By Maki Shiraki

TOKYO (Reuters) - Honda ( HMC ) has decided to produce its next-generation Civic hybrid in the U.S. state of Indiana, instead of Mexico, to avoid potential tariffs on one of its top-selling car models, according to three people familiar with the matter.

The change underscores how manufacturers are scrambling to adapt to U.S. President Donald Trump's proposed 25% tariffs on goods from Mexico and Canada. While several automakers have expressed concerns about the levies, Honda's ( HMC ) move is the first concrete measure by a major Japanese car company.

Japan's second-largest automaker had initially planned to manufacture the next-generation Civic in Guanajuato, Mexico, according to the three people. Production was slated to start from November 2027, according to one of the people. 

Mexico was chosen because rising costs were making it tough to produce the car in Indiana and Canada, one of them said.

It now plans to build the new Civic model in Indiana from May 2028 with an expected annual production of around 210,000, one of the people said. Honda ( HMC ) would look to import from nations not hit by tariffs if production in Indiana falls short of demand, one of them said.

All of the people spoke on condition of anonymity as the information has not yet been made public.

A Honda ( HMC ) spokesperson declined to comment on changes to the Civic production plan, adding the company would continue to take into account demand and the business environment while considering "optimal production and allocation globally".

Mexico has long been a lower-cost production hub for Japanese and other global automakers. Honda ( HMC ) sends around 80% of its Mexican output to the United States, the world's second-largest auto market after China.

Chief Operating Officer Shinji Aoyama warned in November that Honda ( HMC ) would have to think about shifting production if the U.S. were to impose permanent tariffs on imported vehicles.

Honda's ( HMC ) case underscores how potentially disruptive the U.S. tariffs would be for industries that cannot drastically alter production plans in the short term given the investment and different production lines in use for different markets.

Honda ( HMC ) sold some 1.4 million cars and trucks in the United States last year, including Acura models. It sold more than 240,000 Civics, both gasoline and gasoline-electric hybrid models, making the car Honda's ( HMC ) second-best seller in the U.S. market after the CR-V.

U.S. sales of the Civic, known for its affordability, rose 21% year-on-year last year, company data shows.    

About 40% of the vehicles Honda ( HMC ) sells in the U.S. are imported from Mexico and Canada. 

Additionally, it exports around 60,000 cars made in the U.S. to Mexico or Canada, meaning that if those countries introduce retaliatory tariffs, Honda ( HMC ) could face further cost increases.