Honda Motor Co. plans to buy more parts from Chinese suppliers to cut costs at its auto assembly plant in Wuhan, central China, as demand grows for affordable cars in the world's largest auto market.
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The carmaker aims to raise the proportion of locally made components bought from China-based companies to about 15 percent within three years from 10 percent now, said Mitsuo Yamamoto, a division head in charge of procurement at the plant, a joint venture with Dongfeng Motor Group Co. That may result in cost savings of about 1,000 yuan ($147) per vehicle, he said in an interview at the factory this week.
Honda, Japan's second-largest carmaker, aims to cut costs to win market share in China's rural areas and second-tier cities, where demand for cheap, smaller vehicles is rising. Subsidies for rural buyers and a tax cut for cars with engines no larger than 1.6 liters helped Japanese vehicle sales surge 46 percent last year to 13.6 million, surpassing U.S. demand for the first time.
Honda's cheapest car in China, the Fit compact, is priced from 89,800 yuan (¥1.24 million), compared with 59,800 yuan for BYD Co.'s F3 compact, the nation's best-selling model last year.
While the Wuhan factory gets as much as 95 percent of its components locally, 90 percent of them are bought from Japanese and European parts makers operating in China, rather than Chinese companies, Yamamoto said. The factory makes Civic compacts, CR-V sport utility vehicles and Spirior sedans and has the capacity to produce about 1,000 vehicles a day.
Tokyo-based Honda may increase sales 9 percent to 630,000 vehicles this year in China, where industrywide demand will likely grow more than 10 percent, Chief Executive Officer Takanobu Ito, 56, said at the Beijing Auto Show last week.
Honda, which has three car factories in China, and Dongfeng are also preparing to begin production at a second plant in Wuhan from the second half of 2012.
The venture is gradually increasing automation at the existing Wuhan plant, said Shinichi Ikeda, a division head in charge of vehicle production. The factory has about 130 robots, compared with about 400 each at Honda's plants in Saitama and Mie prefectures in Japan, said Isamu Matsuoka, deputy president of the joint venture.
About 15 percent of the engine assembly work is automated at the Wuhan plant, compared with 50 percent at factories in Japan. Welding is one area in which automation is already used, to ensure consistency, Ikeda said.
Automation doesn't necessarily cut costs given the need for equipment maintenance, Ikeda said. Wages in China are also lower than in Japan and the U.S., Matsuoka said.
Most line workers are hired from local technical schools, and the average wage is about 4,000 yuan (¥55,000) a month, including overtime. That compares with an average monthly wage of ¥357,324 for Honda's workers in Japan.
After language study in Wuhan, some workers are sent to factories in Japan for three-month training courses, Matsuoka said. This year, 26 workers will be trained in Japan, he said.
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