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Honda to Expand in N. America by 15%

Autos: The firm will spend nearly half a billion dollars to boost vehicle production.


Showing strong faith in both an improving U.S. economy and a new-car market that can sustain annual sales of 16 million to 17 million units, American Honda Motor Co. Inc. said Tuesday that it would spend nearly half a billion dollars over the next 30 months to boost annual North American production by 180,000 vehicles, a 15% jump.

The move is the latest in a string of new factories or plant expansions announced by import car makers for their North American operations in recent months--an expansion occurring at the same time domestic car makers are shuttering some of their plants and ratcheting down production capacity.

Honda and other import brands see the North American market, particularly the U.S., as fertile ground for more growth at the expense of domestic brands, whose market share has been shrinking for years.

"It's a warning sign to the Big Three," said Michael Flynn, director of the University of Michigan's automotive think tank. "The Big Three are clearly not putting investment and product development into passenger cars, except for a few niche vehicles."

American Honda, which is based in Torrance, said it would spend $425 million to double capacity in Alabama to 300,000 vehicles.

It will spend $46 million more to increase engine production at an Ohio plant and boost its vehicle production in Canada by 30,000 a year.

The move comes two weeks after Nissan Motor Co. said it would expand capacity at its $1-billion Mississippi plant, still under construction, and three months after South Korea's Hyundai Motor Co. said it would build a $1-billion assembly factory in Alabama.

Toyota Motor Co. also is building an engine plant in Tennessee.

The rush by Asian manufacturers to build in this country is a clear signal that import brands are gunning for more of the Big Three's home market.

Much of the push by Asian and European brands comes in the light-truck market--pickups, sport utility vehicles and minivans--that once was the sole domain of domestic brands.

"It's pretty clear there's a real big problem for the domestics," said Rod Lache, auto industry analyst for Deutsche Banc Alex. Brown.

Including Honda's new growth plan, Lache says, there will be 1.5 million units of additional capacity for light trucks, primarily SUVs, in the U.S. by 2005, for total capacity of 10.5 million light trucks a year. "There's no way the market is going to absorb that," and the domestic auto makers are going to be hit hardest, he said.

Although General Motors Corp., Ford Motor Co. and DaimlerChrysler's Chrysler Group have no new market segments in which to expand, the Japanese, South Korean and German auto makers still can grow with mid-size sport utilities and big trucks, said Greg Salchow of the Detroit office of investment bank Raymond James & Associates.

The U.S. auto market has surprised analysts and auto executives with its continued strength in the recent weak economy.

U.S. passenger vehicle sales set a record of 17.4 million in 2000, and last year was second-best, with 17.1 million sales.

Most experts say they expect new vehicle sales this year to be in the 16.5-million-to-16.8-million range, which would keep it among the best years.

"We have seen a fundamental change in volume of the market over the past 20 years. It was 13 million annually [in the 1980s], then up to 14 to 15 million in the '90s; now it seems to be in 16-to-17-million range," said Thomas Elliott, American Honda's executive vice president.

"We see the market gradually expanding as the driving-age population grows and the number of vehicles offered is growing and the number of multiple-car households is growing, while car prices remain relatively affordable," Elliott said. "We think this will continue over the next five to 10 years."

Honda's expansion will add 2,000 jobs at the Alabama plant to bring total employment there to 4,300 by late 2004. The company now has about 26,000 employees in North America.

Honda executives would not say which vehicle they will build in the expanded sections of the Alabama plant, which currently builds the Odyssey minivan.

The van shares much of its architecture with the Honda Pilot and Acura MDX SUVs, which are built in Canada and could be added to the Alabama factory.

The new assembly line will be a "flex" line that can easily switch from one type of vehicle to another. "Consider that we are doing the Element [light truck] on the same line as the Civic [in Ohio], and that gives you an idea of the range of flexibility," said Charles Ernst, manager of Alabama plant.

The imports' U.S. market share this year has been increasing, especially for the South Korean car makers.

Sales for Toyota and its Lexus luxury brand rose 2.2% through June; Nissan and Infiniti sales were up 7.7%; Mitsubishi was up 12.6%; South Korea's Hyundai rose 16.2% and its Kia subsidiary's U.S. sales soared by 20%. Honda's and Acura's combined sales were down marginally, by 0.9%, due to a slowdown of Honda's best-selling model as it prepares to release a completely redesigned Accord this year.

By contrast, GM sales dropped 1.6% through June, Chrysler Group's American brands fell 3.9%, and the U.S. brands of Ford Motor, which lost $5.45 billion last year, declined 12.2%.


Jones reported from Detroit and O'Dell from Los Angeles.

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