Starting Kawamoto’s Era of Reform Against the Backdrop
of the Intensifying Japan-U.S. Trade Frictions
and the Bursting of the Economic Bubble
In 1973, Mr. Soichiro Honda and Mr. Takeo Fujisawa stepped down, and Kiyoshi Kawashima assumed the role as the second president of Honda. Then in 1983, Tadashi Kume became the third president of Honda and began solidifying Honda as a truly global company. During this period, the Japanese economy sustained relatively stable growth.
However, in the early 1980s, Japan’s trade surplus was steadily increasing due to the weak value of the yen against the U.S. dollar, and trade friction with the U.S. and several other countries intensified. In September 1985, the finance ministers and central bank governors of the five leading industrialized nations, or the G5, gathered at the Plaza Hotel in New York City to resolve these growing trade imbalances, and signed a joint agreement to intervene in currency markets in a coordinated effort to reduce the U.S. trade deficit by depreciating the U.S. dollar. This joint agreement known as the “Plaza Accord” triggered the Japanese asset price bubble.
As a result of the Plaza Accord, the trend of yen depreciation was suddenly reversed and shifted to a sharp appreciation, which made the yen too strong for Japanese companies to sell export products.
In order to protect Japan’s severely damaged export industries and to end the recession caused by the persistent appreciation of the yen, the Bank of Japan repeatedly lowered its official discount rate. This made it easier for companies and individual investors to obtain loans. Many of them rushed into stocks and real estate investments, causing a sharp rise in stock and land prices. After going through repeated ups and downs in a short period of time, the Japanese economy entered an unprecedented economic boom.
However, it did not last long, and the overinflated bubble economy burst only a few years later. Both stock prices and land prices dropped significantly and, with the collapse of the bubble, companies that had been engaging in speculative trading activities were forced to record substantial losses. This marked the end of Japan’s long period of stable economic growth.
Somewhat unusual during the period of the bubble economy, Honda maintained a simple and straightforward policy to concentrate on its core businesses. As a result, Honda did not incur any losses in either stock or real estate investments.
However, despite its policy to pursue the localization of production in countries outside Japan, the Honda export ratio was still high through the late 1980s and the early 1990s; therefore, the sharp appreciation of the yen resulting from the Plaza Accord had a substantial impact on Honda exports. Additionally, the bursting of the asset price bubble led to a quick cool down of the Japanese economy as a whole, which resulted in a sharp decline in domestic consumption, causing Honda to struggle with domestic sales as well.
In the midst of such economic upheaval, in June 1990, Nobuhiko Kawamoto, then 54 years old and a Senior Managing Director, took on the role as the fourth president of Honda.
Shortly after his inauguration, the international situation also reached a major turning point. In 1990, East Germany was reunited with West Germany, and the Soviet Union collapsed a year later, which marked the end of the Cold War structure, which had existed since the end of WWII. From this point on, the wave of globalization began to sweep over the world economy.
“This is the era of upheaval,” said Kawamoto in assuming the role of the president. “As we head into the 21st century, every country around the world seems to be trying to find a new path forward while struggling in various societal, political, economic and cultural aspects.”
Striving to be at the Forefront of Every Challenge:
Manufacturing, Safety and the Environment
The first thing Kawamoto did after assuming the role as president was to familiarize himself with what was actually happening “at the spot” of Honda operations. Kawamoto was an outstanding engineer in creating technologies and products; however, he was well aware of his own lack of true understanding in other areas, particularly sales. So, he visited Honda dealers across Japan with the aim of observing what exactly was happening, sincerely listening to what associates at the spot had to say and engaging in dialogue with them.
“This was one of the fundamentals that Mr. Honda had taught me,” Kawamoto recalled. “If there’s something you don’t understand, don’t make excuses or grumble about it; go to the spot, ask people at the spot to show you how things are done, and listen to what they have to say.” Kawamoto talked openly with sales representatives at Honda dealership locations to understand what they were experiencing at the forefront of sales, what problems they were facing and what could be done to solve their problems. Having seen and heard, and thought deeply about each issue, all that remained was to take action. With a clear understanding of what was going on “at the spot,” Kawamoto began his work as president in earnest.
“Isn’t Honda losing its agility as a company?”
Kawamoto and former president Kume were already sharing this sense of crisis; therefore, Kawamoto, as the new president, took it upon himself to take the initiative to address this companywide issue by eliminating waste and enabling the company to move quicker. The world surrounding Honda was changing at a tremendous speed at that very moment, no time could be wasted in making various decisions in order for Honda to survive in this difficult time.
During the founding period of Honda, Mr. Honda and Mr. Fujisawa led the company with their strong individuality, the ability to conceive new ideas and to get things done, and it was enough for all Honda associates to follow the founders’ lead and work single-mindedly to further expand the business that was in the process of growing. Another factor that contributed to the growth of Honda during this period was that many highly qualified aeronautical engineers who lost their job or job offers after WWII joined Honda and raised the company’s technological capabilities.
During the presidency of the second-generation leaders, namely Kiyoshi Kawashima and Tadashi Kume, Honda first established a system of collective leadership that helped to stabilize the company’s management after the retirement of the transcendent founders. After that, by leveraging the successful development of the CVCC engine, Honda established local production in the U.S. and some other countries. By solidifying the foothold for further growth as a global company, Honda successfully capitalized on the momentum of the founding period and made a significant leap forward.
By the time Kawamoto assumed the role as president, a number of dormant issues such as Japan-U.S. trade friction, sharp appreciation of the yen and shrinking domestic demand suddenly came to the fore with the bursting of Japan’s bubble economy. At the same time, as the company expanded in size, it was becoming considerably less flexible in taking necessary actions to address various issues. As Kawamoto pointed out, the internal environment of Honda at the time was making it difficult to do “normal things in normal ways.” Frequent recalls and other quality issues were also creating serious challenges that would affect the future of Honda.
Under such circumstances, Kawamoto embarked on a bold internal reform that was guided by a powerful vision: “Honda strives to always be at the forefront of every challenge: automobile development and manufacturing, international business expansion, safety, the environment, and corporate social responsibility (CSR) activities.”
Kawamoto was prepared to undertake this reform with an unyielding determination, thinking, “If necessary, we will make changes to our Company Principle.”
Press conference was held to announce the new company president (at the Palace Hotel in Tokyo). Tadashi Kume (left) and Nobuhiko Kawamoto (right)
“No Change, No Future”:
Changing the Mindset of Each and Every Honda Associate
Kawamoto’s statement titled “Declaration to begin TQM” published in the April 1992 issue of the Honda internal newsletter (special edition of the Pole Position)
“Honda is an aggregation of individuality, opinions, way of life, approach to work, and sense of fulfillment of each and every Honda associate. When all those come together, Honda can become an organization that thinks, makes decisions, and take actions as one. Without changing the mindset of each and every associate, the company will not change. So, what I have to do is to encourage each associate to change their way of thinking, not just in words or forms, but sincerely, from the bottom of their hearts. Without it, we cannot achieve a true reform.” With such determination, Kawamoto once again went to see associates “at the spot” of various operations. He visited a number of sales offices, branches, and factories, and asked associates to articulate their honest opinions, while at the same time frankly conveying his own opinions.
Then, in 1992, TQM (Total Quality Management) was introduced as a way to help change the mindset of every associate. This included the PDCA process (Plan-Do-Check-Act) as a tool to achieve continuous improvement, which represented a major shift from the traditional way of working based on experience, intuition and courage to one based on objective evidence.
The specific method used for TQM was that Kawamoto directly interviewed and evaluated all managers and management members, from department heads to directors. He asked for the objectives and goals of their work, how they had transformed their way of working to attain goals, whether or not their goals were achieved and, if not, why, and what should they do once their goals were achieved. The point of TQM was to achieve objectives with minimal waste by rigorously measuring efficiency, effectiveness and quality at every stage of the work process. He still allowed the traditional Honda “Y-gaya” approach to brainstorming, but wanted to ensure that they did not fall into a trap of irresponsible talk without taking action, and facilitated prompt decision-making in all areas.
Kawamoto also introduced a matrix management system by regions and businesses, and pushed through a reform of the personnel system, introducing an annual salary system and term limits for executives.
He later recalled, “This thorough reform received a backlash leading to resentment and even hatred [...] However, I still believe to this day that it was the only way to reform Honda corporate culture and structure in the midst of the rapid changes of the times.”
Without fear of being criticized and disliked, Kawamoto determined what had to be done for Honda and acted without hesitation; thus, providing a glimpse into the kind of leader the company needed at the time.
The RV Boom Arrives in Japan.
Feeling Outrage about Untrue Merger Rumors
While pouring energy into changing the mindset of all associates, Kawamoto was well aware that it is the important responsibility and urgent challenge of Honda to create new products that would energize the market and offer new value to customers.
The strengths of Honda were in creating sporty models equipped with high-performance power units, as well as highly economical compact cars. However, market needs were rapidly changing. The Japanese-style recreational vehicles (RV) had been gaining in popularity since the mid-1980s, and the RV boom started in the early 1990s. In Japan, the RV was a broad category of automobiles suitable for urban driving and commuting but mainly designed for the users to enjoy recreational activities and hobbies. It included types of vehicles which are now popular as sports utility vehicles (SUVs).
RV models featured a larger cargo capacity suitable to carry a variety of items such as sporting and camping equipment, while providing excellent occupant comfort, and high off-road performance or ruggedness to be driven on mountain roads and snowy roads, and other challenging conditions. In general, RVs were produced based on platforms and production lines designed for taller trucks and one-box vans. However, at that time, Honda only had production lines dedicated to passenger cars and could not quickly switch to a model mix that could capitalize on the RV boom in Japan.
Due to the sluggish business performance at the time, there were times when some unfounded rumors spread: “Honda is considering a merger at last.” In fact, the ordinary profit had been gradually declining since 1989 and had fallen to approximately 22.7 billion yen in 1993.
Looking back on those days, Kawamoto said, “Those merger rumors made me really angry, but they reaffirmed one thing: The world had entered an era of strategic alliances and consolidations, and the automotive industry was on the brink of an era of global restructuring. Precisely because we were in such an era, it was clear to me that we needed to unequivocally indicate the ‘way of life’ for Honda at that time.”
Kawamoto’s prediction turned out to be correct. The area of global restructuring of the automotive industry came shortly after he stepped down as the president of Honda, and in the midst of it all, Honda was forced to make some momentous decisions.
Making a V-Shape Recovery of Automobile Business
with the “Creative Mover” Series
Honda didn’t sit by idly while watching the rise in popularity of RVs and minivans. One potential project that had been discussed within the company since August 1990 was to build a new plant in the U.S. and produce large-size minivans equipped with the same V6 engine as that powered the Legend. However, minivan models were selling for approximately $20,000 in the U.S. at the time, and Honda calculated that if it would build a plant and produce a minivan with a V6 engine, the price would end up being nearly $30,000. Since it simply wasn’t possible for Honda to compete at such a high price, the project stalled.
However, Kawamoto and other executives in charge of product development and Honda R&D believed that the minivan culture of the U.S. should be introduced to Japan, so the development of the minivan model continued behind the scenes. Kawamoto said: “Honda is a type of company that can demonstrate extraordinary strength and wisdom when facing a crisis or being pushed into a corner.” Although the plan to build a new auto plant in the U.S. was abandoned, the minivan development proceeded at a rapid pace, with a goal to embody the new value Honda would create for its customers.
The remaining question was, “Where should or could Honda produce this model?” When the minivan development team made inquiries to Suzuka Plant, Sayama Plant of Saitama Factory, and Honda of America Mfg. (HAM) in the U.S., Sayama Plant and HAM came forward. Sayama Plant proceeded with an exhaustive inspection of its production line and verified that it could produce minivans with only minimal capital investment by utilizing and modifying the platform of the Accord.
However, there were still many detractors within Honda who were saying, “One-box vans with sliding doors are already selling well here, so, American-style minivans could not compete in Japan.” The minivan development team, which consisted of only about 20 members, forged ahead and built a prototype model, and persistently tried to persuade the doubters, “This model, that features a spacious cabin yet drives like a sedan, will contribute to the turnaround of our domestic auto sales.” After their persistent and repeated persuasion, the development plan was officially approved at last.
The Odyssey featured a sedan-like driving experience as well as a spacious cabin that enabled a center walk-through, flat floor, and versatile seating arrangements. The Odyssey pioneered a new genre of automobiles that never existed before.
ODYSSEY in Action
Kawamoto receiving the RJC New Car of the Year Award for the Odessey（1994）
On October 20, 1994, Honda announced the market launch of a compact and nimble multi-purpose vehicle unique to Japan in the lineage of the American minivans, namely the Honda Odyssey. In order to sell this new model in a completely new genre, Honda adopted an unprecedented three-channel (Primo, Verno and Clio) sales system with the aim to achieve market penetration in one stroke. The Odyssey won the two most prominent automobile awards in Japan - the Japan Car of the Year Special Award and the RJC New Car of the Year Award - in the first year after its introduction (1994-1995). Moreover, Odyssey sales reached the 300,000-unit milestone in 36 months, at a record pace faster than the Civic.
Honda positioned the Odyssey as the first model of the “Creative Mover” series, which was followed by the CR-V (1995), that utilized the Civic platform, the S-MX (1996), a tall wagon that targeted young people, and the StepWGN (1996), a minivan with a longer hood. The “Creative Mover” series made a significant contribution to the V-shaped recovery of Honda automobile business in Japan, which had been stagnant for some years.
CR-V (1995)
S-MX (1996)
StepWGN (1996)
CR-V in Action
S-MX in Action
STEP WGN in Action
Pursuing the “800K Plan” by Concentrating Management
Resources in Japan to Address Unprecedented Appreciation
of the Yen
Honda Business Meeting（1995）
Coinciding with the major breakthrough of its Creative Mover series, in 1995, Honda launched the so-called “800K Plan,” a plan to establish an automobile sales operation capable of selling 800,000 units annually in Japan.
The yen kept appreciating, and on April 19, 1995, the Tokyo Foreign Exchange Market recorded the rate of 79.75 yen to the dollar, the highest value of the yen recorded since the floating exchange rate system was introduced in 1973. (Note: As of March, 2023 the highest value of the yen on record was 75.32 yen to the dollar, recorded on October 31, 2011.) This continued appreciation of the yen and trade frictions was becoming a viable threat to Japan’s export-based businesses. Additionally, the overall Japanese automobile market had continued to shrink due to the economic slump triggered by the bursting of the economic bubble.
In 1994, prior to the release of the Odyssey, Honda had already formulated plans to strengthen its business foundation in Japan and changed the name of its “Domestic Operations” to “Japan Operations.” Then, in 1995, seizing on the opportunity presented by strong sales of the Creative Mover series, the company launched the 800K Plan to concentrate management resources in Japan and increase Japan domestic automobile sales to 800,000 units annually.
Kawamoto explained the logic behind the 800K Plan: “Once we’re in a position to develop a good lineup of products, the next thing we need to think about is sales. It will be difficult to continue conducting our business stably without both solid products and sales operations.”
The 800K Plan was designed to establish a system that enables the company to continuously sell 800,000 units in Japan by maximizing the efficiencies of its production and sales operations. Furthermore, the company planned to secure automobile production volume of one million units, combining 800,000 units for the Japanese market and 200,000 units for exports. To put it in perspective, this sales target, 800,000 units, represented a year-on-year increase of 45%, which Kawamoto admitted, “It was a pretty tough target.”
To make this challenge a success, Kawamoto decided to significantly enhance the sales force and temporally transferred or assigned Honda Motor associates to Honda dealerships. It was not only associates from sales divisions but associates from production plants were also assigned to the forefront of sales as sale representatives. The 800K Plan turned out to be an all-out effort that involved the entire company, from development and production to logistics and sales divisions, however, this was by no means a foolhardy challenge. In fact, Honda automobile sales in Japan, which had fallen to 558,876 units in 1994, exceeded 800,000 units in 1997, achieving a record high of 809,283 units.
The various achievements the company had made in the areas of quality, cost and logistics under the TQM program, which was being pursued under the leadership of Kawamoto since 1992, also contributed to the achievement of the 800,000-unit target.
“I reaffirmed that Honda is very strong when it sets clear targets, builds momentum, and moves forward with great vigor,” Kawamoto recalled. “I learned that challenges can only be achieved if we keep trying. So, even if we first think something is impossible, we should try at least once.”
