Honda’s export-bound car production has been hurt by the strong yen according to Reuters. Now the number three Japanese automaker is considering adding more overseas plants – this time in smaller markets that up until now haven’t justified the expense of a local factory. Honda builds many of its products in the markets it sells them in, such as North America.
Honda currently has several manufacturing plants in North America. Many Civic models are built in Canada; the Odyssey and Pilot are built in Alabama; and Ohio is home to an auto assembly, engine plant, and a motorcycle plant.
"We currently have a three-year plan under which we are assuming a rate of 80 yen to the dollar," said Fumihiko Ike, Honda’s chief financial officer, told a small group of reporters at Honda's headquarters in Tokyo, according to Reuters. "And under that assumption, the discussion to look for an alternative production base is inevitable."
Currently Honda exports 30 percent of Japanese-built vehicles. Ike stressed that jobs in Japan need to be protected. Moving production overseas could hurt the nation’s employment rate. Discussions regarding foreign production plants would continue up until Honda’s board makes a final decision.
"Protecting Japanese manufacturing and building cars here is becoming more and more difficult," Ike said. "We can keep the technology here, but if we were to build cars in Japan, they may be good (quality) products but they would be too expensive. And an expensive product is not necessarily a good product."
Last week the U.S. dollar was worth 70 yen; Tuesday it had weakened to 77 yen per U.S dollar.
"At these exchange rates we lose competitiveness on these exports, and that leads to a fall in sales, triggering a vicious cycle," Ike said. "And when that happens, the natural consequence is for that production (in Japan) to disappear."
Honda has already expanded production of motorcycles to smaller markets like India, Vietnam, and Indonesia. Many Honda motorcycles sold in Japan are built in Thailand and China. If Honda takes the same step with cars, it could pressure Toyota and Nissan to follow suit. Toyota and Nissan export 53 percent and 59 percent respectively of its Japanese-built vehicles.
"Car makers are trying hard to cut costs to absorb the currency impact, but there's a limit to the speed and scope of what they can achieve," said Credit Suisse auto analyst Issei Takahashi to Reuters. "Even if they build a lot in Japan, if they lose money by doing so they won't be able to protect jobs. I think it's inevitable that some production shifts overseas."