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Honda supply shortage to persist through FY : CFO

According to the officials, Honda Motor Co will be dogged by a shortage of passenger cars as production fails to keep pace with demand.

autos Updated: Aug 04, 2008 10:37 IST

Honda Motor Co will be dogged by a shortage of passenger cars at least through the rest of the business year to next March as production fails to keep pace with demand, its chief financial officer said on Monday.

Like the rest of the industry, Japan's No.2 automaker has been hit by sinking sales of sport utility vehicles and other light trucks amid rising fuel prices, and is scrambling to substitute output of such gas-thirsty vehicles with sought-after cars such as the Civic model.

While some measures have been mapped out to ease the imbalance in North America, Honda's biggest market, CFO 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 US," he said, explaining the unexpected 9.2 per cent fall in adjusted US sales last month.

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

Hojo said Honda lowered its initial US 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.

Honda will kick off a new 200,000-cars-a-year factory in the US 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 room for Civics at its Ontario plant by transferring the Acura MDX sport utility vehicle to the underused light trucks factory in Alabama. Honda is already planning to transfer Ridgeline pickup production there from the Canadian factory by the end of the year.

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 were down 5.8 per cent at 3,280 yen on Monday afternoon, joining other Japanese auto stocks in a sharp slide after the US auto market shrank to a 16-year low in July.

Tokyo's transport sector subindex ITEQP.was down 4 per cent, leading a 1.1 per cent 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 expenditures by 9 per cent this year.