Honda To Lower Sedan Production On Waning Industry Demand

According to Wall Street Journal, Japanese auto giant Honda Motor Co., Ltd. (NYSE:HMC) has made the announcement of stopping production of Accord sedan for two weeks. The auto maker has taken such a decision as it intends to adjust fat inventories and align its production with the current market situation.

According to the news, Honda’s Marysville, OH plant will halt sedan production for 11 days through July 2018. The plant’s employees will have the option of taking vacation or unpaid leaves. They can also report to work for other tasks. The latest move adopted by Honda is no exception as many other global auto giants are taking similar moves.

As of February 2018, Honda’s Accord inventory at dealers was more than 100 days of supply. This inventory level outshines the level that is deemed healthy for the industry. Unfortunately, Honda’s bet on sedan has come at a time when U.S. customers have shown a distinct shift in their preferences for trucks and sports utility vehicles (SUVs), amidst low gasoline price. In fact, the launch of Accord almost coincided with the introduction of the redesigned Camry sedan by its compatriot rival Toyota Motor Corporation (NYSE:TM) .

Sedan’s Waning Demand

Automakers have already started to reorient their programs and strategies in order to respond to the new situation where demand for conventional compact and midsize cars has declined, while that of SUVs and pickup trucks has increased.

Fiat Chrysler Automobiles N.V. (NYSE:FCAU) has opted to pull out from the small and midsize sedan markets in the United States. Japanese auto major Toyota is also reorienting its production strategies taking into consideration shifting consumers’ preferences. (Read more: Ride-Sharing Services in Top Gear: Sedan Coming to a Halt).

Nissan Motor Co. (OTC:NSANY) also reportedly aims to slow production at its plant in the Tennessee plant, which produces a number of vehicles including the Altima and Maxima sedans, to lower down the level of inventories.

Conclusion

Honda’s decision to cut down production of its flagship sedan vehicle does not indicate any fundamental flaw in the company itself. Rather a change in the demand pattern in the market, mainly in the United States, has prompted many auto biggies, including Honda, to reorient their production strategies in disfavor of the sedans.

Currently, while both Honda and Toyota sport a Zacks #1 (Strong Buy), Fiat Chrysler and Nissan carry a Zacks #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past six months, shares of Honda, Fiat Chrysler, Nissan and Toyota have returned 14.1%, 13.7%, 8.6% and 7.4%, respectively.

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Honda Motor Co., Ltd. (HMC): Free Stock Analysis Report

Toyota Motor Corporation (TM): Free Stock Analysis Report

Nissan Motor Co. (NSANY): Free Stock Analysis Report

Fiat Chrysler Automobiles N.V. (FCAU): Free Stock Analysis Report

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