Honda Shares Fall as Carmaker Mulls Raising Incentives in U.S.

Tokyo March 8, 2005; Bloomberg News reported that shares of Honda Motor Co., Japan's third-largest carmaker, declined after the company said it may increase incentives in the U.S. on its Accord and Civic models.

Honda's shares fell 0.4 percent to 5,660 yen at the close of the morning trading break in Tokyo. Honda's U.S. spokesman Andy Boyd said yesterday the company is considering boosting discounts.

The U.S., the world's largest vehicle market, accounts for about 80 percent of Tokyo-based Honda's annual operating profit. Toyota Motor Corp. and Nissan Motor Corp. are offering larger discounts than Honda, contributing to a 21 percent decline in sales of Accord and Civic cars in the first two months of the year. The two cars are Honda's best-selling models in the U.S.

``Investors are concerned that Honda will have to increase incentives for aging models,'' said Hajime Yagi, who helps manage about $1 billion at Meiji Dresdner Asset Management Co. in Tokyo. ``Honda doesn't have much of a choice.''

Honda, Japan's third-largest automaker, last week had an 8.3 percent sales decline in the U.S. for January and February compared with a year earlier. Sales of its Accord and Civic fell by 20,291 units in the first two months of the year.

The Tokyo-based company is planning to sell a new version of the Civic this year, has spent 49 percent less than the industry average on incentives in the past four years.

Tight Spot

``They're in a tight spot with Civic because they have to struggle through several more months until the new version comes out,'' said Rebecca Lindland, an analyst with industry forecaster Global Insight, based in Lexington, Massachusetts. ``They have to get more creative with financing offers.''

Honda, which doesn't offer consumers cash back on car purchases like some rivals do, still spent a record $2,943 per vehicle last month on incentives including low-interest loans and cash to dealers, according to CNW Marketing Research, based in Bandon, Oregon. That compares with an average $4,423 CNW estimates automakers offered in February.

``Spending in the segment from Toyota and Nissan is three to five times what we're spending,'' Andy Boyd, a spokesman for Honda's U.S. unit, said in an interview yesterday. ``We're probably going to have to get in step with that.''

CNW's estimate, which Honda doesn't accept, includes the value of added content such as six-disc CD players and alloy wheels the company offers on so-called special edition versions of Civic, for example, rather than cash rebates.

Current Incentives

Honda, which for the past five years has had the highest average profit margin among automakers selling in the U.S., spent 33 percent less on incentives in February than the industry average. That was still 50 percent above its $1,967 average for 2004, CNW said.

Currently, Honda's most generous offer on Accords and Civics is a 2.9 percent interest rate on loans for as long as 60 months, according to its Web site. In comparison, Nissan is promoting 1 percent interest on Sentra small cars for loans as long as five years, with $1,500 cash back to buyers, or a total rebate of $2,500 with a higher loan rate, according to the company's retail Web site.

Toyota is offering $500 cash for Corolla customers combined with a 1.9 percent interest rate for as long as four years, according to its Web site. Toyota, the world's second-largest automaker, also has a $1,000 rebate on Camry sedans, which compete with the Accord, combined with 1.9 percent interest loans for up to three years.

Boyd said the company will look at the latest weekend's sales to determine today if it needs to bolster any of its incentives.

While Honda hasn't offered customers rebates for Civics and Accord, it does pay cash incentives to U.S. dealers like Toyota and Nissan do. Honda a year ago increased such payments to more than $400 for Civic. Boyd declined if such payments may increase.

Cash for Civics

``Honda's got about $500 in dealer cash on Civic,'' said Art Spinella, president of CNW. ``They're doing some other types of dealer programs that make additional funds available so it's difficult to know exactly how much is available for Accord and Civic.''

The dealer payments are both incentives for retailers and can also fund cash rebates to customers that aren't advertised, said Jesse Toprak, vehicle pricing analyst for automotive data service Edmonds.com in Santa Monica, California.

The outlook for Civic should improve later in the year, when the new model is added, Lindland said. ``The new model looks really sharp, so I think the longer term outlook is bright,'' she said.