Honda Plans $1.46 Billion Expansion in America, Japan (Update2)

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Honda Plans $1.46 Billion Expansion in America, Japan (Update2)


May 17 (Bloomberg) -- Honda Motor Co., the world's second- largest carmaker by value, plans to invest $1.46 billion to build factories in Japan, the U.S. and Canada and enlarge existing plants to produce more fuel-efficient cars.

The carmaker will spend $639 million by 2010 on a car and engine factory in Japan and $400 million on its sixth North American assembly plant by 2008, Tokyo-based Honda said today. It will also construct a Canadian engine plant and a research center in Japan and expand parts factories in Ohio and Georgia.

President Takeo Fukui will use Honda's highest-ever profits to invest a record 570 billion yen ($5.2 billion) this year while General Motors Corp. and Ford Motor Co. shut plants and fire workers. Four-month sales of Honda's Civic compact car in the U.S., its most important market, jumped 22 percent as rising gasoline prices prompted consumers to avoid trucks and sport- utility vehicles built by GM and Ford.

``Honda clearly needs more capacity to meet strong demand for its fuel-efficient vehicles in North America,'' said Norihito Kanai, an analyst at Meiji Dresdner Asset Management Co., whose firm manages $2.5 billion in equities. ``It's the ideal time for the automaker to expand after just posting record earnings.''

Honda's plan will create 1,840 jobs in North America, as it joins larger rival Toyota Motor Corp. to produce more vehicles in a market that accounts for as much as 70 percent of operating profits. Honda's net income rose 23 percent last fiscal year to a record 597 billion yen on demand in the U.S. and Asia.

New Workers

Honda said it will hire 1,500 people to build 200,000 vehicles a year in the U.S., starting in 2008, without disclosing the plant's location. Indiana governor Mitch Daniels said yesterday that state officials discussed building the plant in his state. Honda President Fukui said it will announce the location ``soon.''

The new U.S. factory boosts Honda's North American capacity 14.3 percent to 1.6 million units a year. Fukui told Bloomberg News in December that Honda would consider a new plant or increase capacity in North America.

``We need a new factory in North America because we were quite stretched while demand keeps on growing,'' Fukui said today at a Tokyo press conference. ``The higher gasoline price is gradually shifting U.S. consumers to fuel-efficient models.''

Honda will hire 340 people to produce 200,000 four-cylinder engines a year at its $140 million factory near Alliston, Ontario, for its car factory in Canada.

Honda has two assemblies in Ohio, one in Ontario, one in Alabama, and one in Mexico. The company also makes transmissions, engines and parts at eight additional North American factories.

Global Sales Target

The carmaker aims to sell 4.5 million vehicles globally in 2010, a 21 percent increase from expected sales this year, including at least 2 million units in North America and 800,000 in Japan. Honda will introduce three sport-utility vehicles that are among the most fuel-efficient in their class in the U.S. later this year.

Honda may introduce a five-seat gasoline-electric car by 2009, aiming to sell 200,000 units a year, half of them in North America. The model, to be made in western Japan's Mie Prefecture, will be cheaper and smaller than the Civic hybrid.

U.S. demand for hybrids doubled to 207,021 units last year. Average U.S. gasoline prices are $2.93 a gallon, 36 percent higher than a year ago, according to AAA, a U.S. drivers' group.

Japan Factory

Honda will hire 2,200 people to produce 200,000 vehicles a year at a new factory at Yorii in central Japan's Saitama Prefecture, boosting its Japan capacity 15.4 percent to 1.5 million units from 2010.

Honda will renovate its Sayama factory after the Yorii plant is up and running, Fukui said. It will be Honda's first auto assembly since 1964 and its first engine factory since 1976, the company said.

The carmaker will also spend 17 billion yen on a new research and development center in Tochigi, Japan. The facility, which will open in 2009, will have test courses.

Honda shares rose 0.8 percent to 7,750 yen in Tokyo and have climbed 15 percent this year.

Honda's North American factories are operating close to full capacity. Japan's third-largest automaker completed its latest North American factory in 2001 and expanded in 2004.

Honda's 2006 Civic travels an average 34 miles (54.4 kilometers) on a gallon of gasoline in combined city and highway driving, according to the U.S. Environmental Protection Agency.

New cars are required to have a minimum mileage of 27.5 miles per gallon in the U.S. while light trucks need to travel at least 21.6 miles, according to the National Highway Traffic Safety Administration's most recent fuel economy report.

Motorcycles, India

Honda is also the world's biggest motorcycle maker. Its Indian unit, Hero Honda Motors Ltd., plans to build a motorcycle factory that can make 450,000 units a year. Hero will also make another 450,000 units by 2007 in the existing facility. With the additional 900,000 units, the total will increase to 5.2 million.

The company aims to sell more than 18 million motorcycles globally in 2010.



To contact the reporter on this story:
Kae Inoue in Tokyo at eugenetang@bloomberg.net
Last Updated: May 17, 2006 03:41 EDT

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