Honda Motor Co. is keen for its share of rapidly-growing markets like India and China to increase, its chairman said on Sunday, but Japan's second biggest auto maker is not in a hurry to enter the new battleground for very cheap small cars in India.
Honda is spending up to 20 billion rupees ($491 million) on a second plant in Tapukara in the north western state of Rajasthan, about 70 km from New Delhi. It will have an initial annual capacity of 60,000 units that will be scaled up to 200,000 units.
The plant, which will also make Honda's small car for India, will roll out its first car in the last quarter of 2009. The facility will also house an R&D unit and a components plant.
The North American business is very important to us, but we like to add business coming from other markets like China, India, southeast Asia and Brazil, so we won't be dependent on a single market, Satoshi Aoki said at a ground-breaking function.
Honda is also expanding capacity at its existing plant near New Delhi to 100,000 units and aims to make and sell more than 150,000 vehicles a year in India by the end of 2010.
Rising incomes and new launches are boosting sales of passenger vehicles in India, which are forecast to nearly double to 2 million units in sales by 2010.
Honda, which sells the City, Civic and Accord saloon cars and the CR-V sport utility in India, has cornered a significant share of the mid-size and premium segments, but local and global auto makers are gearing up for a fight to make cheap small cars.
Tata Motors Ltd., India's third-biggest car maker, is scheduled to launch next year the cheapest car in the world, priced at just under $2,500, which would make it affordable to millions of Indians who otherwise buy motorbikes.
Renault and Nissan are mulling a $3,000 car in India, perhaps with venture partner Mahindra & Mahindra, which sells Renault's no-frills Logan sedan in India.
To compete with them would difficult, Aoki said.
Our mini car in Japan costs around $9,000 ... to produce something at one third the cost will be rather challenging, he said.
We have to achieve balance in our model in terms of cost and business worthiness, (see) if it is viable or not, he said.
Honda, which forecast a 3 percent drop in profit this year on an expected rise in the yen, high commodity prices and a shift to lower-margin compact cars, hopes that a softer yen could offset some of the negative impact, Aoki said.
Honda's forecast was based on an assumed average dollar rate of 115 yen, against a more favorable 117 yen in 2006/07.
The yen since then has been trading somewhat weaker, so that should give us some favorable impact, he said.