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Honda's Bold Bet On Hybrids

Honda Motor isn't known for being aggressive. In fact, it may be the most conservative and methodical company in the car business. But these days, the company is stepping out.

First, Honda (HMC) shook things up earlier this year with a decision to build cars in China to export to Europe. Now, it's spending almost $700 million for a heady expansion in North America. The company plans to boost sales in North America by almost 15% and build a new hybrid to challenge Toyota's Prius as the most efficient car on the market. "Honda is definitely becoming more bold," says Michael Robinet, vice-president of CSM Worldwide, an auto-industry research firm in Northville (Mich.)

The company definitely sees growth in the tough U.S. market. Honda sold a little more than 1.6 million vehicles in the U.S. and Canada in 2005. The new plant will get production up to 1.6 million vehicles. Throw in 200,000 cars imported from Japan, and it's easy to see that Honda thinks all of its new production will be sold out. None of it will supplant production from Japan, says Honda North America senior vice-president Richard Colliver. "We have never backed away from the challenge to sell [more] cars," Colliver says.

MEETING DEMAND. Honda's new factory will be just its fifth major assembly plant serving the U.S. market. It opened its minivan plant in Lincoln (Ala.) in 2001. But before that, its last new assembly factory was opened in 1989.

Colliver refused to specify the new plant's location except to say that the $400 million operation will go somewhere in the Midwest. Honda will also open a new engine plant in Canada. The company will also expand engine and transmission operations in Ohio. All told, Honda will hire 1,900 new people.

Honda certainly has the growth to make use of the new plant. The new production will bring 13% growth by 2008. Honda sales grew 5% in the U.S. last year, and the new Civic's runaway success has helped push sales up almost 7% this year.

FUEL FACTOR. Robinet says the plant will likely make Civic compacts and Fit subcompacts. To make sense, Honda will have to locate it within three hours of its East Liberty (Ohio) factory, where it makes the Civic, Element SUV, and -- later this summer -- CR-V. That way Honda is near the suppliers who make parts for the Civic and its other small vehicles, Robinet says.

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