Remarks for Rick Schostek, Sr. Vice President, Honda of America Mfg. Automotive Press Association Tour July 2012

Good afternoon everyone.  It's great to be with you.  We appreciate the opportunity to tell our story today.

As you know, six months ago … our global CEO, Takanobu Ito, announced at the North American International Auto Show in Detroit that our U.S. R&D and manufacturing teams would take on the development and production responsibility for the next-generation Acura NSX.  It was big news and even earned a few cheers … which was unusual for an auto show and a nice acknowledgment.

But inside Honda … the real news had come a few months earlier.  In Fall 2011 … at a meeting of our global management on our corporate campus in nearby Torrance, California … Mr. Ito told us that Honda was "at a crossroads."  He said it was time for our North American operations to step up and play an even larger role within global Honda.

In addition to the responsibility for the development and production of the NSX it was at this meeting that he asked those of us in the manufacturing area to take on a new, bigger, leadership role in North America … something I will explain in more detail later.

This challenge from our global CEO wasn't a reward … and it isn't simply a result of exchange rates.  We've been dealing with the ups and downs of global economic issues since the late 1970s.

Rather, in making these decisions, Mr. Ito was expressing his confidence in our capabilities in North America.  He noted that our U.S. plants were annually among the leaders in quality results … with our Indiana plant earning the top IQS Platinum award for 2011. And, last month, we followed that up with the Marysville Plant achieving the Silver Award in North America.   

Mr. Ito also reflected on the fact that Honda was approaching the 30th anniversary of auto production in America.  In his view, our associates have great experience and skills in both R&D and production … and it was time for us to take the turn in the road toward a new heightened level of responsibility. 

In many ways this is a culmination of the investments Honda has made over the past three decades … not only in facilities and state of the art technology … but in our people.

The 30th anniversary of our Marysville Auto Plant in Ohio is coming in November.  And, of course, we are taking the opportunity to look back at this history … and the people who helped make it happen.  But we really view this as an important time to look to the future … and take bold action for the next 30 years of our operations in North America.

What's important is not a major milestone like three decades of auto production in Ohio, but what it represents.  Which is the vision Honda showed in establishing production operations here … and the commitment to associate involvement and teamwork to continue our original vision of 30 years ago -- achieving the highest levels of quality in America.

I came to Honda in late 1987 … just as the company was rolling out what we called our 5-Part Strategy for North America.  There are a few of you here today who were covering the auto industry back then.  So, you might remember that this led to a second auto plant in Ohio … expansion of U.S. R&D operations, including a new product development center in Ohio … a major increase in local parts content … the expansion of production engineering in America for creation of dies and tooling … and a plan to export U.S.-built Honda autos, including shipments to Japan, in 1988.

But one thing I remember clearly from my early days with Honda was how the industry quickly considered our operations to be the benchmark for auto production in North America.  We opened our doors to the leadership of factories from all of the Detroit automakers.  They wanted to tour our Marysville Plant to understand how we were building such high quality vehicles in the U.S. … with a high level of efficiency and flexibility. 

After all, you couldn't say conventional wisdom led to our decision to build the Accord in Ohio.  One of Honda's advantages in the early '80s was the perception that products made in Japan were of higher quality.  Many experts thought it was a risky move to let Americans build Honda products. So, when we started building cars here in 1982, everyone … even some of our own dealers … were concerned that this would negatively impact Honda's reputation for building products of the highest quality. 

What Honda brought to the industry was a different approach that has eventually touched almost every automaker and supplier.  We introduced to North America just-in-time parts delivery and rolling model changes, for a seamless transition from old to new model production without a production shutdown.  We focused on a flexible and efficient approach to manufacturing … removing waste … with continuous improvement … and teamwork between Honda associates and suppliers to meet customer expectations for quality and value.

When consumers saw that Honda's American workers could build high-quality vehicles, eight other international companies followed us.  Additionally, the Detroit automakers improved quality and productivity to compete. Today, the quality of almost every vehicle produced in America has risen to the highest levels ever.

So, I think it speaks volumes that … 30 years later … the Marysville Auto Plant is still on the cutting edge.  It took home that Silver award … in this year's IQS rankings.   And this spring, after representatives of another respected automaker toured the Marysville Plant … they told us they consider it to be the benchmark auto plant in North America.  They were impressed with the high level of local content.  They were surprised at our focus on the skills of our associates, rather than automation … and by the high level of engagement of our people.

Through the years we have continued to invest in new technologies and processes to keep Marysville as a state-of-the-art plant. This includes major investments over the past decade in all-new weld, paint, assembly and stamping operations.  In fact, about the only thing that hasn't changed about the Marysville Auto Plant is that it still builds the Accord … the car that started it all back in 1982.   And, through it all, we've navigated through good economic times and bad without a single associate layoff.

This fall we will begin production in Ohio of the all-new ninth-generation 2013 Honda Accord.  As you will discover in a few short months, this new Accord is not one-dimensional.  It excels in all areas … advancing the Accord's outstanding fun-to-drive performance, high fuel economy and leading safety features … the same formula that has helped to make Accord a Car and Driver 10 Best pick for an unprecedented 26 of the last 28 years.
 
This new Accord is a special car befitting the 30-year milestone … a benchmark vehicle built in a benchmark auto plant.  And we are taking on a number of challenges in the Marysville Plant to make it happen.

As one example, the current model has an instrument panel with a total of 16 seams and is assembled from four separates pieces.  For the new Accord, we will have a seamless, one-piece panel with an integrated airbag lid.  In addition to a beautiful design, this helps achieve a quieter cabin with better road insulation and less opportunity for rattles or squeaks that can occur with conjoined pieces. 

This is the first time the Marysville Plant will complete the entire instrument panel assembly process in-house.  It is a very challenging project that features a number of unique processes.  This includes a very precise ultra sonic knife to score perforations into the substrate and underside of the panel topcoat for airbag deployment … and construction of a new seismic floor – six feet deep into the plant floor – to eliminate vibrations that could cause variations in the perforation.  A new vibration weld machine also was added for the airbag hinge. 

The resulting soft-touch instrument panel is part of a stunning interior … that will help Accord stand out from the crowd. 

This generation of Accord also will feature multiple new powertrain technologies from our new Earth Dreams series … including an all-new 4-cylinder direct injection engine … new sporty CVT transmission … new 6-speed manual transmission … and a plug-in electric hybrid model.

Moreover, Accord's new powertrains … the new direct injection engine and V6 engine … and the CVT and 6-speed automatic transmissions … are being produced at our engine and transmission plants in Ohio.   It's a big responsibility …  and a major challenge.

We are investing more than $120 million in the Ohio transmission plant alone to add a new assembly line for CVT production … as well as additional aluminum casting operations to support the new line.  And in addition to producing the new 4-cylinder and V-6 engines … the Anna Engine Plant, which opened in 1985 ... is investing almost $100 million tp produce high-tech pulley components for the CVT transmission beginning next year.  I won't take you through all of the details, but these two powertrain plants have worked together for two decades … and these investments will ensure they continue to be the bedrock of our operations for decades to come. 

I've had something of a unique opportunity to be a part of the growth of many of these operations in America.  I started my career in Ohio … and I am back in Marysville again.  But I spent four years in Alabama … during the early days of that plant's growth.  I later moved to our plant in Greensburg, Indiana in 2008, as that plant began mass production.

In an industry pockmarked with plant closures, Honda's story in North America has been one of continued reinvestment in our existing facilities to keep them on the leading edge of quality, efficiency and flexibility … while also introducing the newest concepts for ergonomically friendly processes for our associates.

Today – we have seven auto plants in North America with nine assembly lines and an annual capacity of 1.63 million units.  This spring, we broke ground for a new plant in Mexico, which will build Fit-series sub-compacts and increase our capacity to 1.92 million in 2014.  This will help increase the percentage of our sales produced in North America from more than 85 percent last year to well above 90 percent in the coming years. 

In addition to the new plant in Mexico, we are expanding and innovating our existing production operations in Ohio, Alabama and Indiana.  In total, an investment of about $2 billion dollars just over the past 18 months.

As I said, we are expanding our engine and transmission plants in Ohio to produce new, more fuel-efficient engines and transmissions.  And each of our plants is working to capacity.

In addition to the investments at the Marysville Plant that I've already mentioned … at our East Liberty Plant we're expanding the assembly line and adding new vehicle painting technologies.

In Indiana, we added a second production shift last year that doubled annual production volume to 200-thousand units.  This enabled the plant to add the all-new Acura ILX sedan and hybrid this spring to its existing lineup of Honda Civics.   

The Indiana plant also produces the Civic Natural Gas vehicle … the only mass-produced natural gas passenger car in America.  So, with production of hybrids and natural gas vehicles … there isn't another plant in the world that can boast this kind of production diversity.

Last week, we informed our associates in Indiana of plans to further increase production by another 50,000 units annually by early 2013 … with an investment of $40 million dollars and additional employment of almost 300 associates. This will bring our annual capacity in Greensburg, Indiana, to 250,000 units.  And early next year, we will add production of the Civic Hybrid in Indiana.

In Alabama, just last night, we informed a county commission in Alabama of our plan to invest $115 million dollars, expand our engine plant there, and increase employment by another 50 associates.  In total, this will bring our new investment in Alabama to almost $400 million dollars over the last 18 months … which also is helping us expand our auto plant and add a third stamping line that will increase capacity by 40,000 units.

Collectively, this expansion of our North American manufacturing operations speaks volumes about our confident outlook for the future.

When we began our operations in America, the foundation of the company was not on investment in buildings and equipment.  Rather, our foundation was built on how our associates learned to focus on customer satisfaction … with a high level of teamwork … a commitment to make the best use of resources … and a passion for overcoming challenges.  And this culture continues to serve as the foundation of our operations in North America and all over the world.

A recent news story referenced a 35 percent decline in U.S. manufacturing employment between 1998 and 2010.  During that same time period, Honda increased its U.S. manufacturing workforce by 35 percent … and by another seven percent since then. So, as Honda continued to invest in facilities, we've been investing in people as well.

Earlier this year, two Honda associates whom I met at Honda of America in the 1980s … ascended to key leadership roles within our U.S. operations.  Erik Berkman, who started his Honda career at the Marysville Auto Plant in 1982, was named president of Honda R&D Americas to lead our product development efforts here.  And Brian Newman … who started with Honda in 1979 at our Marysville Motorcycle Plant … was named president of Honda of South Carolina Manufacturing where we build all-terrain vehicles.  And last year, Tom Shoupe, who joined Honda about the same time I did in the late 1980s, was named president of Honda Manufacturing of Alabama. 

This kind of organic growth in our leadership capabilities is key to our future.  Over the past decade, a number of Honda associates from Ohio and Canada have served as expert engineers for Honda factories in Alabama … South Carolina … Georgia … Indiana … and Mexico. They have shared their experience … in starting up or helping innovate these operations.

A moment ago I touched on some of the challenges our Indiana plant is undertaking in order to meet customer demand.  When we launched the new Acura ILX and ILX Hybrid in Indiana, it was an exciting environment … with an effective mixture of younger Honda veterans like Tom Hilfinger … who came over from Honda of America to provide leadership … and a talented group of younger associates … many hired straight out of Purdue University in Indiana.  Together, they've accomplished a lot in a short amount of time … including that Platinum Award in last year's IQS … and successfully rolling out multiple new products and technologies.

The exciting thing is that the communication is not one way.  While we send experienced managers to new operations to help teach the Honda Way … those operations often are the test bed for new ideas that are fed back to our more mature facilities.  It's one way Honda keeps its vitality and youthful spirit … and makes continuous improvement in quality, flexibility and efficiency. 

For instance, all of our major plants have employed consolidation centers where parts are staged and re-packed for proper sequencing on our assembly lines. At our plants in Ohio and Alabama, the original consolidation centers were within ten miles of our plants.  Not a great distance, but it still required a number of trucks to shuttle back and forth each day between the center and the factory. 

As part of our Green Factory initiative, when we built the Indiana plant, we integrated the consolidation center into the operational design of the plant … and constructed it right on site.  The concept was strong … the efficiency and flexibility such an advantage … that over the past five years we've been applying the concept at all of our other auto plants.  On-site consolidation centers have been constructed in Alabama … and at both auto plants and our engine plant in Ohio.  The centers are being completed at Anna and East Liberty this year.

Several years ago … while working in Alabama … I was talking with an associate who had joined our engine plant from another automaker.  He observed that at his former company, whenever a new project began everyone received explicit instructions … "here's how to build a forging line, follow this blueprint."  However, this associate was surprised that when he received a new assignment at Honda … his instruction was simply -- "go to the Anna Engine Plant in Ohio, see what they have done, and make it better." 

The reality is that there is no cookbook at Honda.  No set way of doing things that would dampen our associates' initiative, creativity … and personal growth.  This makes the Honda Way a bigger challenge … certainly … but it also creates a bigger opportunity in terms of innovation and the growth and maturity of people.  This has been our path in North America.

It's also been our way that achievement is met with new challenges.  Which is why last fall our CEO, Ito-san, decided to challenge our manufacturing facilities in North America to step up to a new and larger responsibility.   In the coming years, our associates will play an unprecedented role for an international automaker.  We will have the lead role in taking production know-how for key global models and transitioning it to other Honda plants throughout the world.

As you know, our operations in North America have had exclusive launch responsibilities for many light truck models that are developed and built here … including the Honda Odyssey, Ridgeline and Pilot … and the Acura MDX.  But this new responsibility calls on our North American operations to set a benchmark when it comes to production processes and capabilities for key global models that also are produced in other Honda plants around the world.

To give you an understanding of what this means … historically, our production associates in North America went to our global New Model Center in Japan to learn how to launch new models.  Along with associates from other Honda plants, they would gain the know-how and refine the processes used to build those global models.  Now much of this activity will occur in North America.

So, our associates will need to deeply understand and then share the production know-how that is needed to build these global platforms.  We also must understand the capabilities and process needs of each plant around the world building that model.

Based on this leadership role, we also will be further increasing automobile and parts exports from North America to markets around the world.  This fall, Honda will reach the one million mark in total automobile exports from the U.S. to global markets.  And, by the way, this doesn't include shipments to Canada, which are a part of NAFTA.  These one million U.S.-made vehicles were sent to Japan, China and many other markets in Latin America, Europe and the Middle East.

With this increased export role, Honda associates will need to learn even more about the requirements of other markets outside of North America … the needs of those customers and how we can exceed their expectations.  For this year, we will export about 100-thousand vehicles … with the expectation that this annual total will double in the coming years.

Further, we're expecting an almost 70 percent increase this year in the export of major parts to Honda plants in South America, Europe and Asia. This represents a substantial increase in business for many of our suppliers in North America … and as we informed our more than 600 suppliers this spring … these parts exports are going to grow even greater in the coming years.

This new responsibility will be an incredible challenge … but the key to our success is our people … and how we have worked to advance and utilize their skills and ideas.  This is one of the unique attributes of the Honda Way. 

So, the bold challenge from our global CEO is something that our entire team in North America is very excited about.

We've known a lot of success over the past 30 years, and we intend to continue winning in the future.  In fact, I think it's a lot like our fortunes in IndyCar racing. We supported Indy for six years when no one other automakers were racing.  As part of our long history in America … and in racing … we looked at it as our responsibility to help maintain this important part of American culture … even during a tough time for business.  But it's also about the competition.

So, as much as we enjoy the return of engine competition to the IndyCar series, no one at Honda liked seeing the Bow Tie on the podium for the first few races. And it was interesting how quickly people counted us out after the first three races of the season.  But our engineers at Honda Performance Development were doing a lot of work behind the scenes with our U.S.-developed Indy engine.  And we restored order with the big win at the Indy 500 and with a couple of more checkered flags since then.  We're not going to win them all.   But we love competition … and our Racing Spirit is as strong as ever.

In the same way – we view our business as both a competition, and also as a shared responsibility to contribute to a strong U.S. auto industry.  The auto industry faces many challenges ahead … including ever-increasing demands for safety and environmental technologies … new information technologies… and global competition.  But we have learned so much … and gained so much … from our experience in America.

After 30 years of building cars in America … our challenging spirit … and the abilities of our associates are alive and well.  Now, we're ready to utilize these capabilities and leverage them against new challenges … in the effort to create new value for our customers and our industry.  And we look forward to the competition, too.  Thank you.

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