exhaust emission issues through better control of air intake and combustion of the engine and initially proceeded with research into an engine that uses an aftertreatment device to treat harmful substances before they are emitted. However, due to the concerns about fuel economy and durability problems associated with catalytic converters, the AP Lab changed its direction and decided to focus their research on achieving lean combustion, which would burn the fuel more completely.
In order to achieve unprecedented targets, which were not possible to achieve with technology available at the time, the AP Lab researchers persevered in their basic research on lean combustion. After extensive trial and error, the researchers came to pay attention to the theory that adding a prechamber to an engine would enable lean combustion, and they proceeded with research using prechamber-equipped diesel engines and liquid-cooled engines. In December 1970, with the development of a low-pollution engines in sight, the AP Lab was disbanded, and Honda established a new environmental research structure with more than 100 associates and invested more than 3 billion yen for direct R&D costs.
This low-pollution engine was named CVCC (Compound Vortex Controlled Combustion). It used a spark plug placed in a prechamber to ignite a richer air-fuel mixture, which then further ignited a thinner air-fuel mixture in the main chamber. The Honda CVCC engine was a revolutionary low-pollution engine that eliminated the need for a catalytic converter or other exhaust purification system as cleaner combustion was achieved inside the engine.
When asked how Honda had succeeded in the development of a low-pollution engine that even the U.S. Big Three said was impossible to achieve, Tadashi Kume who led the research (and later became the third president of Honda) said: “It may sound overly naive and idealistic, but the entire development team shared an ambitious goal to prevent further pollution of the planet Earth. That is why we were able to achieve the challenging goal of developing the CVCC engine.”
Civic CVCC (1973)
In May 1976, Honda introduced the Accord CVCC, a high-end compact model equipped with a CVCC engine. While the Civic was positioned as the first embodiment of a full-fledged “basic car,” the Accord was positioned as a true “world car” which was further advanced to realize outstanding overall harmony at a high level. The Accord played a pivotal role in supporting Honda during its growth period, and both the Civic and the Accord continued to advance as global models that led Honda production and sales both inside and outside Japan.
Accord CVCC (1976)
Accord CVCC in Action
Pursuing Automobile Production in the U.S.,
the World’s Largest Automobile Market
The Civic instantly became a worldwide sensation. Honda was no longer just a manufacturer of motorcycles; it also had an increasing presence in the automobile industry as well. In fact, both the Suzuka and Sayama Factories were operating at full capacity to keep up with demand. The time seemed ripe to increase production of the Civic all at once, and the board of directors approved a proposal to build a second automobile production line at the Suzuka Factory.
However, Kawashima was feeling reluctant. Although sales were strong, at the time he didn’t think it was possible for Honda to increase domestic sales capacity in such a short timeframe to match the expansion of production capacity. Honda automobile business was finally about to take off with the Civic; however, Kawashima did not see a chance to win the competition against other automakers that were already in the market, as Honda still didn’t have comparable sales and financial resources. Instead of expanding production capacity in Japan, Kawashima thought Honda should take advantage of the momentum to cultivate new markets and establish a product supply structure in the U.S., the world’s largest automobile market.
Based on Kawashima’s view, the addition of the second automobile production line at Suzuka Factory was postponed. Then in November 1975, a study group to explore the feasibility of local automobile production in the U.S. was organized once again, resuming discussions toward local production, which had been suspended once before. In an era when even Japanese automakers much larger than Honda were reluctant to pursue local production in the U.S., Honda, the last one to enter the automobile market, decided to take on the challenge to establish production operations in the U.S.
