“Trees Will not Grow Without Planting Seeds.
So, let us First Create a Motorcycle Market in Brazil.”
After achieving a full-fledged business expansion into Europe and Asia, as the 1960s was coming to a close, Honda turned its attention to Brazil, the largest country in South America, as its next destination.
In 1968, the Brazilian government was seeking to boost the country’s economic growth despite military rule, and lifted the import ban, which encouraged a number of Japanese companies to begin exploring the possibility of entering the market.
“We immediately began conducting market research; however, the annual inflation rate was as high as 15%, and along with indexation (currency value correction), the currency was frequently being devalued. We could clearly see that it wouldn’t be easy making inroads,” recalled Osamu Iida, former general manager of Honda Motor do Brasil Ltda. (HDB) and the first president of Moto Honda da Amazonia Ltda. (HDA)
Nevertheless, Brazil had a population of 120 million people at the time, was rich in natural resources, and boasted the eighth largest automobile industry in the world in terms of production volume. The market potential was high.
“Yet, when it came to motorcycles, only 200 to 300 locally produced European scooters were being sold monthly throughout the country, meaning the country’s motorcycle market was practically nonexistent. So, our first job was to create a market,” said Iida. “Trees won’t grow without planting seeds.”
In 1971, HDB (later merged with HDA, Honda’s motorcycle production subsidiary) was established as a Honda subsidiary in São Paulo. Starting out slowly with an annual sales target of 3,600 units, Honda began the full-fledged import and sales of motorcycles in South America.
Creating the Market from Scratch by First Changing the Image of Motorcycles.
“At the time, people in Brazil perceived motorcycles as dirty, dangerous, and flimsy vehicles for lower income people. So, our first job was to create a strong impression that Honda motorcycles were completely different from existing motorcycles,” recounted Kiichiro Suzuki, former the first Honda associate hired locally in Brazil*1.
To address this challenge, HDB decided to focus initially on selling high-end models such as the CB750 FOUR to the affluent consumer segment, and implemented an image strategy involving TV commercials and other forms of advertising, as well as proactive offering of safety education and rider training programs hosted by its dealers.
Honda sales steadily grew as the people of Brazil gradually developed a more favorable impression of motorcycles. “Our image strategy worked well because the dealers understood our thinking and gave us their full cooperation,” recalled Iida. “Our effort to get our dealers involved in discussions from the early market research phase paid off.”
In 1974, sales of imported motorcycles had reached 12,000 units. This period of exceptional economic growth, known as the Brazilian Miracle, began in 1968 when the Brazilian government lifted import bans, providing a major boost to motorcycle sales.
However, the first oil crisis of 1973 deeply affected Brazil, and the economic situation took a severe turn for the worse. Inflation was on the rise, and restrictions on imports became more stringent due to the increase in the country’s external debt and foreign currency shortages. If nothing was done, HDB wouldn’t be able to supply products to its dealers. So, it became an urgent priority to pursue local production that would enable Honda to supply products in Brazil without relying on imports.
“Honda’s policy was to build products locally and sell them locally. I had only just gotten back from Belgium, where our first overseas production facility was located, when I was told to go to Brazil,” said Kensuke Fukatsu, former the first coordinator for Honda’s local production project in Brazil.
By early 1974, in light of the steady growth of sales in Brazil, Honda had already acquired 367 acres (148.5 hectares) of industrial land in the city of Sumaré, located about 120 km (75 miles) northwest of São Paulo. To leverage this land to address product supply issue in Brazil, Honda applied for the production permit with the Brazilian Ministry of Commerce and Industry. However, the Ministry was just then prioritizing domestic capital, and not only did not issue a production permit, but also further tightened import restrictions, including the introduction of a deposit system. This suddenly placed HDB in a crisis of survival.
- At Honda, employees are referred to as associates, representing the company’s view that each and every one who works at Honda around the world is a fellow associate (teammate) of the company.
Initially, there were 12 expatriates from Japan. Around 50 people, including Honda Engineering associates in charge of facilities and Brazilian associates, began construction of the plant.
Building the Manaus Motorcycle Plant：“We Chose the Amazon
Because of the Warm Welcome Offered by Its People.”
Without local production, there could be no future for Honda in South America. While Honda was searching for an alternate factory site to replace the option to build a factory in Sumaré, the city of Manaus in the state of Amazonas, the largest city in the Amazon River basin, suddenly emerged as a prominent option. Manaus is located just below the equator, approximately 1,500 km (930 miles) inland from where the mouth of the Amazon River meets the Atlantic Ocean.
At the time, to stimulate development in the Amazon region, the Brazilian government had established the Free Economic Zone (where low tariffs and other incentives were offered) in Manaus, which was a key economic and logistics center of the region, to attract more commerce and industry.
Honda realized that Manaus presented two advantages: low tariffs and an opportunity for Honda to contribute to Brazil’s national policy. “Actually, the biggest reason why we chose Manaus was the welcome we received from the local populace,” said Fukatsu. “People there needed a place to work, and the Japanese-Brazilian community there, together with the state of Amazonas and the SUFRAMA (Superintendência da Zona Franca de Manaus, responsible for managing the tax incentives related to the Manaus Free Trade Zone model) all told us to come to Manaus. We simply figured that Honda should go where we were truly wanted.”
At the time, however, no Honda executive had ever been to Manaus, some of the managing directors expressed their opinion that selecting Manaus would be a reckless move. However, the sheer enthusiasm shown by the associates who went there for on-the-spot survey eventually changed the mood of the directors.
Fukatsu explained, “At the time, only three Honda associates had ever been to Manaus: me, Mr. Iida, and Mr. Kato, who later became the first manager of our Manaus Plant. All of us were still in our early thirties, and what was truly amazing was that those top executives at that time ultimately accepted this proposal by a few young associates. They didn’t just approve it because Brazil was a high-potential market. Rather, they were like ‘If it is our land of dreams, let’s give it a try.’ We were happy to see that our top management, even after rising to positions of responsibility, still had a passion to pursue these dreams.”
In July 1975, as a joint venture between Honda and Moto Importadora, a local distributor, Honda’s motorcycle production subsidiary, was established in Manaus, Amazonas. The production project was approved in August of the following year.
Local Support Enabled the Completion of a difficult
Construction with Exceptional Speed
Construction of the Manaus Motorcycle Plant began in October 1975, and it soon proved to be a truly difficult project. Temperatures exceeded 40 degrees Celsius (104 degrees Fahrenheit), humidity was consistently over 80%, and it was not unusual that crocodiles, anacondas, poisonous snakes, and jaguars were spotted at the construction site. Even more troubling was the complete lack of heavy construction equipment available in this remote region. The normal process of installing a stamping machine was to first build the underground foundation and then lift the machine with a crane to place it on the foundation; however, there was no large crane available to lift a 300-ton machine.
“After thinking it over, we came up with the idea of burying the foundation in sand, placing the stamping machine on top of it, then lowering them slowly into place using industrial jacks while shoveling out the sand with manpower,” recounted Kazuhira Kato, who former the first manager of the plant. “This was the same method used to construct the pyramids.”
However, the final stages of outfitting the plant simply couldn’t be done by manpower alone. Only through the cooperation of the director of the SUFRAMA and other key individuals, Honda was able to borrow a crane from a local power plant... for nighttime use only.
“To transport huge crane and other construction machinery to our site, we often had to block roads and lift the hanging power lines and traffic lights that got in the way,” recalled Fukatsu. “Sometimes we even had to cut the lines and reconnect them once the machines were hauled past. Thankfully, the local governments, the police, and the power company were all willing to cooperate for Honda’s sake. I really felt glad that we had chosen a place like this where we were truly welcomed.”
There was no doubt that Honda received such full support from the local community not only because of the great nature of the people there, but also because of the sincere attitude Honda and its associates demonstrated toward the community. Honda placed importance on coexistence with local people and society, and equipped the Manaus plant with a water purification facility and safety features equivalent to those of Honda plants in Japan.
“Our JV partner, the Ministry of Industry, and SUFRAMA representatives were all extremely proud of the plant, almost as if it were their own,” noted Kato. This was why Honda’s motorcycle factory in Manaus was completed in an unusually fast pace of 10 months.
With the cooperation of the local community, a large crane for installing presses was rented from a hydroelectric power plant for nighttime use only.
Manaus Motorcycle Plant
Quality Assurance Starts with Development of Associates
While constructing the factory, Honda was proceeding with the local hiring of production associates. Newly hired associates received necessary training in preparation for motorcycle production. However, at the time, Manaus was just beginning to attract various factories, and people there were not yet familiar with what sort of work there would be in a factory. Further complicating the situation, none of the expats from Japan could speak fluent Portuguese. Although local residents of Japanese descent helped some, it was inevitable that much of the information and messages were lost in translation. So, Kato and other members often drew pictures to explain how things should be done.
“Brazilian associates were by nature diligent and dedicated to their work,” said Kato. Still, differences in national character and customs frequently arose.
“Japanese people tend to plan ahead and implement their plans meticulously on time, whereas Brazilians generally start with rough decisions and figure things out as they go along. Initially, we experienced some difficulties, but once proper explanations were given, and everyone understood how things needed to be done, we no longer had any issues,” recalled Horacio Natsumeda, a starting member of the Manaus Motorcycle Plant, who later became Senior Director of the Sumaré Automobile Plant.
Deepening Relations Between Expats and Local Associates Over Meals and Soccer.
Kato remembered: “In that community, there were many families who were not financially well off, and when I talked with local associates over lunch, some said, ‘I really wish my families could eat a meal like this.’ So, from time to time we invited their wives and children to see our workplace. Then we had some meals together and gave children some stationery as souvenirs to take home. Through such activities, family members came to understand the job of their fathers and husbands, and eventually took special pride in the HDA factory.”
While making progress in training the production associates, the team discussed what model should be produced once the factory became operational. Since most associates were new to motorcycle production, it was considered best to concentrate on producing just one model to start. Also, the team agreed that the market size for high-end models targeting the affluent consumer segment would be limited, so with an eye to the future, HDA should produce a model for the masses and popularize motorcycles in this country.
Interestingly, the Honda Super Cub, easily the world’s most popular motorcycle, was not so popular in Brazil. Iida explained: “In a vast and undulating country like Brazil, a 50cc model simply did not have as much power as people needed. Therefore, we decided that the 125cc would be the minimum size to meet the basic needs in Brazil.”
The CG125, the first production model of HDA, became a massive hit as soon as production started in 1976, thanks to its high-quality, yet low-price appeal as well as a highly successful sales promotion campaign, which featured the legendary Brazilian football (soccer) player as an image character. The CG125 soon established itself as the nation’s favorite business motorcycle, and by the following year Honda had captured a 75% share of the motorcycle market, with dealer requests to further increase the production volume.
Despite the great success of the CG125, for the first few years after the launch, HDA was cautious about adding production equipment or drastically increasing production volume at the Manaus Plant. Quality came first, and efforts were concentrated on improving the skills of the production associates. Honda’s “Starting Small and Growing Big” approach was strictly adhered to, and steady progress was made one small step at a time.
HDA’s first production model, the CG125
The CG125, produced by associates who put quality first and worked to improve their skills aimed to equal Japan quality.
Recurring Inflation: Still Honda Did not Run Away
In the 1980s, the Manaus Motorcycle Plant reversed its policy and began an aggressive course of business expansion. Large-scale capital investments were made, including the acquisition of adjacent land, and the start of exports of products built in Manaus. To cultivate a new market, HDA also began producing higher-end models like the CB400. As business expanded, the total number of Honda associates at the sales subsidiary in São Paulo and the production subsidiary in Manaus combined increased to more than 3,000 associates.
However, an unexpected turn of events occurred. The worsening balance of payments due to the second oil crisis (the 1979 oil crisis) together with accumulated debt issues originated in Mexico sent shock waves through Brazil’s unstable economy. Inflation rate continued to rise, and the economy fell into a recession. Honda also suffered a massive deficit during the period of 1983 and1984.
“Our early 1980s business expansion was just too hasty. In the end, we managed to eliminate the deficit by consolidating the production company and the import and sales company to reduce total assets and downsize our business to a level more appropriate for the market size. Still, it ended up being quite a difficult time,” recalled Iida.
As a result of this downsizing, approximately 700 associates lost their jobs, although only temporarily.
“Those without production jobs were asked to clean up around the factory or plant lawns, but even then, we had to ask many associates to be furloughed. Fortunately, we were able to achieve a turnaround in two years and reinstated many of them, but it was not easy,” said Natsumeda.
Brazil’s military regime came to an end in 1985, but when the new regime implemented stabilization plans that included the devaluation of the currency by 3 digits (cutting three zeros), a freeze on prices, wages and exchange rates, and the abolishment of indexation in the following year, the Brazilian economy was thrown into complete chaos and plunged into a long period of hyperinflation.
“A salary of 100 Brazilian reais would only be worth 50 reais by the time we would spend it. So, when we were paid our salaries, everyone rushed out and bought a month’s worth of groceries on the very same day,” recalled Issao Mizoguchi*2, then former Senior Director of the Manaus Motorcycle Plant.
Struggling to overcome an extraordinary situation with a host of innovations
“My boss, an expat from Japan, said that we were going to ship our finished bikes by plane because it would take 15 days to deliver them from Manaus to São Paolo by trucks, and the surge in interest rates would have eaten up 15% of our profit,” said Natsumeda. “So, even with airfare, it would cost us less to sell the bikes the very next day.”
However, despite various efforts, Honda’s losses grew especially severe around 1991 and 1992, and HDA was once again forced to reduce its workforce.
“Many people lost their jobs, and it was especially painful to have to ask our associates who had grown with us here to accept the furlough. Things like this should never happen again,” said Natsumeda.
Downsizing of the workforce was done by reducing the number of both frontline associates and management jobs equally at a rate of about 30%.
“I told my boss that I would leave so I could keep as many of my fellow associates as possible,” said Mizoguchi. “But my boss reminded me, ‘Who will rebuild the plant so that associates we let go can come back?’ When we became ready to rehire them, we reached out from our side and asked them to come back.”
Brazil’s hyperinflation finally subsided in 1994, after the Minister of Finance Fernando Cardoso, who later became the President of Brazil, implemented the Real Plan, the last stabilization plan. Waiting a long time for this opportunity, Honda immediately resumed full-scale production. By 1997, Honda had again captured over a 90% share of the country’s motorcycle market. How was it possible for Honda to gain such an overwhelming market share?
“Many companies gave up on Brazil during the hyperinflation. But we worked incredibly hard not to lose Honda. If we had gone out of business, we knew we would not be able to provide our customers with needed aftermarket support. I think many of our customers recognized such a sincere attitude of Honda,” recalled Mizoguchi.
“Even when the economy was at its worst, we continued to supply a bare minimum of products to our dealers,” said Iida. “We could not just let our dealers go out of business, so we kept on supplying products at a loss. Honda would not run away even during tough times. Knowing this, our dealers also stayed with us, and, of course, so did our customers.”
Fukatsu recalled: “When we petitioned the Minister of Finance to allow us to increase our product prices against the price control imposed by the government to curb inflation, the Minister said, ‘You’re just going to send all the money you make in Manaus to Japan anyway, aren’t you?’ Our reply was, ‘No. Since the founding of our plant in Manaus, all profits we’ve made here have been reinvested back into this country!’ Then, the Minister paid a visit to our plant and told us, ‘Upon my own responsibility, I give you permission for a price increase.’ I believe that Honda’s sincere attitude toward helping the local community will always earn us the trust of the people in any country.”
Since the stabilization of the Brazilian economy in 1994, Honda has maintained market share of approximately 80%.
“In Brazil, the Honda brand has become so highly respected that the words Honda and motorcycle are virtually interchangeable. However, because of such a high reputation, our customers are also highly demanding,” said Yukihiro Tsurunishi, former vice president of the HDA Manaus Motorcycle Plant, commenting on Honda’s position and responsibility in the market. “Even the slightest defect is met with complaints of ‘How could this happen to Honda?’ I believe that it is our mission to continue fulfilling such high expectations of our customers.”
In 1998, HDA began production of the Honda Biz, a Brazilian version of the Honda C100 Biz Super Cub, which later became the standard model across South America. Honda steadily increased its sales, and in 2006, annual sales in Brazil alone exceeded one million units. On top of that, HDA began exporting more than 100,000 units a year to 75 countries around the world.
“Due partly to our history of consolidating production and sales subsidiaries in the 1980s, in the midst of our struggle, we have outstanding cooperation between the factory and sales division in Brazil,” explained Tsurunishi. “It’s my feeling that Honda’s motorcycle business in Brazil was able to grow to its current level only due to this mutual cooperation and encouragement between the production and sales teams.”
- Issao Mizoguchi: Apr. 2014 – Mar. 2021:
Chief Officer (Operating Executive since Apr. 2020) of Honda Motor Co., Ltd. in charge of Chief Operating Officer for Regional Operations (South America) concurrently served as: President and Director of Honda South America Ltda., President and Director of Moto Honda da Amazonia Ltda., President and Director of Honda Automoveis do Brasil Ltda.
C100 Biz
Green Vehicles Unique Only to Brazil
The Ethanol-Powered CG125AL
Brazil had long been producing sugarcane-based alcohol as an alternative fuel to gasoline. In 1981, Honda became the first motorcycle manufacturer to launch an ethanol-powered model, CG125AL, which demonstrated ease of riding comparable to that of a gasoline-powered model.
Introducing the World’s First Flexible Fuel
Motorcycle (FFM)
In 2009, HDA began sales in Brazil of the CG150 Titan Mix re-equipped with the newly developed fuel supply and injection control systems designed to enable flexible mixture of bioethanol and gasoline fuels. HAD continued to expand its FFM lineup by adding the NXR150 Mix and the Biz 125 Flex. Honda’s proactive environmental and safety initiatives have been attracting increasing interest in the Brazilian market.
