Honda: U.S. imports losing money
Dealers get fewer vehicles than they'd like
TOKYO -- Honda Motor Co. is carefully allocating shipments of cars to the United States because its exports there from Japan are "losing money," CFO Fumihiko Ike said.
Honda won't cut off all shipments of those imported nameplates, including the Fit subcompact and the Insight and CR-Z hybrids, Ike said. But he said the company needs to minimize the impact of such shipments on its balance sheet.
That means that in some cases dealers are getting fewer vehicles than they might like.
The long-term solution: Move more production to North America and buy more parts there, including components for hybrid powertrains.
"Under the current exchange rate of 80 yen per dollar, our export business doesn't make any profit," Ike told Automotive News. "Definitely, the absolute number of exports to the United States will be decreasing."
It's the first time a Japanese automaker has admitted that sending vehicles from Japan to the United States is a money-losing proposition.
Honda relies less on exports from Japan to the United States than its rivals and therefore is less exposed to losses from currency exchange rates. Honda already builds in North America roughly 85 percent of the vehicles that it sells there.
Toyota Motor Corp. and Nissan Motor Co., which build about 70 percent of their North American sales volume locally, also are reeling from exchange rate losses and scrambling to shift production of vehicles and components to North America.
Ike's comments suggest that his rivals are under even greater pressure to transfer production from Japan to North America.
Nissan said in January 2011 that it aims to halve the value of components and the number of vehicles it brings from Japan by early 2014. Toyota wants to build hybrids with locally sourced components in North America by 2015.
Honda keeps selling its money-losing exports in the United States partly to keep segments covered and retain customers.
"We need to keep our customer base," Ike said. Exports of money-losers will continue "just for the sake of our dealers. At least they have something" to sell.
"Especially last year because of the shortage of supply, American Honda didn't have enough cars to sell," he said, so the Japanese automaker kept shipping cars, such as certain Acuras and hybrid models, to the United States despite losses on those exports.
Honda already is tackling the problem. It will transfer production of the Fit small car to a plant that will open in Mexico in 2014. The Fit accounted for roughly a third of Honda's U.S. imports in 2010 and 2011.
In addition, the 2013 Acura ILX, which went on sale at the end of May, originally was planned for Honda's Sayama plant in Japan but instead is being built in Greensburg, Ind. It eventually may replace the imported TSX, although Honda has not confirmed that.
Besides the Fit, some versions of the CR-V, limited-volume hybrids and Acura models are the main imports from Japan.
Overall, Honda's exports, and hence its exposure to currency swings, are limited. Last year exports of Honda and Acura vehicles to the United States accounted for less than 6 percent of the 3.1 million units Honda sold worldwide. But those exports to the United States still accounted for three-quarters of the 235,000 vehicles Honda exported from Japan.
Through May, Fit sales in the United States fell 33 percent to 19,706 units. Sales also dropped 65 percent for the Insight, to 3,547; and 72 percent for the CR-Z, to 1,995. Those three nameplates accounted for 32 percent of Honda's import sales so far this year.
The Fit is the prime example of Honda's dilemma.
Asked whether Honda makes any profit on Fits sent to the United States, Ike said flatly, "No."
Even if Honda were making money on Fit exports, U.S. allocations probably would be tight. Fit sales in Japan are red hot because of a government incentive program that promotes sales of fuel-efficient cars, reducing the supply available for export.
But, Ike added: "We need to keep the customer base and demographics, especially [with] hatchbacks for the younger generation. For them, it's a very good car."
Demand for the Fit is much higher than supply, said John Hawkins, president of Metro Honda in suburban Los Angeles. But he and other dealers have suspected that Honda was holding back on shipping cars because they can't make as much money on yen-denominated vehicles in the United States as in Japan.
Not profitable for dealers
Because the Fit "is not a profitable car for Honda, it's priced so it's not a profitable car for dealers," Hawkins said. "In a competitive market, people are buying the deal, and there's no deal to be had on a Fit. As soon as they complete that Mexico plant, it will be priced competitive. And I don't think they hit the mark on Insight, so why should Honda give any remedial activity on a product that missed?"
Other dealers say demand for fuel-efficient Hondas is not as great as for core vehicles such as the Civic, Accord, CR-V, Pilot and Odyssey -- all built in North America --which typically carry better margins for dealers and salespeople. So salespeople push core vehicles when a customer walks in the door. About a quarter of the CR-Vs sold in the United States through May were imported.
Jerry Goddard, general manager of Hennessy Honda in Woodstock, Ga., said he can rely on "fickle Atlantans" to come running for Fits and Insights when gasoline is at $4.50 a gallon. But with gas at $3.50, "everyone forgets we have a hybrid."
"I asked my salesmen if anyone got any calls for a CR-Z, and nobody raised a hand," Goddard said.
To cut its losses further, Ike said, Honda aims to shift production of hybrid cars and their hybrid components to North America "within a few years."
He said: "We are not just simply shifting assembly from Japan to the United States. Of course, we have to expand local procurement, otherwise it's not cost-effective."
Looking for batteries
Honda engineers already are scouting local suppliers of such hybrid components as lithium ion batteries.
The hybrid version of the ILX is the only hybrid manufactured by Honda in the United States. But its battery comes from Japan.
Honda will build the Acura NSX sports car in Ohio within three years with a hybrid drivetrain, though volume will be small.
U.S. hybrid sales of at least 100,000 units would justify localized production, Ike said. But Honda's hybrid sales are way off that pace. Honda currently imports the Civic hybrid, the CR-Z sporty hybrid and the Insight hybrid hatchback from Japan.
Last year their combined U.S. sales totaled only 31,582.
Honda aims to boost hybrid sales with a new hybrid Accord sedan scheduled to arrive this winter.
Mark Rechtin contributed to this report
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