Honda wants to keep capping incentive spending as inventories recover

TOKYO — Lower incentives on American vehicles are helping Honda Motor Co. weather the global semiconductor shortage and COVID-19 pandemic, but the company says there may be some adjustments in store as inventories and supply return to more normal levels this year.

In announcing quarterly financial results on Wednesday, the automaker cited the dialed-down spiff spending as it raised its operating profit target for the fiscal year ending March 31.

The improved profitability comes even as Honda copes with production slowdowns and falling sales. In North America, for example, the company said factory output has been dented by the outbreak of the COVID-19 omicron variant causing labor shortages at suppliers.

U.S. inventory levels have shrunk to a mere 11 days, Senior Managing Executive Director Kohei Takeuchi said, while detailing results for the company’s fiscal third quarter ended Dec. 31. That has allowed Honda to chop some 85 billion yen ($738.5 million) from incentive spending.

But Honda said production and inventory levels are expected to increase in the coming fiscal year, from April 1. And that will mean trying to maintain the disciplined approach.

“We want to keep down incentives as much as possible, but we have to consult with dealers as to how much inventory they will hold,” Takeuchi said.

“There might be some margins to increase incentives due to this.”

One way Honda hopes to keep a cap on outlays is through introducing new product that commands better pricing power, Takeuchi said. The executive did not specify what vehicles are on tap, but the CR-V, HR-V, Passport and Pilot crossovers are all due for updates.  

Honda said operating profit should hit 800 billion yen ($6.95 billion) in the fiscal year ending March 31, up from an earlier target of 660.0 billion ($5.73 billion).

The new goal represents a 21 percent increase over the previous fiscal year’s results.

Honda lifted its outlook even as operating profit slid 17 percent to 229.4 billion yen ($2.00 billion) in the October-December period. Net income fell 32 percent to 192.9 billion yen ($1.68 billion) in the quarter, while revenue declined 2.2 percent to 3.69 trillion yen ($32.06 billion).

Honda’s global vehicle sales also retreated, slumping 21 percent to 1.09 million units, largely because of falling deliveries in the key U.S. and China markets. North America sales fell to 311,000 vehicles in the three-month period, from 479,000 units a year earlier.

Honda sees its North American sales down 10 percent to 1.33 million vehicles in the current fiscal year ending March 31, as worldwide deliveries drop 7.6 percent to 4.2 million vehicles.

Looking ahead to the next fiscal year, Executive Vice President Seiji Kuraishi said Honda wants global sales to increase, at least surpassing the 4.6-million-unit level.