Threat of imports curbs prompted Honda's US plant
The decision by Honda Motor company to assemble 120,000 cars a year in the United States is strictly political. "There is still a great advantage in quality, and especially labor costs, in building cars in Japan and shipping them here," says David Healy, a stockmarket analyst with Drexel Burnham Lambert Inc. in New York.Skip to next paragraph
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What impelled Honda to go ahead with the project -- a $200 million assembly plant in Marysville, Ohio, near Columbus, which will employ 2,000 workers -- was the steady rise in imported car shipments to the US.The import juggernaut has been under increasing attack by politicians, the United automobile Workers (UAW) , and the domestic automakers, which now have some 150,000 workers on long- term layoff because of a drastic slide in sales.
Indeed, European and Japanese carmakers sold some 2.3 million vehicles in the US in 1979, up from 2 million the year before. The Japanese accounted for more than three-quarters of them; thus, they are on the spot.
If the Japanese automakers do not curtail their exports to the US, or assemble some autos here, they face the rising possibility of US curbs on their sales -- and the Japanese especially want to protect their market here.
"For the first time," Mr. Healy reports, "We're on the verge of some serious protectionism in the US. To deflect that possibility, I expect there will be a good deal more interest among the Japanese to build cars in the US."
Nonetheless, don't look for either Toyota or Nissan (Datsun in the US), who together sell about 1.2 million cars a year here, to come up with plans for US assembly plants in the near future.
Both have had fact-finding missions in the US for years, testing numerous regions for possible carmaking facilities. So far nothing has come of it. Ultimately, though, they will have to act.
The fact is, it doesn't make sense from a straight dollars-and-cents standpoint, Mr. Healy notes.
"The Japanese can make a better car much cheaper in Japan," he adds. The average autoworker in the US now makes more than $15 an hour, including benefits , while in Japan it is closer to $8 to $9. Even with the cost of shipping, it still is much cheaper to build cars in Japan.
The Honda action will have little impact on the US balance of payments -- at least at the start. US Honda production will only involve about 10,000 cars a month out of a current total of some 2.3 million auto imports a year.
The effect on balance of payments also will depend on how much of the car is made from US components. If Honda brings in the transmission, engine, and many other parts, it may have little impact on the balance of payments at all. However, if enough companies follow Honda, and if they rely more heavily on domestic components, it could help out considerably.
Volkswagenwerk AG of West Germany took the plunge several years ago and in April 1978 began producing cars in New Stanton, near Pittsburgh. The shell of the $325 million plant had been bought from Chrysler Corporation.
The big issue facing VW at the time was quality. Without it, the company might have lost entirely its then-loosening grip on the US marketplace. To achieve the quality which it sought, it had to clash with US suppliers and for a while was rejecting 10 percent or more of all parts which came to the plant. Today, James G. McLernon, president of the VW subsidiary in the US, says the quality not only is up to West German standards but may even surpass it.
The Japanese may have to fight the same battle for quality. Clearly, the Japanese autoworker has a high commitment to his company, a factor lacking in the US.
Honda's decision was no surprise. It already has a 214-acre motorcycle plant near Marysville and had an option of 260 acres next door at which it had said it might build a car-assembly plant. Also pressuring its decision was it vulnerability to any US action on import curbs: The company exports about 70 percent of its total car output, more than its chief Japanese competitors. Last year, for example, honda shipped 348,000 autos to the US, some 63 percent of its total exports. In total, Japan exports 40 percent of its cars to the US.
The Japanese also have come under severe criticism in Britain. Honda now has a pact with BL Ltd. in which BL will assemble 85,000 Honda cars a year for sale in the Common Market countries.
Expectedly, the UWA welcomes more car plants in the US because it means more jobs. Douglas A. Fraser, UAW president, has again called for legislation which would force the Japanese to assemble cars in the US.
American Motors, as part of its wide-ranging deal with French state-owned carmaker Renault, will start building a new Renault car at its plant in Kenosha, Wis., in 1982.
Among other carmakers, Volvo already owns a plat in Chesapeake, Va., near Norfolk, at which it had planned to assemble cars in the US. However, declining sales a few years ago and excess capacity at other Volvo plants forced it to use the plant as a car-preparation facility for imported Volvo cars.
VW and now Honda are not the first foreign car companies to build in the US. Rolls- Royce once built cars in Springfield, Mass., between 1921 and 1931. Steinway, the pianomaker, built Daimler cars in New York before the turn of the century: In 1902, the name of the car was changed to Mercedes. The plant burned in 1907 and was never rebuilt.
French carmaker Peugeot also assembled vehicles in the US in 1906; and Fiat built cars here from 1910 to 1918.