Honda says credit conditions haven't improved

DETROIT (Reuters) - A U.S. bailout of the financial industry has "not really improved" credit conditions and it is impossible to forecast U.S. industry auto sales for 2009, Honda Motor Co Ltd U.S. executives said on Sunday.

Richard Colliver, executive vice president of Honda America, told reporters at the Detroit Auto Show that he was unsure if the world's largest vehicle market would ever hit annual sales of 16 million to 17 million units again.

He said Honda's priority is to reduce inventory and adjust production to lower demand.

U.S. auto sales hit a record 17.4 million in 2000. But sales fell 18 percent in 2008 from the prior year to about 13.2 million vehicles, battered by a spreading credit crunch, U.S. recession and plummeting consumer confidence.

Colliver said Honda plans to cut inventory at its U.S. dealerships to 65 to 70 days of supply in the next three months, from the current 100 days.

"We're not even forecasting because whatever we forecast, we would be wrong. If you look at the last 120 days, if that trend continues then we're looking at a significant reduction (from 2008)," Colliver said.

"Our biggest focus right now is to get control of our inventories at the dealership level and get production more in line with sales," Colliver said.

Like rivals, Honda has been hurt by the plunge in car and truck sales in the U.S. that worsened in October and November amid tightening credit and deepening consumer uncertainty.

Honda's U.S. sales fell 8 percent in 2008, and the automaker has cut 175,000 vehicles from planned production for its fiscal year ending in March 2009, down 12 percent from the previous fiscal year.

"The credit situation really hasn't improved," Colliver said. "The $350 billion bailout money to the financial industry ... it really hasn't hit the lower end of the market. That hasn't gotten to the streets."

Lack of credit for auto finance companies and consumers has forced Detroit-based automakers to curtail leasing severely.

Honda has no plans to use incentives to reduce inventory and could take up its leasing penetration "a bit higher" from the current 23 percent to 27 percent of total U.S. sales.

"We have no problem with that," Colliver said, adding the value of its passenger cars held up strong. "In a difficult situation we are not in a bad position."

Detroit's three automakers -- General Motors Corp, Ford Motor Co and Chrysler -- all posted sales declines of more than 20 percent in 2008. The White House last month offered GM and Chrysler emergency loans of up to $17.4 billion, providing a short-term lifeline on the condition that they undergo a sweeping restructuring.

John Mendel, executive vice president in charge of Honda's U.S. sales operations, said that because of the interlocking nature of the supply base, a major disruption for a U.S.-based supplier would hit all automakers in the United States.

Honda builds 80 percent of the vehicles it sells to North American consumers in North America. "It's tough to distinguish that from the U.S. auto industry. It's one auto industry, we are all linked underneath the surface by the supply base."

However, the U.S. bailout of the Detroit automakers must be limited to supporting their liquidity and not to a level that would affect comparative advantages, Mendel said.

"To the degree that that aid assists in bridging for a period of time when the liquidity for those manufacturers improves, that's a good thing. If it's just about liquidity, it's fine. If it leads to advantages in financial markets or those kind of things, that's a little bit different issue," Mendel said.

(Editing by Phil Berlowitz)