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A staunchly independent Honda switches gears with GM partnership

Sharing of core components signals new approach for Japanese automaker

The Japanese automaker will be sharing engines and chassis with General Motors. (Source photos by Koichi Hiromitsu and Reuters)

TOKYO -- Honda has taken the crucial step of sharing core components with General Motors under an expanded North American alliance, a turnaround that reflects the automaker's miscalculation on its previous go-it-alone strategy.

In announcing the strategic partnership Thursday, the two automakers said they will consider sharing common vehicle platforms, including internal combustion propulsion systems, and procuring parts together. The collaboration signals the great cost pressure the sector is facing in trying to develop cleaner technologies.

"We can greatly improve cost performance in the biggest market of North America," Seiji Kuraishi, Honda executive vice president, said, explaining the motive behind the tie-up.

Previously, the two automakers' partnership centered on next-generation technologies, such as autonomous driving and electric vehicles. The expanded alliance targets technologies that directly affect current competition, such as gasoline-powered vehicles and hybrid technology.

They will begin specific collaborations, including standardizing vehicle platforms, as early as next year.

Honda long prided itself on fierce independence in its technical development. This sharp shift in direction stems from a miscalculation by President Takahiro Hachigo.

Asked at a May earnings briefing about the automaker's plans to launch an "eyes-off" self-driving car this year, Hachigo stumbled through his response. "Hopefully we can somehow roll it out within the year," he said.

Honda President Takahiro Hachigo will be under pressure to deliver quick results from an expanded collaboration with General Motors. (Photo by Maho Obata)

Honda had originally eyed a debut this summer for the car, which can drive itself without human input under certain conditions -- the first "level 3" autonomous model from a Japanese automaker.

But progress toward putting a self-driving vehicle on the road proved slower than the company had envisioned. Honda had announced in 2018 that it would invest 300 billion yen ($2.83 million at current rates) by 2030 in GM Cruise, the U.S. company's autonomous-vehicle unit. But GM Cruise, which had been set to launch a robotaxi service last year, ended up postponing its plans.

"I don't want to talk about self-driving right now," Hachigo told those close to him in the summer, frustrated by the lack of the automaker's progress in the technology. Honda has also struggled to gain momentum in electrics. It began shipping the Honda e, its first mass-produced electric car, to European customers last month.

But the company expects to sell just 1,000 models, which have a range of almost 300 km and is priced at about 4.5 million yen, at its home market a year. It lags far behind leaders in the field like Tesla.

Honda earns the majority of its revenue from four-wheeled vehicles, but its only big hit in recent years was the N-Box mini car released in Japan, and two-wheelers are becoming increasingly important to earnings.

The motorcycle business, which also includes all-terrain vehicles and side-by-sides, made 285.6 billion yen in operating profit for the year through March 2020 -- roughly twice as much as the automobile business.

The motorcycle business also logged an operating profit ratio of 13.9%, compared with the 1.5% for automobiles.

Honda' s auto business was in dire straits before Hachigo took the helm in 2015.

In 2012, former President Takanobu Ito set a goal to sell 6 million units worldwide as part of a global expansion. Ito said the 2008 financial crisis had made him regret how dependent Honda was on the U.S. market, but the new production equipment added as part of this strategy had become a burden.

Hachigo shifted Ito's expansion strategy to one that was focused on profit. Excess production capacity was eliminated both at home and abroad -- such as the closing of the Sayama Plant in Japan and the Swindon Plant in the U.K.

Since the beginning of this year, Hachigo has taken the scalpel to Honda's research-and-development operations -- an area that was regarded as sacred since the days of company founder, Soichiro Honda.

The parent company brought most of these operations in-house except for some portions of auto development run by subsidiary Honda R&D.

"We focused too much on the idea of department optimization," Hachigo said, looking back at the previous R&D setup at the company.

Then, the coronavirus pandemic hit.

For a company that was struggling to find a growth area -- something that could sustain the automaker until next-generation technologies came to life -- the virus slammed the brakes.

Global four-wheeler sales dropped by about 40% in the April-June quarter, leading to a 195.8 billion yen operating loss.

Industry research companies predict demand for cars will fall 20% in 2020. It was against this backdrop that the automaker had no choice but to expand its cooperation with GM.

From only collaborating on future technologies such as fuel cells and autonomous driving, the companies will expand to sharing core components such as engines and chassis to reduce costs. History, however, does not paint a rosy path ahead.

Collaboration between automakers rarely ends in success. Nissan Motor and Renault, for instance, have taken two decades to implement joint purchases and align engines. Can Honda really improve profitability by deepening ties with GM?

Sixth-year president Hachigo will be under pressure to deliver quick tangible results.

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