UPDATE 1-Honda says Japan sales target within easy reach

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By Chang-Ran Kim, Asia autos correspondent

TOKYO, Sept 4 (Reuters) - Honda Motor Co (7267.T) will be able to easily reach its sales forecast of 640,000 cars in Japan for this business year thanks to brisk demand for its smaller models, a company official said on Thursday.

"A lot depends on market conditions, but we should be able to easily reach that target at the current pace," Hiroshi Kobayashi, deputy chief operating officer for Japanese sales operations, told a small group of reporters.

A few years ago, Honda had set a medium-term annual sales target of 800,000 cars but has chronically fallen short of goals set at the beginning of each business year.

Kobayashi said Honda's short-term mission would be to reach a stable annual tally of 700,000 cars, which he hoped could be achieved in about three years.

Honda has forecast flat sales in Japan's shrinking car market for the business year ending on March 31, 2009. In the first five months through August, its sales grew 0.8 percent to 233,044 vehicles, thanks to a 12 percent growth in cars excluding 660cc minivehicles. Second-half sales tend to be stronger in Japan.

Kobayashi said sales could be higher if more supply of the Fit -- also a hit in the United States -- and the Freed compact minivan, only sold in Japan, were available. Customers are waiting between two to three months for delivery of those models, he said.

Honda's U.S. sales fell 7.3 percent in the United States last month, better than the market's 16 percent plunge. For the year to date, its sales in the world's biggest market are up 1.2 percent. [ID:nL4561003]

But Kobayashi, who until March headed Honda's Canadian operations, said the car business in Japan was especially tough with overall demand falling year after year and consumers shifting towards smaller, lower-margin cars.

"The Fit and Freed have attracted a lot of people away from other brands, but at the same time many customers are trading down from our own bigger models, such as the Step Wgn and Elysion minivans," he said. The new Fit debuted last October and the Freed went on sale in May.

With Japanese car demand expected to fall for a fifth straight year this year, Kobayashi also said conditions were growing less favourable for a launch of the premium Acura brand in Japan.

Those plans have already been delayed by two years to 2010. Kobayashi said Honda had made no official decision to postpone an entry further, but stressed that many factors -- including the growing interest in fuel-efficient cars -- were working against it.

"Personally, I would place priority in small cars and hybrids," he said. "As long as market conditions keep changing, there is no such thing as an 'absolute' plan."

Honda is due to launch a new, more affordable hybrid model in the United States, Japan and Europe next spring. It has forecast global annual sales of 200,000 units of the dedicated hybrid model -- half of that in North America. (Editing by Edwina Gibbs)