Honda is strong in research

Company preparing to make cleaner cars

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June 21, 2006|By BLOOMBERG NEWS

TOKYO -- In 1973, junior engineer Takeo Fukui helped put Honda Motor Co. on the U.S. map with a Civic subcompact that met clean-air standards without a $1,000 tailpipe filter known as a catalytic converter. He was 28.

Today, as Honda's chief executive officer, Fukui, 61, is racing to repeat his triumph at a lab 68 miles north of Tokyo. There, engineers are building a diesel engine for 2009 that Honda says will meet both new U.S. limits and more stringent California rules on soot and nitrous oxide emissions and still use 30 percent less fuel than gasoline models.

Honda allows no media visitors to the lab. Fukui is guarding it as his secret weapon at a time of $3-a-gallon gasoline.

"People want cars that emit less pollutants, use less fuel and protect their occupants," says John Casesa, an auto industry consultant at Casesa Shapiro Group LLC in New York. "These trends play directly to Honda's strengths."

Fukui is seeding everything from fuel cells to humanoid robots to a business jet whose fuselage is made of composite plastics that are 10 percent to 15 percent lighter than aluminum.

Honda acquired patents to high-yield rice genes last year. It's trying to learn the basics of genetic science with the aim of making ethanol from sugar cane to run cars, says Motoatsu Shiraishi, 59, president of research and development.

A common theme

Honda's common theme in what might seem random forays into quirky fields is to move people and things efficiently, thus conserving energy and reducing waste.

Honda increased its annual research budget for the year ending March 31, 2007, to a record $4.72 billion, 6.8 percent more than a year earlier and a 17 percent leap from the year ended in March 2005.

"We'd like to have the brand image as the world's biggest contributor to the environment," Fukui says during an interview on the 10th floor of Honda's Tokyo headquarters, where he works with 19 executives in one large room.

Fukui says Honda has an advantage over car-making rivals because its engines power lots of things, from motorcycles, where it's No. 1 in the world, to lawn mowers. That gives Honda flexibility in an auto industry slump.

"Developing our business along the lines of mobility will improve the toughness of Honda against economic fluctuations," says Fukui, a motorcycle fan who sports an amulet that identifies a rider's blood type in case of a crash.

Honda makes the most of its environmental strategy, even if the game plan sometimes takes unexpected turns.

It earned the crown as the top organic soybean processor in Ohio after determining that shipping empty auto-part crates from U.S. plants back to Japan was wasteful. It hired local farmers to grow soybeans and now sends the crop home in once-empty containers.

In February, Honda started selling a dietary supplement made from fermented soybeans that helps dissolve blood clots.

John Mendel, Honda's U.S. sales chief, says the far-ranging research can appear haphazard.

"This is something that bugs investors, because they don't know where we're going," he says.

Investors will tolerate the strategy as long as Honda stays true to its values, he says.

"We want people to ask, `Will the world need Honda in the year 2010?' and we want them to answer, `Hell, yes,'" Mendel says.

Honda knows engines because that's where it got its start. After World War II, the company strapped surplus motors designed for electric generators onto bicycles. It began making its own engines in Hamamatsu, Japan, in 1947. Then, in 1948, it built its first motorcycles.

During the next six decades, Honda has pushed its engineers to find the cleanest and most efficient way to mix air, fuel and explosive sparks inside an engine. Last year, it built 19.6 million engines, more than any other company on the planet. About 3.4 million went into its own cars and trucks, making Honda the world's eighth-largest automaker.

"Honda has always had the best engine technology, and that's a strength in a high-fuel-price environment," says Jeffrey Scharf, whose Santa Cruz, Calif.-based Scharf Investments holds Honda shares within its $575 million portfolio.

Honda had the lowest average emission level among major automakers, including 0.31 gram per mile of smog-forming chemicals such as nitrous oxide. That compared with 0.84 gram for GM. Honda also had the highest average fuel economy, at 29 miles per gallon, compared with 22.9 mpg for GM.

Hopes for new diesel

Fukui says he hopes Honda's new diesel will reclaim the environmental halo Toyota grabbed with its hybrid Prius.

"When Honda's clean diesel is out, it will have equal abilities to compete with gasoline hybrids," Fukui says, adding that Honda tries to be more agile and innovative than Toyota because it has to. "They are very centralized, like the Roman Empire," Fukui says.

As for American companies, "they are preoccupied with short-term profit performance," Fukui says. "It's our mission as an automotive manufacturer to protect the global environment."

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