Where We Expect Honda’s Growth To Come From
Honda Motor (NYSE: HMC) has seen its revenue grow at a pace of 4.5% per year over the last five year period. The company faced a number of challenges to revenue growth over this period in different geographies. New vehicle sales in North America were quick to grow after the end of the recession in late 2009 but most of the growth was delivered by the SUV/crossover boom, a segment in which Honda is not represented very well. Sales in Europe have been very slow to recover from the recession. The Japanese market has experienced a slowdown as well, due to a combined effect of a weak economic situation and a highly penetrated car market. The Tsunami earthquake in late 2011 also disrupted production significantly for a number of Japanese auto makers and impacted sales. The dispute over two islands in the South China Sea resulted in a cultural backlash against Japanese companies in China and affected their sales in the world’s biggest auto market. It has taken a number of years for these companies to register high sales growth of the pre-recession years in the Chinese car market. Still over this period, Honda’s revenue grew from just around $ 100 billion to close to $ 120 billion. Most of this growth was delivered by the company’s performance in the U.S. market, with the sedans Civic and Accord the biggest contributors.
Over the next five year period, we expect the company to face a different set of challenges in different geographies. In North America, the company will have to face up to the slow down in the passenger car market and increase its presence in the SUV, crossover and truck markets. The introduction of the mid-size pick-up truck Ridgeline will help in this regard. Still, we expect the contribution of North America to overall revenue to decline over this period. In contrast, the extremely under penetrated vehicle markets of China, India and Indonesia are expected to provide a lot more growth for the company. Honda already has a strong presence in these markets and its reputation for high performing, well engineered, reliable cars and motorcycles should help these two divisions grow their revenue contribution.
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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Honda Motor
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