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The following article is from today's Wall Street Journal.

December 4, 2001

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Honda Opens Factory in Alabama,
Preparing for Push Into Minivans
By NORIHIKO SHIROUZU
Staff Reporter of THE WALL STREET JOURNAL


DETROIT -- Honda Motor Co. is set to officially open a minivan factory in Alabama Tuesday, marking the next big push by the Japanese auto maker into a category considered the home turf of Detroit auto makers. But, does America really need more minivans?

With aging baby-boomers trading in their minivans for sport-utility vehicles, the pace of sales growth for minivans has slowed, with annual sales increases falling to 2.3% in 2000 from 17% in 1993. Many auto makers have been slow in keeping up with changing consumer tastes, while a string of redesigned minivans are slated to hit the market in the next few years. That portends shrinking profits, as auto makers battle for a piece of a crowded market.

Right now, Honda makes minivans for sale in North America at a plant in Ontario that has a capacity of 180,000 minivans and sport-utility vehicles a year. The new plant in Lincoln, Ala., near Birmingham, eventually will take over minivan production, freeing the Canadian facility to make only sport-utility vehicles. By next fall, the new plant is scheduled to be at full capacity of 120,000 Odysseys a year.

While the Alabama plant won't immediately expand Honda's minivan capacity, the company has designed the plant to be easily expandable, in order to keep up with what Honda hopes will be increasing demand for the Odyssey, while the Ontario plant will be able to make up for any demand that couldn't be filled by the Alabama plant.

Mindful of the shifting demographics of American car buyers, not all auto makers share Honda's enthusiasm for minivans. General Motors Corp., for example, may delay until after 2005 plans to overhaul its aging minivan lineup and instead will focus on sport-utility vehicles.

Honda remains bullish on minivans, however, because its executives feel the company has hit a gold mine with the bulked up Odyssey. Sales are nearing 130,000 vehicles this year, and it was the third best-selling minivan in the U.S. after Chrysler's Dodge Caravan and Ford Motor Co.'s Windstar last year.

Still, Honda's growth rates for Odyssey sales have slowed to the low single digits -- mostly because of capacity constraints -- the same growth rate recorded at most other minivans makers. Odysseys from the new factory will be heading into a more competitive marketplace.


Japan's Nissan Motor Co., for example, is building a plant in Mississippi that, by 2003, will be making a fullsize minivan that will replace its aging, smaller model.

Chrysler Group of DaimlerChrysler AG, the minivan powerhouse, redesigned its popular family vans last year. This year, Korea's Kia Motors Co. unveiled a budget-priced compact minivan called Sedona. Toyota Motor Corp., of Japan, is readying to launch its redesigned Sienna minivan in 2003, and Mazda Motor Corp., of Japan, plans to give a facelift to its MPV minivan early next year.

Still, with boomers moving to SUVs and with their children not yet old enough for minivans, a population surge to support minivans won't arrive until the mid-2010s, says Jim Hall of the consulting firm AutoPacific Inc. in Southfield, Mich., adding, "The minivan segment is doomed in the intermediate term."

The demographics are one reason why some analysts say the Odyssey may not be the continuing hit Honda expects.

Of course, Japanese auto makers don't always hit a home run when making an assault on the Detroit auto makers' home turf. When Honda launched the Odyssey in the U.S. in 1994, American consumers found it too small and the model failed to make a dent in Chrysler's dominance in the segment. The Odyssey didn't really become a player until it was beefed up and made more powerful in 1998.

Could that change soon? Mr. Hall of AutoPacific says the Odyssey's bulked up formula has been copied by other auto makers, and Honda will have a fight on its hands with new Toyota and Nissan models.

When the Sienna, Toyota's solid but undersized minivan that sells about 100,000 vehicles a year, becomes larger in size and a real alternative to the Odyssey, "then it really does shift everything," Mr. Hall says.

Nissan's larger minivan, which will replace the Quest, also may give Honda a headache, as Nissan often comes into a market with a lower price to make up for its brand-name deficiency relative to Honda and Toyota, Mr. Halls says.

Honda concedes it has a minivan fight on its hands. It does have a new model in the wings, but not until 2004 or 2005, when redesigned Odysseys are due.

Of course, a decline in Odyssey sales could have a silver lining, Honda executives say. The company is well-known for designing its plants to be able to shift to production of new models without the need for elaborate retooling. Should demand for minivans crater, the new plant could switch over quickly to production of light trucks, the industry's name for the category that includes sport-utility vehicles.

"Think of our Alabama plant as a light-truck assembly, not a minivan plant," one Honda executive says. Between the Alabama plant and the second line at its Canadian plant, he says, Honda soon should be able to produce whatever is the flavor of the day among various light-truck types. That could include a fullsize pickup truck, which Honda has been studying and which would be its first.

Write to Norihiko Shirouzu at [email protected]
 
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