Profitable Honda to Spend $1.18 Billion on New Plants

TOKYO May 17, 2006; Hans Greimel writing for the AP reported that profit-rich Honda Motor Co. announced sweeping expansions plans Wednesday to spend $1.18 billion to build new plants in the United States, Canada and Japan, to boost production amid meet soaring demand for its vehicles.

The three plants — auto factories in Japan and the U.S. and an engine plant in Canada — are aimed at meeting an ambitious 34 percent increase in annual sales to 4.5 million vehicles a year by 2010, Honda President and Chief Executive Officer Takeo Fukui said.

Tokyo-based Honda is tapping record profits to boost output, particularly in North America, a region that accounts for about half the company's annual global sales. The upgrade contrasts sharply with the fortunes of domestic giants General Motors Corp. and Ford Motor Co., which are battling weak sales and a trail of red ink.

Honda sold 1.65 million units in North America last year, including Mexico and Canada, and forecasts sales to climb to 1.72 million units in the current year. Demand is especially hot for fuel efficient cars like the newly redesigned Civic, which comes in a gasoline-electric hybrid model. Honda said Wednesday it would bring a new hybrid model to market by 2009.

"We have been looking at changes in demand and decided to expand our capacity," Fukui said at a Tokyo news conference. "Competition on a global scale is expected to intensify."

The expansion marks Honda's sixth assembly plant in North America, and its first new plant in Japan in 25 years.

Fukui did not specify the location of the new U.S. plant, although Ohio and Indiana have expressed interest in hosting it. The automaker already has two plants in Ohio and one plant in Alabama. It also has a plant each in Canada and Mexico.

The U.S. plant will cost $400 million and will employ 1,500 workers, Fukui said. That plant would boost the company's North American production capacity from 1.4 million to 1.6 million vehicles.

Honda's five plants in North American cannot meet demand, meaning Honda has to import autos. Fukui said Wednesday he wants to keep production where the demand is, and said the company wants to keep it ration of domestically built vehicles sold in North America at 80 percent.

In addition to the new plants, the company will double vehicle production at its plant in Brazil to 100,000 units by 2008, and double output in India to 100,000 by 2007, Fukui said.

The Japanese plant will be in Saitama, just north of Tokyo, he said. It will cost 70 billion yen ($640 million), employ 2,200 people and boost Honda's domestic production by 200,000 units to a total 1.5 million vehicles a year.

The Canadian plant, scheduled for operation in 2008, will be built next to an existing assembly plant in Ontario and cost $140 million. It will employ 340 people.

Worldwide, the company sold 3.365 million units last year, and is forecasting sales to rise 9.7 percent to 3.693 million units in the current business year ending March 2007.

Fukui did not detail what vehicles the new U.S. plant would produce. But it is highly likely the new facility will roll out such models as the Civic, and the Fit, a small, five-door model that had been exported from Japan, the Nihon Keizai newspaper said Tuesday.

Honda also said Wednesday it will also build a new research and development center in the prefecture of Tochigi, just northeast of Tokyo, that will have multiple test courses. It will cost 17 billion yen ($155 million; euro120.93 million) and open in 2009.

To meet growing demand for fuel-efficient vehicles, Fukui said Honda would start selling a new hybrid family-style vehicle in 2009 that will be priced lower than the current Civic hybrid. It is targeting global sales of 200,000 a year, half in the United States.

Honda will also begin working on a cleaner next-generation four-cylinder diesel engine that will meet the world's strictest emissions guidelines and have less noise. It envisions selling the new super-clean engines within the next three years.