Honda's Indiana plant bad news for
Detroit By Janice Fioravante
NEW YORK - On the same day that credit
rating agency Standard & Poor's downgraded
Ford Motor Corp's rating by one notch to
single-B-plus from double-B-minus, Honda Motor Co
announced its selection of an Indiana town for a
US$550 million passenger-car assembly plant, the
firm's sixth in North America.
The
Tokyo-based auto maker's decision to choose a city
in the Midwest section of the US was greeted with
great satisfaction in the region. "It's a coup
that will not only affect the community of
Greensburg, Indiana, and Honda's suppliers in
Ohio, but will have such a [ripple] effect in the
entire Midwest," said Jay Baron, chief executive
of the Center for Automotive Research (CAR) in
Ann
Arbor, Michigan.
With
General Motors Corp and Ford closing plants in the
Midwest, there are plenty of skilled trades people
looking for jobs, Baron explained, while noting
that the fact that Honda chose the Midwest over a
southern US city made it an even sweeter deal. Of
late, Texas and Alabama have been winning races
for overseas companies' auto plants. Baron said
that while the southern US offers low costs,
favorable tax abatements and even free
infrastructure, it doesn't have the skilled
workforce that's available in his part of the
country.
Baron's remarks on the economic
significance of Honda's announcement also dovetail
with a recent report by the CAR regarding the
effect on communities when auto factories locate
to a region. "In this case, the economic
significance will be very substantial," he said,
citing as an example the 2,000 new hires expected.
"It will have a major multiplier effect on the
economy here; say three, four or five to one."
Indiana itself has had auto-plant closures
as well.
Baron noted that part of Honda's
strategy was to be a certain distance away but not
too far from its other factories in Ohio,
particularly one in the town of Anna that makes
four-cylinder engines. "Honda doesn't want to eat
into its current employee levels, while being
close enough to Ohio not to have to use a whole
new supply chain. Honda, of all Asian car makers,
maintains intimate relationships with its
suppliers. It works closely with them and is
incredibly loyal. This will allow its suppliers to
expand and make new hires as well."
Frank
Manus, mayor of Greensburg, Indiana, explained
that his town is about 200-240 kilometers from the
closest Honda plant in Ohio. "Ours will be an
assembly plant that will receive transmissions and
motors from Ohio," he said. "It will no doubt mean
more work for the plants and suppliers in Ohio and
the surrounding areas."
He further noted
that this will be a "real shot in the arm for
Greensburg", because a bearings plant that had
been in the town for more than 40 years left in
2000. "We went from an unemployment rate of just
1.5% in 2000 to 5% today. We've been actively
trying to attract new factories."
Manus
said Honda was seriously considering three sites
in Decatur county near his city but chose the west
end because it is closer to Greensburg's water and
sewage infrastructure. Other Ohio and Indiana
cities, "and a last-minute bid from Wisconsin",
according to Manus, were also in the running for
the plant.
Construction is expected to
start this autumn, with the plant opening in
autumn 2008. Manus cited Greensburg's and
Indiana's willingness to work with Honda as the
main reason the site was chosen. "We're friendly,
we have lots of good workers, and not just here
but in the surrounding cities." He noted that the
major cities of Cincinnati, Ohio, and Louisville,
Kentucky, are just an hour and a half away, while
Indianapolis is only an hour away.
But
there were also other inducements: $145 million
promised by the Indiana state government, with $40
million to Honda directly, $45 million for roads
and infrastructure for the factory, and $50
million to $55 million for roads and
infrastructure for the region. In contrast,
Alabama spent $158 million in its quest for a
Honda plant to locate there.
Koichi Kondo,
president of Honda's US division, said the
Greensburg facility would put Honda close to the
Indianapolis Motor Speedway, where its racing
engines now play a major role. "For more than 50
years, racing has been a key part of the Honda
culture, and we use racing to help train our
engineers," Kondo noted, adding, "Last month the
winning car at the Indy 500 was powered by a Honda
engine. In fact, all 33 cars in the race were
powered by Honda engines - and none had a failure.
Now Honda and Indiana are beginning a long race
together."
The new plant is expected to
turn out 200,000 fuel-efficient vehicles a year.
Though Honda has refused to say what models will
be produced there, Honda executive Richard
Colliver did say that the new facility will be a
"flex" plant capable of producing more than one
model. One possibility is the company's Fit, a
subcompact hatchback not now built in North
America.
S&P credit analyst Robert
Schulz said there's too much auto-producing
capacity globally and in the US but that with Ford
and GM taking out capacity in North America - the
number of plants run in the US by the two is down
by 20-25% from as recently as two years ago - "the
new domestics or transplants", the term he uses
for non-Big Three auto makers, are growing by
putting in new plants.
Schulz cited Toyota
going to Canada and Kia and Hyundai also moving
plants to the US as understandable since a
substantial portion of what they sell is produced
in North America. And he mentioned how Toyota had
announced that it will soon produce a full-size
truck in Texas.
"Honda's been here in the
US for a long time," he said. "Its sales here are
growing, so it makes sense to make its vehicles
here." Over the past few years, he noted, the
firm's sales have been flat - around 8-8.5% of the
US market - but over the first five months of 2006
it has seen growth.
"Actually, Honda is
doing really well in the crossover-vehicle
market," he continued. Honda's version is called
the CR-V. "It fits into the sport-utility-vehicle
[SUV] category over a passenger-car bed," he
explained, adding that Honda's share of the
crossover market was 17.4% in the first five
months of 2005 and 18.4% in the first five months
of 2006, showing that the company is gaining share
in the growing crossover market.
Schulz
also noted that while Honda is still clearly
perceived as a Japanese company, US buyers are
increasingly aware that many of the company's
vehicles are made locally.
Janice
Fioravante is a New York-based
correspondent.
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