When a major corporation publicly announces its game plan for the next few years, management must be relatively confident they can attain the stated goals. It's not the same as a startup promising big things. When a large company makes a pledge, analysts and shareholders are listening closely and won't easily forget the promises made. Coca Cola recently announced its plan to double its sales within 10 years -- a mighty feat for the 125-year-old company. It made its case in a logical way that made the goal seem very attainable, and made Coke look even more attractive. Now, Honda is taking a similar path. Can the Japanese auto giant fulfill its promise to shareholders?
Investors tend to have a short term memory, but it was only a little over a year ago that Honda (NYS: HMC) and other Japanese manufacturers experienced a major supply chain disruption from the devastating earthquake and tsunami that struck the island, and the heavy flooding in Thailand. Shares in both Honda and Toyota (NYS: TM) plummeted as investors and analysts feared the stall in manufacturing capabilities would affect sales for years after the events. Sales were hurt, as neither company was able to fulfill demand in the period shortly following the natural disasters, but it's been a quick turnaround for both companies. Honda expects net profit to double this year from the previous year.
Honda sold 3.11 million cars last year, a little short of its 2008 high of 3.92 million vehicles. Management recently announced its goal to double sales by March of 2017, giving the company around four-and-a-half years to crush its all-time-high sales record. Is this a feasible goal?
If Coke can do it...
A couple of months ago, I reported on the Coca Cola (NYS: KO) "2020 plan." The plan, obviously, is to double revenues by the year 2020. That's no small feat for a company that hauled in $46 billion in revenue last year; it would have to make more than today's Procter and Gamble. With an 18% profit margin, the soda (and other products) maker could accomplish its goal over the next seven years.
The company assured shareholders that this was possible by taking real, consequential actions. Recently, the corporate structure was reorganized into two groups -- Coca Cola North America and Coca Cola International. The move eliminated redundancies, further exposed economies of scale, and made the company more efficient and effective in its markets. An action like this, along with purchasing North America's biggest distributor of Coke products, shows the world that this company, despite its size, can still do incredible things.
Honda has laid out its method of attaining its goal as well. The company expects two new models, the Fit and the Brio, to spearhead the effort to doubling sales in four years. Both models focus on fuel efficiency and compact size to pick up customers in emerging markets, as well as more conscious shoppers in the mature regions. Honda expects emerging market sales will account for half or more of all sales leading up to the 2017 end date.
By focusing on two models to be sold around the world, Honda is able to leverage its own economies of scale in purchasing the parts for the vehicles, and keeping costs low and profit margins buoyed. Will it be enough to reach that lofty goal? Only time will tell.
Autos for all
Honda actually isn't the only automaker with big plans for the future. Toyota has stated its own projected sales figures. The company plans to sell 10 million cars by 2015 -- 36% more than it sold last year, which is an ambitious goal given the global economic climate.
American legacy maker Ford (NYS: F) has been less defined in its goals for a few years from now, but you can tell the company is aiming to stay competitive with the growth of Toyota and Honda. Ford's August sales growth was nearly 20% year over year, with SUV sales as strong as they have ever been -- regardless of the prices at the pump. The company is now focusing on its mid-size sedan -- the Fusion -- to drive sales as mid-size sedans are the fastest-growing segment in the U.S. auto environment. Ford is investing in new manufacturing facilities and over 1,000 new workers to pump out new autos to sell all over the world. The company has taken an increasing interest in Southeast Asia -- where it is underrepresented compared to its American brother General Motors.
All in all, it looks like the auto industry expects big things from the world -- especially the emerging markets. Similar to Coke, Honda seems to have a pretty set idea of how it will double its sales figures, even if it seems daunting to the rest of us. Make sure to keep an eye on its progress and consider that growth the next time you are hunting for an investment.
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The article Honda Takes a Page from Coke's Book originally appeared on Fool.com.
Fool contributor Michael Lewis owns none of the stocks mentioned above. You can follow him on Twitter @MikeyLewy. The Motley Fool owns shares of Coca-Cola and Ford Motor. Motley Fool newsletter services have recommended buying shares of Coca-Cola and Ford Motor. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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