Auto-maker reschedules opening by a year.
Honda Motor Co, Japan's second-largest automaker, will delay opening its second car factory in India, as the pace of growth in the market slows.
Honda aims to open the plant in Rajasthan by October 2010 at the latest from its original schedule of 2009, Tokyo-based spokesman Sakae Uruma said. The engine parts and press units at the facility began operations today, the company said in a statement.
Higher auto loan rates and the fastest inflation in 16 years caused industrywide vehicle sales in India to fall in July and August, the first time in two and a half years. General Motors Corp, Toyota Motor Corp and Ford Motor Co are among carmakers spending $6 billion to build factories in India.
"Demand is going down in the near term,'' said Vaishali Jajoo, a Mumbai-based analyst at Angel Broking. "Still, companies are looking at the long-term prospects in India and are setting up plants now to meet the demand in the future.''
The delay was first reported by the Wall Street Journal.
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Honda's car sales in India fell 14 per cent to 19,058 between April and August, according to the Society of Indian Automobile Manufacturers. The country's overall sales in the five months gained 6 per cent to 491,538, half of last year's pace.
The grouping of all vehicle makers in the country last month cut its growth forecast for the year ending March 31 to 10 per cent from as much as 13 per cent saying inflation and higher rates are dampening demand. Car sales may triple to 3 million by 2015, according to government estimates.
"For Honda, India is a very important market and our faith in India's growth story stays intact,'' the automaker's president Takeo Fukui said today at the site of the new factory. "Our investment plans in India are on track.''
Tokyo-based Honda now produces the City, Civic and the Accord sedans from a factory near New Delhi. The company has so far invested Rs 1,620 crore ($349 million) in India, according to Honda India's web site.
The second plant, with an initial investment of Rs 1,000 crore, will raise Honda's annual production capacity to 160,000 vehicles by 2010, the company said today. Honda's second factory will eventually raise capacity to 200,000 units per annum, the company said last year. Honda is the fourth-largest carmaker in India this year, lagging behind Suzuki Motor Corp, Hyundai Motor Co and Tata Motors.