Summary of 2006 Mid-Year Speech by Takeo Fukui, President and Chief Executive Officer, Honda Motor Co., Ltd.

Accelerate our effort to strengthen the core characteristics that make Honda unique to accomplish further growth

Honda Motor Co., Ltd. today announced specific plans and initiatives in the following three areas, which will enable Honda to accelerate its efforts to strengthen Honda "at the spot," strengthen the core characteristics that make Honda unique, and achieve further growth.

  1. Establishing advanced manufacturing systems and capabilities
  2. Strengthening the foundation for overseas growth
  3. Strengthening the commitment to reduce Honda's environmental footprint

1. Establishing Advanced Manufacturing Systems and Capabilities

By strengthening the areas of production and R&D in Japan that supports the future growth of overseas operations, Honda will establish advanced manufacturing systems and capabilities to create new value.

Strengthening Japan Production
Building a New Automobile Production Plant:

Honda plans to build a new auto plant capable of synchronous auto production - from the engine to the entire automobile -- in Yorii, Saitama to begin operation in 2010.

  • The annual production capacity of this new auto plant will be approximately 200,000 units. Employment at the new plant is expected to be 2,200 associates. Related investment is expected to be approximately 70 billion yen.
  • When the new plant becomes operational, Honda's total annual production capacity in Japan will be increased from the current 1.3 million units to 1.5 million units.
  • After the new Yorii plant becomes operational, Honda will renovate the Sayama plant to make it the most advanced production operation. Honda will establish a high quality and high efficiency manufacturing system by applying the latest technologies to both the Sayama and Yorii plants. These plants will be responsible for evolving such manufacturing systems horizontally to other Honda operations worldwide.

Strengthening Automatic Transmission (AT) Production:

  • The production capabilities at the Hamamatsu Plant will be further strengthened as the leader plant of global AT production, with manufacturing technologies to be further advanced in Hamamatsu.

Strengthening R&D Capabilities
Establishing New R&D Center:

  • Honda will build a new R&D center in Sakura, Tochigi. This new R&D facility will have multiple test courses, which reproduce various driving conditions including high-speed driving to urban-area driving. In this way, Honda will strengthen development of next-generation vehicles. Honda is aiming to begin operation of this new R&D facility in 2009. Related investment is expected to be approximately 17 billion yen.

2. Strengthening the Foundation for Overseas Growth

Honda will further strengthen the foundation for the growth of overseas operations by focusing on strengthening its business foundation in North America and on business expansion in growth areas such as Asia and South America.

Strengthening North American Operations
Building a New Automobile Production Plant in the US:

  • The new auto plant in the U.S., which is planned to become operational in 2008, will have annual production capacity of approximately 200,000 units. The related investment is expected to be approximately US$ 400 million. Employment at this new plant is expected to be more than 1500 associates. And this new plant will have the lowest environmental footprint among other Honda auto plants in North America.
  • We are in the final process of selecting locations, with plans to announce more details when the final decision is made.
  • With this new plant, annual auto production capacity in North America will be increased from the current 1.4 million units to 1.6 million units.

Building a New Auto Engine Plant in Canada:

  • Honda plans to build a new engine plant in Canada, neighborring the existing auto plant - Honda of Canada Mfg.(HCM) The annual production capacity will be approximately 200,000 units, and the plant should begin operation in 2008. Related investment is expected to be approximately US$140 million, with employment of 340 associates.
  • This new engine plant will produce four cylinder engines for supply to HCM, which are now produced at Anna Engine Plant in Ohio. The Anna Engine Plant will begin supplying engines for the new auto plant in the U.S. and will also begin producing some engine components which are currently being supplied from Japan. Through this, Honda is going to further increase its local content in North America.
  • The new automatic transmission plant in Georgia (with annual production capacity of more than 300,000 units) began operations this month (May 2006). With the addition of this plant, Honda will establish an integrated AT production capability and further improve production efficiency.

Expanding Business in Growth Areas
Motorcycle Business in Asia:

  • Hero Honda in India is planning to increase capacity of its existing line (by 450,000 units) as well as build a new plant with annual production capacity of 450,000 units. As a result, annual motorcycle production capacity in India will increase by an additional 900,000 units to a total of 5.2 million units by 2007.
  • Honda is planning to expand motorcycle production capacity in the Philippines and Pakistan. With these expansion plans, the annual motorcycle production capacity in Asia will reach 14 million units by 2007 - an increase of 6 million units in three years, compared to the 8 million unit capacity in 2004.

Automobile Business in Asia:

  • Honda has decided to undertake the plan to double automobile production capacity in India three years ahead of the original schedule. Annual automobile production capacity in India will reach 100,000 units around the end of 2007. Honda will consider further expansion to accommodate future growth in customer demand.

Automobile Business in China:

  • When Guangzhou Honda's second auto plant with annual production capacity of 120,000 units becomes operational this fall, total automobile production capacity in China will reach 530,000 units. Honda will consider further expansion based on future market trends.

Automobile Business in South America:

  • Honda is planning to double production capacity of its auto plant in Brazil to 100,000 units by 2008.

Based on these expansion plans and other initiatives, Honda envisions 2010 global unit sales of more than 4.5 million units for automobiles, 18 million units or more for motorcycles, and 7 million plus units for power products.

3. Strengthening our Commitment to Reduce Environmental Footprint

Under the direction of "commitment for the future," Honda will continue pursuing more proactive efforts to reduce its environmental footprint with the main focus on CO2 reduction.

Reduction of CO2 Emissions - Setting Voluntary Goals

  • Honda voluntarily sets global CO2 reduction goals for its products and production activities and is accelerating its efforts to achieve those goals.
  • In 2000, the global average of CO2 exhaust emissions among Honda automobiles was 179.5g/km. Despite increased sales of larger-size vehicles such as SUV and minivans, average CO2 emissions were reduced by 5% during the five year period up to 2005.
  • Honda now strives to achieve a further reduction of 5% or more, aiming to accomplish a total 10% reduction by 2010 compared to the level of 2000. Honda will also work toward a 10% reduction both for motorcycles and power products.
  • At Honda, the global average of CO2 emissions to produce one automobile also declined by approximately 5% during the five year period up to 2005. Honda is working toward a further reduction by 5% or more by 2010 to achieve a total reduction of 10% compared to the level of 2000. For motorcycle and power product production, Honda set goals to reduce CO2 emissions by 20% in each area.
  • Honda is the first automaker in the world to announce global CO2 reduction goals for its products and production activities.

Product strategy
New Dedicated Hybrid Vehicle:

  • Honda is now developing a new dedicated hybrid vehicle suitable for family use in major automobile markets in the world. With this new dedicated hybrid vehicle Honda will achieve further advancement of fuel efficient technologies and a major cost reduction, which will enable Honda to offer this vehicle in 2009 at a price level lower than the Civic Hybrid.
  • Production of all-new, more-affordable, dedicated hybrid vehicle, including the hybrid unit, will be produced at Suzuka Factory. The worldwide sales plan is approximately 200,000 units per year that includes projected North American sales volume 100,000 units.

New Clean Diesel:

  • Based on the current highly successful diesel engine currently sold in Europe, Honda is now developing a cleaner next-generation 4-cylinder diesel engine. This engine will meet the U.S. EPA's stringent Tier2 BIN5 emission standard requiring NOx emission levels equivalent to a gasoline-powered vehicle. Honda plans to introduce this super-clean diesel engine to market within the next three years.
  • Honda will also work toward development of a clean V6 diesel engine.
  • While improving the fuel efficiency of gasoline engines with Advanced VTEC, Advanced VCM, and other technologies, Honda will expand application of hybrid technology to smaller size vehicles and diesel technology to medium-to-large size vehicles. Thorough these comprehensive efforts leveraging the unique characteristics of each environmental technology, Honda will accelerate its effort to reduce CO2 emissions.

Motorcycles:

  • Honda plans to install fuel injection on the majority of models for sale worldwide by the end of 2010.
  • Moreover, Honda will introduce new engine technologies such as super-low friction engines, which will improve fuel economy by up to 13% compared to the current level, and VCM systems for motorcycles, which will improve fuel economy by up to 30% compared to the current level.

Fuel Cell Vehicle:

  • Honda is currently developing a new vehicle based on the technology and design of the FCX Concept, and a drivable model will be unveiled in fall of this year. Honda plans to begin sales of this new fuel cell vehicle within the next three years.

Solar Cell:

  • Solar cell panels developed by Honda are currently installed and utilized at 15 Honda facilities worldwide, the Suzuka Factory will be added to this list in fall of this year.
  • Honda will begin the production and sales of solar panels in fall of this year, within limited areas. Honda will begin mass production of the solar panel by establishing a production line with the annual capacity of 27.5 megawatts at Honda's Kumamoto Factory in 2007.

Honda will further strengthen its ability to create advanced technologies and products that represent the uniqueness of Honda with the goal to become number one in the world in creating new value and joy for our customers.

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