Uncertainty to hit U.S. auto sales: Honda

DETROIT Wed Sep 17, 2008 8:44pm EDT

John Mendel, executive vice president in charge of Honda's U.S. sales operations, speaks at the Los Angeles Auto Show November 29, 2006. REUTERS/Max Morse

John Mendel, executive vice president in charge of Honda's U.S. sales operations, speaks at the Los Angeles Auto Show November 29, 2006.

Credit: Reuters/Max Morse

DETROIT (Reuters) - The crisis rippling through the U.S. financial sector could drive U.S. auto sales to the low end of forecast ranges this year and leaves open the possibility of further industrywide declines in 2009, a senior Honda Motor Co (7267.T) executive said on Wednesday.

John Mendel, executive vice president in charge of Honda's U.S. sales operations, told the Reuters Autos Summit in Detroit he expected industrywide auto sales in the U.S. market to come in at between 13.8 million and 14 million units in 2008.

For 2009, the industry could see sales between 13.5 million and 14 million units, he said.

Uncertainty about the U.S. financial sector, spurred by the weekend bankruptcy of Lehman Brothers Holdings Inc LEH.N and the bailout of insurer American International Group (AIG.N), will now spill over into weaker auto demand, Mendel said.

Mendel said the latest bad news was likely to cause many consumers to defer purchases of new vehicles -- as well as a range of other big-ticket items.

"It continues to put pressure on consumers to wait and see for a lot of different things," he told Reuters. "I think it will continue to erode consumer confidence, which will probably play havoc in the retail sector larger than just automobiles

."

Honda has outperformed a slumping U.S. auto industry this year on the strength of its fuel-efficient cars and its lack of exposure to the collapsing market for full-size trucks and V8 engines.

Powered by rising demand for small cars like the Fit and Civic, Honda's U.S. sales were up 1.2 percent through August compared to an 11-percent drop in industrywide demand.

Mendel said Honda expected flat to slightly higher sales for 2008 and growth in 2009 based on the roll-out of new models like the Insight hybrid and the redesigned Fit small car.

"We're still looking at a slight increase at least initially in 2009. We have new vehicles coming on," he said. "Given any kind of stability in trucks, we should be able to eke out a little increase in 2009.

He added: "We never take wild swats at bat in terms of future growth but we do look at some growth going forward."

Honda sold out its inventory of existing Fit small car models over the summer as demand for small cars surged. "We really wiped out our inventory of the old model," Mendel said.

Rather than wait for a planned October launch of the new model, Honda chose to send the redesigned Fit to dealers as soon as the imported models arrived from Japan. Inventory is running close to 3 days supply of sales, Mendel said.

Honda has set an allocation of between 80,000 and 85,000 Fit models for the U.S. market. "We're looking for all we can get," Mendel said.

CARS RULE

Mendel said he expected the trend of a car-dominated U.S. vehicle market to continue at least for the next six to eight months. Cars, he said, could account for 55 percent of overall industrywide sales.

U.S. automakers were hit hard over the summer as consumers bolted from gas-guzzling trucks and SUVs, which had dominated sales for a decade, in the face of record gas prices.

In 2007, Americans bought 55 light trucks for every 45 passenger cars. That ratio inverted in July with cars accounting for 55 percent of the sales mix when gas surged past $4 per gallon.

With credit tight, Mendel said he expected Honda to be shielded from the worst of the crunch since its customer base has tended to be wealthier than the industry average.

"Our customer is probably a little bit better quality historically than the general run of the industry and credit has tended not to be as tough for those people," he said.

Mendel said Honda had no objection to a $25 billion package of U.S. government-backed loans for the auto industry, provided money was also made available to suppliers.

"The manufacturers are just the tip of the iceberg. There are hundreds if not thousands of companies that are just behind them," he said.

But he also said Honda had no interest in taking the government loans, even at the low-interest rates at which they are being proposed.

"Fortunately, right now we don't need it," Mendel said. "You're not going to get in a bread line if you don't need it."

(Editing by Phil Berlowitz)

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