Summary of 2005 Year End CEO Speech TOKYO, Japan – Review of the year 2005 With the all-new Civic, Honda received various awards in Japan and the U.S. (e.g. RJC Technology of the Year; Car of the Year Japan Special Achievement Award Most Advanced Technology Award; Japan Automobile Hall of Fame Car of the Year; the U.S.-based Motor Trend Magazine Car of the Year, etc.) At the beginning of 2006, Honda will launch an all-new Civic hatch-back in Europe, which was developed especially for the market. Honda has established a flexible production/development system which enables Honda to introduce the most appropriate models for each market with a short lead time. The all-new ASIMO achieved a dramatic improvement of its physical capabilities. Honda will now focus more on improvement of intelligence capabilities. Honda will also pursue the mutual exchange and leveraging of technologies developed separately by Honda engineers for ASIMO and automobiles, while continuing the challenge to contribute to society through commercialization of ASIMO as an unprecedented mobility product. Estimated 2005 worldwide sales: (All time record in each product area) Motorcycles: 12.5 million units (up 16% from 2004) Automobiles: 3.35 million units (up 5% from 2004) Power Products: 5.60 million units (up 6% from 2004) Initiatives for 2006 and beyond: Asia In 2006, the new plants in the Philippines (+200,000 units), Pakistan (+150,000 units) and India (+450,000 units) will become operational. The overall annual motorcycle production capacity in Asia Oceania is estimated to reach 11 million units in 2006, and 14 million units in 2007. Honda will introduce a new commuter model equipped with a compact water-cooled engine designed especially for Asian markets and an automatic transmission, as well as a high fuel-efficiency model equipped with a super-low-friction engine. Moreover, Honda plans to introduce a total of 10 fuel injection equipped models in the Asia Oceania region. China A new plant of Wuyang-Honda, currently in the process of being relocated, will become operational at the new site in spring 2006. (Annual production capacity will be expanded from the current 600,000 units to 800,000 units.) North America Following the introduction of a navigation-system equipped type in September 2005, the Gold Wing equipped with the world’s first motorcycle airbag will be introduced to the market in summer 2006. Honda will lead the industry in adopting the most advanced features for motorcycle products. Europe For Europe, Honda will remodel the CBF1000, an Italy-made 4-cylinder touring sports model, as well as Deauville, a Spain-made 680cc V-twin touring model, which were both displayed at the Tokyo Motor Show. Along with Japan-made new models including CBR1000RR and Silverwing 400, the new product line-up will meet the demands of our customers in Europe. South America Business in Brazil grew well, and the cumulative production at the Honda plant in Brazil reached 8 million units at the end of November. In addition, the rapidly-recovering Argentina market has the potential to grow into the second largest motorcycle market in South America. Honda will begin local motorcycle production in Argentina in mid-2006. Japan Honda’s best selling lightweight category motorcycle, Forza, increased in 2005 by approximately 50% compared to the previous year. A new Forza will be introduced to the market in 2006 with a Honda S-Matic transmission that is advanced from the current 6-speed to 7-speed, and with an improved styling. In addition, DN-01, a HFT-equipped automatic sports cruiser, which we introduced at the Tokyo Motor Show, will be further advanced for introduction to the market in the near future. This motorcycle will offer the new value of fun riding with improved comfort. – The electric 4-wheel wheelchair, Monpal, will undergo a full model change (spring 2006). It will be the first product applied with the visibility improvement method that was also applied to ASV3. – Tokyo Gas Co., Ltd. will begin sales of Ecowill, Honda’s cogeneration system, in January 2006. – In fall 2006, sales of household cogeneration system units will begin in the U.S., where Honda has already begun monitor testing. North America – 2005 U.S. sales forecast: 1.45 million units (Up 4% from 2004) – Introducing Fit in the entry level category in spring 2006. Strengthen lineup with excellent fuel economy and environmental performance, while cultivating new customer segments. – As for light trucks, the Acura brand will be strengthened by the launch of the Acura RD-X, which is a small-size SUV that achieves both advanced performance and fuel efficiency. Europe – 2005 sales forecast: 285,000 units (Up 11% from 2004) – The all-new Civic 5-door especially developed for Europe will be on sale at the beginning of 2006. – Honda will reveal the Civic Type R Concept, which will achieve advanced Fun-to-Drive values at the Geneva Auto Show at the end of February 2006. Asia Oceania Region – 2005 sales forecast: 310,000 units (Up 10% from 2004 ) – In India, expansion of annual production capacity to 50,000 units was completed in November. The plan is to double capacity to 100,000 units by 2010. In addition to the Accord and City models currently being manufactured, production of Civic will begin in 2006. – In Vietnam, the first automobile plant will begin production of Civic in summer 2006. – In Thailand, an automobile R&D center is being established and a new design center has begun operations. Honda will enhance sales and production to meet rapidly growing demand in the region, while establishing core R&D functions which enable Honda to accurately identify the needs of each local market. South America – 2005 sales forecast: 70,000 units (Up 17% from 2004) – Honda expects to achieve all-time record sales again in 2005 for the third consecutive year. Sales of Civic and Fit remained strong. To continue responding to growing demand, the production capacity of the plant in Brazil will be increased through expansion of the plant facility. The annual production capacity of the plant will be expanded from the current 55,000 units to more than 80,000 units by the beginning of 2007, and to 100,000 units by 2008. China – 2005 sales forecast: 260,000 units (Up 19% from 2004) – 2005 production plan: 270,000 units (including exports) – Dongfeng Honda will expand its annual production capacity to 120,000 units from 2006 and begin production of one of Honda’s core models Civic. – Combined with added capacity at the second plant of Guangzhou Honda, overall production capacity in China will be 530,000 units annually. – Honda will also strengthen local powertrain production, including local production of dies, to establish the foundation for local production and then grow steadily. – As for sales, the Acura brand will be launched in China, the first region outside North America to introduce the brand. In addition to RL, the U,S, made Acura TL will also be introduced to the market. Japan – 2005 sales forecast: 720,000 units (Decreased by 3.1% from 2004 ) – Strengthening sales Honda will innovate the domestic sales channel structure. The existing three channels Primo, Clio and Verno “”will be integrated and strengthened as one Honda channel beginning in 2006. By pushing the core Honda brand to the forefront, Honda will establish a dealer network which is easy for our customers to understand. Moreover, the Acura brand, which started in America in 1986 as the first Japanese luxury brand in North America, will be introduced to Japan in fall 2008, the third region to adopt the brand after North America and China. Including NSX, the Acura brand has grown by offering a performance-oriented product line-up based on advanced technology that is always ahead of the times. Acura has grown into a luxury brand which now sells more than 200,000 units annually with six models including two locally developed models — TL and MDX. Currently, 70% of the Acura product lineup is built in North America, therefore we can say that Acura is a luxury brand which is deeply rooted in North America. With the successor model of NSX to be equipped with a V10 engine at the top of the line-up, each Acura model will have distinctive technologies including the outstanding advanced technology of SH-AWD which was introduced with RL. We will further grow Acura as a global luxury brand focused on advanced technology ahead of the times. – Strengthening R&D In the area of R&D, the structure of Honda R&D Co., Ltd. will be strengthened. Due to the growth and expansion of Honda’s business, the specific responsibilities of individual engineers tend to become marginalized. In order to enhance the creativity of each individual, and to maintain a high level of initiative, Honda R&D will strengthen the flat and less-layered structure and make the responsibility of each section to focus on individuals more concrete. As the level and variety of technological elements applied to automobiles, e.g. advanced safety features, electronic devices, or new materials, are becoming more advanced and complex, the role of technology development is becoming ever more important. We will enhance technology development by clarifying the responsibility of this role from that of product development. In the area of product development, Honda R&D will strengthen its structure to increase its capability to develop products that continuously advance brand growth, e.g. strengthening the individual development of Acura products and Honda products. – Strengthening engineering/production Honda will further advance its powertrain production system in order to achieve mass production of extremely sophisticated next generation engines, such as VTEC that we discussed at the mid-year conference, the V10 engine that will be installed to the successor model of NSX, and to increase production of hybrid engines to meet growing demand. As a part of this challenge, and to advance the production technology to the next level, Honda has begun planning to further reform production facility in Japan that is responsible to roll out new powertrain technologies and units to the world. The key to address environmental issues”” the most important challenge for automakers in the future is advancement of the powertrain. Honda will pursue to advance the mass production technologies for the next-generation powertrain. Through all of these measures described above, we will strengthen the core elements that make Honda unique in all areas of sales, R&D, and engineering/production. Suzuka Circuitland Co., Ltd. and Twin Ring Motegi Co., Ltd will merge their operations in 2006. Suzuka Circuitland has the experience of hosting Formula One racing for almost 20 years. Twin Ring Motegi owns an oval course the only one of its kind in Asia. These two companies will be merged to increase the efficiency of operation and to contribute to the advancement of mobility and motor sports cultures in Japan. WGP : In October, Honda achieved the cumulative total of 600 WGP wins. Daniel Pedrosa who earned the 600th win for Honda will move up from GP250 to MOTOGP and compete for the top racing series together with Nicky Hayden in the Repsol Honda team. Marco Melandri also showed a great talent by winning the last two races of the 2005 season. Honda will work harder to regain the titles with the next-generation teams which employ these talented young riders. Indy: In 2005, Honda won the three major titles– Manufacturers’ Title, Drivers’ Championship, and Rookie of the Year. From next year, Honda will be the sole engine supplier. Honda will continue racing in IRL, the top open wheel racing series in North America, even beyond 2007 to continue contributing to the racing culture of the U.S. F1: The new-born Honda Racing F1 Team will begin a new challenge for victory as a 100% Honda works team. Honda will also strongly support the Super AGURI Formula One team by providing V8 engines. Honda will begin sales in the latter half of 2006, of Honda’s unique solar cell panel which features thin-film formed by a compound made of copper, indium, gallium and selenium (CIGS), a product of Honda Engineering. In 2007, Honda will establish a production line in the Kumamoto Plant with annual capacity of 27.5 megawatts. As the first automaker to enter into solar cell business, Honda will further contribute to the effort to prevent global warming through production and sales of a clean energy source which does not use fossil fuels. The Power of Dreams Honda will continue our challenges to create new value for our customers.