And 'Bama Makes Five--Honda adds another North American plant

It's unlikely the rock band Lynyrd Skynyrd had the Japanese in mind with its 1970s song "Sweet Home Alabama," but the tune's fast becoming a familiar anthem for Honda Motor Co. Ltd.

The Japanese parent's North American arm, American Honda Motor Co. Inc., in May announced plans to build an automobile manufacturing and V-6 engine facility in rural southern Lincoln, AL, 40 miles (64 km) east of Birmingham.

It's a short hop east, as the crow flies, from DaimlerChrysler AG Mercedes division's $380 million Tuscaloosa County assembly plant that builds M-Class SUVs.

Honda's $400 million plant, located on a 1,350-acre tract, will produce Odyssey minivans and/or large-size sport/utility vehicles (SUVs), depending on market demand, starting in 2002. The facility also will be capable of producing passenger cars. The 1.7-million-sq.-ft. (158,000-sq.-m) facility will employ 1,500 workers when it reaches full capacity of 120,000 vehicles and 120,000 engines in 2003, using two shifts.

The new plant signals a sea change not only for Honda, but for other top Japanese carmakers that are moving away from a home market left in disarray by a failed economy and toward expansion in an ever-lucrative North American market. Lucrative as in full-size trucks, minivans and SUVs.

Toyota Motor Corp., for example, has a new full-size Tundra pickup truck plant in Princeton, IN, where it soon plans to begin making full-size SUVs, upping capacity to 150,000 annual units. Nissan Motor Co. Ltd. in April launched its mid-size Xterra SUV in Smyrna, TN. It hopes to sell 50,000 units in the first full year.

Honda says its North American operations play a critical role in the company's global success, especially as sales and production shrink in Japan, where Honda now hopes for 700,000 in sales this year compared with its peak of 800,000 two years ago.

"Honda's strong commitment to America is based on the success of our existing U.S. operations and strong demand from our customers, but this demand has stretched our production to the limit," says Koichi Amemiya, president of American Honda and chief operating officer of Honda's Americas region.

Honda produced 874,500 cars and light trucks in the U.S. and Canada last year, with 75% of the vehicles sold in the U.S. also produced there. Honda's U.S. light truck sales are up 69% this year and officials say dealers claim they can triple monthly Odyssey sales to 12,000 given enough vehicles.

As further indication of its success in the North American market, the automaker also plans to accelerate its timetable for attaining full capacity of 120,000 units at its Alliston, Ont., plant's new No.2 line, which builds the Odyssey, by this summer, one year ahead of schedule. Together with the original 170,000-unit capacity of line one, the move will increase Honda's total capacity in Canada to 290,000 annual units.

In addition, the second line will get a boost to 160,000 units annually by 2001 for production of a newly designed SUV model (most likely an Acura-badged luxury model) in addition to the existing Odyssey and different from the SUV planned for the Alabama plant. Honda will invest $30 million in the 40,000-unit increase.

The automaker also will invest another $30 million to boost auto engine production capacity to 1.01 million units at its Anna (Ohio) Engine Plant, which currently produces 900,000 engines annually. Through these plans, Honda will increase total North American production capacity to 1.13 million units by 2003. "We'll be making all our own stuff," a spokesman for Honda's American arm says. "Cars, engines and trucks."

Additionally, Honda says it plans to sell 7,000 Mexican-built Accord sedans in the U.S. beginning this fall to temporarily alleviate an acute shortage of the cars in America.

Facing a slumping domestic market, Honda in Japan, meanwhile, will pump in $300 million to introduce new production systems to its two main plants at home. Specifically, the company says it aims to substantially increase the efficiency and flexibility of production lines at its Suzuka and Sayama facilities, closing one of five assembly lines to address excess capacity and dwindling exports.

The two plants at their peak produced close to 1.4 million units annually compared with today's 1.25 million, resulting in excess capacity of about 150,000 units a year.

Honda's new Alabama facility marks its fifth North American automotive-related plant and 11th major manufacturing facility, bringing total U.S. investment to $4.8 billion. Insiders say the new SUV to be built there initially will replace the Honda Passport now made at the Subaru-Isuzu plant in Lafayette, IN. The Acura full-size SUV to be built in Canada eventually will move production to the Alabama plant, with Odyssey production then expanded at Alliston.

Seven Honda suppliers already are located in Alabama, and Honda says more will want to come, although no discussions have taken place. Honda says it plans to employ its "own method" of modular assembly at the plant, and that local content will exceed 90%. The automaker purchased more than $6.8 billion in parts and materials in 1998 from 450 North American suppliers.

The Alabama deal was brokered over a three-month period, a record for Honda, with state economic assistance and incentives totaling around $158 million. Some $55 million of that represents tax abatements extended over a 20-year period.