As part of its measures to address margin erosion caused by a
) is increasing its production capacity in North America to reduce
its dependence on the Japanese exports. Currently, 85% of
Honda's cars sold in North America are manufactured in the region.
However, the automaker is expanding the capacity of its plants in
the U.S. and Canada while building a new plant in Mexico. With this
move, almost 96% of the total cars sold in the region would be made
within North America once the plant in Mexico becomes functional in
Made in America
Since a significant portion of Honda's cars are produced in
Japan, a strong Yen is hurting the margins of its Japanese exports
to North America. Currently, the U.S. Dollar will fetch you around
79 yen. Four years ago, the U.S. Dollar would have got you 110 yen.
This means that Japanese exports have to either survive on thin
margins or be priced higher, thereby losing their competitive
edge. Another aspect that could work in favor of Honda is that
there has been a rise in preference for things made in America
(especially with the precarious economy and unemployment, so a
product manufactured in the U.S. won't hurt). If Honda uses
this fact carefully as part of its marketing, it might just be able
to sell those few extra vehicles.
Margins Already Improving
Honda's margins were hurt badly in 2011 as natural disasters
caused production and supply chain constraints, leading to reduced
sales. On the brighter side, Honda has rebounded strongly this year
with vehicle sales in the U.S. up 19% in the first seven months of
Honda hopes to accelerate the growth momentum with the launch of
Accord 2013 in September. The midsize sedan segment in the U.S. is
highly competitive with the likes of Camry, Accord, Altima, Fusion,
Malibu and Sonata in the offering. Accord currently trails Camry in
this segment but, with the new Accord expected to be 15% more fuel
efficient, we could witness a role reversal.
We have a price estimate of $41 for Honda Motors
, which is around 20% above the current market price.
How a Company's Products Impact its Stock Price at