Automotive Dealer Honda will build a new auto assembly in Mexico 2014 ; Honda Motor Co (7267.T) (HMC.N) will build a new auto assembly plant in Mexico to contain costs and meet expected demand for small cars once the U.S. market returns to pre-recession levels.
The $800 million plant marks the second major investment in Mexico by a Japanese automaker 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 auto 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 (7261.T) plans to build a new assembly plant.
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 percent 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 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.
Honda ranks No. 5 by sales in the U.S. market, and No. 3 in its home Japan market.
Honda is a leader in fuel efficiency in the U.S. market, where fuel economy standards are set to become much more demanding by 2016 and then again by 2025.
The U.S. small car market is expected to boom as the fuel economy standards come into force and gasoline prices continue to rise.
Sales of cars and trucks have sputtered in the U.S. market so far this year but a fuller recovery from recessionary sales levels is expected over the next few years. U.S. auto sales are expected to be near 13 million this year, major automakers have said.
In 2009, U.S. sales hit a low of 10.4 million vehicles after averaging nearly 17 million vehicles for 10 years ending in 2007.
With the new plant, Honda's investment in North America, would total $21 billion, it said. Honda has 33,000 employees in the continent.
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