Honda to lift Japan output to meet extra demand

Honda Motor Co (7267.T) is taking steps to raise output in Japan in preparation for a likely uptick in demand if a bill to offer consumers cash to replace old cars becomes law, its chief financial officer said on Wednesday.

Japan's parliament is deliberating legislation to encourage consumers to ditch cars that are more than 13 years old in favor of fuel-efficient models with a 250,000 yen ($2,500) reward, and is widely expected to pass the bill in the next month or so.

Like most of its rivals, Honda did not include the extra demand into its domestic sales forecast of 555,000 units in the year to March 2010, but Chief Financial Officer Yoichi Hojo said preparations were already underway to lift production.

We're in the process of finding out what we need to do in terms of people and components to make a production expansion possible, Hojo told Reuters in an interview.

The auto industry lobby has forecast a sales boost of about 690,000 vehicles this year from the incentive, of which Honda reckons its share to be around 70,000 to 100,000 units.

Honda is also looking to slightly boost production of the new Insight hybrid due to robust orders in Japan so far, Hojo said. The car, which became the first hybrid model to top the best-sellers' list in Japan last month, was selling roughly in line with plans in the United States, Hojo said.

CREDIT CRUNCH EASING

While overall demand in the United States was showing no signs of recovery yet, Hojo said there had been an improvement in credit availability for consumers and used-car prices were bottoming out.

Underscoring the further easing of the credit crunch, Hojo said Honda's U.S. finance unit was planning to launch $1.5 billion in asset-backed securities in the April-June quarter. American Honda Finance is also negotiating a loan of 100 billion yen with the state-backed Japan Bank for International Cooperation, he said.

I would say fund-raising concerns have diminished substantially, Hojo said. He added that Chrysler's bankruptcy filing last month had had little impact on that situation.

Honda last month forecast a small profit for this financial year as it cuts costs to counter plunging car sales and a strong yen.

Hojo said much of the restructuring costs, including those arising from early retirement packages in North America and Europe, would be booked in the first half to September 30, adding that Honda was not considering any further steps to shrink its operations.

The current pace of sales in the United States is not going to continue for five, 10 years, he said.

Honda slapped on an average $1,849 in incentives per vehicle in the United States last month to work down inventory, up $666 from the year before, helping it limit its April sales decline to 25 percent compared with the market's 34 percent.