Honda Gears Up to Make Parts in Asia

December 27, 2001

Sacramento - A severe and protracted trade rift between Japan and China appears to be encouraging Honda Motor Co. in making big time plans to import cars into what is expected to become the world's largest vehicle market. Honda surprised its Japanese competitors recently when it revealed plans to make Asia a center for auto parts production, shifting manufacturing out of Japan and into Asia where labor costs are lower. At a year-end news conference Honda President and CEO Hiroyuki Yoshino said, "We have decided to make the Asian region a key supply station in our global supply network for parts." He added, "Taking our parts from Japan is expensive and to strengthen our cost competitiveness, we are looking to Asia."

While government officials trying to nurse a failing Japanese economy must have been aghast to learn one of the nation's largest employers was taking manufacturing off shore, a subsequent Honda announcement that it would begin assembling vehicles in Asia and importing them to Japan, must have been the proverbial straw that broke the camel's back. Honda has always made every vehicle it sells in Japan, in Japan.

Honda has a valid reason for concern, however. The Japanese government has made no progress in settling a petty trade dispute with China that started over imports of spring onions, shitake mushrooms and rushes. In an effort to protect its own products, Japan issued a 200-day import restriction on the products earlier this year. In retaliation, China slapped a 100% tariff on all imported Japanese vehicles, air conditioners and mobile phones. It doesn't sound like a big deal but the tit-for-tat trade tiff has gone on since last spring, despite several high level discussions among trade officials to find a solution. In fact, some are saying that this could become Beijing's first WTO trade dispute.

Honda's move into Asia appears to be a first step toward development of a much broader Asian presence that eventually will include assembly of all cars sold in the region. Honda says it hasn't decided which model it will import to Japan and it notes that it will not be a vehicle in its existing model line-up. That means Honda could be planning a new model, perhaps to be assembled in China and then imported to Japan. Honda has already announced that it will more than double production capacity of its China unit by 2003. The plant currently produces Accords and next spring will begin assembling Odyssey minivans with a current capacity of 50,000 vehicles a year. These vehicles are at the high end of the market in China and it's conceivable that Honda has a new small car in the works that would be produced in China or perhaps Asia and then imported to Japan.