Honda supply shortage to last through FY: CFO

TOKYO (Reuters) - Honda Motor Co (7267.T) said on Monday its output of passenger cars would fall short of demand at least through the rest of the business year to next March as fuel prices force customers to look for smaller cars.

Sinking sales of sport utility vehicles and other light trucks have hit the industry hard, and Japan's No.2 automaker is scrambling to substitute output of such gas-thirsty vehicles with sought-after cars such as the Civic model.

Honda has already mapped out some measures to ease the imbalance in North America, its biggest market, including plans to transfer production in Ontario of the Ridgeline pickup truck to an underused factory in Alabama to make more room for Civics in Canada by the end of the year.

But Chief Financial Officer Yoichi Hojo said the adjustments were incremental and not enough to fully address the problem in the short term.

"We don't have enough Accords, Civics and Fits in the United States," he told Reuters in an interview, explaining the unexpected 9.2 percent fall in adjusted U.S. sales last month.

"This shortage of supply and inventory is going to last through the business year."

Honda's sales of light trucks in the United States tumbled 28 percent in July, erasing a 5.2 percent increase in car sales. That was better than a plunge of 31 percent and 8.2 percent of trucks and cars in the overall market, increasing Honda's market share to 12.2 percent last month from 9.6 percent in 2007.

Hojo said Honda lowered its initial U.S. retail sales forecast for light trucks by 42,000 units this business year while raising it by the same volume for passenger cars. But it can only raise car production in the region by 25,000 units during the period, he said, whittling down its scant inventory even further.

At the end of June, Honda only had 16 days' worth of Civic stock and 18 days' worth of the Fit hatchbacks.

SHARES SINK

Honda will start production at a new 200,000-cars-a-year factory in the U.S. state of Indiana to build the Civic and other cars this autumn, but output is only set to reach 22,000 units this business year.

"Typically, it takes more than half a year for a new plant to become fully operational," Hojo said.

"We're laying out all kinds of possibilities to build more cars, but it's not that simple."

One suggestion was to make more Civics at the Ontario plant by also transferring the Acura MDX sport utility vehicle to Alabama. But that would leave only the Civic and CSX sedans in Canada, removing Honda's signature flexibility from that plant -- a risk that was too large to take, Hojo said.

Honda's shares ended down 5.8 percent at 3,280 yen on Monday, joining other Japanese auto stocks in a slide after news that the U.S. auto market shrank to a 16-year low in July. It briefly touched an intraday low of 3,240 yen after Hojo's comments.

Tokyo's transport sector subindex .ITEQP.T lost 4.2 percent, leading a 1.9 percent drop in the broader TOPIX index .

The supply shortage is also pronounced in the rapidly expanding Russian market, Hojo said, although volumes are still tiny at around 40,000 vehicles in 2007. Honda expects sales to more than double this year, but still faces a shortage of Civics.

Honda is already adding new factories at breakneck speed. It opened a new motorcycle factory in Japan this year, while new car plants in Thailand and Japan, along with various engine factories, will follow in the coming years.

"This is the limit of our expansion pace," Hojo said, noting Honda's plans to raise capital spending by 9 percent this year.

(Editing by Hugh Lawson and Michael Watson)