BUSINESSWEEK ONLINE : JULY 5, 1999 ISSUE
INTERNATIONAL -- ASIAN COVER STORY

'We Just Kind of Sneak Up on You' (int'l edition)


American Honda Motor Co. (HMC) President Koichi Amemiya calls it ''Sweet Home Alabama'' in a bizarre cross-cultural allusion to Southern rockers Lynyrd Skynyrd. That future home is the town of Lincoln, Ala., located 65 kilometers east of Birmingham, where Honda will build a plant to make Odyssey minivans, a new sport-utility vehicle, as well as engines by early 2002. Total investment: $400 million, vs. a typical $1 billion spent by rivals on similar plants.

Necessity drives the tightwad approach. ''We're not sitting on billions and billions of cash,'' says Larry Jutte, vice-president and general manager of Honda of America Manufacturing. ''So we've got to be smarter.'' That's why Honda factories start small and grow with demand for their products. ''Honda builds facilities that are very expandable,'' marvels auto consultant Michael Robinet of CSM Forecasting. ''They make them with paper walls.''

All that is a far cry from Detroit's modus operandi, which ING Baring Furman Selz analyst Maryann Keller describes as ''operating with too much capacity and force-feeding the market with incentives.''

KEEPING MUM. Honda's tactics often catch rivals napping when it makes a play for new markets. Its initial production volumes are so small, just 60,000 minivans at its new Alliston, Ont., plant, that rivals don't see the competitive threat until it's too late. Says Richard Colliver, American Honda's executive vice-president for sales: ''We just kind of sneak up on you.''

Honda is keeping mum about exactly how the new plant will look. But analysts have an idea from the company's plants in Canada and Ohio. The new facility can save about $30 million by bringing in stampings for Lincoln from outside, at least initially. It will likely run expensive machines round the clock to reduce the number it needs.

Key machinery such as welding equipment could also be able to produce different vehicles without retooling stops. Robinet believes the plant will eventually produce an array of vehicles--Civics, Accords, and CR-Vs. ''They can use Alabama as a spigot,'' he says. ''If they have got too much demand for anything, they can turn it on.''

Honda Engineering Co. will design much of the plant equipment. While other auto makers rely mostly on outside vendors, Honda prefers to keep designs proprietary and exclusive. ''If I buy the same paint shop as everyone else, what advantage do I have?'' asks John Adams, senior vice-president of Honda of America Manufacturing. Honda's engineers came through in Alliston, where the paint shop is 30% smaller than in most car plants, even though minivans are 40% larger. The trick: rolling minivan bodies into a phosphate vat at a 45-degree angle instead of the usual 30 degrees.

Alabama is giving Honda the chance to try at least one thrifty move it has never attempted before in North America: It will put engine making and assembly under one roof. Explains Koki Hirashima, president of manufacturing: ''We can reduce inventory, and it becomes more efficient.''

There's one other given. Honda, the industry's master of smooth and speedy vehicle launches, is sure to kick Lincoln off to a fast start. Honda is proud that when Alliston began making a brand-new vehicle last fall, it reached full line speed in just 87 days--an incredible feat. The company is sure to try to beat that record in Alabama.

By Kathleen Kerwin in Alliston, Ont.

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