Fuel price cuts, economy crimp Honda

LOS ANGELES -- Not long ago, John Hawkins sold every Fit small car he could get his hands on. Now he doesn't want them.

"We are turning down everything" Honda wants to ship, says Hawkins, president of Great Metro Autogroup in suburban Los Angeles, which includes one Honda dealership.

Honda Division was on top of the world last summer, cracking the 10 percent market share threshold in the United States and claiming the top-selling vehicle in May, the Civic.

Falling share

But Honda's world turned upside down when fuel prices plummeted and the economy tanked. Honda's share climbed to 10 percent for the first eight months of 2008, but has been falling ever since. Now U.S. dealers are straining under the weight of a big inventory -- up 51.4 percent since Sept. 1.

And the shock waves of Honda's U.S. sales collapse are now being felt in Japan.

Honda now sees North American sales dropping 14.1 percent to 1.59 million units in the fiscal year that ends March 31. It had predicted an 8.4 percent drop.

Last week, Honda Motor Co. President Takeo Fukui slashed sales and profit forecasts, delayed plant openings in Japan, cut executive pay, axed the Acura NSX sports car program to rein in costs and delayed introduction of large clean-diesel models in the United States and Japan.

The U.S. meltdown is largely to blame for an expected 81.1 percent decline in operating profits to ¥180.0 billion ($2 billion) in the fiscal year ending March 31. The revision came less than two months after an earlier downgrade in which Honda said operating profit would fall 67.3 percent.

The strong Japanese currency has compounded the problem. The yen has climbed 18 percent against the dollar since August, shrinking revenues and earnings from the United States.

U.S. dealers scrambled for smaller, fuel-efficient cars last summer. Now, Newport Beach, Calif., dealer Dave Conant says: "We have no shortage of cars in any model."

Ernie Boch, whose Honda store in Norwood, Mass., is the largest in the United States, says Accords, Civics, Pilots and Ridgeline pickups are stacking up on his lots. But Boch added that the buildup is "not tremendous." And Boch he says he still can sell all the Fit small cars he can get.

The Honda's inventory of Fits went from 4,000 units on Sept. 1 to 8,000 on Dec. 1. Civic inventories more than doubled from 26,000 to 64,000, with the days supply rising from 23 days to 90 days on Dec. 1.

This month Honda slashed 119,000 units from its North American production schedule through March 31.

"We've adjusted production," says Honda spokesman Chris Martin. "Those sorts of things will help work the problem out over time. We're pretty good at watching the trends. It's not a surprise to have the inventory levels were they are now."

Hawkins says Honda has been "pretty good" about not pressuring dealers to take inventory, and he says he is optimistic about the inventory buildup.

"It may not be chic to drive luxury cars when we come out of this," he says. "I think they will drive things that make sense, that have good resale value."

Acura dealers are disappointed to lose the V-10 NSX, but Honda and Acura dealers mostly backed Honda's cost-cutting moves.

"I think they are great," Boch says. "They address the economic climate, and they are very sound moves."

The NSX, which had been scheduled for 2010, would have been a low-volume but high-visibility vehicle for Acura, which aims to compete with Mercedes and Lexus.

"As an Acura dealer, I view the cancellation of the NSX with some disappointment," says Conant, CEO of the Conant Auto Retail Group, which includes two Honda dealerships and one Acura store. But Conant applauded the strategy of cutbacks.

'A lot of confidence'

"They are right-sizing all their plans for the future," he says. "As a dealer, that gives me a lot of confidence."

Last week Honda announced plans to delay introduction of i-DTEC clean diesel in large models in the United States and Japan. Honda had planned to bring the clean i-DTEC engine to the United States in an Acura next year.

Boch says he is "not going to miss diesel at all."

Carter Myers III, president of the Carter Myers Automotive in Charlottesville, Va., says Honda is "looking at the real world."

"Honda taking a more defensive posture tells us it's not a brand issue now," he says. "It's a financial issue, a confidence issue."

(Source: Automotive News)