Honda U.S. sales tumbled again in January

TOKYO Mon Feb 2, 2009 6:08am EST

1 of 3. A man walks past Honda Motor cars outside a showroom in Tokyo February 2, 2009. U.S. sales in January fell by a similar margin to the 35 percent drop posted in December, and it will take several months to bring inventory down to sound levels, its chief financial officer said on Monday.

Credit: Reuters/Toru Hanai

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TOKYO (Reuters) - Honda Motor Co's U.S. sales in January fell by a similar margin to the 35 percent drop posted in December, and it will take several months to bring inventory down to sound levels, its chief financial officer said on Monday.

Japan's No.2 automaker is planning to operate its factories in North America, Japan and Asia excluding China at just 60 percent of capacity in the final January-March quarter to work down bloated inventories amid sliding sales.

But with sales showing no sign of a recovery, low production levels will continue through the April-June period, CFO Yoichi Hojo told Reuters in an interview.

"Sales performance in January was similar to December (in the United States)," he said, declining to give a specific figure because an official announcement is not due until Tuesday.

Honda had about 100 days' worth of inventory in the United States now, compared with ideal levels of 50-60 days, Hojo said.

Fearing for their jobs in the spreading global recession, consumers have shied away from buying big-ticket items. Some potential customers have struggled to find financing as automakers themselves face difficulty funding the loans.

Hojo said the funding situation in the United States, its biggest market, had improved "ever so slightly," making more loans available to customers.

Honda's local finance unit launched asset-backed securities (ABS) of $300 million at the end of December and another $1 billion in January, Hojo said.

"We weren't able to issue any (ABS) from June until December," he said. "It's still tough, but there are signs that the Federal Reserve Bank's (easing) policy is working a bit."

With sales tanking in North America, Europe and Japan, Honda on Friday slashed its profit forecasts for the year to March 31, projecting a 330 billion yen ($3.7 billion) operating loss in the January-March fourth quarter.

STRONG YEN TO BITE

Still, Honda is among the few Japanese automakers expected to escape an annual loss, supported by a profitable motorcycle division that has held up better than the car business.

But if the dollar stays below 90 yen, securing a profit in the next business year from April would be "quite difficult," Hojo said, adding that the company was doing everything it could to reduce short-term costs.

"With currencies, all we can do is to try to limit exports from Japan and increase local production overseas," he said. "But that can't be done right away."

Honda has never posted a loss in its history, even when the dollar touched a record low of just below 80 yen in 1995.

But Hojo noted that the dollar had averaged around 100 yen that year -- the same level it is assuming for this year -- and that making money on a far stronger yen would be tough.

In the short term, Honda is looking to cut its fixed costs mainly through reductions in remuneration and headcount, Hojo said. Honda has cut its directors' monthly salaries by 10 percent from January and said on Monday it would also apply cuts of about 5 percent for the management class starting this month.

At its UK factory, Honda has secured voluntary retirement from 1,000 workers, or a fifth of the workforce, Hojo said. That factory is due to be closed for four months through May.

Other measures to reduce labor costs are being considered through negotiations with unions, he said.

Further out, Honda will look to cut costs by building vehicles more efficiently and cheaply, Hojo said.

One such strategy would be to produce most of the parts for high-volume, 100-125cc commuter bikes in just three countries and ship them to assembly sites around the world such as those in Brazil, China, India, Thailand, Japan.

Honda shares ended down 1.0 percent at 2,050 yen, faring better than the 1.6 percent drop in Tokyo's transport sector index.

(Additional reporting by Nobuhiro Kubo; Editing by Hugh Lawson)

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