Honda Factory Closures not a Political Decision

Two weeks ago, Honda made the announcement that they would be closing a British factory in 2022. The mainstream media ignored the date and immediately blamed the issues on Brexit without considering that if it was due to Britain leaving the EU, then Honda would be winding down now, not in three years time!

Honda’s closure in the UK was never about Brexit, rather than about where their revenues come from and where the costs are spent. Along with the closure of the UK factory, another one in Turkey will also close when one model line comes to the end of its life (the current Civic). One input to this decision has been a free trade agreement between the EU and Japan – that reduces the cost and therefore the sale price of imported cars. It looks like the company is looking at where the manufacturing costs are – and it is cheaper now to build in the US or Japan and ship the vehicles in to Europe.

According to the AutoNews web site, Honda has a global manufacturing capacity of around 5.4 million units and they sell around 5.2 million of them. Closing two European assembly plants and restructuring shifts at others means that they can reduce the capacity down to around 5.1 million, so in theory if they can keep the current sales numbers, then they’ll sell them all rather than having to discount vehicles to get rid of them.

With sales of their cars slowing in Europe and the UK plant not running at capacity, it makes sense to deal with those costs if they cannot increase sales. That then suggests that they are making cars that buyers don’t want, so if they can build and sell in markets that are buoyant, then that is good business sense.

Honda will increase production in their US plant to satisfy that demand and they will also be selling a Chinese spec for their cars in Europe rather than a Euro version. They are also going to close an older factory in Japan – they have far too much capacity in their home market as well. With the manufacturing restructure also comes a model restructure because they have been left behind in the hybrid and EV market which was one that they pretty much started with the Insight twenty years ago!

The company has stated that they want every vehicle sold in Europe to be electric or a hybrid by 2025. Perhaps if they figure out their European sales in the next few years, the UK plant might not get closed completely, time will tell.