Honda Motor Co, Ltd (HMC) Q4 2020 earnings call dated May 12, 2020
Corporate Participants:
Watanabe — Corporate Publications
Takahiro Hachigo — President and Representative Director
Seiji Kuraishi — Executive Vice President and Representative Director
Kohei Takeuchi — Senior Managing Director
Presentation:
Watanabe — Corporate Publications
Thank you very much for joining today for the broadcast meeting for the FY ’20 and Fourth Quarter Financial Results meeting for Honda Motor Co. Limited today.
And I am Watanabe [Phonetic], MC for this meeting, Corporate Publications. Thank you very much. I’d like to first introduce the participants of the conference today. Representative Director and President, Mr. Takahiro Hachigo. Hachigo is speaking, nice to meet you. Representative Director and Executive Vice President, Mr. Seiji Kuraishi. Kuraishi, nice to meet you. Senior Managing Director, Mr. Kohei Takeuchi. My name is Takeuchi. Nice to meet you.
In this conference, we decided to have the live broadcast conference without physical audience in place because of the COVID-19 impact. And thank you very much for your understanding. First of all, I’d like to invite Mr. Hachigo to give us remarks.
Takahiro Hachigo — President and Representative Director
Good afternoon, everyone. I am Hachigo. Thank you very much, indeed, for sparing your time for us today despite your busy schedule.
Before presenting our financial summary, I would like to make some remarks. First of all, I would like to express my condolences for all those people in the world who lost their lives due to COVID-19 as well as my deepest sympathies for those people who are infected and their families. And in addition, I would like to extend my sincere gratitude for the health care professionals who fight against the hardships at the front line every day and to the essential workers who keep on supporting our lives at places such as public transportation systems and super markets.
In order to prevent a further spread of the local coronavirus infections, Honda is trying to take advantage of our manufacturing capabilities to serve the society by producing the transfer vehicles for the infected, or parts or components of the face shield and ventilator systems. We are trying to do everything we can now at various regional operations. By the way, today’s press conference for our financial result is different. Instead of the usual style, we hold this meeting using Internet. Due to the influence of the novel coronavirus pandemic, we also are under the difficult environment presently. The financial results following after my talk indeed is very difficult.
As of today, we also have decided to put off our disclosing of our full-year estimates for the current financial year because of the work of the estimation being too difficult. When it becomes possible to estimate our consolidated financial results and expectations, we will disclose the information for you. Although unclear and uncertain situation continues, we have embarked on our efforts aimed at solidifying existing businesses with the automobile business as the core, as we explained at the corporate update last year. We are proceeding with the preparation for further growth in the future, including the Honda eMaaS, which we introduced at the Honda meeting. And from last month, we have started a new organization, an operation system to implement them.
However, the grave impact that the coronavirus has had on the world must make a big difference, not only in our business environment, but also in the people’s values in the future. In addition to the various measures that Honda is currently deploying, we would like to establish new business policies, which are viable to respond to any changes that may occur in the future. We will schedule a conference to give you the explanation on this matter as soon as we are ready. Honda has repeatedly faced great difficulties and has overcome them each time. This time, again, the situation is very tough, but we are confident that team Honda will work as one to overcome this difficult situation. And as soon as this difficult situation is over, we will endeavor so that the industry on the whole can provide brighter topics.
We ask for your cooperation. Thank you very much.
Watanabe — Corporate Publications
[Foreign Speech]
Next, I’d like to invite Mr. Kuraishi, the Representative Director and Executive Vice President, to explain about financial results of the fourth quarter.
Seiji Kuraishi — Executive Vice President and Representative Director
Today, I will explain the operating status of the major manufacturing sites briefly, and then we will go on to the financial results of FY 2020.
As for the forecast of the FY 2021, estimates are not finalized because, as of now, it is difficult to reasonably calculate the impact associated with the COVID-19. Going forward, we will disclose the estimates when expectations of the consolidated results can be calculated.
Let me start. This is the operating status of major manufacturing sites. In association with stay-home restrictions due to COVID-19 pandemic, we suspend productions in the countries listed here. In the US, we have resumed our operations starting May 11. In China, as per the guidelines of the local governments, we had suspended our production since Chinese New Year holidays in February, but all of the factories have resumed their normal operations by the end of April. With regard to the factories that are suspended now, we will mind the prevention of the further contagion of the disease and keeping an eye on the safety of employees and their families, market and supply chain situations, and so on, we will consider our future operations.
Let me explain the results of our FY 2020. With regard to the group’s unit sales for FY 2020. Motorcycles 19.34 million units. Automobiles 4.79 units. In life creation businesses, it was 5.701 million units sold. Next, regarding the situations of the major market. In Japan, the overall market enjoyed the effect of new models offered by various OEMs. However, the market declined from last year due to the influence of consumption tax hikes. Hondo enjoyed a good sales performance of N-BOX and others. However, due to influence of the consumption tax hike and the restricted part supplies for new N-WGN, our unit sales went below the last year.
N-BOX series achieved the highest unit sales amongst other new car sales in Japan in FY 2020. Honda accomplished the best unit sales performance with the series for consecutive three years for the first time. In the US, the overall market declined from last year due to the impact associated with the pandemic. Honda enjoyed the effect of Passport launch and the incremental sales of HR-V, which marked the record sales in the month of February. Nevertheless, because of the impact associated with pandemic, our unit sales declined from last year due to a large drop in the market of our West Coast and Northwest metropolis regions where Honda usually has major unit sales.
Further, US Environmental Protection Agency recognized Honda as the best automaker for the average fuel efficiency in the United States. In China, the overall market declined from last year due to the sluggish trend of the market as well as the impact associated with the COVID-19 pandemic. Honda enjoyed the effect of new launches, such as Envix, Inspire, and Breeze, as well as the incremental sales of CR-V and Accord. Despite the impact of the pandemic, we sustained the equivalent sales through the last year on the whole. Dongfeng Honda enjoyed the effect of commissioning of the new plant to have marked the highest ever unit sales until now.
Next, of the motorcycle businesses. In India, the largest market, due to the economic stagnation and worsening unemployment in addition to the impact associated with the COVID-19 pandemic, consumer spending continued to sluggish. The overall Asia market declined from last year. Honda enjoyed some increase of the businesses in Vietnam and the Philippines. However, because of slowing down India market, our businesses declined from last year. The unit sales in Vietnam and the Philippines marked the record highest so far.
Next, when we summarize the consolidated financial results for FY ’20, the operating income decreased by JPY92.7 billion from the previous year to JPY633.6 billion. Excluding the impact of foreign exchange effects and other one-time issues and the COVID-19 pandemic, the actual profit increased by JPY100.8 billion from the previous fiscal year due to cost reduction effects and the decrease in selling, general and administrative expenses, or SG&A. As you can see, these are the unit sales and the profit and loss situations.
Next, we have decided to pay an annual dividend of JPY112 per share for FY ’20, and the dividend for the end of fourth quarter to be JPY28 per share. The annual dividend forecast or the outlook for FY ’21 has not been decided because it is currently difficult to reasonably calculate the business outlook.
Next, Kohei Takeuchi, the Senior Managing Director in charge of finance and management, will explain the details of the financial results.
Kohei Takeuchi — Senior Managing Director
So let me start the explanation.
First of all, regarding the summary of consolidated financial results for the three months in the fourth quarter. As for the Honda Group’s unit sales, due to the COVID-19 pandemic and other factors, in the motorcycle business, though there was an increase in Vietnam, the unit sales decreased in India, Indonesia and Thailand, and other countries. In the automobile business, the unit sales decreased in China, the United States and India.
Next, regarding the profits and losses. Although the sales revenue increased in the financial service businesses, due to decrease in the automobile business and other factors, the sales revenue came down to JPY3,458 billion. As for the operating loss, although there were cost reduction effects and decrease in SG&A expenses, due to factors including sales fluctuation and decrease in profits due to change in product mix, the operating income was JPY5.6 billion [Phonetic].
Next, I will explain the factors behind the increase and decrease in profit before income taxes. Profit before the income for the fourth quarter was JPY3.7 billion, a decrease by JPY107.3 billion from the same period of the previous year. As for the operating profit, though there were cost reduction effects and decrease of SG&A, but due to the impact along with the COVID-19 pandemic, it was down by JPY47.9 billion compared to the same period last year. If we exclude the foreign exchange impact and other one-time issues, it is estimated to be plus JPY32.4 billion. The one-time issue includes the impact from the change in production organization of the automobile business. The impacts of the COVID-19 pandemic include a decrease in unit sales, an increase in sales incentive provisions and an increase in credit loss provisions in the financial business.
Next, I will explain the financial results by business segment. As for operating income for the motorcycle businesses, despite the decrease in the unit sales, due to factors such as decrease in SG&A expenses and the effect of the cost reduction, it came down to JPY63.4 billion. The operating loss of the automobile business came down to JPY75.6 billion due to a decrease in the unit sales due to the COVID-19 pandemic in the US and the increase in provision for sales incentives. Operating income in the financial services business came down to JPY22.9 billion due to an increase in provision for credit losses despite an increase in operating lease sales. The operating loss of the life creation business and other businesses was JPY16.3 billion due to the decrease in the unit sales in the United States and Thailand. Operating loss of aircraft and aircraft engines included in life creation segment and other businesses came down to JPY13.8 billion.
Next, what you’re seeing in here is the profit and loss situation for the 12 months. To explain the factors behind the increase and/or decrease, profit before income tax was JPY789.9 billion, a decrease by JPY189.4 billion from the previous year. The operating income was JPY633.6 billion. Although there was a cost reduction effect due to impact of the COVID-19 pandemic and other factors, it came down to — down by JPY92.7 billion. When we exclude the foreign exchange and one-time issues, and the impact related to the COVID-19 pandemic, it is calculated as positive JPY100.8 billion. Free cash flow — excuse me.
What you see here are the actual results of the capital investment, depreciation and R&D expenditures for FY ’20. Free cash flow of operating companies for the 12 months in FY ’20 turned out to be positive JPY470.6 billion, and the balance of cash and cash equivalents at the fiscal year-end is JPY2,462.6 billion. Net cash was JPY1,930.6 billion, which is estimated to be equivalent to about 1.9 months of monthly sales. At this point, we have no major concerns about liquidity at hand, but we will continue to secure liquidity at hand by curbing cash expenditures, such as investments and expense across globe, raising funds as appropriate.
That is all for the explanation. Thank you very much.
Watanabe — Corporate Publications
Thank you very much. That concludes our explanation about FY 2020 financial results.
From now on, we’d like to address the questions from those from media. And this time, we are accepting the questions using the email address that have been announced to the media people prior to this conference. And we are going to resume our session at 4:30. So please…
Questions and Answers:
Watanabe — Corporate Publications
Thank you. Now I would like to reopen the session for Q&A.
As we announced earlier, we are accepting the questions through the email address that we specified starting 3:00 o’clock, and we’ve selected the questions out of those pools. And I’ll introduce the questions from the media myself, and then I’ll let the participants to respond to your questions. Let’s move on to the first question.
From Nikkei Shimbun, Mr. O’Hara [Phonetic].
In April, you consolidated the Honda Motor Company and the development — development of the automobile of the Honda R&D. Could you tell us about how come you decided such way? And what is the effect of that effort? And if you have any policy or investment that you’re going to keep ongoing despite corona pandemic, please tell us. And second question is, you said that full-year estimate is not finalized. But what is the overall directions and overall feeling or estimates, so to say? And of course, you have successfully managed through the financial crisis and Great East Japan earthquakes, with the profits always on the book. Please also tell us about China and the US production and sales.
The answer, Hachigo is speaking.
Takahiro Hachigo — President and Representative Director
And as you said, in April, we made a big change of the organization of the Honda Motor Company and the automobile operations. That is to strengthen the automobile businesses and to strengthen the R&D. And with regard to the automobile production operations — automobile business operations, excuse me, we had S-E-D-B elements, as we always say. And those are independent. And then we had them in collaboration with each other based on the independent functions of each. And now we changed the total system so that they can be more closely collaborating together in the consolidated system.
Because what is unique about Honda’s product development with regard to S-E-D-B, we actually had a good advantage of that because we had a good team of those four elements. However, we had bigger businesses now today. And naturally, we had a tendency where the department-specific orientation sort of highlighted. And then as a result, the efforts for coordination between the departments and the duplication of the work seen in many different places that was the duplicates, waste. And also, because of the collaboration organization, it was not easy to see who is really responsible for certain efforts. However, instead of that system now, we have the integrated organization this way all the way through the product development, R&D all the way to the production and sales. We have the thorough operations with which we have a clear understanding of who is responsible.
This way, we can make a quicker decision and then optimize the business operations in the best way. And this was why and how we strengthened our automobile business operations.
The other thing is R&D strengthening. Until now, at R&Ds, they developed a product, assuming it will be produced for mass production. At the same time, they assumed the responsibility to have the innovation too. However, we have a big business now. Because of that, they are required of 100% perfection for the quality for the business. At the same time, if you look at the innovation part, you would have to give in like some failures in order to make a very good success of the innovations. And then in order to have the most appropriate operations for both end, we had our unique R&D operations. However, because of the size of the business now, we have such a global operation being big. That means a lot of mass production-oriented technology highlighted where innovation is rather weaker.
And then we decided to consolidate mass production-related technology development, together with the automobile business operations, whereas we can keep on going for the innovations to produce the strong products of Honda going forward. This way, we can strengthen our products in the future. And this is the reason we integrated automobile development in the Honda Motor Company. And now in R&D, they can focus on the new value creation, innovation more. This was the way we changed our organization and strength — in order to strengthen the automobile business and R&D.
In terms of its effect, in fact, this new organization started only in the last one month. So I can’t say the effect right, too soon at the moment. But we’ve done the development of motorcycles and Suzuka development in the area for the many cars, certain cars. I think we can — we will be able to see some impact, specifically for those. And in a way, it is a difficult start for the new organization. However, we should take this as an opportunity to strengthen our organization for the good benefits.
And if you look at the automobile business on the whole, despite in the pandemic situations, what is the investment to be kept up through this situation? I talked about the efforts to firmly solidifying the existing businesses. For instance, optimizing the production globally and the hybrid system introductions and Honda Architecture introduction as well. And also, we can commonize the models across the different creations. And also, we can reduce the number of derivatives, so to say. And in those areas, I’d like to speedily take up our initiatives. And in terms of current business situations, we will look at the priorities once again and the current situation so that we can take up the ones with the priorities first.
However, as I said earlier, R&D has been rebounded let’s say from April, and investment in there is going to be the one for the future. Therefore, despite difficulties we experience, we will continue to invest in the R&D all along.
Watanabe — Corporate Publications
So as for the second question, that is the overall direction and also the trend of the major market. Mr. Kuraishi, could you respond?
Seiji Kuraishi — Executive Vice President and Representative Director
So as I explained in the presentation, the outlook of the corona pandemic, it is very difficult to forecast. So at the current stage, it is very difficult to actually calculate reasonably, what will be the outlook. So the current situation is as follows. As for the automobile, major production sites is — 70% for automobile and also the 50% of the motorcycle production have resumed the operation. And as for China, thanks to everyone’s effort, Guangqi Honda in March and also Dongfeng Honda also started the operation in April. As for the North America, the production sites in the North America and including US and Canada, started the operation from yesterday.
And as for the market situation in China, the April sales actual was 113,000 units. That’s the 90%. And so the wholesale is more than 100%, and we are getting the orders steadily. As for the North America, in April, it has — the difficult situation continued, and it was year-on-year 44%, and it was 58,000 unit sales.
And as for the outlook — as for China, due to COVID-19 pandemic impact, especially we have the production site in Wuhan. So we have been impacted gravelly in recent situation. Because the extension of the treatment — preferential treatment at the China government and also the alleviation of the regulation on the number plates, the market has become vigorous again. So for us in China, though there is a concern about the second wave or the third wave of the pandemic, but we would like to make the utmost effort to deliver the car to the customers.
As for North America and the United States, the East Coast is impacted mostly. And also, it is where we have a very strong market. But dealers have started the operation gradually. On a national level, it may be the summer to earliest that all the sales activity will resume to the normal. But we will closely communicate with the suppliers and the dealers to resume the operation as soon as possible. So — but we are not able to give the concrete numbers today.
That is all.
Watanabe — Corporate Publications
Next is from Mr. Inagi [Phonetic] of the Asahi Newspaper.
So this year, the Honda is scheduling to introduce the autonomous driving level 3 model, Honda e. But would there be the delay in the launch due to the corona COVID-19 pandemic? The second question is because of the pandemic, many companies are trying to secure the cash on hand. What measures are you taking? Do you think the current cash level is sufficient? Please also respond.
So the first question is from Hachigo.
Takahiro Hachigo — President and Representative Director
So the questions about level 3 autonomous driving. In the — on the highways in limited conditions, hands-on driving technology has been established so far. As of now, as for the collateralization, we are looking at the social acceptance of the system because the customer has to understand how to use it, depending on which the way to appeal the technology and the way to sell the technology, the product is different. And we have already started taking orders from Europe for the technology from September last year. And our plan is to launch the technology, Honda e technology in Europe by the end of this year.
And because of the corona pandemic, there are some concerns about some component supplies, and we need to confirm and finalize the supply situations. Therefore, that might delay the modularization [Phonetic] finally. However, we try to manage, and we hope that we can launch that by the end of the year. And when timing comes, where we can give you the right information, we will share that with you.
Watanabe — Corporate Publications
And the second question, Mr. Takeuchi is going to answer.
Kohei Takeuchi — Senior Managing Director
So I think the question is about the cash on hand. I would like to respond. First of all, the last — end of the last fiscal year, we actually issued the corporate bond. That’s a three-year, five-year and seven-year. And also the short-term commercial paper that’s amount to JPY100 billion. So in total, JPY200 billion. So on a consolidated basis, we have JPY2.7 trillion. But that includes the business company and also the financial companies. We still have the sufficient cash for the business company. And at net cash level that deducts the borrowing, we still have JPY1.9 trillion. That is equivalent to 1.9 months of the monthly sales.
And also when we consider about the pandemic, from April and after, we actually have the borrowing from the major banks. And currently, for the cash — when we consider the cash on hand, there won’t be any problem for the time being. But there is the possibility that pandemic will further expand, considering the second wave and the third wave. And if it is the case, we may have to consider about issuing the corporate bond. We have the new credit line from the major banks. So within that credit line, we would like to secure the liquidity on hand.
That is all. Thank you.
Watanabe — Corporate Publications
So next is from Automotive News, Mr. Hans Greimel.
The first question is, what is the preferred approach to restarting the industry in [Indecipherable] like the US, where every state has its own lockdown rules? Does there need to be better interstate the coordination to bring suppliers back into operation? And the second question is, the coronavirus pandemic is causing tremendous financial pain. Will that change how you invest in futuristic technologies that have no immediate payoff, such as autonomous driving and electrification? Are you delaying investment into these areas?
So the first question will be answered by Mr. Kuraishi.
Seiji Kuraishi — Executive Vice President and Representative Director
As you know, in order to have the stable supply of the parts and components in the North America, we get supplies of those globally, not just within the NA, North America. And of course, there are state-based differences. And in fact, there are different — different times of the restarting of the situations as per different states, but we will watch that to have the right timing. But we will have a close communication with the parts suppliers in the process. And we have a corona pandemic team where the information is collected to see what is going on. And we are in the process of collecting information globally. And for the second one.
[Foreign Speech]
Takahiro Hachigo — President and Representative Director
As for the investment at the next-generation technologies, in order for us to survive, this is what we have to do. So at the current stage, we don’t have any plan to delay or reduce the investment there. In terms of the funding, we are in a difficult situation. However, we will actually review the priorities set in the current business plans and decide which one to go and which one to hold. But those are the investments that we need in order to survive, and we will continue to invest. But due to the pandemic, how the automotive driving should be and electrification should be may change due to the change in the people’s sense of values.
So the direction that we are aiming, though the basic are the same, where we need to grow and may need to be reviewed and modified. So once we make the decision on that, we will allocate appropriate investment. But as for the investment for the future, we would like to steadily make investment so that we are making — in order to do so, we are making our best effort.
Thank you very much.
Watanabe — Corporate Publications
[Foreign Speech]
Next question is given from Mr. Oshikiri from Nikkei Shimbun.
Question one. Expectations of the first quarter, April through June, its performance, and I’d like to know how you view that expectation, including the free cash flow. And what is your measures to have additional cash in hand?
We’ve answered that question already.
And for the second question of his. Up until the 2022, your plan is to reform your automobile operations structure to adapt to the production capacity below 5 million. However, because of the corona pandemic, you might need to speed up the process of the structural reform because of the global demands being sluggish. If you have additional idea for the rationalization and so forth, please tell us about it.
Mr. Hachigo.
Takahiro Hachigo — President and Representative Director
So with regard to the optimizing the production capacity, we’ve talked about them in the past. And 2022 is our target here, where the global full capacity is to be optimized, including China. And that initiative is to be pushed forward as planned. And in terms of the additional rationalization initiatives, rather than the rationalization, maybe I’ve touched upon that before, but in terms of the North American manufacturing sites, in fact, it is rather complicated today. Therefore, specifically for the manufacturing site in that region, I’d like to simplify the structure. And light truck vehicles and passenger cars, those are the type of the product they produce in North America. And I would like to have the flexibility of those productions. For instance, three models in one plant and two — one model in two plants. We try to keep the allocations of those models in the plants.
But finally, we like to have the most efficient allocation of the model production in North America. But including the changes we’re experiencing today, we would like to accelerate the process finally. And basically, the principle is as I said before, we will optimize the production capacity globally. At the same time, we can improve — we want to improve the efficiency of the production in North America.
Thank you.
Watanabe — Corporate Publications
Next is from Mr. Shimosato [Phonetic] of Yomiuri.
The first question is, why did you to postpone the announcement of the outlook for the FY ’21? And when was the last time you postponed the announcement of the outlook? And how do you estimate the sales target of the automobile and what is required for the recovery of the sales? And so the pandemic impact to the operating profit, it’s estimated to be JPY129.8 billion. But what will be the negative impact to your sales revenue? The second question is the operating income margin for the automobile business is 1.5%. That is very low compared to the margin for the motorcycle business, which is 13.9%. What is your future measure in terms of the improvement of the margin?
First question by Mr. Takeuchi.
Kohei Takeuchi — Senior Managing Director
So the pandemic, we postponed the announcement of the outlook because of the difficult situation. How much does unit sales will be and when will the customer come back to the dealer are still uncertain. In some regions, we’ve resumed the production. And in Japan, we are continuing the production. But in Asia, including motorcycle, there are many uncertainties. So that is why we have actually postponed the outlook announcement. In the past, have we actually postponed the outlook announcement before? Actually, we’ve actually postponed the outlook of the FY ’12, because of the Great East Japan earthquake.
And as for this JPY130 billion impact on the operating income and what would be the negative impact to sales revenue. As for this JPY130 billion impact on the operating income, let me give you the breakdown, motorcycle and automobile and life creation or the power products. The sales unit, the impact was JPY60 billion. And in automobile, especially in North America, the dealer closed. So they could not sell to the customers. So the inventory accumulated at the dealership. And also other automakers provided the incentives. So we also had to provide the incentive to the royal customers and also to support money to our dealership. So we’ve actually booked JPY30 billion for the provisioning.
And next is the impact of the financial service. Because of the unemployment rate increase due to the pandemic, those who are using our finance service, though they are the high-profile customers, generally speaking, because of the high unemployment rate, we had to book the bad debt allowances by consulting with our CPA. That’s the JPY40 billion. JPY60 billion from the unit sales — in terms of the unit sales, there’s 62,000 units of the automobile and the 290,000 units of the motorcycle. And as of the life cycle, there’s 190,000 units. So it is very difficult to calculate the sales, but it’s around [Indecipherable] JPY200 billion.
Watanabe — Corporate Publications
And the second question is the op margin of the automobile, and it will be answered by Mr. Hachigo.
Takahiro Hachigo — President and Representative Director
As for the op margin improvement of the automobile business and solidifying the current business — existing business, we have actually introduced various measures last year. So the current measures, the timing is 2022 or 2025, where we will see the outcome, and that is what we are proceeding. In order to harvest in 2022 and ’25, we will actually optimize the production performance globally. So we will consolidate the production size all over the world. So we’ll make them full utilization by 2022. And as for the hybrid, by expanding the eMaaS, we will continue to reduce the cost. Aiming at 25% cost reduction by ’25 — excuse me, ’22. As for ’25, we will introduce the Honda Architecture and also share the regional model. And also, we will reduce the derivatives from the global model by one-third.
So by 2025, we will actually reduce the development efforts, including the development and also the procurement by one-third. And those reduction will be used to contribute to the future R&D. And also in North America, we will improve the efficiency of the production sites. And by doing so, by 2025, in the production — manufacturing area, production area, what we call the internal production area, we will reduce the production cost by 10%. That is the plan that we have.
In any case, because of the COVID-19 pandemic, there are many challenges. So we will review the business plan on hand. And in a speedy manner, we will like to embark on solidifying the existing automobile business.
That is all. Thank you.
Watanabe — Corporate Publications
Because of the interest of time, our next question is going to be the last one.
From Reuters, Mr. Shiraki.
This question to be addressed — the question is addressed to Mr. Hachigo. With regard to the supply chain style, what it should be, because of the pandemic, there was a big impact on the supply chain. The coronavirus was initiated in China where you have a big dependency on. And some people talk about possible repatriation of the production and also the centralized supplies. And some government is supporting the idea. And Honda has advanced scheme of local supplies and local production amongst other automotive companies. But do you have an idea to review the supply chain principles because of the coronavirus pandemic today? And if you have any idea for repatriation of some parts supplies, for instance, if that is especial, please tell us specifically. And if doing so, would that be the factor for cost increase, would that be to be accepted? Or if you are not going to view that, please tell me with the reasons for that.
Takahiro Hachigo — President and Representative Director
So speaking about the supply chain, when we had the Great East Japan earthquakes, we had a big impact on the supply chain, which stopped the production entirely, and we had addressed the situation. We managed that situation too. But in case of the corona pandemic this time, abruptly, what we are trying to address is not full enough, not sufficient yet. And when we have a manufacturing site in one place only, then we would have to transfer that to the alternative sites. However, it is difficult to do that altogether, including the parts supply issues associated. We now experience that difficulty again.
And of course, there are things we can do, the low-hanging fruits, for instance. We could do some efforts of this kind. However, not everything. There are things which may take time. And in terms of the cars produced in Japan, I would like to ask the Japanese suppliers to give supplies continually so that we can have a stable supplies or we try to have regional support for that as well. However, we haven’t decided anything now. The thing is that we need to have all the parts and components in place and be ready for the production of a car without any missing that we would not — it would not be possible. But we’d like to try to review whatever possible to make sure the production of the car is always possible.
And in the last fiscal year, we had parts issues of the N-WGN, which caused big problems for the customers. So, of course, rather than cost, quality and stable supplies are paramount. And we really feel that way. Therefore, if needed — cost, if needed, may have to be accepted in order to make sure the right supply chain is established. However, nothing is really decided specifically, but that is a direction going forward.
Thank you.
Watanabe — Corporate Publications
[Foreign Speech]
What will be the model of the mobility service? And what will be the one that will have the higher demand? The recent years, the users are switching from owning to the usage. But after the pandemic, what would the situation change from…? In order to prevent the infection, people try to avoid the closeness, free closeness. And also in overseas, the Uber and Lyft, and all the ride shares have been suspended in the major cities. And the use of the taxies in public transportation in the country has been in a declining trend. We don’t know where the pandemic will converge. We may have to co-exist with COVID-19.
And there may be the concern of the new virus coming up. So what will be the value of the automobile in that case? There had been the popularity in SUV. But in order to avoid a contact with other people, so the more economic — compact, aiming for the short-distance ride may have the bigger demand. Or do you think that when the situation comes back to normal, it will go back to the conventional manner? What will be the new model that may have the higher demand in the mobility service?
Takahiro Hachigo — President and Representative Director
So as was explained, due to the pandemic of the COVID-19, many people feel pain of not being able to move. I feel that everyone in the world is feeling that way. And also, we had the concern of being close to the people and be in a crowded situation. So rather than going back to the situation before, we have the challenges such as the over population in the major cities. So changing all these may become the top priority challenge in all over the world. That is what we think. So in this situation, safe and secure personal mobility, which can be done in a flexible manner, may have the higher demand. And rather than being concentrated in the major cities, the distributed community may — has to be established all over the world.
So when we consider about the distributed community, as was asked in the question, this short distance personal mobility service may be the good concept. When we explained about the eMaaS, using the regenerative energy, using both the motorcycle, automobile and life cycle products, and converging and choosing all these, mobility and also being environmentally-friendly products and services can be delivered. Though the SUV is still popular, however, the one that is more personal and more affordable mobility services may grow in terms of the demand. So since Honda has motorcycle, automobile, life cycle — life business and also the jet products, so we’d like to prepare for the future.
That is all. Thank you.
Watanabe — Corporate Publications
We apologize that because of the time constraints, we are not able to answer all the questions. However, our Corporate Communications Department will get back to you later on for your questions.
Now, we’d like to conclude our press conference for the financial results, and the presentation materials are available on the website of Honda. Thank you very much indeed for joining today.