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Honda to boost car output in Britain despite pound's strength

LONDON — Honda Motor Co. plans to more than double its car production in Britain and may export many of the vehicles back to Japan for the first time.

The strategy offers some relief to Britain's battered auto industry and bucks the trend of Honda's rivals, which have warned that the pound's strength against the euro has hurt profits.

Honda, Japan's No. 2 carmaker, said Monday it will shift production of its two-door Civic model to Britain from Japan.

Honda's European unit, Honda Motor Europe Ltd., currently makes 100,000 cars a year at a plant in Swindon in southern England. It plans to open a second factory there next year, increasing its output to 250,000 vehicles a year by 2003, Ormond said.

The new investment would create an additional 1,000 new jobs for Honda, which currently has a British work force of 3,100.

The recent strengthening of the Japanese yen against the pound would seem to support the argument for redirecting exports to Japan. But the company has not decided yet whether it will export any of the new cars back to Japan, spokesman Paul Ormond said.

Britain is Honda's base for exports to Europe, Africa and the Middle East. Like other British-based carmakers, Honda has felt the pinch of the unfavorable exchange rate of pounds for euros.

Automakers here pay many of their bills in pounds, but earn much of their revenue from exports to countries that use the euro. Since 11 countries launched the euro in January 1999, the pound has appreciated almost 15 percent against the European single currency.

"It is going to be difficult to weather the storm of currency fluctuations, but we see it as a management function to overcome that problem,'' Ormond said.

Toyota Motor Corp. on Thursday became the latest company to show concern about the pound-euro exchange rate when it said it wants its British parts suppliers to quote prices in euros instead of pounds.

Unlike Toyota, Honda suggested that it might reroute some of its exports away from the European market and toward Japan.

Since January, 1999, Britain's currency has lost 13 percent of its value against the Japanese yen, making it cheaper and more attractive for Honda to sell British-made cars in its home market.

"There's a very strong argument for investing (to increase output) when you get out of the euro-zone,'' said Mark Norman, an analyst at CAP Motor Research Ltd., a research group headquartered in the northern city of Leeds.

Honda began building engines at Swindon in 1989 and shifted to auto assembly three years later. Its only other facility in Europe is a small plant in Turkey.

Honda lost $135 million on European sales last year -- its first-ever loss in the region. However, Ormond said Honda would continue making cars in Britain.

Germany's BMW blamed the pound's strength against the euro for the bulk of its losses at the Rover car business. BMW sold Rover in May.

In June, Japanese automaker Nissan warned that it too might have to curtail its British investments due to the unfavorable pound-euro exchange rate.

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