Honda to Build Midwest Plant, Add Small Hybrid

By John O’Dell

May 18, 2006 12 AM PT

Times Staff Writer

Honda Motor Co., straining at the seams to meet demand for its cars and trucks, said Wednesday that it would build another assembly plant in the Midwest and introduce a small hybrid gasoline-electric car as part of a $1.46-billion global expansion.

The Japanese automaker said it expected to be selling 2 million vehicles a year in North America by 2010, up from 1.6 million last year.

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

Honda, most of whose North American sales are in the U.S., is one of several Asian manufacturers adding capacity here even as market leaders General Motors Corp. and Ford Motor Co. are retrenching.

GM plans to close a dozen plants and other facilities and eliminate 30,000 jobs in North America -- mostly in the U.S. -- in the next two years. Ford is closing 14 facilities, including seven assembly plants, and cutting payrolls by 35,000.

Both have seen sales drop dramatically in the last two decades in the face of relentless competition from overseas automakers, led by Honda and its Japanese rivals Toyota Motor Corp. and Nissan Motor Co. and more recently Hyundai Motor Co. of South Korea.

“These expansions by foreign automakers reflect the growth and competition of the past decade,” said Matt Vicenzi, an analyst at J.D. Power Automotive Forecasting in Westlake Village. “It also shows that the U.S. market is robust and profitable.”

Establishing factories in the U.S. helps foreign automakers minimize risks from international currency fluctuations, gives them local roots and improves their ability to respond quickly to market demands, analysts say.

Executives at Honda’s U.S. headquarters in Torrance said the new assembly plant would be located near suppliers feeding its current vehicle and engine plants in Ohio, but they would not identify the location. Indiana and Ohio officials have said their states are in the running.

The $400-million factory, to open in 2008, will employ more than 1,500 workers and produce as many as 200,000 vehicles a year, said Richard Colliver, executive vice president of American Honda Motor Co.

It will be the sixth North American assembly plant for Honda, which became the first Asian manufacturer to begin building autos in the U.S. when it opened its Marysville, Ohio, factory in 1983.

As part of its global expansion, Honda said, it will spend nearly $700 million to build an assembly plant and an engine plant in Japan.

In North America, plans also call for a $140-million engine factory in Ontario, Canada, and expansion of engine and parts plants in Ohio and Georgia. All of the work is to be completed by 2008.

To help meet its North American sales goal, Honda said, it will deliver a new hybrid model and a new four-cylinder diesel engine in 2009.

“They are capitalizing on the fact that the American consumer is more cognizant of fuel economy than ever before,” said Anthony Pratt, a powertrain systems analyst with J.D. Power Forecasting.

The gains from a high-volume hybrid system and a diesel engine that gets 30% better mileage than a comparable gasoline engine would help Honda increase the industry-leading overall fuel economy average of its cars and trucks by 5% to 30.6 miles per gallon in the next four years.

Honda said its new diesel would be one of the cleanest on the planet, capable of meeting not only the tough new federal emissions standards that take effect in 2007 but also the stricter California standards that have been adopted by several large Eastern states. No other automaker has made that claim.

Honda sees diesel engines as the best fuel-efficiency tool for larger cars, sport utility vehicles and pickups. The company said that in addition to the four-cylinder diesel engine it would bring to the U.S., it was developing a V-6 version.

The automaker said its new hybrid would be a unique model rather than an extension of an existing line, as are the Civic and Accord hybrids. The new model will be smaller and less expensive than the Civic, Colliver said.

“Hybrid technology works best in smaller vehicles. It’s more efficient,” said John Mendel, Honda’s U.S. sales chief. But not too small: Honda will cease production of its two-seat Insight hybrid in September because of poor sales.

The Prius from rival Toyota is the bestselling hybrid in the U.S., in part because its styling stands out in a crowd. That appeals to many buyers who want people to know they are driving a hybrid, Pratt said.

“Honda would like to have a hybrid that stands alone,” he said. “They will be gunning for the Prius.”

Honda expects its new hybrid to add 100,000 sales a year in the U.S. and 100,000 in Japan, where the car will be built.

The automaker’s U.S. shares, which have risen 18% this year, fell 83 cents Wednesday to $34.25.

(BEGIN TEXT OF INFOBOX)

Different gears

Percentage of plant capacity automakers used in North America in 2005

Toyota: 108.5%*

Nissan: 96.8

Honda: 96.5

Chrysler: 86

Ford: 81.8

GM: 80.1