The business environment is becoming more difficult due to several factors including the escalating price of crude oil and sudden fluctuations in currency exchange rates. In this increasingly competitive environment, Honda maintains its focus on being a company that society wants to exist. We will also focus on strengthening the core elements that make Honda unique in each area of its activities including R&D, production and sales and service.

<<Initiatives for 2005>>

<Motorcycle Business>
2004 Worldwide Sales Forecast: 10.7 million units (up 23% from 2003)

Annual production in India reached 3.1 million units, while the annual production capacity in Indonesia will expand to 3 million units when a third plant becomes operational. In China, both Sundiro Honda's Tianjin plant and Wuyang-Honda's Guangzhou plant will be replaced by more advanced plants by the beginning of 2005 and spring 2006, respectively. In addition, a Shanghai branch of Honda Motor (China) Investment Co., Ltd., which functions as the regional headquarters, will begin operations in the spring of 2005. The Shanghai branch will promote further localization and work to strengthen our motorcycle business in China in conjunction with the modernized manufacturing facilities.

ATV production in North America will be consolidated at the South Carolina plant, while production of models such as the TRX450R will be transferred from Ohio to the Kumamoto plant in Japan, in order to further strengthen Japan's function as the global hub in supporting expansion of overseas operations. The Forza model manufactured in Kumamoto has been well received due to its advanced S-Matic transmission and other features, and it became the industry's best selling motorcycle in 2004 (excluding 50cc models).  The end of a ban on tandem riding on highways and the introduction of a license for automatic transmission models in Japan will have a positive impact on the sales of Honda's large scooter line-up which includes the Forza, Silver Wing, PS250, Fusion, and Foresight.

2005 Worldwide Motorcycle Sales Plan: 12.5 million units (up 17% from the previous year's plan) 


<Automobile Business>
In the fall of 2005, the Civic, with annual sales of more than 500,000 units worldwide, will undergo a full model change. Honda's automobile business has advanced in step with the Civic. The Civic is now manufactured in Japan, North America, South America, Europe and Asia. Civic is a truly global car and will be produced in all six regions of Honda's global operations when China begins Civic production in 2006. The Civic is a key model for Honda and will continue to drive Honda's automobile business forward with its next full model change.

Automobile Production:
Based on Honda's commitment to "build products close to the customer," we have proactively pursued the localization of production. In the last three years, overseas auto production increased by more than 500,000 units. In order to strengthen our corporate structure to enable us to deal flexibly with currency exchange rate fluctuations and changes in the economic environment of each country, Honda will promote local production of engines and key drivetrain components, which require a high level of precision manufacturing. 

With the increased capacity at Guangzhou Honda's second plant, which is now under construction, the expanded capacity at Dongfeng Honda in Wuhan, and the capacity at the newly built export plant, Honda's total annual production capacity in China will be doubled from the current 270,000 units to 530,000 units by the latter half of 2006.  To support these expansions, Honda Engineering China will begin operation of a new facility to produce dies and conduct tests for mass production technologies in the fall of 2005.

By the end of 2005, casting and machining of diesel engines will be transferred from Honda Engineering to the Suzuka plant to increase mass production capability.

In each region, Honda will increase its exchange rate toughness and achieve qualitative improvements in quality, cost and the delivery competitiveness of parts by accelerating the localization of the production of powertrain components and manufacturing support functions.

Automobile - Japan:
2004 Domestic Sales Forecast: 740,000 units (up 1% from 2003) 

In the spring of 2005, Honda will introduce a new model that offers new values in the small wagon segment.  Teamed with the all-new Civic, Honda will strengthen its product lineup. E-dealer systems, now installed at all dealers, will fully conform to the Automobile Recycling Law at the beginning of 2005.  This system enables Honda dealers to provide consistent service nationwide from the first price estimate to auto inspection and maintenance. Honda will fully utilize such IT systems to further improve its sales and service to achieve a 2005 sales goal of 770,000 units.   Further, Honda is committed to put even greater focus on our customers and maximize the lifetime satisfaction of the cumulative 8.8 million Honda owners.

Automobile - North America:
2004 U.S. Sales Forecast: 1, 376,000 units (up approximately 2% from 2003)

In the spring of 2005, Honda will begin sales of the "Ridgeline" - Honda's proposal for a next generation light truck. Civic, with annual sales of approximately 300,000 units in the U.S., will undergo a full model change in 2005 as well. Combined with these new models, Honda will enhance its product lineup to meet a wide range of customer needs-from passenger cars to light trucks.

The U.S. sales plan for 2005 is set at 1.45 million units based on our plan to launch new products with excellent fuel efficiency and environmental performance and to reach full capacity on the second production line in Alabama.  In addition, a new Acura SUV will be launched at our Ohio plant in 2006.

Honda will strengthen the foundation of its automobile business in North America by enhancing its product lineup and by strengthening its production operations.

Automobile - Europe:
2004 European Sales Forecast: 253,000 units (up 16% from 2003)

Total automobile production at the Swindon, UK, plant is expected to exceed 190,000 units in 2004. All-time records are expected both for production and sales.

Sales of the Accord Diesel, introduced at the beginning of this year, has reached 20,000 units, which has helped increase total Accord sales in 2004 to 50,000 units, compared to 35,000 units in 2003.  Looking ahead, Honda will launch the CR-V Diesel at the beginning of 2005, aiming to double sales of the vehicle. Further, the FR-V Diesel will be launched by the summer of 2005. By introducing these diesel models in segments with a high ratio of diesel sales, Honda will be better able to meet customer needs. The European sales plan for 2005 is set at 275,000 units. 

The all-new Civic, Honda's mainstay model in Europe, will become the fourth model to be equipped with Honda's high-performance diesel when it undergoes a full change-over in early 2006.

In order to meet growing demand in Europe created by our enhanced diesel product lineup, Honda will dedicate the entire CR-V production capacity of the UK plant to meeting demand in the European market.  At the same time, Honda has decided to begin local production of the CR-V at one of its plants in Ohio, to replace the supply from the UK, starting with the next generation CR-V.

Automobile - China:
The Chinese market is currently experiencing a temporary slow down; however, the mid-to-long term growth potential of the China auto market is still favorable and the market is expected to increase in size by 10 to 15% per year. China is moving into a truly competitive era and Honda has been working to establish a strong brand presence that clearly differentiates it from the competition in the areas of sales, service, and products. As a result, we have successfully established a business where demand always exceeds supply. Honda will continue to grow its business in China by introducing an all-new Odyssey in 2005 and all-new Civic in 2006 and by further strengthening our sales channels.

Automobile - Asia Oceania:
2004 sales are expected to exceed previous year sales in most countries in the Asia Oceania region including Korea, where sales through Honda dealerships began this year. Total sales in the Asia Oceania region for 2004 will reach 275,000 units - a 36% increase from the previous year. In India, the annual production capacity will be expanded to 50,000 units from the current 30,000 units. Production capacity also will be expanded in Indonesia, from the current 40,000 units to 50,000 units, as sales of the Fit have been strong since its introduction this year. The total Asia Oceania sales plan for 2005 is 310,000 units.

Honda's total worldwide automobile sales for 2004 are expected to reach 3.16 million units (up 9% from 2003), with sales of 3.4 million units (up 8% from 2004) planned for 2005.

The worldwide sales plan for power products is set at 6 million units (up 9% from this year).

Looking more than 10 years into the future, Honda seeks to continue to be the industry's technology leader by developing technologies with free, independent thinking and creative ingenuity.

Following completion of our goal to introduce four-stroke engines to all models (except specialized models), Honda has decided to equip even more environmentally-friendly programmed fuel injection (PGM-FI) to all newly launched scooters in Japan by the end of 2007, and to most motorcycles worldwide by the end of 2010.

In the area of safety, Honda will equip all new 250cc class or larger touring and sports motorcycles and large scooters with an advanced "combined brake system," incorporating a conventional brake with an anti-lock brake system by end 2007. And by 2010, all Honda motorcycles 250cc class or larger, except off-road models, will be equipped with this type of brake.

In Japan, all Honda automobiles now comply with the 2005 emission regulations. Eleven models are certified as "4☆ (75% below 2005 emissions standard)" low emission vehicles and 16 models are certified as "3☆ (50% below 2005 emissions standard)" low emission vehicles. The unit percentage of  "4☆" and "3☆" low emission vehicles totals 82% of all Honda vehicles, an industry leading penetration level.

In the area of safety, the Odyssey, Elysion, and Edix have already been certified as complying with the "pedestrian head protection standard" which will be implemented in Japan as of September 2005.

In the U.S., the Accord Hybrid, equipped with a V6 hybrid engine went on sale this month. This vehicle employs our Variable Cylinder Management system which improves fuel efficiency and reduces greenhouse gas emissions. The Accord Hybrid is Honda's third hybrid vehicle following introduction of the Insight and Civic Hybrid.

As for safety, anti-lock brake systems will become standard equipment for all Honda and Acura vehicles in the U.S. and Canada by the end of 2006, while front side airbags and side curtain airbags will be standard equipment on virtually all Honda and Acura vehicles. In addition, we have begun installing side curtain airbags and roll-over sensors as standard equipment on all light truck models.

Based on ASV-2, announced in 2000, Honda began introducing safety technologies such as a lane-keeping assist control, our Collision Mitigation Brake System, and intelligent night vision in our mass production vehicles.  Next year, we will reveal ASV-3, which features even more advanced safety technologies.

Honda's mission is to be the leader in safety and environmental technologies, always looking one step ahead. 

Just as our racing activities are filled with behind the scene challenges and various successes and failures before we reach the spotlight on top of the podium,  our operations in each region will be tested in today's challenging environment and this will necessitate total commitment all the way down to the production of parts and to the strengthening of our global operations. 

To this end, Honda is pursuing initiatives to revisit our origins as a company, to strengthen the core points that make Honda unique in each area, and to strengthen our initiative, technology and quality to become the number one company in providing "joy to our customers."

What we mean by "strengthening the core points that make Honda unique" is that each individual associate advances and solves issues and problems based on the viewpoint that only those at the spot can possess, and that each associate proactively moves forward on their own initiative.  In this way, Honda will represent the combined power of all individual associates who work to make their own dreams come true.