October 4, 2017 / 1:48 PM / a year ago

UPDATE 3-Honda to cut Japanese production by a quarter as domestic sales stagnate

* Honda to stop producing at Sayama plant north of Tokyo

* Japan sales have not increased as expected - CEO

* Says slimmed down operations will allow more focus on EVs (Adds industry context)

By Naomi Tajitsu

TOKYO, Oct 4 (Reuters) - Honda Motor Co plans to end production at its Sayama plant in Japan by 2022, cutting capacity by around 24 percent in its shrinking domestic market as it shifts focus to electric cars (EVs) and other new technologies.

The automaker has seen stagnant domestic sales and said on Wednesday it was streamlining its Japanese operations as it takes a more nimble approach to development and manufacturing in the face of fierce competition from carmakers and technology companies to make EVs and self-driving cars.

"As we focus more on adopting electrification and other new technologies, we want to hone our vehicle manufacturing expertise in Japan and expand it globally," CEO Takahiro Hachigo told a press conference.

While automobile plant closures are rare in Japan, Honda, like its global rivals, is facing pressure to cut costs in legacy businesses, including countries where sales and profits are weak, in order to fund expansions in China and development of new technology.

Earlier this week, Toyota Motor Corp ended production at its production plant in Australia, while Ford Motor Co said it would cut $14 billion in costs in the next five years.

General Motors Co earlier this year sold its European operations to France's PSA Group while it also plans to exit India and other countries where sales have been struggling.

Hachigo has been trying to revive a culture of innovation at Japan's No. 3 automaker, after a number of major recalls in recent years as well as lacklustre product offerings, partly because it focused so much on increasing volumes and profit.

Honda said it would consolidate production at the ageing Sayama plant in Saitama Prefecture north of Tokyo, into its Yorii plant in the same prefecture by the end of the 2022 financial year.

The move would cut overall domestic annual production capacity to around 810,000 units, the same as Honda's current output levels, which are around 76 percent of its current production capacity of 1.06 million vehicles.

"Domestic sales haven't increased as much as we were expecting and it has become difficult to boost exports," Hachigo said.

Following consolidation, Honda said the Yorii plant will produce EVs and serve as a major centre for developing manufacturing technology for electric cars. It will also produce other vehicles including larger-sized global models.

While the automaker cuts capacity at home, it plans to open a new plant by 2019 in China, where it has seen explosive growth. Honda also has been expanding capacity in North America and just recently announced plans to expand output of its Accord sedan at one of its plants in Ohio.

Overall, global annual production would remain largely unchanged at around 5.06 million units, it said.

Honda has struggled to expand sales at home in the past few years, facing stiff competition from popular offerings including Toyota's Prius gasoline hybrid and Nissan Motor Co.'s, Note compact hatchback.

In the year ended March, it sold 668,000 units domestically, almost the same as in the previous year. Overall, passenger car sales in Japan have been decreasing in past years due to a greying population while interest in car ownership among young people has been falling.

Hachigo also said he was confident Honda was following proper procedures for final vehicle inspection for the Japanese market.

He said the company was complying with a request from Japan's transport ministry for inspection records after Nissan said on Monday it would recall 1.2 million vehicles due to procedural irregularities with its final inspection processes. (Reporting by Naomi Tajitsu; Editing by Susan Fenton and David Evans)

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