Given the enormous investment required to build a car assembly plant, it is not surprising that construction of such facilities are infrequent. Furthermore, in Malaysia, the presence of a national car-making industry protected by the government to enable it to be dominant has often discouraged global automakers from setting up car-making factories since 1985. The first and only wave of construction by foreign automakers occurred in the second half of the 1960s, when the automakers responded to the government’s policy to encourage local assembly of their products by setting up plants in the Klang Valley and also in Johor and Pahang.
However, with the ‘levelling of the playing field’ from 2005 – the year when Malaysia opens its auto sector to tariff-free intra-ASEAN trade under the ASEAN Free Trade Area agreement – some automakers are again looking at Malaysia in a positive light, particularly to serve as the source for their vehicles to be distributed to other ASEAN countries. Typically, they recognise that Malaysia has the largest passenger car market and therefore it makes sense to assemble passenger cars here just as it is logical to assemble pick-ups in Thailand (the largest pick-up market in the world outside the USA).
It is with this long-term view that Honda has decided to build a brand new factory in Malaysia, initially to supply the domestic market but clearly with exports in mind after 2005. Through its year-old joint-venture company, DRB-Oriental-Honda Sdn Bhd (DOH), it has chosen a 32.4 hectare (80 acres) at the HICOM-Pagoh Industrial Estate in the vicinity of Alor Gajah, Melaka, for the factory. Although it would seem that this location is away from the established areas for automobile assembly, it is actually strategically located next to the North-South Expressway and within two hours of the Klang Valley. This means that suppliers in Selangor can easily despatch components to the DOH factory. Furthermore, the location is halfway between the major ports of Port Klang and Pasir Gudang.
The factory will take about 12 months to complete. Production, however, will only commence in January 2003 as the last quarter of 2002 will be spent testing and commissioning the equipment. In the meantime, DOH will have Honda vehicles assemled at Oriental Assemblers in Johor under contract. According to a source in DOH, the company has introduced its own QC measures and treansport equipment at OA to ensure that customers get top-class cars.
The RM170 million factory will be equipped with Honda’s state-of-the-art flexible manufacturing system to maximize efficiency. It will employ the New General Welding Machine System which would be able to accommodate the production of the new models to give customers a wider choice of products. Always conscious of protecting the environment, Honda will ensure that the surrounding area of the factory and its operations will be environmentally-friendly. Furthermore, the working environment of the staff will be a priority in the design and special emphasis will be given to the plant ventilation, distribution of heat and working conditions.
The maximum capacity at the initial stage will be 20,000 units per year on a two-shift basis, but actual output will depend on market demand. At this time, DOH says that four models will be assembled, viz the City, Civic, Accord and CR-V. Ancillary facilities will also be set up to make some components locally.
The presence of Honda factory is expected to have a substantial effect to the life of the people in Melaka. It is expected to act as a catalyst to future development of the industrial area. Upon completion, the factory will offer employment to about 400 Malaysians. DOH will also provide new opportunities for nearby suppliers and SMIs to supply components and various materials. Transfer of technology will, of course, take place as Honda introduces its world-class processes to its Malaysian production facility.
The ground-breaking ceremony for the factory took place last Saturday and was attended by Deputy Prime Minister Dato’ Seri Abdullah Haji Ahmad Badawi as well as the Chief Minister of Melaka, Datuk Wira Haji Mohd Ali Rustam. Also present at the ceremony were Hiroyuki Yoshino, President & C.E.O. of Honda Motor Co, Tan Sri Dato’ Seri Mohd Saleh Sulong, Group Chairman, DRB-HICOM and Dato Loh Cheng Yean, Chairman, Oriental Holdings Bhd, as well as the top management of DOH led by Managing Director and Chief Executive Officer, Mitsuru Ozaki and President and Chief Operating Officer, Abdul Rashid Bin Abdul Rahim.