Honda wants to continue to cap incentive spending as inventories recover

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

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

The improvement in profitability comes even as Honda faces production slowdowns and falling sales. In North America, for example, the company said factory production had been rattled by the outbreak of the omicron variant of COVID-19, causing labor shortages at suppliers.

U.S. inventory levels fell to just 11 days, senior executive director Kohei Takeuchi said, while detailing results for the company’s fiscal third quarter ended Dec. 31. This allowed Honda to cut some 85 billion yen ($738.5 million) from incentive spending. .

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

“We want to limit incentives as much as possible, but we need to consult with dealers on how much inventory they hold,” Takeuchi said.

“There might be room to increase incentives because of that.”

Honda hopes to maintain a spending cap by introducing a new product that offers better pricing power, Takeuchi said. The executive did not specify which vehicles are available, but the CR-V, HR-V, Passport and Pilot crossovers all need to be updated.

Honda said operating profit is expected to reach 800 billion yen ($6.95 billion) in the fiscal year ending March 31, against an earlier target of 660.0 billion ($5.73 billions of dollars).

The new target represents a 21% increase over last year’s results.

Honda raised its outlook even as operating profit fell 17% to 229.4 billion yen ($2.00 billion) in the October-December period. Net profit fell 32% to 192.9 trillion yen ($1.68 billion) in the quarter, while revenue fell 2.2% to 3.69 trillion yen ($32.06 billions of dollars).

Global sales of Honda vehicles also fell, falling 21% to 1.09 million units, largely due to lower deliveries in key markets of the United States and China. Sales in North America fell to 311,000 vehicles in the three-month period from 479,000 units a year earlier.

Honda sees North American sales drop 10% to 1.33 million vehicles in the current fiscal year ending March 31, as global deliveries drop 7.6% 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.