As a young man, Honda's founder, Soichiro Honda had an interest in automobiles. He worked as a mechanic at the Art Shokai garage, where he tuned cars and entered them in races. In 1937, with financing from his acquaintance Kato Shichirō, Honda founded Tōkai Seiki (Eastern Sea Precision Machine Company) to make piston rings working out of the Art Shokai garage.[11] After initial failures, Tōkai Seiki won a contract to supply piston rings to Toyota, but lost the contract due to the poor quality of their products.[11] After attending engineering school without graduating, and visiting factories around Japan to better understand Toyota's quality control processes, by 1941 Honda was able to mass-produce piston rings acceptable to Toyota, using an automated process that could employ even unskilled wartime laborers.[11][12]:16–19
Tōkai Seiki was placed under control of the Ministry of Commerce and Industry (called the Ministry of Munitions after 1943) at the start of World War II, and Soichiro Honda was demoted from president to senior managing director after Toyota took a 40% stake in the company.[11] Honda also aided the war effort by assisting other companies in automating the production of military aircraft propellers.[11] The relationships Honda cultivated with personnel at Toyota, Nakajima Aircraft Company and the Imperial Japanese Navy would be instrumental in the postwar period.[11] A US B-29 bomber attack destroyed Tōkai Seiki's Yamashita plant in 1944, and the Itawa plant collapsed in the 1945 Mikawa earthquake, and Soichiro Honda sold the salvageable remains of the company to Toyota after the war for ¥450,000, and used the proceeds to found the Honda Technical Research Institute in October 1946.[11][13] With a staff of 12 men working in a 16 m2 (170 sq ft) shack, they built and sold improvised motorized bicycles, using a supply of 500 two-stroke 50 cc Tohatsu war surplus radio generator engines.[11][12]:19[14] When the engines ran out, Honda began building their own copy of the Tohatsu engine, and supplying these to customers to attach their bicycles.[11][14] This was the Honda Model A, nicknamed the Bata Bata for the sound the engine made.[11] In 1949, the Honda Technical Research Institute was liquidated for ¥1,000,000, or about US$5,000 today; these funds were used to incorporate Honda Motor Co., Ltd.[12]:21 At about the same time Honda hired engineer Kihachiro Kawashima, and Takeo Fujisawa who provided indispensable business and marketing expertise to complement Soichiro Honda's technical bent.[12]:21 The close partnership between Soichiro Honda and Fujisawa lasted until they stepped down together in October 1973.[12]:21
The first complete motorcycle, with both the frame and engine made by Honda, was the 1949 Model D, the first Honda to go by the name Dream.[13][15] Honda Motor Company grew in a short time to become the world's largest manufacturer of motorcycles by 1964.