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Euro factor stalls Honda plant

From Financial Times| May 25,2007

Honda's Swindon car plant will not receive another big investment because Britain's refusal to join the euro has created too much currency uncertainty, Takeo Fukui, president of the Japanese car group, told the Financial Times.

The company would not expand the capacity of the plant until currency risk was eliminated, Mr Fukui said. But he said Honda had no plans to write off its existing investment and shut the UK plant, which supplies the European market.

His comments will nevertheless raise questions on the long-term future of the plant, given the UK has no plans to join the euro in the foreseeable future.

Honda will in future also be more able to supply the European market from its expanding factory in Turkey.

On past investment in Swindon, Mr Fukui said: "We made a mistake. We thought the UK was in Europe but its reluctance to join the euro is a big problem."

He criticised government ministers who had held out the hope of joining the euro. He now recognises these were empty words.

"Top government officials say we have no intention of joining, so we have to take them at face value and consider our future strategy," he said. "Our intention is to bring operations [at Swindon] to full capacity and have no plans to expand, though we may change our minds if Britain were to join the euro." Swindon is operating at below capacity.

Mr Fukui, who has made similar comments on the euro in the past, said he was happy to see the Swindon plant supplying the UK market, where Honda has close to a 5 per cent share.

But he was concerned about competitiveness in the Continental European market, where the company has a 1 per cent share.

Mr Fukui said he hoped to use the newer facility in Turkey to increase the company's competitiveness in Europe. Turkey is not in the European Union but lower labour costs help to insulate it against currency risks.

Mr Fukui expressed admiration for German car companies, which he said had "great brands and technology" but he was dismissive of DaimlerChrysler's sale of the Chrysler division to Cerberus, the private equity group.

"This sort of M&A does not work in the car industry and that has been proven," he said. Attempts to make a fast buck were unlikely to succeed in business, he said. But Mr Fukui is aware that the takeover threat cannot be ruled out, even for Honda. "We live in a capitalist world, but we don't want to be acquired nor to acquire others."

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