The Element Of Surprise

May 19, 2006
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GRAND RAPIDS — As anyone in Michigan can attest, the automotive business is in the midst of a major change. Michigan's Big Three are suffering from numerous economic woes, while American drivers are reconsidering the logic of 10-mile-per-gallon fuel consumption, and in some cases trading in big American cars for smaller, more fuel efficient foreign models. Honda Motor Co. Ltd. and its U.S. division, American Honda Motors, have benefited from these changes, and are taking steps to position themselves ahead of the industry in terms of technology and innovation.

Honda announced last week that it will spend $1.3 billion to expand its business in three areas:

  • Establishing advanced manufacturing technologies.
  • Strengthening overseas operations.
  • Reducing the company's "environmental footprint."

While Honda's efforts in these areas might seem like bad news for Michigan's auto-reliant economy, there could be a bright spot. The company said that it will build a new auto production plant in the U.S. The $400 million facility is expected to employ 1,500 when it opens in 2008. The new plant, which will have the lowest environmental impact of any of Honda's facilities, will produce about 200,000 vehicles per year, bringing total U.S. production to 1.6 million units. By comparison, Honda builds 1.3 million cars in Japan each year.

Although Honda was forthcoming about many details of its expansion plan, it did not share one: the location of the new plant. After an initial information embargo, the company did narrow the field a bit.

"We are now in the final stages of securing a site in the Midwest," spokesman Jeffrey Smith said at a May 17 press conference.

Honda already has numerous facilities in Ohio: the company's largest engine plant, two assembly plants, a test track, and a transmission plant, as well as a motorcycle plant and a rider education center. On the company's "Major U.S. Facilities" list, there is only one in Michigan: an emissions plant in Ann Arbor. Honda currently has no major operations in any other states that could be considered part of the Midwest, no matter how loose the definition. There are no plants in Kansas, Nebraska, Oklahoma, Arkansas, Missouri, Iowa, the Dakotas, Minnesota, Wisconsin, Illinois, Indiana, Kentucky, Tennessee or West Virginia

So where might the plant end up? Is there a chance that it could be in Michigan? Grand Rapids automotive analyst Erich Merkle wouldn't rule it out.

"Yeah, sure. It's possible, but I don't know how likely it would be," said Merkle, an analyst with IRN Inc. "My own personal gut feeling is that Ohio or Indiana would probably have a leg up on Michigan."

He said that Honda might "shy away" from Michigan's union presence, and that proximity to its existing operations in Ohio might be a big selling point.

"For the most part, when we're looking at a car plant, I think they're going to want to be somewhere close to the Marysville and East Liberty plants," he said. "Not that I wouldn't like to see a Honda plant come to Michigan. I think we'd all love to see that."

Regardless of the location of the Honda plant, Michigan's auto supply companies could benefit from the increase in Honda's domestic production.

"No question. There are a number of suppliers here in West Michigan that have a very diverse product portfolio that does include Honda," Merkle said. "Honda is in a very different situation than other auto makers. They can't build enough of their cars to keep up with the demand. So any plans that would increase their output here in North America would be very beneficial in the Tier 2 and Tier 3 levels here in West Michigan."

At the time of Honda's announcement, perhaps coincidentally, Gov. Jennifer Granholm was in Japan "(meeting) with Japanese executives to sell them on Michigan as a place to do business," according to her Web site. The governor's office did not offer a public statement about Michigan's chances at landing the Honda facility, nor did Granholm mention Honda in the online "Jobs Diary" that she kept during the trip.

Merkle was unaware of any specific interactions between Granholm and Honda on the trip, but he said that he wouldn't be surprised if she was actively courting the automaker.

"This is an election year. Think of the feather that would be in her cap if she attracted the new Toyota engine plant and/or a new Honda production plant, especially as Michigan has the dubious distinction of having the lowest unemployment rate in the country," he said.

In addition to the new U.S. plant, Honda will add a new plant in Ontario. It will also spend $125 million to expand manufacturing facilities in Georgia and Ohio

As a result of the investments in research and development and operational capabilities, Honda expects to offer by 2010 a wide selection of more affordable hybrid vehicles and cars that use fuel from alternate sources such as natural gas, "clean diesel" and hydrogen fuel cells. Honda is also using new technologies to increase fuel efficiency in traditional gasoline engines by more than 10 percent by 2010.

Many of these initiatives will be realized by 2009, the 50th anniversary of Honda's first operations in the U.S. and the 30th anniversary of its first U.S. auto production.    

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