The City was one of only two Honda models to qualify for government incentive programs last year. [Photo / Bloomberg]
Responds to slump with new models and capacity
Japanese carmaker Honda Motor Co plans to double sales in China to about 1.2 million vehicles by 2015 through an expanded local lineup and ramped-up production.
The company's China chief Seiji Kuraishi announced at a recent news conference that Honda will introduce more than 10 new and revamped models to China from 2013 to 2015 to support sales growth.
He noted that the company will also develop cars especially for the Chinese market and increase purchases of components from local suppliers to lower cost.
Honda will unveil two concept cars designed for China during the upcoming Beijing Auto Show, he said.
Without elaborating, he added that the carmaker is considering building a local design facility.
Honda now has a joint venture in South China with Guangzhou Automobile Group with annual output of 480,000 units and another with Dongfeng Motor Corp in the central province of Hubei that is able to produce 240,000 vehicles a year.
The company said that a new Dongfeng Honda plant will be operational in July that will have annual output of 100,000 units a year at the outset. The number could rise to 240,000 units depending on market demand.
Its joint venture in Guangzhou will also raise capacity by adding a new production line scheduled to begin operation by 2014, it said.
Sign of change
The latest plan is seen as a sign that Honda will change its strategy in China, considered conservative by industry analysts, that resulted slower growth than the overall market over the past several years.
China's car market increased rapidly from 2009 to 2011, bringing unexpected benefits to many foreign carmakers. Barely affected by the financial crisis that began in 2008, continued growth was largely driven by tax breaks on cars with 1.6-liter engines and smaller.
Honda admitted that its projections for the Chinese market were off target.
"The company didn't expect the Chinese government to take strong stimulus measures to support the auto market, which then went into a golden period of development, " Kuraishi said.
Fit and City
The company had only two small models - the Fit and the City - that qualified for incentives and did not introduce new models that meet the criteria, he said.
The poor performance continued in the first three months of this year as Honda reported a 10.6 percent year-on-year fall in its China sales to 148,000 units amid a weakening market and fierce competition.
The decline came at the same time when its Japanese peer Toyota sold 211,500 vehicles in China, up 1.8 percent from a year earlier, and Nissan's sales surged 12.2 percent to 334,400 units.
Analysts said Honda's sluggish sales were mainly caused by the fading popularity of its previous best sellers, the Accord and CR-V.
The CR-V is at the end of its life circle and sales have dropped significantly, said Jenny Gu, a senior analyst at LMC Automotive.
The Accord now has more strong rivals in the mid-sized sedan segment and also faces pressure from entry-level luxury vehicles, she said.
As fuel prices rise and the country is about to implements stricter standards on fuel consumption, Honda said it will greatly improve the efficiency of its products in China and make every vehicle the most efficient in its segment.
The company said it will use its latest powertrain technology on all China-made models by 2015. In addition, it will start making hybrid vehicles in China, but the timetable is still unclear. The carmaker will first import three hybrid vehicles - the CR-Z, Fit and Insight - beginning this year
"We believe that in the near future China will certainly become the world's biggest hybrid vehicle market," Kuraishi said.
The company also plans to make an all-electric car at its joint venture in Guangzhou by the end of 2012.
Under the new medium-term plan by Honda, the company's luxury division Acura plans to also bring new products to change its weak sales performance.
Though it arrived in China in 2006, Acura only sells a few thousand cars in China, and its Japanese counterpart Lexus sold more than 50,000 units and Infiniti imported nearly 20,000.
The company said that it will bring the Acura ILX and RDX to China this year and the flagship model RLX next year to add its current lineup of only four vehicles, all with large engines surpassing 3.5 liters in displacement.