Honda sticks to U.S. lease deals, sees gains

By Kevin Krolicki

ANN ARBOR, Mich (Reuters) - Honda Motor Co (7267.T: Quote, Profile, Research, Stock Buzz), the only major automaker to buck the downtrend in the U.S. market, will keep offering lease financing and could generate further momentum at a time when rivals are pulling back from such deals, an executive said on Thursday.

"We haven't pulled out of leasing," John Mendel, executive vice president in charge of Honda's

U.S. operations, said in an interview. "It could be an advantage."

Honda's U.S. sales are up 3 percent through the first seven months of 2008, putting it on track to make its sales target of 1.4 million vehicles, even though the overall U.S. market has turned weaker than Honda had expected.

About 24 percent of Honda's U.S. sales are made through lease deals in which buyers rent vehicles for several years before the cars and trucks are returned and resold at auction.

For years, the financing structure has allowed American car shoppers to drive off in more

expensive and larger vehicles than they could have afforded through an outright purchase.

But the recent sharp decline in resale values for trucks and SUVs has saddled automakers with

large losses.

Chrysler LLC has stopped offering leases outright through its finance arm Chrysler Financial. Ford Motor Co and General Motors Corp  have also pulled back from leasing after combined losses of near $4 billion in the second quarter.

But lease deals remain popular on Honda vehicles like the family-hauling Odyssey minivan. The

Japanese automaker will keep offering leases although the industrywide drop in resale values means monthly payments will have to rise, Mendel said.

"In the near term, the super, super-cheap lease deals are going to be thin," he said.

TRUCKS REMAIN A DRAG Honda's truck sales are down 11 percent this year, compared with an industry-wide decline of 19 percent through July.

The situation could worsen in coming months if more SUV and truck drivers give up on a recovery in resale values and flood the used vehicle market with trucks at a loss, Mendel said.

"If fuel prices don't fall and the truck market doesn't rebound a little bit then I think you're

going to see more an more of that crunch."

But Mendel said Honda was shielded from the worst of the downturn because of a record for fuel economy and an American customer base that has a higher average income than any other major
automaker.

In addition, a retreat in gas prices has helped truck sales stabilize in August, he said. "One
grenade got the whole truck side of the foxhole, but interestingly we're seeing some of that come
back now, especially this month," he said.

Honda launched its redesigned Pilot this summer and gave customers what they had said they wanted in focus groups conducted several years earlier: the more rugged looking exterior of a traditional SUV.

Sales for the Pilot, the largest SUV in Honda's line-up, fell 43 percent in July, but Mendel said he expected a rebound once the backlash against the SUV category eases.

"I think we will see Pilot pick up when people get over some of the stigma and realize they can
have all of the utility and none of the guilt," he said.

Honda is consolidating production of its Ridgeline pickup truck to its plant in Lincoln, Alabama in order to free up production capacity to make more of its strong-selling Civics.

Mendel said Honda was readying a new marketing campaign that would effectively relaunch the

Ridgeline as an alternative to full-size pickup trucks, a market dominated by Ford, GM, Chrysler
and Toyota Motor Corp.

Sales of the Ridgeline are almost flat compared with a year earlier, at just over 22,000 units
sold through July.

"If we were launching Ridgeline today, we'd look like geniuses. It's the anti-truck truck," Mendel said. "There are people who are going to be buying trucks and I think we need to tell them, hey, this is the alternative."

Mendel said Honda had given consideration to bringing a compact minivan to the U.S. market, based on the Odyssey sold in the Japanese market. The wagon-like Japanese Odyssey would likely compete with the Mazda5.

Mendel said the shifting taste of U.S. car buyers could support a compact minivan, if Honda could find a way to power it with the V6 engine Americans would probably still prefer.

"We've looked several times at it," he said. "We've been working. If we could put a V6 in it, we'd bring it in."

(Editing by Richard Chang)

Resource:www.Reuters.com