As Honda's U.S. sales rise, capacity shrinks

TOKYO -- Honda CEO Takahiro Hachigo expects his company's U.S. sales to grow next year even as the market flattens, putting more pressure on North American production capacity that already is stretched to the limit.

As a remedy, he soon may fire up Honda's Japan export engine.

In an interview with Automotive News, Hachigo said a blitz of key redesigns, starting this fall with the redesigned CR-V and continuing with updates to the Odyssey and Accord, will intensify the capacity problem.

"Let's say we reach 1.7 million [U.S. sales] this year, then we want to add on top of that next year with the new models coming in and such," Hachigo said.

His upbeat outlook contrasts with a forecast for total U.S. demand to be flat, at best, in 2017.

"If overseas plant capacity is getting close to full, then rather than make a new investment, we might think about getting more supply from another global plant," he said.

American Honda sold about 1.6 million vehicles in 2015, and Hachigo says he wants to keep stoking the increase by realigning production to feed more light trucks into the market.

Next year, Honda will add CR-V crossover production to its Greensburg, Ind., plant that makes the Civic and add Acura MDX crossover production to its East Liberty, Ohio, plant.

If those tweaks still don't satisfy demand, Hachigo said Honda will tap overseas factories. Honda's plant in Britain may send Civics to make room stateside for more CR-V output.

But more likely, Honda will tap its Japan plants for more CR-Vs or Civics.

"We'd like to utilize Japan production," he said.

Doing so would help Honda with a big headache of overcapacity in Japan.

For years, when the yen was bumping against record highs, Honda dialed down exports from Japan to a bare trickle to offset the profit-eating impact of exchange-rate losses.

In 2015, Honda exported just 26,802 vehicles to North America, its biggest market.

But when Hachigo took the helm last year, he decided to make better use of excess capacity and cash in on a dramatic weakening of the yen. The currency's sudden slide in 2015 to its lowest levels in years against the dollar and other currencies made exporting profitable again.

Now Hachigo wants to ramp up Japan output. His goal is to produce 700,000 vehicles a year in Japan for sale domestically and another 100,000 to 200,000 for export.

"We are doing a lot of activities on the manufacturing side so we can be competitive exporting that 100,000 to 200,000 at the current foreign exchange rate," he said.

While American Honda sales were up 3.4 percent through September, outpacing an overall market that inched ahead just 0.3 percent, the sluggish Acura brand is still a sore point.

Sales at the company's luxury marque slumped 9.3 percent in the first nine months, with cars plunging 17 percent and even light trucks declining by 4.5 percent.

"Of course, I am not satisfied with the current results," Hachigo said of Acura.

Acura needs to reinforce its strength in light trucks while improving the appeal of its sedans by spicing up their design and driving performance, he said. Management, Hachigo promised, would be patient with Acura, focusing first on a solid foothold in the U.S. and China before rekindling the global expansion plans the brand jettisoned during the global financial crisis.

"Globally, we think the U.S. and China are the only regions where it is possible for us to cap the two pillars [of regional and global vehicles] with a luxury brand," he said. "For other regions, we want to build a solid business using the region-specific models and global models first."