The host of the Guangzhou Auto Show 2008 was Guangzhou Honda Automobile Co., Ltd., a Honda automobile production and sales joint venture in China. It took advantage of the opportunity to unveil its first proprietary brand model, the Linian Concept and the new City model, Feng Fan. The promotion was accompanied by a glitzy video presentation. As most international carmakers are forced to tighten their belts or teeter on the edge of bankruptcy, Guangzhou Honda appears to be taking an uncharacteristically extravagant approach.
In October, with 25,025 vehicles sold, Guangzhou Honda was ranked 6th for auto sales in China, behind FAW Volkswagen, Shanghai General Motors, Shanghai Volkswagen, Dongfeng Nissan and FAW Toyota. More than 13,000 Honda Accords had been sold, beating out the formidable Toyota Camry in the mid to high-end market.
In fact, Guangzhou Honda has just four vehicle models: Accord, Odyssey, City and Fit. But it remains confident about introducing new models despite the global economic downturn. In fact, its sales continue to climb. “Guangzhou Honda does not need many models to expand sales. But we require each model to remain among the top three in their respective segments,” explains Eiji Okawara, the president of Guangzhou Honda.
Zeng Qinghong, the former executive vice president of Guangzhou Honda and current president of Guangzhou Automobile Industry Group, has a keen understanding of the strategy needed to survive in an industry that is on the ropes. “Be discreet and be economical before expanding,” he notes.
Getting Lean and Flexible
Toyota has its own pattern, and so does Nissan. Guangzhou Honda builds its “flexible lean production model” in China on the principle of “being discreet”.
Guangzhou Honda’s production procedures are similar to other auto brands: punching, welding, coating and assembly. But there is one big difference that sets it apart from other auto makers: Guangzhou Honda’s production line can crank out four different models at the same time. “It is the only one in the world,” boasts Eiji Okawara.
The system now involves two production lines. Every six vehicles on the line are of the same model. Another mould is then installed to build another model or for painting the vehicles in a different color. The changeover requires only 50 seconds.
It might seem that the 50 seconds is a needless waste of time. But for Guangzhou Honda, maintaining steady development is a bigger priority than using that same time to just build another car. Zeng Qinghong describes the production pattern as a system that allows “multiple models to share the same production line, with the model mix flexibly adjusted to meet market demands”.
The pattern also minimizes overall costs. While it may seem more efficient to build a single model on one line, in the always-changing auto market, a stubborn pursuit of numbers and reduced unit costs can often result in overproduction, a nagging problem for any automaker. In addition, a production line requires massive investment, which means it will take a considerable period of time to recover the costs while grappling with the higher risks and dropping profit margins that currently plague the industry.
“I cannot deny that cranking out a single model on one production line is favorable in the effort to minimize costs, but to survive, the business needs an optimal efficiency model. And the answer is a flexible, lean production model,” explains Fu Shoujie, the chairman of Guangzhou Honda. Between absolute benefits and real benefits, Guangzhou Honda has chosen an optimal route: a production model based on careful product research and precise estimations of the market segments.
The Fit saloon was introduced by Guangzhou Honda under specific market conditions. The first Fit rolled off the line in 2003 at a time when international automakers were vying for a share of the growing family sedan market in China.