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Honda plans $1.18 billion North American Expansion

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by HANS GREIMEL -- Associated Press posted May 17, 2006


TOKYO - Profit-rich Honda Motor Co. (NYSE:HMC) announced plans Wednesday to build a new plant in the United States - its sixth in North America - part of a sweeping $1.18-billion-US expansion plan to meet soaring demand for its cars.

Japan's No. 3 automaker also plans to erect a new assembly factory in Japan and an engine plant in Canada. The three plants are aimed at meeting an ambitious 34 per cent increase in annual sales to 4.5 million vehicles a year by 2010, Honda CEO Takeo Fukui said.

The new Canadian plant, scheduled for operation in 2008, will be built next to an existing assembly plant at Alliston, Ont., and cost $140 million US. It will employ 340 people.

"We have been looking at changes in demand and decided to expand our capacity," Fukui said at a Tokyo news conference. "Competition on a global scale is expected to intensify."

He did not specify the location of the new U.S. plant, although Ohio and Indiana have expressed interest in hosting it, but said the $400-million plant would employ 1,500 workers and produce about 200,000 vehicles a year when it was completed in 2008.

Fukui said the company was in the final stages of selecting a location for the new plant, but the company did not give a timeline for making a decision. Honda, maker of the Civic and Accord, already has two plants in Ohio, a factory in Alabama, and a plant each in Canada and Mexico.

Indiana Gov. Mitch Daniels said Tuesday - after a Japanese newspaper reported Honda was keen to build another plant in North America - that state officials have been working to lure the automaker to sites in Decatur and Ripley counties, in the southeastern part of the state.

"It is an enormously promising opportunity, and we're going to do all we can, and I am very hopeful, but it is still a multi-state competition, and I have nothing further to say about it today," Daniels said.

Indiana officials said they had private meetings scheduled for Wednesday with Honda lawyers.

Ohio Lt. Gov. Bruce Johnson said his state was also being considered for the new plant, but would not identify the potential sites in Ohio, where Honda already employs about 16,000 workers.

Fukui did not detail what vehicles the new U.S. plant would produce. But it is highly likely the new facility will roll out such models as the Civic, and the Fit, a small, five-door model that had been exported from Japan, the Nihon Keizai newspaper said Tuesday.

The new plant would boost the company's North American production capacity from 1.4 million to 1.6 million vehicles.

Honda's five plants in North American cannot meet demand, meaning Honda has to import autos. Fukui said he wants to keep production where the demand is, and said the company wants to keep it ration of domestically built vehicles sold in North America at 80 per cent.

Flush with cash, Honda is eager to crank up output, particularly in North America, a region that accounts for about half the company's annual global sales. Last month, the company reported a record quarterly profit of 219.5 billion yen ($1.9 billion) in the January-March period, more than double its income from a year ago.

In addition to the new plants, the company will double vehicle production at its plant in Brazil to 100,000 units by 2008, and double output in India to 100,000 by 2007, Fukui said.

The expansion plans contrast sharply with the fortunes of General Motors Corp. and Ford Motor Co., which have shuttered plants and laid off workers amid a trail of red ink.

Honda sold 1.65 million units in North America last year, including Mexico and Canada, and forecasts sales to climb to 1.72 million units in the current year. Demand is especially hot for fuel efficient cars like the newly redesigned Civic, which comes in a gasoline-electric hybrid model.

Honda said Wednesday it would bring a new hybrid model to market by 2009.

To meet growing demand for fuel-efficient vehicles, Fukui said Honda would start selling a new hybrid family-style vehicle in 2009 that will be priced lower than the current Civic hybrid. It is targeting global sales of 200,000 a year, half in the United States.

Honda will also begin working on a cleaner next-generation four-cylinder diesel engine that will meet the world's strictest emissions guidelines and have less noise. It envisions selling the new super-clean engines within the next three years.

Honda's shares, which have risen about 14 per cent this year, gained 0.78 per cent in Tokyo trading Wednesday to close at 7,750 yen ($40.45).

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