Honda Motor Company ADRHMC

Morningstar Rating

Stock Research and Analysis

by David Whiston, CPA, CFE

A strong yen and plummeting United States demand for light vehicles will make the future difficult for Honda, but the company's brand, products, and strong financial position will keep it on solid ground.

Honda's brand and reputation for quality drive Read more

Bulls Say

Honda's popular vehicles allow it to use fewer incentives than the Detroit Big Three, boosting the firm's profits and improving the resale value of vehicles.

U.S. market share increased to over 11% in 2009, putting Honda ahead of Chrysler.

Honda and Acura ranked second and fifth, respectively, on the Consumer Reports 2010 model year predicted reliability survey.

Significantly lower pension and retiree health-care costs give Honda a cost advantage over the Detroit Big Three.

If gas prices increase, Honda's hybrid expansion will create more vehicles that can be sold at a premium price, which will boost margins. Read more

Bears Say

Environmental laws are becoming stricter, which will make cars more expensive to produce and more expensive for consumers to buy.

A weak U.S. dollar will make growing profits harder for Honda than in the past. The weak dollar is forcing Japanese automakers to raise prices in the U.S.

The auto industry suffers from global overcapacity that creates pricing pressure and makes it difficult to earn high economic profits for all participants.

Although Honda's sales mix from North America is becoming smaller, the market still is more than half of sales. This exposure will create difficulties, given the plunge in U.S. auto sales and the weak dollar relative to the yen.

General Motors and Ford may become more formidable competitors once their gross margins improve from implementing VEBA agreements in 2010. Read more

Strategy

With its expanded hybrid lineup, Honda seeks to sell 500,000 hybrids a year within a few years. Management sees hybrids eventually leading to hydrogen fuel cell vehicles, which emit only water vapor. Read more

Management

Honda has a management structure that differs from most public U.S. corporations. A board consisting of 21 directors runs the company. Takanobu Ito became president in June 2009 and has been with Honda since 1978. Ito also is head of research and development, Read more

Profile

Incorporated in 1948, Honda Motor was originally a motorcycle manufacturer. Today, the firm makes automobiles, motorcycles, and power products like boat engines, generators, Read more

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