Its globalization strategy of building factories around the world that would meet the needs of local customers had resulted in a total worldwide presence of more than 100 factories in 33 countries. Furthermore, while other auto manufacturers engaged in a frenzy of merger and acquisition activities in the late 1990s, Honda steadfastly maintained its independence. Honda has grown into one of the worlds largest automobile manufacturers and has also evolved into one of the most respected global brands. In 1997, Honda Motor Company introduced to Japan a two-door gas/electric hybrid vehicle called the Insight.
The Insights fuel efficiency was rated at 61 miles per gallon in the city, and 68 miles per gallon on the highway, and its battery did not need to be plugged into an electrical outlet for recharging. By 1999, Honda was selling the Insight in the United States, and winning accolades from environmental groups. In 2000 the Sierra Club gave Honda its Award for Excellence in Environmental Engineering, and in 2002 the Environmental Protection Agency rated the Insight the most fuel-efficient vehicle sold in the United States for the 2003 model year.
By August 2005, Honda had sold its 100,000th hybrid to retail customers. Developing environmentally friendly automobiles was not a new strategy for Honda. In fact, Honda work on developing cleaner transportation alternatives had begun decades earlier. Honda had achieved remarkable technological successes in its development of solar cars and electric cars and was an acknowledged leader in the development of hybrid cars. Gaining mass-market acceptance of such alternatives, however, had proved more challenging.
Despite apparent enthusiasm over environment friendly vehicles market adoption of environmentally friendly vehicles had been relatively slow, making it difficult for automakers to achieve the economies of scale and learning curve effects that would enable efficient mass production. Some industry participants felt that the market was not ready for a mass-market hybrid; Honda and Toyota were betting otherwise, and hoping that their gamble would pay off in the form of leadership in the next generation of automobiles.
Hybrid Electric Vehicles Hybrid electric vehicles (HEVs) have several advantages over gasoline vehicles, such as regenerative braking capability, reduced engine weight, lower overall vehicle weight, and increased fuel efficiency and decreased emissions. First, the regenerative braking capability of HEVs helps to minimize energy loss and recover the energy used to slow down or stop a vehicle. Given this fact, engines can also be sized to accommodate average loads instead of peak loads, significantly reducing the engine weight for HEVs.
Additionally the special lightweight materials that are used for the manufacture of HEVs further reduce the overall vehicle weight of the vehicle. Finally, both the lower vehicle weight and the dual power system greatly increase the HEVs fuel efficiency and reduce its emissions. As of 2004, gas-electric hybrid engines were delivering, on average, fuel economy gains of about 25 percent over regular combustion engines. Hondas Hybrid Engine.
The Honda Insight was designed as a parallel hybrid system, where the electrical power system and the gasoline power system run in parallel to simultaneously turn the transmission, and the transmission then turns the wheels. The electric motor in the Insight aids the gas engine by providing extra power while accelerating or climbing, and supplements braking power. The electric motor can also start the engine, obviating the need for a traditional starter component. The Insights electric engine is not powerful enough alone to propel the car; therefore, the gas engine must be running simultaneously.
The Insight mileage ratings were 61 mp in cities and 70 mpg on highways, with 0”60 miles per hour acceleration in approximately 11 seconds. At lower speeds the electrical components provide the extra horsepower to propel the car, reducing the gas engines effort and thus saving fuel. The batteries are regenerated by capturing energy during braking or slowing and through standard electricity generation provided by the traditional generator component in a standard car engine. Therefore, one does not have to plug in the Insight, or any of Hondas hybrids, to recharge the batteries.
Obstacles to the Adoption of Hybrids Though the hybrid market had exhibited rapid growth (see table 3. 1), the numbers of hybrid vehicles sold were still very small compared to traditional automobiles, Adoption of hybrid designs by consumers and by U. S. auto manufacturers had been slow because of uncertainty about the direction engine design would go in the next few years. Would one hybrid design rise to dominate the others? Would hybrids be quickly displaced by other alternative fuel technologies such as fuel cells or hydrogen combustion?
Many people believed that hybrids would be a short-lived phenomenon, quickly replaced by fuel-cell-powered vehicles. Daimler Chrysler, for example, commented in one of its recent SC filings that its managers regard hybrid vehicles as an intermediate step, as a bridge between the combustion engine and the fuel cell. Sales of hybrids were further hindered by consumer ignorance regarding hybrid technology: as of 2004, 50 percent of U. S. consumers still believed that hybrid cars require battery regeneration via electric plug.
Hybrid cars were also expensive to produce relative to traditional automobiles. While Honda charged a sales price for the Insight that was comparable to its non- hybrid counterparts-”around $20,000, depending on options”it was estimated that Honda lost as much as $8,000 per car when the hybrids were originally launched, as a result of insufficient volume to achieve economies of scale. Total Hybrid Electric Passenger Vehicle Sales in United Sates, 2000-2004 YearUnit sales 20009,367 200120,287 200235,691 200347,525 200483,153 Strategy at Honda
At Honda, being an environmental leader means never uttering the words It cant be done. Thats why for more than two decades Honda has led the way in balancing what consumers want with what the environment needs. Technologies change over time”but our commitment to the environment never will. Honda Corporate Web Site, August 2003 Hondas strategy had consistently emphasized innovation, independence and environmental friendliness.
In 1972, Honda introduced the Civic, which became n immediate success, ranking first in U. S.fuel-ec onomy tests for four consecutive years starting in 1974. Through the 1980s and 1990s, Honda made a number of advances in environmentally friendly transportation. In 1986, it developed the first mass-produced four-cylinder car that could break the 50 miles per gallon barrier, the Civic CRX-HF. In 1989, it became the first auto manufacturer in the US to use solvent-free paint in its mass production facilities. In 1996, Honda introduced a record-breaking soIar-powered car (a prototype not designed for commercial production) and in 1998 it introduced a completely electric vehicle.
Though the electric car was not a commercial success, developing the electric vehicle built a foundation of expertise that Honda would later employ in its development of fuel cell technology. Fuel cells were considered to offer great potential for the eventual replacement of combustion engines (DOE, January 2002). In Hondas research and development of its hybrid engine systems management decided to keep collaboration to a minimum, essentially going solo with a risky but potentially profitable strategy to change basic automotive power design for the first time in a century.
Hondas decision to not collaborate stood in stark contrast to the licensing and joint venture strategies pursued by Toyota. Toyota had aggressively pursued collaboration agreements for its hybrid technology and had accrued over 1000 patents on hybrid-related technology as of 2006. Toyota also promoted its hybrid technology design by licensing the technology to Ford and Nissan.
While some industry observers were perplexed by Hondas decision to avoid collaboration, others pointed out that Hondas independence both gave it more control over its technological direction and ensured that the accumulated learning remained in-house. Consistent with this, Hondas management insisted that keeping development exclusively in-house compelled Honda to understand all aspects of a technology, from its strengths to its weaknesses, This in-house know-how could lead to sources of competitive advantage that were difficult for competitors to imitate. Source: Schilling, 2006.