Honda to build new factory to triple car production capacity

Honda Prospect Motor, a joint venture between Japan’s Honda Motor Co. and Indonesia’s Prospect Motor, plans to invest Rp 3.1 trillion (US$337.9 million) to build a new auto plant in Indonesia, tripling its current production capacity to fulfill rising demand in the domestic and regional market.

Senior vice president Kusnadi Budiman said on Thursday in Jakarta that the plant would be located in the Mitrakarawang Industrial Estate in Karawang, West Java, near its existing plant, which at present produces various Honda models, such as Honda Jazz, Honda CR-V and Honda Freed.

The new plant would be able to produce 180,000 cars per year once it began operating in the first quarter of 2014, adding to the current annually capacity of 60,000 units, he said.

“This new plant will make new Honda models with Honda Brio at the initial phase,” he said during the announcement at the Industry Ministry.

Besides boosting its output, the firm aims to raise its locally sourced materials by 30 percent to a total of 80 percent, supported by the expansion of the number of suppliers from 100 at present to 145, according to Kusnadi.

In addition to the introduction of new models, the firm aims to add another 62 outlets to its dealer network throughout Indonesia by 2014, up from 88 dealers at present.

Honda managing officer Hiroshi Kobayashi said the new plant’s additional production would help it reach its sales target of 210,000 units by the end of 2015.

“Now operations in Indonesia will take the next step in becoming more autonomous and play an even more important role for Honda in this region. Honda Prospect Motor will become one of the main Honda production bases in the Asia-Oceania region along with Thailand and India,” he said.

Last year, the worst flooding in decades hit Thailand, where Honda runs production facilities capable of making 240,000 cars, severely disrupted Honda’s supply chain. As a result, the firm’s sales declined throughout the region, including in Indonesia, where its sales dropped by 25.96 percent to 45,416 units from 2010.

Honda would not only produce automobiles in Indonesia to fulfill local demands, but also to serve as one of the company’s key export bases of both completely built vehicles and components, Kobayashi added.

At present, its existing Indonesian plant exports various components, including cylinder heads, cylinder blocks and body parts, as well as completely assembled Honda Freed.

As nearly half of its 240 million inhabitants joining the ranks of an emerging middle class, Indonesia has become a very lucrative market for cars as well as motorcycles, both key indicators of consumption in Southeast Asia’s largest economy.

Driven by the country’s economic growth at 6.5 percent in the past year, and high levels of domestic consumption, car sales hit a new record high of 894,180 units, up 16.93 percent from 2010, according to the Indonesian Automotive Industry Association (Gaikindo). Last year, motorcycles also set a new record of 8.01 million units in 2011, up 8.7 percent from the previous year.

On Tuesday, Honda, through Astra Honda Motor — its joint venture with local partner Astra International — also announced it would spend Rp 3.13 trillion on its fourth motorcycle factory in Bukit Indah Industrial Estate in Karawang, which would allow it boost its production capacity by almost a quarter to 5.3 million units after the new plant commences operation in 2013.