Honda Small Car Launch in India, Thailand by 2011

Honda Motor Co. said Tuesday the decline in global automotive sales has ebbed, but an immediate recovery in the major markets of the U.S., Japan and Europe is unlikely.

The Japanese auto maker expects industry sales in its native country to remain flat at about 4.6 million vehicles in 2010 despite expectations that government incentives to boost new vehicle purchases will continue until September, Koichi Kondo, Honda's executive vice president and representative director, said on the sidelines of the New Delhi Auto Expo.

'The global automotive market has bottomed out, but developed countries like the U.S., Japan and Europe still seem to need more time to recover because there are not clear signs yet,' Mr. Kondo said. '...And one concern of next year's automotive market is globally governments offered some incentives and most of the countries have finished their incentives at the end of last year.'

'We are wondering how this situation about the incentives is going on. So, we need more time to foresee this year's market situation.' Mr. Kondo said the Chinese automobile market is expected to grow about 10%, half of the growth achieved in 2009 when sales touched 13 million vehicles.

'The China growth will depend on government incentives,' he said. Honda plans to add 100,000 units annual production capacity at its Chinese joint venture company--Dongfeng Honda--by 2011. This will be increased by an additional 200,000 vehicles at a later date, Mr. Kondo said. Dongfeng Honda has a current annual production capacity of 230,000 vehicles.

Honda and China's Dongfeng Motor Corp. own equal stakes in the joint venture company.

Mr.Kondo said Honda plans to buy steel from Indian companies for making its first small car in the South Asian country as part of its strategy to price the vehicle competitively.

Earlier Tuesday, Honda unveiled its concept small car that will cost about 500,000 rupees ($10,829.5) when it goes on sale by 2011.

A competitively priced small car will help Honda to gain a bigger share in the price sensitive Indian car market where it trails Maruti Suzuki India Ltd., Hyundai Motor India Ltd. and Tata Motors Ltd.

Small cars--with engine capacity of 0.8 liters to 1.6 liters--make up for nearly two-thirds of total car sales in India with Maruti controlling more than half of this market. Ford Motor Co., Volkswagen AG and Toyota Motor plan to start selling their small cars in India this year to tap into rising demand for such vehicles in a market where annual sales are forecast to grow to three million units by 2016.

'Some of our existing vehicles (in India) already use local material," Mr. Kondo said. "Probably, this new vehicle could utilize more local steel.'

He said buying more parts locally will help Honda insulate its Indian operations from currency fluctuations.

Honda Siel Cars India Ltd., a joint venture between Honda and India's Siel Ltd., currently produces the Jazz hatchback and the City, Civic and Accord sedans at a factory at Greater Noida in the northern state of Uttar Pradesh. Honda has another factory at Alwar in Rajasthan state where it currently makes engine components such as connecting rods and crank shaft for Jazz and City models. The company imports the CR-V sports-utility vehicle.

Masahiro Takedagawa, president and chief executive of Honda's local unit, said that up to 80% of the parts for the new small car will be sourced from local suppliers. The Jazz and City models currently have a localization content of about 70%, he said.