Honda and its white-coated 'associates.' Firm's expanding US facility focuses attention on domestic content issue
In Honda of America's brightly lit plant here, workers - Honda calls them associates - dressed in white coats stand on highly polished floors and turn out 600 glistening Accords a day.
Meanwhile, under a vibrant red Honda sign at the plant's entrance, bulldozers are digging up rich Ohio farmland for a $240 million plant expansion. That will let the 21-month-old facility start producing the firm's Civic model and double output at Marysville to 300,000 cars a year by 1986.
Honda's plant here provides one view of the growing challenge Japanese firms are mounting to US auto companies on their home turf. The assault could trigger major political and economic consequences, industry analysts say.
As election day approaches, politicians will be debating what form of import protection - if any - to provide the politically potent US auto industry and its colleagues in the smokestack sector. The auto industry's importance in several states with large blocks of electoral votes was underscored by President Reagan's trip Thursday to a state-of-the-art General Motors assembly plant near Detroit.
Honda's plant, an hour's drive from Columbus, Ohio, is one of several Japanese ventures at least partly designed to avoid quotas on imports and weaken pressure for domestic-content legislation. In May, Nissan Motor Manufacturing Corporation announced that it will begin passenger-car production in Smyrna, Tenn., in April 1985. And next year, Chevrolet dealers are scheduled to start selling a small car produced jointly by General Motors and Toyota Motor Corporation at a retooled GM plant near Oakland, Calif.
Some industry analysts say that by boosting production at US-based plants, Japanese manufacturers could grab a much larger share of the US market without having to increase new-car shipments to the US sharply in the event ''voluntary'' import quotas are allowed to expire in April 1985. The agreement now holds Japanese imports to 1.85 million units a year.
''If you take (Japanese) imports with a very gradually increasing share and add to it all this production in the US, you get total imports close to 40 percent'' of the market, says John Hammond of Data Resources Inc., an economic forecasting company. The Japanese would account for the bulk of the import share.
As the auto market rebounded in 1983, quotas on Japanese imports began to bite and the import share of the US market dropped from 27.9 percent in 1982 to 22.8 percent in the first quarter of 1984, according to Motor Vehicle Manufacturers Association data. Over the same time period, Japanese imports dropped from 22.6 to 17.5 percent of the market.
A potential hike to a 40 percent import share is possible and ''ominous in a double-barreled way,'' notes Donald Hurter, manager of Automotive Activities at Arthur D. Little, a management consulting company. Not only will high-value parts likes engines be imported rather than made in the US, ''but when those parts need to be repaired, they will come from Japan,'' thus hurting aftermarket sales, he says.
Other analysts doubt that Japanese companies' market share would rise sharply if quotas came off. For example, Drexel Burnham Lambert's David Healy says he ''doubts whether (Japanese firms) would be willing to risk a 40 percent (import) market share'' for fear of retaliation.
Retaliation is already on the horizon. The domestic-content laws supported by the United Automobile Workers could put a dent in Japanese firms' expansion plans. The laws would require foreign carmakers to include a certain proportion of US-made parts in all their cars sold in this country.
Senate Commerce Committee hearings on the content bill were scheduled to resume in Des Moines July 6. The bill uses a sliding scale for determining the required content and would require 90 percent local content by model year 1987 for firms selling 900,000 cars in the US. If Honda's US production doubled as planned and imports increased marginally, it would be required to have 70 percent domestic content by model year 1987.
Even after Honda has committed $500 million to the Marysville plant and hired 1,800 workers, with more to be hired when Civic production begins, ''we would not meet'' the final provisions of the domestic-content legislation now pending in the Senate, says Robert Watson, senior vice-president and manager of Honda's auto plant.
About half of the content of Honda's current US-made models originates here. But the company recently has announced plans to break ground for a motorcycle-engine plant in Ohio that could be adapted to provide auto engines and thus boost Honda's domestic-content level.
Honda executive Watson stresses that the firm's decision to locate in the US is in line with its practices elsewhere and ''took place before there was any such thing as a local-content law.''
Even domestic content's most ardent supporter, UAW president Owen Bieber, admits the bill does not have much of a chance of clearing the Senate before the election. But the union and other supporters are expected to press for a vote on the Senate floor to put pressure on lawmakers and identify allies and opponents.
''I don't think the Senate will get a free ride on this,'' says Doreen Brown, president of Consumers for World Trade, an organization opposing the bill.
At the same time debate is heating up on whether the US should press for an extension of the ''voluntary'' quotas on Japanese auto imports, which have been in place since 1981.
Hearings on the subject were held last week before both the Senate Finance and Foreign Relations Committees. Auto companies defended the quotas at the hearings. But Brookings Institution economist Robert Crandall claimed that in a ''stupid policy'' the quotas had boosted Japanese carmakers' profits by $2 billion while putting no more than $1.42 billion in US automakers pockets.
The quota issue is expected to heat up even more if, as some analysts predict , auto sales decline as a result of rising interest rates. Thomas O'Grady of Chase Econometrics says that next year car sales will drop about 300,000 units below the strong 10.5 million pace most analysts see for 1984 as a whole. Mr. O'Grady's forecast assumes that auto-loan rates will peak at 15 percent. If rates were to jump substantially above 16 percent, he says he thinks car sales could plunge by 800,000 units.