Honda Motor Co will build a new vehicle assembly plant in Mexico to contain costs and meet expected demand for small cars once the US market returns to pre-recession levels.
The $800 million (Dh2.9 billion) plant marks the second major investment in Mexico by a Japanese car manufacturer in as many months at a time when the industry in Japan is suffering from a strong yen, uncertainty about energy supply, and disruption to parts delivery after the March earthquake.
Honda said the plant will open in 2014, with the capacity to produce 200,000 vehicles annually. It will employ 3,200 workers in the central Mexican state of Guanajuato, the same region where Mazda Motor Corp plans to build a new assembly plant.
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"It is a global industry and obviously North America is still an extremely important market not only to the domestic automakers but Honda and Toyota," Mirko Mikelic, senior portfolio manager with Fifth Third Asset Management, said. "There are still a lot of vehicles being sold [in the United States] and obviously some of the cheapest places to make parts or assemble vehicles is south of the border."
Honda declined to say whether the production would add to the company's global capacity or displace production from Japan. It sells the Honda Fit, a subcompact imported from Japan, in the North American market.
The auto plant will be Honda's eighth in North America, and adds to its current production in Mexico of about 60,000 vehicles a year. Honda's North American production will rise to 1.83 million vehicles in 2014 from a current annual rate of 1.63 million, the company said.
The plant will meet the growing need for fuel-efficient subcompact vehicles made in North America for the region, American Honda President Tetsuo Iwamura said.
In 2010, 87 per cent of Honda vehicles sold in the United States, Mexico and Canada, including its luxury brand Acura, were made in those three countries.
The move comes at a challenging time for Honda. Sales in its most important market, the United States, fell 10 per cent this year, in part because of the impact of the March earthquake in Japan.
Honda also is dealing with recent bad news on the quality front as Consumer Reports recently gave the automaker's Civic a negative review and the automaker recalled 2.5 million cars, small SUVs and minivans globally, including its popular Accord sedan, to repair a software problem.