TOKYO — In an automotive world of mammoth mergers and corporate restructurings, Honda Motor Co. Ltd. remains true to its roots — motoring for sport and pleasure, fierce independence and agile management.

For Hiroyuki Yoshino, Honda president and chief executive officer, all are fundamental virtues that define the company's distinctive brand and nurture its youthful image.

Mr. Yoshino, 61, may be the best link to the company's storied past and Honda's best chance to infuse another generation of employees with the values and traditions that make Honda “Honda.”

He joined the company in 1963, several months before Honda sold its first car, and was part of the influential “Class of '63,” which included Nobuhiko Kawamoto, Mr. Yoshino's immediate predecessor as president, and Shoichiro Irimajiri, first president of Honda of America Mfg. Inc. and later executive vice president of the parent company before resigning for health reasons.

Although initially in the background while his two more celebrated colleagues shared center stage, Mr. Yoshino, a Tokyo University trained aeronautical engineer, became known as the man who got things done. Former Honda spokesman Shin Tanaka says “Both Kawamoto and Irimajiri would initiate policy, then Yoshino would complete the project, usually with success.”

Today, while other auto companies struggle to grow their business through mergers and acquisitions, Honda prefers organic expansion. Going it alone is not just the right way but the only way for Honda, says Mr. Yoshino, who notes: “We will not compromise on our products, and compromise is inevitable when you work with someone else.”

A former Rover executive explains that “Honda wouldn't be Honda if it couldn't be independent. Company management combines entrepreneurship with pragmatic caution.”

The Japanese automaker worked with Rover for 16 years until 1994 when BMW AG, another independent, muscled in and paid £800 million ($1.2 billion at the time) for Rover Group. Within one month, Honda pulled out of the group, severing all financial and most supply links — leaving BMW with a fragile acquisition that had only returned to profitability with Honda support.

Mr. Yoshino does not rule out limited cooperation with other automakers. In May, for instance, Honda agreed to purchase 15,000 1.7L diesel engines from Isuzu Motors Polska beginning next year (see p.69). The engines will be installed in the new Civic to be built at Honda of the U.K. Manufacturing in Swindon.

This agreement is part of a broader engine supply pact signed in 1999 with General Motors Corp., Isuzu's largest shareholder, calling for Honda to supply GM with 90,000 ULEV (ultra-low-emission-vehicle) V-6 gasoline engines annually for five years beginning in 2003.

With Isuzu's help, Honda plans to follow up with its own diesel, an even more compact 2L unit to be produced in Swindon two years from now. The justification for this independent move: Honda's longstanding belief that the engine is the heart of the car.

“We simply can't allow ourselves to be beaten in powertrains,” says Mr. Yoshino, explaining that Honda cars need lighter, more compact diesels to avoid a major redesign of the engine compartment. Plans are to manufacture this diesel with the same aluminum engine block used for Honda gasoline engines.

This advance into diesel engines, a first for Honda, is another product of the company's potent research and development program with ¥353 billion ($2.9 billion) — 5.4% of sales budgeted for fiscal 2000.

“Honda spends a larger percentage of sales on research and development than Toyota and other Japanese automakers and gets more for its money,” says Goldman Sachs (Japan) auto analyst Kunihiko Shiohara.

Mr. Yoshino opened Honda's Emissions Office in Ann Arbor, MI, in 1968 and later, while in charge of all R&D in the mid-1990s, not only signed off on Honda's EV Plus electric car, the hybrid Insight and a natural gas version of the Civic and Civic GX, but steered the company back to Formula 1 racing, though he is anything but satisfied with results so far.

In the first two dozen races since the return in March 2000, Honda's best finish was third place, and in this season's Formula 1 kickoff in Melbourne a fiery crash involving the Honda entry resulted in an off-track fatality.

Even so, Mr. Yoshino, head of Honda's motorcycle racing program in the mid-1980s, is still optimistic. “Although I don't like to lose, I know from personal experience that we learn more from failure than success. Too often when you win, good new ideas are ignored by team members.”

This time around, Honda has committed a reported $1 billion to the “racing lab” learning experience and, in addition to providing engines, is co-developing electronic controls, new composites and chassis.

Racing is the incubus of Honda's innovations and the proving ground for engineers and executives. In fact, this basic part of Honda's corporate culture dates back to founder Soichiro Honda who raced — and crashed — numerous cars before establishing the company in 1948.

Honda first hit the world racing scene with a victory at the Isle of Man in 1959 and since then has participated in more than 1,000 major motorcycle and car races with considerable success.

Not surprisingly, Mr. Yoshino, who still rides a motorcycle on his days off, attributes much of the company's success in attracting younger buyers to motorcycles and motor sports. Interestingly, Honda still outsells Toyota nearly 2-to-1 in the under-35 market segment, despite inroads made by the Vitz, Fun Cargo, Bb and other models sold through Toyota's Netz channel.

“Challenge is critical if we want our company to grow,” says Mr. Yoshino. “I always encourage our employees to set goals, whether in Formula 1 racing (won every year between 1987 and 1992), the World Solar Challenge (won in 1993 and 1996) or our more recent project to double the efficiency of our plants over the next three years.”

The biggest breakthrough on the technology front was the CVCC (compound vortex controlled combustion) engine in 1972 that dispelled the myth in Detroit that stiffer new emissions standards could not be met. More recently, Honda was the first to meet California's stringent ULEV standards (in 1995) and, concurrently with Nissan Motor Co. Ltd. in November 1999, was first to meet the new super-ULEV targets. Last year, 20% of Honda's U.S. sales were ULEVs and super-ULEVs, another 65% were low-emission vehicles, and late this year Honda plans to introduce a super-ULEV hybrid Civic.

Meanwhile, with the launch of the 1982 Accord in Ohio, the company was the first Japanese carmaker to begin production in the lucrative North American market. It was first to build engines in the U.S. and cars in Canada as well. In 1987, it was the first Japan-based automaker to export cars from the U.S.

Honda now builds cars in 14 countries. Half of global production capacity already is outside Japan, and plans are to raise that share to 60% in 2003.

Cumulative overseas investment now exceeds $7 billion and, by working closely with overseas suppliers, the company has boosted local content to 90% or more in key markets.

In Japan, Mr. Yoshino says the current passion of competitors to cut costs is old hat. His attitude: “been there, done that.” For example, the automaker slashed more than $1 billion from development costs of the 1994 Accord by bringing production engineers and suppliers on board in the early stages of the program.

Hard points on the body of the outgoing model — including such things as A, B and C pillars, side members and suspension pickup points — were matched with those of the new model. Result: dramatic savings in tooling and equipment investment by permitting the reuse of stamping dies and welding fixtures.

Mr. Yoshino next orchestrated the “small is smart” strategy to make Honda competitive in small cars. “Our ‘challenge’ was to make Honda more agile while streamlining and accelerating corporate decision-making.”

In rapid-fire succession beginning in 1998, the 1.3L Logo, 1.5L Capa, 1.6L HR-V and 660cc Vamos, Z and Stream were launched, propelling the company ahead of Nissan last year as No.2 in new car sales in Japan and raising its market share to an all-time high 12.8%.

The “small is smart” strategy followed Honda's aggressive move into the RV segment between 1994 and 1997. During that period, the company introduced seven new models, most built on Civic and Accord platforms, including such hits as the CR-V and Odyssey.

Honda is now putting a new global manufacturing structure in place that, when completed in 2003, should enable the company to cut tooling and equipment investment for new models in half. Savings of nearly $1 billion are anticipated over the next four years from more than 15 new launches.

Globally, Honda built 2.5 million cars and trucks last year, and Mr. Yoshino says: “Since we have less than half the production capacity of Toyota or GM or Ford, we must have a more efficient manufacturing system than they do.”

In his opinion, global suppliers such as Delphi Automotive Systems Corp. and Visteon Corp. are not necessarily the answer to lower production costs. Honda's strategy, much like Toyota's, depends on domestic suppliers more than Mazda Motor Corp., for instance.

Mr. Yoshino says he feels Honda's stable of suppliers is essential to the company's unique models, explaining that they “are involved in the pre-development and research stage and, unlike global suppliers with their own agenda and strategies, are less likely to force ‘standardized components’ on us.”

A case in point: Keihin Corp., created in 1997 as a joint venture between three Honda suppliers to produce electronic and engine control components for Honda including controllers for ABS systems, airbag and car air conditioners, and fuel systems. An estimated 85% of Keihin's fiscal 2000 sales of ¥192.1 billion went to Honda.

“We work closely with companies like Denso (Corp.), but Denso doesn't always want to share the ‘black box’ features of some of its latest components and systems, particularly those developed jointly with Toyota. Thus, sometimes we prefer to work with a company like Keihin, which often gets Denso to lower prices,” says Mr. Yoshino.

Not everything has gone well.

Despite record sales and near-record profits worldwide in the last two years, Honda registered losses of ¥69.9 billion ($582 million) over the past two years in Europe and is projecting another unspecified loss this year — a possible price of stubborn independence.

Nor is the company's treasured solo operation unassailable in an era of soaring research costs. “In the future, it won't be easy for Honda to remain independent in the development of expensive technologies, particularly fuel cells,” says Seiji Sugiura, an industry analyst with Nomura Securities.

Yet Mr. Yoshino is confident that piecemeal technological partnerships, when and if needed, will continue to meet corporate goals.

“The most important thing for a company is to be sensitive to society's needs, specifically environmental requirements, safety concerns and new technology like navigation systems, robots, even business aircraft, Mr. Yoshino says. Honda has been perceptive in detecting such needs. We always need to be the forerunner, ahead of others.”

Half a century ago, who would have thought that an upstart motorcycle maker in postwar Japan would become one of the world's most significant car companies?