Global Insight Perspective | |
Significance | Honda plans to expand its existing production facilities across all regions, further increasing its global footprint and boosting capacity in line with its forecast growth. |
Implications | Honda's highly globalised manufacturing strategy will be further strengthened, providing the company with flexibility to exploit growth opportunities. |
Outlook | Honda is emphasising that its growth plans will be largely achieved through its small to medium-sized, fuel-efficient vehicles. Although these segments are set to continue growing in the prevailing environment, Honda's goals are nevertheless highly ambitious and it will struggle to attain the 27% production growth target by 2010. |
Honda President Takeo Fukui has unveiled the company's next global passenger car production expansion programme, which involves the extension of plants in Mexico and Turkey, as well as the construction of new facilities in Thailand and Argentina. The move is part of the overall strategy designed to lift the company’s global output to 4.5 million vehicles by 2010, a 27% rise from the 3.55 million units produced in 2006. "We'll accelerate our efforts to strengthen the foundation [of the company's operations]”, Fukui said at a press conference. He added that this will involve the, “development of advanced technologies and products that create new value for the joy of our customers”.
The company said that it “will further accelerate its effort to strengthen the core characteristics that make Honda unique in each business area and steadily make progress within the following areas, which are the three pillars that will enable Honda to make another great leap forward in the future: strengthening the foundation for global growth; accelerating our effort in Japan to strengthen the core characteristics that make Honda unique; [and] strengthening Honda’s effort to reduce its environmental footprint”.
- Thailand will receive ¥23 billion (US$188.4 million) of investment for a new plant, Honda's second in the country, which will have an installed annual capacity when fully operational of 120,000 units; this will take the manufacturer’s annual capacity to 240,000 units in the country. Operations are expected to begin in late 2008.
- Argentina's newly installed Economy Minister Miguel Peirano has announced that Honda will invest US$100 million to open a new facility for the production of compact passenger cars. Annual output at the plant will initially be 30,000 cars and operations are scheduled to begin in 2009. The new plant will also begin exporting products to other countries in the South American region and will play a key role in Honda’s production network in South America along with the Honda auto plant in Brazil.
- Honda will also boost annual capacity at its existing plant in El Salto (Mexico) from the current 30,000 units to 50,000 units later this year to coincide with the shift in production of the CR-V. This move, on top of the new plant in Indiana (United States), will bring Honda's annual capacity in North America to 1.62 million units by late 2008 from the current 1.4 million.
- Honda's plant in Turkey will also ramp up production from the current 30,000 to 50,000 units per annum (upa) by 2008, thereby increasing Honda’s total annual vehicle output in Europe to 300,000 units.
- Guangzhou Honda Automobile Co., Ltd, a Honda joint-venture (JV) company in China, will establish a wholly-owned automotive research and development (R&D) subsidiary, Guangzhou Honda Automobile Research & Development Co., Ltd. With investment of approximately 2 billion Chinese renminbi (¥30 billion), the new company will build a full-scale automobile R&D facility with a test course. The company will develop a product that will be marketed under an original brand of Guangzhou Honda, targeting the start of sales in 2010. Fukui told reporters after the press conference that the venture will likely develop models that will not overlap with Honda's line-up in China.
- Honda's consolidated minivehicle subsidiary, Yachiyo Industry, will establish an optimal production system for minivehicles adjacent to its current plant to further improve the competitiveness of its minivehicle production. Although the detailed plans are still to be finalised, the company plans to begin with the establishment of an engine assembly facility, which will enable it to achieve synchronous production, including the engine and the complete vehicle.
- Honda will also postpone introducing its Acura premium brand to Japan for two years, from the original late-2008 launch target, because of the sluggish domestic auto market.
Outlook and Implications
Honda's highly ambitious 2010 production target of 4.5 million vehicles will be a test for the company despite the raft of investments announced today. Although the company is forecast to grow, the assumptions made by Honda appear to disregard the possibility of issues arising on a local or global basis.
Honda's most controversial choice for production is Argentina, and it will likely prove problematic given the current environment in the country. Miguel Peirano's first statement as economy minister was to announce Honda's US$100-million investment, and it may be followed by another announcement tomorrow regarding General Motors (GM). However, Peirano was appointed this week as his predecessor resigned over a ”bag of cash” scandal, one of several such corruption scandals to have rocked President Néstor Kirchner's government lately. In an election year, Argentina may prove a volatile place in which to set up business, and combined with the current interventionist inflationary policies, which are indirectly affecting energy supply to the country, its future economic and political stability is far from certain. Furthermore, recent terrorist action in Mexico has allegedly made Honda somewhat nervous over its operations in the region, and it continues to operate in only a nominal way there, mainly to benefit from the domestic market and trade agreements elsewhere in the area (see Mexico: 16 July 2007: Honda, Nissan to Resume Production after Terrorist Attack on Mexican Pipeline).
Although Global Insight predicts Honda to largely achieve its objectives on the global stage, the timeframe and sheer rate of expansion are still highly ambitious; a more realistic goal would be 2012-15 to achieve the 4.5-million-unit mark. Although Honda's innovation and designs, and its commitment to developing fuel-efficient vehicles (and facilities) are exemplary, it is far from alone in its ambitions in the global auto industry and it is partly the intense competition that leads us to predict slower growth.