Honda, the world’s biggest motorcycle maker, generated an operating income margin of 11 percent last fiscal year, compared with a loss at the automobile business.

While Honda lags behind Toyota in the U.S., Ito said he sees Volkswagen AG (VOW) as potentially the most disruptive competitor.

“Now’s the time when they need to think about whether they can adapt the car to one that is suited to the U.S. market and if you think about their actual capabilities, I think they’ll do that,” Ito said in reference to the Wolfsburg, Germany-based automaker. “They’ll be able to adapt the cars to suit the U.S. market. When they come up with that car, that will be the biggest competitor for us.”

On China, where sales of Japanese auto brands tumbled 41 percent last month amid a territorial dispute over a group of islands, Ito said the company isn’t changing any of its plans for the country. China may develop into the world’s biggest market for hybrid vehicles and it’s unlikely that the current political tension will last for longer than six months, he said. Honda’s own China sales in September tumbled to their lowest level since May 2011.

' To reach sales of six million units, our Fit compact will be very important and be the leader in volume sales," said Ito at a briefing at the Tokyo-based automaker's headquarters.

"In terms of volume sales, our Brio compact, which we expect to expand sales of in emerging markets, will be the next biggest." '

The Mexico plant will only build small cars, including "multiple" derivatives of the Fit subcompact, Iwamura said. So if demand for the mid-sized Accord or other larger models increases, Honda might need to increase output at the U.S. or Canadian plants that build those nameplates.

Honda already intends to add 40,000 units of capacity next year at its Lincoln, Ala., plant, which makes the Odyssey, Pilot and Ridgeline.

By 2016, Honda's North American sales will rise to "more than 2 million" units, from about 1.7 million this year, Tetsuo Iwamura, CEO of American Honda, told Automotive News. [...]

Its U.S. sales rose 24 percent in the first three quarters of 2012, including a 40 percent gain for the Civic compact and 37 percent increase for the Accord, Honda's highest-volume model. A redesigned Accord sedan arrived at dealerships about a month ago, and the 2013 coupe went on sale last week.