Made in the U.S.A.

The year was 1979.

Gasoline prices were soaring, the U.S. was in a tense showdown with Middle Eastern extremists, Chrysler Corp. was awash in red ink but on the verge of a strong product revival, and Starsky & Hutch had come and gone from the screen as quickly as their tomato-red '76 Ford Gran Torino muscle car.

U.S. consumers were appalled to spend more than $1 for a gallon of gasoline. The aging Ford Pinto continued to sell well, as did other small, more fuel-efficient cars. The three best-selling cars in America were, in order, the Oldsmobile Cutlass Supreme, the Chevrolet Chevette and the Ford Fairmont, according to the 1980 Ward's Automotive Yearbook.

While General Motors Corp. and Ford Motor Co. stepped up overseas expansion in 1979, their products at home were earning less-than-sterling quality reputations. Consumer groups criticized Detroit's cars for rusting bodies and poor reliability as imports (mostly Japanese) grabbed an unthinkable 22% of the car market. The imports were becoming so popular in the U.S. that Japan was forced to “voluntarily” limit its exports.

Meanwhile, Big Three manufacturing efficiency was in such sorry shape that Harvard University Prof. Hugo Uyterhoeven warned “unless the decline in productivity of American industry is reversed, the 1980s will mark the eclipse of the U.S. as a major economic power.” Eventually, U.S. productivity came around, but even the esteemed professor could not have pinpointed the exact location where the seeds of this revolution would be sewn.

On farmland in central Ohio, northwest of Columbus, a manufacturing facility sprung forth that, ironically, had nothing to do with cars.

Honda Motor Co. Ltd., which barely ranked No.5 among Japanese auto makers at the time and was better known for its motorcycles, announced plans for its Marysville Motorcycle Plant in 1977. Two years later, on Sept. 10, 1979, the first product rolled off the Marysville assembly line, a simple red CR250 Elsinore dirt bike. The entire plant cost $30 million.

Detroit barely paid attention. Honda had been selling cars — built in Japan — in the U.S. for nine years at that point. In 1970, Honda's first year here, the company sold a grand total of 4,159 N600 and S600 small cars. The Civic arrived in 1973, the Accord in 1976.

By 1979, however, Honda was selling 353,000 cars annually in the U.S. and was gaining steam as market share rose sharply for Japanese and European imports. Still, it would have been difficult for Big Three executives to foresee the Marysville motorcycle plant as something more portentious: Honda's pilot facility in preparation for automobile manufacturing on U.S. soil.

But that's what it was. In 1980, Honda announced it would build a vehicle assembly plant next to Marysville Motorcycle, and the first Japanese car made in the U.S. — an '83 Accord — emerged from the new line at Marysville on Nov. 1, 1982, assembled by U.S. workers, many of whom previously had been plying the nearby fields as farmers.

The event jolted the tectonic plates of the U.S. auto industry. With Honda's success, every Japanese auto maker cast an ambitious gaze at the U.S. Nissan Motor Co. Ltd. was the second Japanese OEM producing vehicles in the U.S., in Smyrna, TN, in 1983, followed by Toyota Motor Corp., which established its New United Motor Mfg. Inc. joint venture with GM in Fremont, CA, in 1984. Toyota then opened its first wholly owned vehicle plant in Georgetown, KY, in 1986.

Other Japanese “transplants” followed, including Suzuki Motor Corp., Mitsubishi Motors Corp., Mazda Motor Corp., Fuji Heavy Industries Ltd. (Subaru) and Isuzu Motors Ltd. But it all started with Honda, and the proud-yet-humble company has a week's worth of festivities planned for early September to commemorate the 25th anniversary of the start of production.

Sean McAlinden, chief economist of the Michigan-based Center for Automotive Research, recalls the environment in which Honda staked its U.S. claim in the late 1970s.

“The exchange rate at the time was ¥330 to the dollar, which made it extremely expensive for Honda to invest in the U.S.,” McAlinden says. Despite the initial cost, Honda's strategy to build cars where they are sold eased the yen-dollar fluctuations and ultimately paid off handsomely. “They're a real pioneer outfit,” he says.

There are two schools of thought on the impact of the Japanese on the U.S. auto industry: Critics call them interlopers that do not pay union wages. They threaten U.S. jobs as Big Three market share withers. They benefit tremendously from a free market in the U.S. while Japan virtually is closed to sales by the Big Three.

The opposing argument is that Japanese OEMs have created thousands of good-paying manufacturing jobs for Americans — and continue to do so — and that the arrival of the highly competitive Japanese was the best thing that could have happened to Detroit as a motivator to improve quality and manufacturing efficiency.

McAlinden says Honda's impact on the U.S. economy has been nothing but positive. For every job created by Honda in the U.S., for instance, another 9.4 jobs have been created elsewhere in the economy, McAlinden quotes from a recent study. Honda now has 25,000 full-time employees in the U.S., including 16,000 in Ohio.

And the argument that Americans should “Buy American” Big Three products fails to hold water, McAlinden says. “The Accord has the highest domestic U.S. content (70%) of almost any vehicle built in the U.S.,” he says.

In the early 1980s, however, Japanese resentment was running strong in Detroit. Five months before the Accord launched, two disgruntled auto workers beat to death Vincent Chin, a 27-year-old Chinese-American, with a baseball bat after an argument in a suburban Detroit strip club. The auto workers blamed the Japanese — and, mistakenly, Chin — for the loss of auto jobs.

Such isolated incidents did not derail the Japanese auto makers.

For Honda, Marysville set the course for massive development in the Ohio heartland. The Anna engine plant opened in 1985, followed by the East Liberty vehicle assembly facility in 1989 and the Russells Point transmission plant in 1996.

Larry Jutte grew up in Anna and as a boy worked at his grandparents' farm, just down the road from where the engine plant later was built. He never could have foreseen the changes in store for his farm community.

“Honda's largest engine plant in the world would be right down the road from the farm? Are you kidding?” Jutte says with an incredulous smile. “If people talked like that, they'd put you in a cell somewhere with a lot of padding. Never.”

Now senior vice president-procurement at Honda of America, Jutte joined the company the same year the Anna plant opened. He even shooed away a cow that wandered onto the construction site at the time.

Jutte recalls two sleepless nights as he struggled to decide whether to take the job with Honda. His ambivalence was not rooted in alarmist claims that Honda workers were selling out America.

“I've never lost sleep over those types of things,” Jutte says. “I always thought there is a lot to be said for an international economy. We should export, we should import; we should have fair, open trade. People ask, ‘Are you glad you joined the company?’ I say it's easy when you work for a company that has the right philosophy.”

Honda — and other Japanese OEMs that came later — began a cultural revolution in the auto industry. Executives and line workers alike would wear identical white jumpsuits; personalities would not outshine the company cause; “respect for the individual” would be paramount; suppliers would be partners in collaboration; the pursuit of continuous improvement — or kaizen — would be constant; and the organization would focus like a laser on the ultimate goal of pleasing customers with great product.

“All of the associates work as a team,” says Koki Hirashima, president and CEO of Honda of America in Marysville. “Individually we have different opinions. But through severe discussions, we need to reach some conclusion. ‘OK, we go this way as a team.’ If they work individually, in different ways, maybe they cannot achieve.”

In 25 years in the U.S., Honda has never laid off an associate. Hirashima cannot guarantee no future layoffs, and he takes seriously the responsibility for the livelihoods of his employees. “Layoffs are very sad for employees and their families. My biggest task now is how do we keep the current number of associates as is,” he says. “How we will try to avoid a layoff means every day we need to improve.”

Perpetual improvement is woven into Honda's culture, and it shows in steady placement near the top of the annual Harbour Report, which ranks the productivity of North American assembly plants. All associates, for instance, are expected to “speak up, speak out” when a problem arises.

Ron Harbour, president of Harbour Consulting, says it is hard to imagine what the North American industry would be like if Honda, Nissan, Toyota or other foreign OEMs had never set up shop in the U.S.

Efficient Japanese production techniques did influence Detroit auto makers while they were being plied in Japan in the 1970s. But Harbour says the big shock came when Japanese OEMs showed their high-quality production techniques worked as well with American workers as they did in Japan. “That changed the whole complexion,” he says.

Harbour reflects on the U.S. prominence of Japanese manufacturers and notes that for part of 2003, Honda's production in North America actually exceeded its output in Japan. “I don't think anybody predicted that kind of growth,” Harbour says.

For instance, who would have predicted 25 years ago that Honda would sell V-6 engines to GM for a high-volume vehicle (Saturn Vue)? And who would have known Honda, despite being located within a 3-hour drive of United Auto Workers headquarters in Detroit, would fend off repeated union organizing attempts in Ohio?

A sign of its maturity, Honda now has 400 retirees from the Ohio plants. Of the 64 original associates in Marysville, 28 still were working as of last month. Turnover is low because it is easy for workers to adopt Honda culture, says Robert Bienenfeld, senior manager-automobile product planning.

“I've often found that the language barriers I have with some of my Honda colleagues in Japan or in other countries are challenging but not nearly the barrier when I encounter some people from domestic manufacturers who have a different approach. It's hard to articulate,” says Bienenfeld, who has worked 20 years for Honda. “Not that I have been inculcated in Japanese values. Our corporate values don't strike me as Japanese or American but just as good values,” he says. “We're encouraged to rethink old ideas. We challenge ourselves to do better.”

How did Honda choose the Ohio heartland for its U.S. manufacturing base? Years earlier, when President (and founder) Soichiro Honda was building the fledgling company, he wanted the world's best machine tools to build engines and found them in the Cincinnati area. “I think Mr. Honda and the team came here and bought the equipment and said, ‘This is a really nice place. I think we could come back here.’ And they did,” Jutte recalls.

Honda has racked up some impressive manufacturing feats in the U.S., including the first rolling-model changeover (Accord in 1985) and the first use of just-in-time parts delivery. Honda's New Manufacturing System, in place for five years, enables the flexibility for its East Liberty plant to assemble Accord sedans, Civic compacts and Element light trucks on the same line.

But Honda's U.S. execution has not been flawless. It launched the first Japanese luxury brand — Acura — however, its lineup consisted entirely of front-wheel-drive models that lagged behind popular rear-wheel-drive offerings from Toyota's Lexus brand.

Acura is on the rebound with stronger product, such as the TL sedan and RSX coupe — which retain the FWD architecture — although this fall's all-new RL flagship boasts a sophisticated all-wheel-drive platform. Still, Acura is fighting an uphill battle against formidable global competitors.

Honda brags it has the highest average fuel economy of any maker in the U.S., but that's partially because it produces no heavy, body-on-frame pickups or V-8s.

Honda has been criticized for not hiring more minority employees or minority contractors. And an embarrassing and wide-ranging dealer scandal that involved bribes and kickbacks in the 1990s was traced all the way up to the company's top U.S. marketing executives.

And then there's the issue of styling. Like Toyota, Honda cars, on the whole, are considered conservative. To many, that's a good thing, given that the Camry and Accord consistently battle every year for best-selling car honors in the U.S.

Still, the company has done little to attract the eye of young consumers. At one time, Honda, with its Civic, pioneered the aftermarket “tuner” business for imports, even though Japanese competitors eventually devoured Honda's share of that segment. Toyota, on the other hand, has gone so far as to create an entirely new brand — Scion — to attract the youth market.

“I think we understand the cars could have a little more flare to them, and we'll work on that,” says Tom Elliott, executive vice president-American Honda Motor Co. Elliott's 34 years with Honda started when he established a network of 32 dealers in California, Oregon and Washington.

“Meantime, I don't think any one (auto maker) who is perceived as being stylish is doing anywhere near the volume we are,” Elliott says. “If people quit buying cars because they don't like the style, that's a different point. But that's not happening.”

He promises within two years, Honda will “be doing a lot of things for that youth market,” beyond the arrival of a new Civic late next year as an '06 model. “We'll have a different product lower priced than the Civic,” under $15,000, Elliott says.

That doesn't mean Honda will create its own Scion-type brand. Honda CEO Hirashima suggests Toyota is taking a big risk with Scion. “If they (Toyota) introduce such small cars, what is the impact to, for instance, Corolla?” he asks. “We need to think about such relationships.” Hirashima says Honda is in the process of launching several low-cost cars in Japan but declines to say whether any are bound for the U.S.

Although Honda's quarter-century legacy here hardly could be perceived as anything but a success, Hirashima often uses the term “struggling” to describe, for instance, the launch of the new Odyssey minivan in Lincoln, AL, and the company's overwhelming reliance on the U.S. market, which makes up 61% of the company's worldwide sales.

“Every day I am struggling,” Hirashima says. “If we have some problem here, maybe it has a big impact on Honda globally. Even after I go home, I have to think about something. I'm afraid of the phone call in the middle of the night sometimes. But it's good for me to keep my challenging spirit. It's the same feeling I hope every associate has.”

Finally, after 25 years of manufacturing in the U.S., Hirashima thinks it's time to retire the unflattering and clinical-sounding term “transplant,” which refers to a foreign auto maker that has set up manufacturing in the U.S. “We are an American company,” he insists.
— with Drew Winter

Honda in the U.S.

A snapshot of Honda's rapid ascent in North America.