DETROIT — After a month shopping for a new sedan, Atlanta resident Chuan Sha narrowed his choices down to a Honda Accord and a Volkswagen Passat.
“It was a very close call,” said Sha, a software engineer. His Honda dealer tempted him with free tire rotations and oil changes for the life of the car.
But on June 28, Sha went for a $26,000 VW Passat GLS loaded with $2,000 in incentives, cut-rate financing and appealing features such as heated side mirrors.
“It’s also more eye-catching than the Accord,” he said.
For years, Honda Motor Co.’s highly reputed, fuel-efficient vehicles sold themselves. But the Japanese automaker is now breaking a sweat to move the metal, as it struggles to defend its 8.2 percent share of the U.S. market.
In addition to rival Toyota Motor Co.p., Honda is facing more heated competition from aggressive European brands, such as VW, and Asian newcomers in its core compact, sedan and minivan markets.
Two of Honda’s biggest sellers, the midsize Accord and Civic compact, are still very popular but not as fresh as newer rivals.
In April, faced with sliding sales in the crucial U.S. market and the embarrassment of a big recall for transmission repairs, Honda relaxed its tough stance against incentives. It still avoids outright cash rebates to consumers but is slipping money to dealers to help them close sales.
During the first half of 2004, Honda racked up a 3 percent increase in U.S. sales, compared with the market’s overall rise of 2.2 percent.
But that modest gain was achieved at a price: Honda more than doubled incentives, to $1,011 from $479 a year ago, according to Autodata Corp. in New Jersey.
“The market is as competitive as I’ve seen it in the last 10 or 11 years,” said **** Colliver, vice president for sales at Honda’s U.S. operations.
With North America accounting for around 80 percent of Honda’s profit, higher incentives are squeezing margins. In addition, the yen’s rise erodes the value of Honda’s U.S. earnings. The company expects its earnings this year to fall 10 percent from last year’s record $4.4 billion profit.
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