TOKYO - Honda Motor Co., buoyed by higher demand for more fuel-efficient vehicles as oil prices rise, is on track to surpass its target for U.S. sales growth of 10% in the coming fiscal year, the company's leader said Thursday.
As the political turmoil in the Middle East has put the auto industry on edge with the prospect of higher pump prices, Honda President and Chief Executive Takanobu Ito sees an opportunity to gain a competitive advantage.
"We think it's very possible that higher gas prices won't hurt demand for cars so much as it will drive buyers toward more affordable, fuel-efficient cars," Mr. Ito said in an interview with The Wall Street Journal.
He predicted strong demand for Honda's Odyssey minivan, along with new versions of the Civic compact and CR-V small sports-utility vehicle, would push up U.S. sales volume more than 10% in the full-year starting in April from a year earlier.
That level of growth would surpass the 9% increase in U.S. unit sales projected by arch rival Toyota Motor Corp., which has said it expects to rebound from weak demand stemming from massive vehicle recalls in 2009 and 2010.
For the year through March, Honda, Japan's third biggest car maker by volume, expects to sell 1.28 million vehicles in the U.S., making up the bulk of a forecasted 6% gain in profit to 530 billion yen ($6.5 billion).
On the 10th floor of Honda's 16-story headquarters in the tony Aoyama district of Tokyo, Mr. Ito works at a small desk in an open room shared with the company's 37 other managing officers. He is one of five officials with his own desk, the other officers share space at one of four oval tables with laptops.
The board room, just a few feet away, is getting less crowded after Mr. Ito cut the number of Honda's directors to 12 from 20 earlier this month. The slimmed-down executive committee, which was announced on Tuesday, is designed to allow for speedier decisions and deeper debate among the operating officers.
As real-time currency quotes flash on a nearby flat-screen panel, the blunt-spoken CEO says Honda is considering moving more of its production base to the U.S. if the dollar stabilizes at its current exchange rate of about 83 yen.
"With currency rates at these levels, we've switched exports of Mideast-bound Accords from Japan to the U.S., and we may do the same with other models such as the CR-V to that region and others," Mr. Ito said.
The dollar would need to hit 100 yen before Honda would once again consider increasing Japan-based vehicle development for exports and production.
Earnings at Honda and other Japanese car makers have been hurt over the past several months by the yen's strength against the dollar. Honda posted a 40% drop in profit for the three months ended in December.
But Mr. Ito said the damage to his company's bottom line has been mitigated by the local production rate in North America—its biggest single market by sales—approaching 90%, the highest among any of the Big Three Japanese auto brands.
That could rise further if demand for vehicles such as the Fit subcompact or hybrids—now exported from Japan—rises above 100,000 a year. The CEO said that is the minimum level at which it begins to make sense to localize production.
Honda also is considering exporting more cars from China beyond those it already ships to Europe. Sluggish demand for the company's Jazz subcompacts in the European market has pushed down capacity levels to 50% at its export-dedicated plant near the southern Chinese city of Guangzhou. Honda built about 25,000 Jazz models for Europe in 2010, half the Chinese plant's maximum annual output potential of 50,000 vehicles.
Looking ahead, Mr. Ito, who became Honda's president in 2009, said a lot is riding on the successful debut of the next-generation Accord midsize sedan, its second biggest selling model globally. The latest version of the No. 2 best-selling car in the U.S. is due in 2012, but it faces a stiff challenge from restyled versions of Toyota's Camry and Hyundai Motor Co.'s Sonata.
Honda will seek to differentiate itself in the midsize-sedan market by delivering cars with more miles per gallon than the competition. "The clincher is fuel economy," Mr. Ito said. "So our goal is clear: we need to be best in class."
In addition to the new gas-fueled Accord, Mr. Ito said that Honda would re-introduce a hybrid version of its mainstay mid-size sedan shortly thereafter with a new hybrid power train. The company withdrew its previous Accord hybrid model in 2007 after weak sales blamed on an underpowered engine.
