Honda's Never-Used, Three Year-Old Factory Finally Starting Up

(Bloomberg) -- Honda is finally planning to open its newest factory in Brazil, idle since it was built in 2015. But not for the reason they originally intended.

The carmaker built the Itirapina, São Paulo, plant for 1 billion reais ($290 million) with the plan of doubling its capacity in the country. Instead, the automaker will transfer operations to the facility in 2019 to increase productivity and efficiency, as it seeks to absorb higher costs rather than passing them onto customers, said Paulo Takeuchi, executive director of institutional relations at Honda in Brazil.

Honda built the second location anticipating a market that would swell to up to 5 million units a year in the country. Instead, sales of cars fell from 3.8 million in 2012 to 2.57 million last year, according to Anfavea data. This year, overall car sales are expected to increase by 12 percent and Honda is forecasting growth of 5 percent.

"While that’s good, it’s not enough to warrant the opening of this factory," Takeuchi said. "We’re doing this because it will help increase our ability to compete in the Brazilian market with costs rising."

Honda's Never-Used, Three Year-Old Factory Finally Starting Up

Honda’s transfer of production of vehicles from its Sumare unit to the new one should be concluded in 2021. As an example of productivity gains, Takeuchi cited new paint technology that requires one less layer, which means less money and time spent. It will maintain the first facility to make motors and other parts.

The carmaker association, known as Anfavea, revealed that auto sales grew 32 percent in March compared to a month earlier, and 16 percent through the first quarter compared to the same period in 2017. Honda’s sales jumped 38 percent in March from February, and closed the quarter up 11 percent, according to Anfavea data.

"With low inflation, unemployment dropping and interest rates at the lowest level in history, it’s a question of time before consumers have more access to credit," said Anfavea President Antonio Megale, in a press conference earlier this month. "We’re very optimistic about the future of the economy and the industry."

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