Honda seeks cheaper local parts to compete in China

Honda Motor Co. plans to buy more parts from Chinese suppliers to cut costs at its auto assembly plant in Wuhan, central China, as demand grows for affordable cars in the world's largest auto market.

The carmaker aims to raise the proportion of locally made components bought from China-based companies to about 15 percent within three years from 10 percent now, said Mitsuo Yamamoto, a division head in charge of procurement at the plant, a joint venture with Dongfeng Motor Group Co. That may result in cost savings of about 1,000 yuan ($147) per vehicle, he said in an interview at the factory this week.

Honda, Japan's second-largest carmaker, aims to cut costs as Chinese demand for cheap, smaller vehicles is rising. Subsidies for rural buyers and a tax cut for cars with engines no larger than 1.6 liters helped the nation's vehicle sales surge 46 percent last year to 13.6 million, surpassing U.S. demand for the first time.

Honda's cheapest car in China, the Fit compact, is priced from 89,800 yuan. That compares with 59,800 yuan for the F3 compact made by Warren Buffett-backed BYD Co., the nation's best-selling model last year. March sales of the Fit in China more than doubled from a year earlier.

"Compared with the F3, the Fit is a higher-quality car," said Takeshi Miyao, a supply-chain analyst at auto consulting company Carnorama in Tokyo. "But Chinese cars' performance is improving, so the Japanese need to be on their toes in terms of cost and quality."

Second Wuhan Plant

While the Wuhan factory gets as much as 95 percent of components locally, 90 percent of those parts are bought from Japanese and European parts makers operating in China as opposed to Chinese companies, Yamamoto said. The factory makes Civic compact cars, CR-V sport-utility vehicles and Spirior sedans and has the capacity to produce about 1,000 vehicles a day.