The letter which has been sent to all Honda Associates from Dave Hodgetts, director of planning and business, regarding the proposed salary cut.

MANY of you have requested an update on our latest situation and this is summarised in this letter. From an economic viewpoint, we cannot find much encouragement for the next 12 months, as the downturn continues to affect car sales throughout Europe. The seriousness for the global car industry and the unpredictability of what will happen in the future cannot be underestimated and make it extremely difficult to confirm a longer term plan. While we are not able to predict when the economic situation may improve we must continue to remain flexible to the ever changing circumstances and be prepared to implement appropriate countermeasures in response.

Honda Motor’s financial situation has been dramatically affected by this economic downturn. The European and Japanese operations are most severely impacted with Honda Motor, Japan forecasting an unconsolidated £321m loss for the first time in its history. As a result of this, Honda Motor has recently announced a 10 per cent annual salary reduction in Japan for associates and, for managers, a 15 per cent annual salary reduction. This percentage salary cut is based on a comparison against last year and includes elements of performance and basic pay.

HUM has made enormous efforts to restrict and cut costs from the operation while protecting jobs. Last month we re-opened the Associate Release Programme and while a small number of associates have applied, it seems unlikely at this stage that this final phase of the programme will be able to make a reasonable match between our planned and actual manpower for this next financial year.

However, our intention is to provide job security for those of you who remain committed to HUM and it remains our aim to maintain an objective of no redundancies. We believe the mutual trust between associates and HUM is always the key to our success. Therefore, we will manage to survive this severe situation by using a totally different approach than any other competitor. Looking at our conditions, overall Honda profitability, the European financial situation and the fact that we will have a significant level of surplus manpower, we will now need to take the action mentioned in the previous letter. In outline, this is likely to be a one year pay cut for all associates.

HUM believes that associates who have decided not to apply for ARP are highly committed to Honda and your career will be in line with HUM’s future. Please understand that for our future success we need to survive now. We would like to utilise this opportunity to integrate everyone’s commitment and strong mindset to reinforce our constitution so that when the market recovers we can become the best car manufacturing business and adapt to market changes quickly. We are fully aware that a one year pay cut could adversely affect your motivation and lifestyle, but we hope that if you are committed to HUM’s future, you will understand the necessity for this action and find ways to manage the situation. We will start discussions with the ARC and the management group from now on.

If after careful consideration this does not seem right for you and you have alternative plans, please seriously consider this final opportunity of the Associate Release Programme, which remains open for applications until March 31 with a choice of two leaving dates, either March 31 or April 30, 2009. However, please remember that associates leaving on April 30 will lose two months salary when compared with leavers in March. All the previous conditions regarding ARP will apply. If you are interested in taking up the Associate Release Programme and you did not receive an individual quote or would like to discuss it, you can contact a member of the Associates Relations team. For associates who are at work, quotations can be obtained from Associate Services.

DAVID HODGETTS Director Planning and Business Administration