Honda to cut N.America output as sales keep tumbling

A Honda sign is seen at a showroom in west London in this January 30, 2009 file photo. Honda Motor Co, Japan's No.2 automaker, said it would cut production in North America by temporarily shutting factories from next month and will reduce pay for workers as sales in the United States plunge to multi-decade lows.

TOKYO (Reuters) - Honda Motor Co, Japan's No.2 automaker, said it would cut production in North America by temporarily shutting factories from next month and will reduce pay for workers as sales in the United States plunge to multi-decade lows.

Honda will shut down six factories for 13 days, starting in May, to cut production by 62,000 vehicles. Honda does not provide a production forecast, but the reduction would be equivalent to 3.4 percent of what it built in the region in the year to March.

The decision by Honda comes amid a sharp downturn in auto sales that is threatening the survival of General Motors Corp and Chrysler.

Data due out later are likely to show U.S. auto sales at the weakest monthly rates in more than 27 years.

"U.S. sales look set to fall about 40 percent in March, and there's no signs of a recovery beyond April either," said Okasan Securities analyst Yasuaki Iwamoto.

"When sales are this bad, it's natural that production is going to be weak," he said, while adding that there was no change to his view that the worst was over for production cuts after Japanese automakers made deep reductions in January-March.

JAPAN, KOREA SALES SLIDE

Sales in Asia are also suffering.

In Japan, industry-wide auto sales fell 25 percent in March from a year earlier to 546,098 vehicles.

Sales at South Korea's five automakers in March fell 19 percent to 402,563 vehicles, with exports down 20 percent.

Shares in Honda gained 6.7 percent in Tokyo on Wednesday along with jumps in other auto stocks.

Market participants cited reasons ranging from the dollar's gradual rise this week to hopes for some resolution for GM and Chrysler, which the New York Times reported might involve some form of controlled bankruptcy.

Honda said it would cut pay for salaried and factory workers and also offered buyouts and early retirement incentives to most of its 32,400 workers in the United States and Canada.

It is the most sweeping programme to reduce payroll costs offered by Honda, a spokesman said.

Honda has trailed Japanese rivals Toyota Motor Corp and Nissan Motor Co in reacting to a buildup of unsold cars in the United States, and executives have said it would likely take until the summer to bring inventory back to appropriate levels.

The slow pace is also partly due to Honda's policy of limiting sales incentives, which erode cars' resale value as well as profits. According to research firm Autodata, Honda's average spending on incentives per vehicle in February was the lowest among mass-market brands, at just over $1,300 versus nearly $1,600 for Toyota and $2,900 at Nissan.

Nissan Chief Operating Officer Toshiyuki Shiga said earlier in Tokyo he expected global production at Japan's No.3 automaker to be 10 percent higher in the first half of the new business year that started on Wednesday compared with the previous six months.

Honda has assembly plants in Indiana, Ohio and Alabama in the United States, as well as in Canada and Mexico. It also operates two engine plants and two transmission plants in North America.

PAY HIT

Like Toyota, Honda previously paid its non-union hourly workers even when it shut down factories to reduce inventory. But Honda said this time hourly workers would not be paid for six of the 13 days, to be scattered between May 1 and July 31.

Salaried workers will also see compensation reduced this financial year, said spokesman Ed Miller.

Miller said Honda told employees it expected bonus payments for both hourly and salaried employees to be reduced or eliminated this year.

The steps taken by Honda will have the effect of reducing hourly wage costs at its U.S. factories just as GM and Chrysler face pressure to bring their own compensation levels in line with the pay of workers at U.S. plants run by Honda, Toyota and Nissan.