Reuters (Frankfurt) - Honda, hit by a dramatic appreciation in the yen, does not expect to be profitable in Europe until 2013/2014 when 80 percent of cars sold will be sourced from its British plant, its regional president said on Monday.
Despite two straight years of losses and a market share of just over 1 percent, Honda Europe President Manabu Nishimae said the carmaker had no plans to exit what is regarded as a fiercely competitive market crowded by competitors offering margin-eroding incentives to chase declining volumes.
"The European car market is all about high technology and beautiful design, both for the exterior and interior. So our reputation among European customers affects demand in other regions," he said.
To better weatherproof the brand in Europe, Nishimae said he was looking every day for ways to cut its exposure to the yen, which finished off 2011 at a 10-year high to the euro.
Imports into Europe presently make up 40 percent of Honda's sales in the region, including all Honda Accords, rendering many of the vehicles uncompetitive at current yen rates.
"In Japan we will focus on the production of small and mini vehicles for the Japanese market," he said.
Nishimae said he wants to reduce imports to 20 percent or less as soon as the company doubles annual output in its Swindon plant in Britain to nearly 180,000 vehicle this year.
Honda also is considering whether to import Accords from the United States in the future, which could potentially cut down shipping times to about seven days from over four weeks.
Nishimae additionally plans to hire more engineers to help inspect and certify the quality of European suppliers, from which Honda could then procure components. Only about 60 percent of the auto parts Swindon currently sources are from Europe.
"We are trying to increase local content month by month, even day by day. That's why we would like to increase our R&D employees - without doing so it's going to be difficult to expand local procurement," he said.
After missing out on sales of an extra 22,000 cars in 2011 because natural disasters in Japan and Thailand tore a hole in its supply chain, Nishimae expects sales this year to jump by around 25 percent to 198,000 vehicles in a market estimated to shrink.
Come 2014 or 2015, Honda will be back to selling over 300,000 vehicles in Europe - a level it last reached five years ago.
26 MILLION ENGINES
Nishimae brushed off concerns over whether Honda could continue to stem by itself the ever-growing funding costs for new fuel-saving technology over car volumes forecasted at 4 million vehicles in the upcoming 2012/13 fiscal year.
"I would not say we will never enter into an alliance. If we could gain access to technology we don't have, then we're flexible, but for now we have no specific plans," he said, adding that a key gap in its powertrain portfolio will be filled with the addition of a new, light 1.6 litre diesel engine.
He said Honda's cash needs should not rise on a relative basis anyway, since it would continue spending roughly 5 percent of annual group revenue on research and development and maintain investment levels that simply replace its depreciating capital goods.
One of Honda's major advantages over competitors is that R&D spending on improving combustion engine efficiency can be spread across the more than 6 million industrial motors sold in addition to its annual car volumes as well as another 16 million motorcycles Honda also builds.
When asked whether Honda might be interested in acquiring Italian premium brand Ducati, which sells only about 40,000 motorbikes a year, Nishimae ruled out any interest.
"We can't see any technological benefit if we were to purchase Ducati. And we want to focus on the Honda brand, not on the Ducati brand," he said.
Italian private equity firm Investindustrial has said it hopes to get about 1 billion euros ($1.33 billion) for the maker of the 1199 Panigale superbike.
