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DETROIT (Reuters) - Japanese automaker Honda Motor Co has "adequate inventory" of most models for the U.S. market but is running short of its high-volume compact Civic just as the summer sales season begins, the company told Honda and Acura dealers in a letter on Thursday.

The paucity of Civic sedans comes just as the U.S. auto market is shifting toward smaller, more fuel-efficient cars as gasoline prices hover near $4 per gallon for the 1st time since 2008.

Jesse Toprak, analyst with, said on Thursday that thin inventories of Honda's Civic and Toyota Motor Corp's Corolla sedans in May and June open a door for General Motors Co, Ford Motor Co and Hyundai Motor Co to gain share in the U.S. small-car market.

In April, the Civic was the 3rd-bestselling car in the U.S. market, behind only the Toyota Camry and Honda Accord. Car sales do not include the 2 best-selling vehicles so far this year, the Ford F-Series pickup truck and the GM Chevrolet Silverado pickup truck.

Honda told its U.S. dealers that vehicle inventory will reach a low point in June before allocations pick up in July.

John Mendel, Honda chief U.S. sales executive, said there is "adequate inventory to continue to support" Honda brand models that have made up 70% of U.S. sales so far this year.

In his letter to dealers, Mendel wrote, "We have adequate inventory to continue to support approximately 70% of our vehicle sales year to date."

A Honda spokesman said that meant that models that make up 70% of Honda brand sales so far this year have "good inventory" levels.

Mendel told Honda brand dealers that July vehicle allocations to go out next week will be 11% higher than in June, and that Acura allocations will rise 15% over that period.

Honda's Japan plants have slashed production, but Mendel told dealers that the situation will ease soon.

"We have all the confidence in our ability to increase our production in late summer," he said.

Gary Robinson, spokesman for the automaker's U.S. arm, said American dealers will have "good inventory" for all models but for Civic and those imported from Japan.

In his letter to dealers, Mendel said there is "adequate inventory on hand to compete and win in the market" for the Honda Accord sedan, the automaker's top-selling vehicle in the lucrative U.S. market.

Honda cars made in Japan are in short supply, including the subcompact Honda Fit and 2 lower-volume hybrid models, the Honda Insight and the Honda CRZ coupe.

There are 44 days' supply of Acura models in the U.S. market, and its Acura MDX and Acura RDX are at higher inventory levels than a year ago, Mendel told Acura dealers.

Acura models in short supply made in Japan are the small sedan TSX, the mid-size sedan TL and its flagship sedan RL.

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Discussion Starter #2

Honda Motor Co (7267.T), struggling to recover from the earthquake in Japan in March, told its U.S. auto dealers to honor discount offers, even on cars they do not have in stock, a spokesman said on Wednesday.

Honda and its Japanese rival, Toyota Motor Co (7203.T), have seen production drop significantly since the earthquake and tsunami, leaving some dealers with insufficient inventory.

"We know we're going to have low inventories on some models -- Civic is the perfect example," Honda spokesman Gary Robinson said. "What we don't want to do is just send those people on their way without taking care of them."

The offer is not available on cars built in Japan, such as the Honda Fit and its hybrid models. Honda production outside Japan has also been curtailed by a lack of parts.

Its Acura dealerships are making a similar offer.

Discounts are offered to encourage sales of existing inventory and dealers typically do not offer promotional prices on cars they do not have available to sell.

The No. 3 Japanese automaker warned investors on Tuesday that operating profit could fall as much as 65% this year because it has had to delay the launch in the United States of major models, including its new Fit Shuttle and a new version of its top-selling Civic.

Honda -- as well as Toyota, which has forecast a 35% drop in profit in 2011 -- have had to slow the production of key models because some of suppliers have been unable to provide critical components since the quake and tsunami, which touched off the world's worst nuclear disaster since Chernobyl. Production fell by half in April, although both companies expect to recover more quickly than some investors initially feared.

Analysts have forecast that U.S. automakers, including General Motors Co (GM.N), could gain market share this year as a result of the troubles of their Japanese rivals. (Reporting by Deepa Seetharaman; additional reporting by Scott Malone; editing by Andre Grenon)

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Discussion Starter #4

Honda Motor Co. is carefully allocating shipments of cars to the United States because its exports there from Japan are "losing money," CFO Fumihiko Ike said.

Honda won't cut off all shipments of those imported nameplates, including the Fit subcompact and the Insight and CR-Z hybrids, Ike said. But he said the company needs to minimize the impact of such shipments on its balance sheet.

That means that in some cases dealers are getting fewer vehicles than they might like.

The long-term solution: Move more production to North America and buy more parts there, including components for hybrid powertrains.

"Under the current exchange rate of 80 yen per dollar, our export business doesn't make any profit," Ike told Automotive News. "Definitely, the absolute number of exports to the United States will be decreasing."

It's the 1st time a Japanese automaker has admitted that sending vehicles from Japan to the United States is a money-losing proposition.

Honda relies less on exports from Japan to the United States than its rivals and therefore is less exposed to losses from currency exchange rates. Honda already builds in North America roughly 85% of the vehicles that it sells there.

Toyota Motor Corp. and Nissan Motor Co., which build about 70% of their North American sales volume locally, also are reeling from exchange rate losses and scrambling to shift production of vehicles and components to North America.

Ike's comments suggest that his rivals are under even greater pressure to transfer production from Japan to North America.

Nissan said in January 2011 that it aims to halve the value of components and the number of vehicles it brings from Japan by early 2014. Toyota wants to build hybrids with locally sourced components in North America by 2015.

Honda keeps selling its money-losing exports in the United States partly to keep segments covered and retain customers.

"We need to keep our customer base," Ike said. Exports of money-losers will continue "just for the sake of our dealers. At least they have something" to sell.

"Especially last year because of the shortage of supply, American Honda didn't have enough cars to sell," he said, so the Japanese automaker kept shipping cars, such as certain Acuras and hybrid models, to the United States despite losses on those exports.

Honda already is tackling the problem. It will transfer production of the Fit small car to a plant that will open in Mexico in 2014. The Fit accounted for roughly a third of Honda's U.S. imports in 2010 and 2011.

In addition, the 2013 Acura ILX, which went on sale at the end of May, originally was planned for Honda's Sayama plant in Japan but instead is being built in Greensburg, Ind. It eventually may replace the imported TSX, although Honda has not confirmed that.

Limited exposure

Besides the Fit, some versions of the CR-V, limited-volume hybrids and Acura models are the main imports from Japan.

Overall, Honda's exports, and hence its exposure to currency swings, are limited. Last year exports of Honda and Acura vehicles to the United States accounted for less than 6% of the 3.1 million units Honda sold worldwide. But those exports to the United States still accounted for 3-quarters of the 235,000 vehicles Honda exported from Japan.

Through May, Fit sales in the United States fell 33% to 19,706 units. Sales also dropped 65% for the Insight, to 3,547; and 72% for the CR-Z, to 1,995. Those 3 nameplates accounted for 32% of Honda's import sales so far this year.

The Fit is the prime example of Honda's dilemma.

Asked whether Honda makes any profit on Fits sent to the United States, Ike said flatly, "No."

Even if Honda were making money on Fit exports, U.S. allocations probably would be tight. Fit sales in Japan are red hot because of a government incentive program that promotes sales of fuel-efficient cars, reducing the supply available for export.

But, Ike added: "We need to keep the customer base and demographics, especially [with] hatchbacks for the younger generation. For them, it's a very good car."

Demand for the Fit is much higher than supply, said John Hawkins, president of Metro Honda in suburban Los Angeles. But he and other dealers have suspected that Honda was holding back on shipping cars because they can't make as much money on yen-denominated vehicles in the United States as in Japan.

Not profitable for dealers

Because the Fit "is not a profitable car for Honda, it's priced so it's not a profitable car for dealers," Hawkins said. "In a competitive market, people are buying the deal, and there's no deal to be had on a Fit. As soon as they complete that Mexico plant, it will be priced competitive. And I don't think they hit the mark on Insight, so why should Honda give any remedial activity on a product that missed?"

Other dealers say demand for fuel-efficient Hondas is not as great as for core vehicles such as the Civic, Accord, CR-V, Pilot and Odyssey -- all built in North America --which typically carry better margins for dealers and salespeople. So salespeople push core vehicles when a customer walks in the door. About a quarter of the CR-Vs sold in the United States through May were imported.

Jerry Goddard, general manager of Hennessy Honda in Woodstock, Ga., said he can rely on "fickle Atlantans" to come running for Fits and Insights when gasoline is at $4.50 a gallon. But with gas at $3.50, "everyone forgets we have a hybrid."

"I asked my salesmen if anyone got any calls for a CR-Z, and nobody raised a hand," Goddard said.

To cut its losses further, Ike said, Honda aims to shift production of hybrid cars and their hybrid components to North America "within a few years."

He said: "We are not just simply shifting assembly from Japan to the United States. Of course, we have to expand local procurement, otherwise it's not cost-effective."

Looking for batteries

Honda engineers already are scouting local suppliers of such hybrid components as lithium ion batteries.

The hybrid version of the ILX is the only hybrid manufactured by Honda in the United States. But its battery comes from Japan.

Honda will build the Acura NSX sports car in Ohio within 3 years with a hybrid drivetrain, though volume will be small.

U.S. hybrid sales of at least 100,000 units would justify localized production, Ike said. But Honda's hybrid sales are way off that pace. Honda currently imports the Civic hybrid, the CR-Z sporty hybrid and the Insight hybrid hatchback from Japan.

Last year their combined U.S. sales totaled only 31,582.

Honda aims to boost hybrid sales with a new hybrid Accord sedan scheduled to arrive this winter.

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