A stronger Japanese yen against the dollar may prompt Honda Motor (HMC) to shift production of its Fit model from Japan to the U.S. This is mainly because Fit is one of the Honda’s models that attracted attention in the U.S. but are imported from Japan. However, the strengthening of yen against dollar to around 90 is narrowing down the company’s revenues in Japan upon translation.

So far, Honda has focused on regional manufacturing strategy for its vehicles. The company produces about 80% of all the vehicles sold in the U.S. However, the 5-door hatchback Fit – introduced in Japan in 2001 and launched in the U.S. market in 2006 – is manufactured at a facility outside Tokyo.

The model gained huge importance in the U.S. due to its fuel-efficiency (30 mpg). For the first nine months of the year, Fit sales in the U.S. were down only 12% compared to last year, while total car sales were down 24.4%.

The model also featured in the top-10 buy list in the recently ended “Cash for Clunkers” program, launched by the U.S. Government. “Cash for Clunkers” is a cash incentive program enabling consumers to trade in their fuel-inefficient vehicles for efficient ones for a value of up to $4,500. The model ranked ninth in the top-10 buy list, succeeded by Toyota’s Prius and Honda’s Accord.

All these have made Fit a prime candidate for manufacturing relocation in the U.S. Presently, Honda operates two plants in Ohio and one each in Alabama and Indiana.

We recommend the shares of Honda Motor as Neutral.

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