With the recent opening of the American Honda Collection Hall, we wanted to explain why the exhibit is so significant (tour pics inside).
It's easy to dismiss Honda's achievements in the USA as par for the course of automotive evolution. After all, look how rapidly Hyundai and Kia have stepped up to the top of the mainstream in the world's second-biggest car market. But to truly understand the monumental achievements of Honda in the land of the red, white, and blue, we need to imagine the world in a very different light to what it is now...
Imagine that a week from now, on October 2, 2023, geopolitical tensions between the US, Germany, the UK, Russia, Ukraine, North Korea, China, and a dozen other countries rapidly escalate to epic, tragic proportions, and a new generation experiences a Great War. Six years later, World War III comes to an end in 2029, and the world once again commits with all the enthusiastic dishonesty it can muster to never again go to war on such grand scales. And let's assume, for the sake of this exercise, that society determines that the guiltiest party in all this is North Korea, which encouraged Russia to bomb Fort Bragg.
In these circumstances, how long would it take you to buy a Russian-built Lada or Avtotor if they tried to break into the US market? You'd say they'd be stupid to try, and yet Honda attempted something similar after WW II, just 14 years after the attacks on Pearl Harbor, Hiroshima, and Nagasaki.
Despite the odds being stacked against it, Honda succeeded, leaning on three pillars that ultimately led to its success: local talent, an obsession with quality and innovation over profit, and systematic expansion.
But to arrive at these core tenets, Honda's founder had to endure failure, and so to evaluate how Honda succeeded in America, we need to go back to the very beginning, before a World War, and before Honda the company was even born...
Soichiro Honda was a brilliant engineer who had a passion for automobiles. Unsurprisingly, he got a job as a mechanic and entered the cars he tuned in races. Eventually, he founded a company called Tokai Seiki that made piston rings, and after initial failures, he got a break when he won a contract with Toyota. Due to poor quality, he lost the contract, but he kept improving things.
Like almost every other manufacturing entity worldwide, his company was taken over to support the war effort at the start of World War II. Toyota later acquired a 40% stake in the company, demoting Honda from president to senior managing director. He also worked with other companies, helping develop the automation of military aircraft propeller production, and these relationships with military entities and Toyota would serve him well later.
After selling the usable remains of his bombed factory to Toyota, Soichiro-san founded the Honda Technical Research Institute in October 1946 with a team of 12 men working on motorized bicycles in a shack measuring just 170 square feet. After war-surplus supplies of radio generator engines ran out, the team created its own copies. In 1949, the Honda Technical Research Institute was liquidated, and the Honda Motor Co., Ltd. was incorporated.
At the same time, Honda hired engineer Kihachiro Kawashima along with Takeo Fujisawa, whose business and marketing expertise helped balance Honda's engineering brilliance. Both those men (pictured on either side of Soichiro-san below) are very important to the American future of Honda.
Also in 1949 was the launch of the first motorcycle made with a Honda frame and a Honda engine. This was the 1949 D-Type and the first Honda to have the Dream name, another important proper noun to keep in mind. Within just seven years, Honda was a top motorcycle manufacturer domestically, and another three years later, expansion plans began.
"We have now established ourselves on solid ground domestically," said Senior Managing Director Takeo Fujisawa, speaking to Kihachiro Kawashima. "Eventually, we'll have to aim to be number one worldwide. So, with that in mind, why don't you go check out the overseas market?"
And he was clever about how. "Instead of relying on a trading company," he said, "we should first take a look at the overseas market for ourselves. Then we'll find the best way to do business there."
Following surveys in Europe and Southeast Asia, Kawashima was sent to the US. When he returned, he reported that bikes were little more than toys here, and Kawashima suggested that Honda start with the Southeast Asian market first.
Kawashima nearly got his way, but Fujisawa was shrewd. "On second thought," he said, "let's do America. After all, America is the stronghold of capitalism and the center of the world's economy. To succeed in the US is to succeed worldwide. On the other hand, if a product doesn't become a hit in America, it'll never be a hit internationally."
He knew it wouldn't be easy: "To take up the challenge of the American market may be the most difficult thing to do, but it's a critical step in expanding the export of our products."
Some directors thought it would be better to continue using a trading company to handle exports, but Honda decided against it and sent 39-year-old Kawashima over. A team of just three Honda employees was tasked with kickstarting the American dream, with Takayuki Kobayashi as Kawashima's deputy.
Even Japan's Ministry of Finance thought that Honda would fail, and it wouldn't grant applications to take funds out of the country. When it was finally approved, Honda was only given a quarter of what it asked for, and only half of that - a measly $125,000 - could be cash. It took more than a year after the location was chosen in 1958 for American Honda to be established, and there was still a mountain to climb.
An excerpt from Honda's autobiographical blog on the subject sums it up perfectly: The local reaction to American Honda's presence in the American motorcycle industry was decidedly down. "There is no way that Japan, having lost the war, could produce much of a product," opinion makers would say. "It won't be easy for them to bring something here and sell it." Absolutely no one predicted any sort of success for American Honda.
Worse still, just 50,000-60,000 motorcycles were sold across America annually, and the criminal stigma of the Hell's Angels motorcycle club pervaded the American opinion of two-wheelers. Still, Honda wanted 1,000 sales per month.
In September 1959, Honda officially began sales from its new base in Los Angeles, chosen for its fair weather that held the promise of business all year round. Kawashima needed manpower and hired five locals to help grow the brand's footprint. Kawashima himself would visit dealers, and ads were put in local print media. But these dealers were used to Harleys, Nortons, and BMWs. These small, oddly shaped Japanese bikes were something different altogether, and many managers thought they wouldn't sell. Those who went on test rides concluded that Honda motorcycles handled well and were solidly built. But after three months, just 170 units had been sold.
Into the next decade, and over the course of 1960, a little fewer than 2,000 motorcycles were sold. Engines began overheating and even seizing. Over 150 bikes were affected across Honda's two main products: the Dream mentioned earlier and the Benly (its third and final product at the time was the Super Cub, sold in the US as the Honda 50).
Honda's response ultimately proved to be vital, and will live on as a lesson in responding to adversity for small businesses.
As soon as he became aware of the issue, Kawashima had mechanics sent over from Japan to resolve the issue, but he knew this would only fix half the problem because a shipment of the defective bikes (over 100 of them) was en route to the Port of Los Angeles. Kawashima decided that Honda could not afford to lose the positive momentum it had gained, and there was only one course of action: sending back the shipment unopened and recalling all the affected products to send back to Japan, too. Another excerpt is worth including:
"As long as we're rooted here in America, we want to be able to sell flawless products with total confidence in their quality," Kawashima said in describing his situation to Fujisawa. "We want to send back all the problem products to Japan."
No unreliable Hondas existed any longer, and the brand could start on a clean slate with a brand-new product. This impressed dealers, and so did the bikes' engineering soundness. At the time, it was accepted that a static display of a motorcycle would develop an oil leak, but no Honda did.
In 1961, Honda opened 500 dealers at the equivalent of roughly $1.5 million in today's money, starting on the west coast and systematically moving east one region at a time. It was beginning to hit its goal of 1,000 sales a month, but the problem of what a motorcycle represented to the general public - lawlessness, rebellion, danger - still existed. Then, in 1963, Honda came up with the brilliant "You Meet the Nicest People on a Honda" ad campaign, hailed as the first of its scale to suggest to ordinary Americans that a motorcycle was for them. It's been called the greatest motorcycle ad campaign in history, and that year, Honda sold more than 100,000 motorcycles in the US - more than all other brands combined. It's no wonder that Honda's entry into the American motorcycle market is an example used to teach introductory strategy at business schools.
Also in 1963, Honda made its first car, the T360 kei truck, in August. In October, the S500 sports car was introduced, but it would be another seven years - still a relatively short time - before Honda would sell a car in the US.
In 1970, the N600 coupe was introduced at 32 dealers in the western US. It carried a sticker price of just $1,395 at a time when the average new car cost around $3,542. That same year, the energy crisis hit, and the 600cc two-cylinder engine was the antidote. People began wanting lighter and more efficient cars, and in 1973, the first Civic arrived. We all know how that went.
A noteworthy anecdote from this period is that in 1977, Honda partnered with J.D. Power and Associates to survey its US dealers to understand how customers and dealers felt about the brand. This voluntary self-examination showed how humble Honda was and how far it would go to be the best, and the initiative ultimately led to the J.D. Power Customer Satisfaction Index. Thanks, Honda.
The Civic has gone on to become an icon, but one particular model showcases Honda's technical innovation in efficiency, its determination to be an industry leader, and its founder's unwillingness to be taken lightly. This is the story of how Honda (man and company) left GM and its CEO with egg on their faces.
In 1973, Honda launched the innovative Civic CVCC Hatch, and this was the first car to meet the emissions standards set by the 1970 Clean Air Act. CVCC stands for Compound Vortex Controlled Combustion, which essentially sees pre-chambers fitted with spark plugs to ignite a richer-than-normal fuel mixture, which then becomes a leaner mixture in the typical combustion chamber. There's more to it, but it meant that Honda could meet emissions without the use of expensive, heavy catalytic converters that robbed the engine of power.
Ford and Chrysler were impressed and immediately signed on to license the technology. But GM's CEO, Richard Gerstenberg, either didn't believe it worked or was just sour.
He said, "Well, I have looked at this design, and while it might work on some little toy motorcycle engine…I see no potential for it on one of our GM car engines."
Them be fighting words.
At this point, Honda was a world leader in motorcycle manufacturing and had been producing successful cars for the Japanese domestic market for some time. The industry giant deserved respect.
As the story goes, Soichiro Honda took Gerstenberg's words so personally that he bought a Chevrolet Impala with a 5.7-liter V8, had it shipped to Japan - by air freight, no less - and instructed his engineers to make the CVCC work on the big engine. They changed only the intake manifold, cylinder heads, and carburetor to accept the CVCC technology and then had the car flown back to Ann Arbor for testing by the EPA. The test results concluded that the V8 now passed emissions standards, lost none of its 160 horsepower, and even became more efficient.
Basically, don't let Soichiro-san hear you talking smack about his cars. These days, the relationship between GM and Honda is much healthier.
In 1985, the Honda CRX Si brought affordable performance to the masses. The following year, Honda proved it could go the opposite direction and focus on comfort. It launched Acura in 1986, and in 1987, the Legend and Integra made Acura the best-selling import luxury brand in America. Four years later, Honda gave the world the NSX - a car so significant that Toyota even put one in its museum. In 1997, Honda launched the CR-V, its first in-house SUV. In 1999, it debuted the first mass-produced gasoline-electric hybrid passenger car in the US with the Insight. The Toyota Prius only arrived in 2000, but Honda missed a trick by offering the original Insight as a two-door, while the Prius could always accommodate a full family. The second-generation Insight remedied this, but only in 2009.
Each of these models was important in its own right, but we'd give the Civic the greatest credit for Honda's success in America. Honda was also the first Japanese automaker to have a US plant and the first in America to be a net exporter.
All of the above-mentioned cars are on display at Honda's new exhibit, the American Honda Collection Hall, but they only provide a small glimpse of all that Honda has achieved. We think of the brand as a bastion of reliability and engineering excellence, but we tend to associate that with cars, trucks, and SUVs, many of which are also renowned for their safety systems.
But Honda also makes marine engines, garden tools and generators, scooters, ATVs, and even jets. It's won World Championships in both Formula 1 and MotoGP. It's no stranger to IndyCar, WSBK, Touring Car, or Sports Car racing. Honda has even tried its hand at rallying and IMSA competition. Nurburgring records are a point of pride for the brand, too.
From a small team of just three immigrants, Honda has grown its American legacy to the point that one cannot imagine a world without it. But Honda is far from done. It has begun designing EVs in the US and is developing hydrogen technology. Whatever the future holds, we're confident that Honda will conquer it all yet again. That's The Power of Dreams.