Japanese automaker Honda is reorganizing its engine business in China, seeking to make changes to the ownership structure of joint ventures with local companies and increase efficiency before one of its partnerships in the country expires in 2028.
Honda maintains separate joint ventures in China with Dongfeng Automotive Group and operates Guangzhou Automotive Group (GAC), both state-owned companies. In 1998, the Japanese automaker established Dongfeng Honda Engine, an engine joint venture with Dongfeng, as well as an eventual vehicle partnership with GAC called GAC Honda Automobile. In 2003, it also established Dongfeng Honda Automobile turnkey vehicle company. Each has operated as a joint venture since its founding.
After two and a half years of negotiations, Dongfeng now plans to sell its entire stake in Dongfeng Honda Engine. GAC Honda plans to buy these shares and then increase its own stake, making Dongfeng Honda Engine a wholly-owned subsidiary by the end of this year.
Dongfeng Honda Engine and GAC Honda have begun producing Honda SUVs in China. In 1999, the Accord sedan was the country’s first production Honda, manufactured by GAC Honda with engines from the Dongfeng Honda Engine.
However, currently, demand for gasoline engines continues to decline, with electric and hybrid vehicles accounting for the majority of new cars sold in the Chinese market. Dongfeng Honda Engine posted a net loss of 227 million yuan ($32 million) in the fiscal year ending December 2024. A dispute arose between Dongfeng Honda Engine and GAC Honda over issues such as engine pricing and dividend distribution.
Honda decided it needed to re-evaluate the relationship and approached Dongfeng in the spring of 2023, urging it to sell its stake in the joint venture. Initially, Dongfeng resisted, but market changes and declining profits prompted it to accept the sale.
Masayuki Igarashi, president of Honda’s regional operations in China, said the deal will allow Honda to “uncover costs and make joint purchases, which will increase business efficiency.” This restructuring will also lay the foundation for Honda’s future negotiations with other partners.
Honda’s joint venture contracts for turnkey vehicles in China expire in 2028 for GAC Honda and in 2043 for Dongfeng Honda. While the company still has the option to extend or change its agreement with GAC Honda, Igarashi told GAC executives that Honda “will not discuss anything after 2028 until the issues with the Dongfeng Honda engine are resolved.” The Japanese automaker hopes to begin full negotiations with GAC.
“We’re still really hesitant about what we’re going to do,” Igarashi said of GAC Honda’s plans after 2028. Sales of new Honda vehicles in China are still struggling, down 20% in the January-October period, totaling 520,000 units. This number represents a significant decrease compared to the period from 2019 to 2021, when the company sold more than 1.5 million cars annually in China.