Honda says new US plant to have room to grow

TOKYO, May 23 (Reuters) Honda Motor Co. Ltd said on Tuesday its new U.S. passenger car plant in the United States would start small and have room to grow.

Honda last week said it would spend 0 million on a fourth U.S. assembly plant in the Midwest that is expected to come on line by 2008. The plant will raise Honda's North American output capacity by 200,000 to 1.6 million vehicles.

Japan's third-largest auto maker has not disclosed which states it is considering for the factory, but representatives from Indiana and Ohio have said they are vying for the plant.

''Our policy is always to start small and grow bigger, because we don't want to be in a situation where we are producing more than we can sell. In that sense 200,000 vehicles is small,'' Honda Chief Executive Takeo Fukui told Reuters in an interview.

The plant is part of aggressive expansion plans that also include an engine plant in Canada and a new auto plant in Japan as Honda seeks to boost global sales to 4.5 million cars in 2010, up 34 percent from 2005 levels.

Fukui said Honda's ''vision'' of selling that many cars was not based on expectations of a jump in global or U.S. demand.

Instead, he said it was based on recent strong sales of cars like its Civic sedan and the Fit subcompact, fuel-efficient models that are selling well in the United States as oil prices soar.

The plans also stand in stark contrast to those of U.S. auto makers General Motors Corp. and Ford Motor Co., which plan to shed a total of up to 60,000 jobs and shutter 26 plants in the next few years.

With Honda's plants running at full capacity, analysts have generally applauded the aggressive moves.

But some worry that hefty rises in capital spending and a keener focus on small cars and fuel efficiency may weigh on profit margins.

Honda has projected capital spending of 570 billion yen (.1 billion) for this business year. Fukui said this level could continue for a while but was unlikely to rise sharply.

The auto maker was making every effort to see that all new projects would quickly bring returns on their investment.

While operating profit margins could suffer slightly over one to two years, Fukui said, the investment was necessary to secure long-term growth.

He added that investors should not just look at operating profit margins but also take into account the large contributions from its divisions in China and India that come in at the net earnings level.

The company's renewed focus on longer-term growth may mean that Honda could trim share buybacks, but Fukui said he wanted to keep the company's level of shareholder returns including share buybacks at 30 percent.

REUTERS CS DS1643