Honda Motor Co. said today it will build an $800 million assembly plant in Mexico to produce subcompact vehicles for the Mexican and North American markets.
The Japanese automaker, in a statement, said the plant is scheduled to begin operation in 2014 with an annual capacity of 200,000 units.
Honda and other Japanese automakers are seeking to relocate car and truck production from Japan because the strength of the yen makes it difficult to make money on exports.
In addition to Honda, Mazda Motor Corp. and Nissan Motor Co. have announced plans for new or expanded plants and production in Mexico.
Hyundai Motor Corp. is also looking to add manufacturing capacity in North America, including Mexico, according to several recently published reports.
Honda didn't identify the model to be assembled in Mexico, but the only subcompacts the automaker sells in the United States are the Fit, the CR-Z hybrid and the slightly larger Insight hybrid.
All three models are based on the same platform and now built in Japan.
The Mexico plant will provide Honda with a source of low-cost labor and components to offset the lower profit margins on subcompact models.
8th North American plant
The new Honda plant will be located in a suburb of Celaya, Guanajuato, about 210 miles east of Honda's two existing plants in El Salto, Jalisco, where the company assembles automobiles, motorcycles and auto parts.
Employment at the new plant is expected to reach 3,200 workers, Honda said in a statement.
It will be the automaker's eighth auto assembly plant in North America.
Honda said the new plant will increase its automobile production capacity in North America from 1.63 million units to 1.83 million units by 2014.
More than 87 percent of Honda and Acura cars and light trucks sold in the U.S. market were produced in North America last year.
The smallest vehicle currently assembled by Honda in North America is the compact Civic, which is built at plants in Indiana and Ontario, Canada.
With the new plant, Honda said it will be able to produce light trucks, mid-size sedans and coupes, compact sedans and coupes, and now subcompacts in North America.
"We are confident that the demand for fuel efficient subcompact vehicles in North America will continue to grow, and this plant will enable us to meet customer needs with local production," a Honda spokesperson said today.
IHS Global Insight estimates the subcompact market will double in size
from 2011 to 2015.
Challenging time
The move comes at a challenging time for Honda. Sales in its most important market, the United States, are down 10 percent 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.
Bill Visnic, analyst with Edmunds.com, said siting the plant in Mexico makes sense for the Japanese automaker because profit margins on subcompact cars are thin and Mexico offers lower cost labor.
"Also, after this year's natural disaster in Japan, Honda and the other major Japanese automakers surely will be considering diversifying their production base to other regions," said Visnic.
It is also a challenging time because of inroads made by rivals including Hyundai, particularly in the small-car market.
Honda is No. 5 in the U.S. market, and No. 3 in its home Japan market. Honda says its investment in North America would now total $21 billion.
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