Honda cranks up output as auto sector sees comeback

The engine of the Ontario economy is starting to hum again, propelled mainly by a return to full production at Japanese auto makers’ plants.

Honda of Canada Manufacturing (HMC-N30.00-0.67-2.18%) in Alliston, Ont., said Wednesday that it will begin cranking out 1,600 vehicles a day in November, more than two years after it cut production during the recession and about eight months after it slashed output because of disruptions caused by the March 11 earthquake in Japan.

The two Honda plants in Alliston, located about 90 kilometres north of Toronto, will also operate on two Saturdays a month – likely until at least the end of the year – mainly to build more models of the compact Civic. The top-selling passenger car was redesigned for the 2012 model year, and production and sales were just starting to gear up when the earthquake created chaos in the supply chain and made it difficult for auto makers to get enough parts.

Honda’s move means that two-thirds of Canada’s car and light truck assembly plants will be running on overtime. That’s a major boost for a Canadian economy still in the midst of an anemic recovery from the recession and one in which gross domestic product fell by 0.4 per cent in the second quarter.

“The key point is that auto production did slow significantly in the summer and it did affect the overall economy, but now it is back in full swing,” said Carlos Gomes, a Bank of Nova Scotia economist who follows the auto industry closely.

There were signs in September that the worst had passed, noted industry analyst Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc., of Richmond Hill, Ont.

Car production at Toyota Motor Manufacturing Canada Inc. (TM-N66.91-0.43-0.64%) in Cambridge, Ont., rose 19 per cent that month from year-earlier levels, Mr. DesRosiers said, compared with a 6.2-per-cent decline in the first nine months of the year.

Since then, Toyota’s other plant in Woodstock, Ont., has returned to a full, two-shift operation and is also working overtime to boost output of the RAV4 crossover.

Nonetheless, when compared with vehicle production in the United States and Mexico, “we’ve been the laggard all year and remained so in September,” Mr. DesRosiers said.

While the assembly industry is located entirely in Ontario and most of the supply base is in that province as well, the production rebound will also contribute to national economic growth, Mr. Gomes said.

The rebound will add almost a full percentage point to the annual growth rate in the fourth quarter, he said. His forecast is that the economy will grow by 1.2 per cent this quarter.

Japan-based auto makers want to increase their inventories, which stood at just 40 days of supply in the U.S. market in September, compared with the usual figure of about 60 days. In addition, U.S. sales jumped by a surprising 10 per cent in September. That means all auto makers want to make sure they have enough vehicles on U.S. dealers’ lots in the fourth quarter.

The U.S. market is the destination for 80 per cent of the Civics, Acura MDX and ZDX models that roll off the Alliston assembly lines.

The shortage of Civics since March means there are several thousand back orders for the car at Canadian dealerships, Jerry Chenkin, executive vice-president of Honda Canada Inc. told reporters at the Alliston plant on Wednesday. Some customers have been waiting as long as 45 days, he said, but the increase in production should cut that to 30 days.

The Civic has been the best-selling passenger car in Canada for the past 13 years and led the second-place Hyundai Elantra by 1,122 vehicles at the end of September, despite a 12-per-cent sales decline in the first nine months of 2011.