Japan’s third largest automaker, Honda, has decided to delay the planned construction of a $822 million assembly facility in China due to slowing demand across the world’s largest automotive market.
The company initially wanted to start construction on a third factory with joint venture partner Dongfeng Motor Corp. in Wuhan, China, this year, said Chen Binbo, vice president of the JV. The automaker could instead initialize the construction sometime in 2017 with a targeted production start for July 2018, but a final decision will only be made at the end of this year. Honda has increased its local Chinese sales by 34 percent during the first nine months of the year but is now backing out of adding more production capacity in the country because of the economic woes. Industry wide deliveries of passenger autos have slowed to the weakest growth in three years during the first three quarters, as moderate economic growth, stock-market volatility and caps on registrations have made an impact.
“Many carmakers are looking at a staged expansion,” comments Tao Gao, an analyst at IHS Automotive, an industry researcher. “Honda is not alone. We think it’s likely that many carmakers will shelve the second or third phase expansion plans in the next few years because the market doesn’t grow as fast as they expected.” China has been delivering massive earnings margins and a constant double digit growth in sales for years but many industry executives and analysts believe the booming period is now over. Honda’s strategy envisioned a 5.2 billion yuan investment for a 240,000 units facility producing mainly sport utility vehicles, sedans and electric cars.