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Honda steels itself

Civic assembly: Honda production in Thailand.

Honda's Thai-built models to benefit from cheaper steel and parts sourced from India

Honda logo14 Oct 2008

By JAMES STANFORD

THE cost of producing Hondas in Thailand is about to get even cheaper.

The Japanese car-maker is preparing to import steel as well as components from India in order to further cut the price of producing cars and motorcycles at its South East Asian production hub.

Honda Australia is set to further benefit from the sourcing plan, although it is already in a strong position with profits from its two and four-wheeled vehicles hitting a healthy $82 million for the financial year ending March 31, 2008.

A free-trade deal between Australia and Thailand has contributed to the success, given that Honda Australia’s core models are produced in Thailand, which means they arrive without the regular 10 per cent import duty.

Now India is emerging as an automotive supplier and Honda is keen to take advantage of the cheap source of resources and components.

Honda Asia and Oceania regional operations managing director Fumihiko Ike explained that the company currently imports steel from Japan, which is “very expensive.” Mr Ike said that it was expanding to source steel from India, which would save considerable amounts of money.

Then there is the issue of components.

Mr Ike said it would take time for Indian component suppliers to get used to supplying large car-makers, but said it would be worthwhile.

“We know that we can utilise Indian parts, even with the cost of assembly (in Thailand). The only challenge is that they are not used to dealing with assemblers like us,” he said.

“Indian suppliers are yet to deal with assemblers but they have potential.” Mr Ike said it would be up to Honda to take a lead and said the company may even help the vendors with increased technical support.

“In the first stage maybe we have to teach them to conform with the assembler’s requirements in terms of not only cost but quality requirements,” he said.

“I don’t think we can make it overnight - it will take a few years time.” When asked whether taking components from India would be any cheaper than sourcing them from Thailand, Mr Ike replied: “A lot cheaper.” A free-trade agreement between Thailand and India comes into effect next January, a move that is expected to further encourage the use of Indian material and products in the Thai automotive industry.

While Mr Ike is keen on working with Indian firms and gave an insight into the frustrations of operating in the emerging Chinese automotive market, which requires foreign car-makers to form joint-ventures with local firms. Honda is teamed up with Guangzhou in China.

“We will always be very cautious to proceed with Chinese operations, because that country is one of the most difficult countries to deal with in any sense,” he said.

Mr Ike said that apart from in China, Honda saw no benefit in teaming up with another car-maker and thought badge engineering was a very bad idea. He pointed to previous examples of when Honda joined with Rover, taking a share in the company and also sharing models.

“To deal with the other manufacturers is very difficult because the culture or the methodology is totally different... based on our experience. It slows everything, so we prefer to stand alone,” he said.

Mr Ike said that Honda had the ability to respond quickly to changing market tastes, something it may not be able to do if it was linked to another manufacturer.

“We can be flexible, but to tie up with another manufacturer would slow everything,” he said.

He said Honda was not convinced the Daimler-Chrysler merger would work, given a range of issues include a clash of cultures, and indicated the outcome proved its point.

“When Daimler merged with Chrysler 10 years ago everyone is talking about the volume making sense, but at the time we said we would see,” he said.

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