Honda Canada Finance Inc

Kam Hon, Walter Schroeder /  416-593-5577 ext.2243 / khon@dbrs.com

The R-1 (middle) and “A” ratings of Honda Canada Finance Inc., based on the parent, Honda Motor Company Limited (“Honda” or “the Company”), are all confirmed, with a Stable trend.  The ratings reflect an extremely strong balance sheet with very good continuing operating performance.

Honda continues to be an efficient producer of cars, with quality levels that are among the best in the industry.  Honda’s finance company, which finances and leases cars, is developing as a highly successful division, providing stable income, with loss rates at very low levels.  Honda has now raised auto sales to 2.666 million units, with the intent to raise this to 3.4 million cars by 2004/2005.  This partly addresses a major criticism that Honda lacks critical mass and size, and with the economics of the automobile based on high volumes, Honda would have to merge with a larger entity.  The Company’s operating performance has been excellent, but there are five limitations that influence the rating:  (1) Honda is highly yen-sensitive, and the recent strengthening of the yen would impact profitability.  (2) The Company is concentrated in two regions, Japan and North America, where 84% of auto sales are made.  Auto contributes over 80% of operating profit.  (3) Honda continues to be weak in Europe which has yet to break even.  (4) Japan is an intensely competitive auto market led by Toyota, which has over 40% market share and is a tough competitor.  (5) Honda still lacks a broader pick-up truck product line.  These five limitations suggest that the “A” and R-1 (middle) ratings are still appropriate, despite recent strengthening of the Company’s financial position. 

Dominion Bond Rating Service Limited (DBRS) will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, please contact us at: info@dbrs.com.