Honda is to source more components from local suppliers to cut costs at its plant in Wuhan, central China, as demand in the country grows for affordable cars.

It wants to raise local content to 15% within three years from 10% now, said Mitsuo Yamamoto, one of the plant’s purchasing chiefs.

This could result in cost savings of around CNY1000 (US$147) a car at the factory, a joint venture with Dongfeng Motor.

Demand for cheap, smaller vehicles is rising in China thanks in part to subsidies for rural buyers and a tax cut for cars with engines no larger than 1.6 litre. This move has helped fuel a 46% surge in vehicle sales 13.6m last year.

Honda’s cheapest car in China, the Fit [Jazz] compact, is priced from CNY89,800 (US$13,300), compared with CNY59,800 (US$8,850) for the F3 compact made by BYD, the country’s best-selling model last year. March sales of the Fit in China more than doubled from a year earlier.

While Honda’s Wuhan factory gets as much as 95% of its components locally, 90% of those are purchased from Japanese and European parts makers operating in China rather than Chinese companies, the company said.

The 1,000-vehicles-a-day plant makes the Civic, CR-V SUV and Spirior sedan.

The Honda-Dongfeng venture is gradually increasing automation at Wuhan which has around 130 robots.

About 15% of engine assembly work is automated at Wuhan, compared with 50% at the company’s Japanese factories.

At the Beijing motor show last month, Honda CEO Takanobu Ito said the company is looking to increase sales 9% to 630,000 vehicles in China this year.

The Japanese carmaker has three car factories in China and is planning with Dongfeng to begin production at a second plant in Wuhan from the second half of 2012.

The venture also plans to introduce a new brand for the Chinese market. Honda is also planning with Guangzhou Automobile Group to start selling a new low-cost car under the Everus brand next year.