Japanese automaker Honda is delaying construction of a new plant in Wuhan in China's Hubei province, reports Bloomberg, quoting a senior executive of Honda's joint venture (JV) with Dongfeng Motor. Chen Binbo, vice-president of the Dongfeng Honda JV, said today (22 October) that the automaker may now begin building the plant in 2017, with production anticipated to start in 2018. However, a final decision on whether to postpone the construction of the plant will be made later this year. The plans for the new 240,000-unit-capacity plant in Wuhan were filed with the Hubei provincial government in December 2014. The plant is to become a hub for sport utility vehicle (SUV) production for Honda and will involve an investment of CNY5.2 billion (USD822 million). Meanwhile, Japanese newspaper the Nikkan Kogyo reports that the plans for the plant have been completely shelved by Honda.
Significance: Honda and Dongfeng opened their first plant in Wuhan in 2003 and then in 2012 added a new facility. The stalling of the expansion of its Wuhan facility is despite the Japanese automaker witnessing growth in China, with sales in September rising 28.5% year on year. However, overall the country's market has cooled, with lower growth rates anticipated. The government has also stepped in to alleviate stalling sales with a new 50% cut in the vehicle purchase tax for small-engine cars. This is expected to boost total sales in the market for the duration of the policy by around 850,000 units. The policy will, however, expire at the end of 2016. With the overall slowdown, automakers are likely to shelve planned expansion projects to curb possibilities of overcapacity. Dongfeng Honda currently produces around 370,000 units at its two bases in Wuhan, with production estimated to rise to over 500,000 units in 2018. In China, Honda has the capacity to produce over 800,000 units under its two JVs, Dongfeng Honda and Guangzhou Honda. However, Honda is understood to have been running at above capacity levels at some facilities. This year, Guangzhou Honda will begin production at an additional facility in Zengcheng, strengthening production capacity by 240,000 units per annum, in addition to expansions at its Guangzhou plant.
