American Honda Goes Hoosier

July 10, 2006
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Despite efforts by Michigan economic development officials to make the state more attractive as a home to foreign automakers’ U.S. outposts, the Great Lakes State was once again passed over. This time it was American Honda Motor Co. choosing a town southeast of Indianapolis as the location for a new vehicle assembly plant.

Honda announced plans to build a $550 million plant on a 1,700-acre tract in Decatur County, Ind., near Greensburg, 50 miles southeast of Indianapolis. The plant will begin mass production of fuel efficient 4-cylinder vehicles in fall 2008, with an annual production capacity of 200,000 vehicles and employment of 2,000 associates, according to a company statement.

“We believe the great state of Indiana has what we need to continue this success — an outstanding community of people, excellent transportation systems, and the necessary infrastructure to support industry,” said Koichi Kondo, president of Honda’s U.S. operations. “It is an ideal location in the Midwest, both for our network of parts suppliers and as a central location for all of our customers across the country.”

Implicit in that statement is something that Michigan’s business and economic development community knows all too well: To Japanese automakers, the “ideal location” is rarely Michigan.

Erich Merkle, an auto analyst with IRN Inc. in Grand Rapids, was not surprised to see Indiana prevail over Michigan — to what extent Michigan was ever in the running.

“I think Michigan is always going to be a long-shot, to be completely honest, and it’s just because of the UAW representation here. Now, I’m not saying, ‘Damn the UAW!’ But from a perception standpoint, the Japanese new domestics are always going to hold Michigan at arm’s length.”

That said, just because the plants end up in Ohio and Indiana doesn’t mean that Michigan won’t benefit. As Kondo mentioned, the new plants will mean a boost in business for parts suppliers, many of which are located in Michigan.

“There are a number of suppliers here in West Michigan that have a very diverse product portfolio that does include Honda,” Merkle said. “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.”

In Merkle’s estimation, Honda’s choice of Indiana came down to two issues, both economic in nature. First, he said that the “business climate” in Indiana was certainly a factor. Honda was somewhat vague about the economic incentives the state offered. The company said the state would “make various highway improvements in the area, provide site and infrastructure improvements and funds to train new Honda associates.” No financial details of the incentives were available. But Merkle said they must have been attractive enough to pull the company away from Ohio, where it employs more people than in any other part of the world.

That leads to the other factor Merkle believes was important in making the decision. Merkle said he thinks that Honda is looking to expand outside Ohio so that when there is a need for further expansion, the company can play several states’ economic development communities off one another.

“That way, Honda’s got a little leverage. It’s not a lock or a guarantee that it’s going to go to Ohio.”

And that expansion may be coming sooner than later.

“Honda needs the capacity desperately. Even the 200,000 units a year that Greensburg is going to add is still not going to be enough by the end of the decade,” Merkle said. “I don’t even think that when Greensburg comes on line it will be enough.”

Although another new plant may mean another missed opportunity for Michigan, the continuously growing volume of Honda cars produced and purchased in the U.S. will be welcomed by the state’s auto suppliers.   

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