Date of Release: 2007-03-12

Honda Motor Co., Ltd. & Honda Canada Finance Inc.

Confirms at A (high) and R-1 (middle)

DBRS has today confirmed the Senior Unsecured Debenture and Commercial Paper ratings of Honda Canada Finance Inc. at A (high) and R-1 (middle), respectively, and the Issuer Rating of Honda Motor Co., Ltd. (Honda or the Company) at A (high). The trends are Stable. The confirmation reflects the continuing strong financial performance generated by Honda, and favourable business-risk profile.

Honda consistently generates free cash flow (before working capital) and its operating margins remain well above the global automotive-industry average. The Company’s automotive business continues to drive earnings (73% of total operating profit in 2006), but is complemented by favourable margins from its motorcycle, financial services and power-products divisions. Honda has gradually gained market share in its core North American market (roughly 50% of sales) at the expense of the much-larger domestic automotive original equipment manufacturers (OEMs), and the trend is expected to continue over the near term. Honda’s leading engine technology, high-quality products and energy efficiency are expected to support continued volume growth and favourable pricing, and lead to earnings growth over the near term. In addition, efficiency gains partly related to production expansion, the lack of legacy costs and an increasing presence in the high-growth Asian market will help Honda maintain its strong and improving competitive position.

Honda remains highly dependent on automotive market conditions in North America and Japan (together accounting for 76% of automotive sales). Weakening economic conditions in these regions would negatively impact profitability, particularly in the United States. In Japan, where the Company holds a number three market position (well behind Toyota’s 45.5% share in 2006), margins are expected to remain under pressure mostly from flat volumes and high competition. In addition, Honda’s large production base in Japan exposes earnings mainly to the relative yen/USD exchange rate, which has historically caused earnings volatility. Furthermore, cost pressures (e.g., rising raw-material costs) are expected to limit significant margin upside. The long-term rating remains constrained by Honda’s relatively modest global scale (roughly 3.7 million units expected in F2007), which is well behind Toyota.

Honda’s balance sheet remains very strong, with a net cash position (excluding its finance division) ranging from ¥250 billion to ¥500 billion since 2002 and consistent free cash flow (pre-working capital). High capex, largely for production expansion, is expected to limit growth in free cash flow, and share repurchases are expected to continue. However, the Company is expected to easily fund share buybacks (which have taken place since F2003) and maintain a net cash position and strong liquidity.

Note:
All figures are in Japanese yen unless otherwise noted.

HCFI is supported by Honda Motor Co., Ltd. Issuer Rating applies to all general unsecured obligations of the issuer.

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