Financial Services Business
To support the sale of its products, Honda provides financial services to its customers (including retail lending and leasing) and wholesale financing to its dealers through financial services subsidiaries in Japan, the United States, Canada, the United Kingdom, Germany, Brazil and Thailand.
As a result of increased sales of automobiles, mainly in North America, credit assets and property on operating leases of financial subsidiaries rose 3.4% from the previous fiscal year, to ¥4,967.5 billion.
In fiscal 2008, revenue rose 30.2%, to ¥533.5 billion from the previous fiscal year due mainly to an increase in operating lease* revenue.
Operating income rose 2.0%, to ¥117.7 billion, from the previous fiscal year, due mainly to the increased profit attributable to higher revenue benefiting from a higher loan balance in North America, which offset the negative impact of the increased SG&A expenses caused by an increase of provisions for credit losses.
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Honda's finance subsidiaries in North America have historically accounted for all leases as direct financing leases. However, starting in the year ended March 31, 2007, some of the leases which do not qualify for direct financing leases accounting treatment are accounted for as operating leases. Generally, direct financing lease revenues and interest income consist of the recognition of finance lease revenue at inception of the lease arrangement and subsequent recognition of the interest income component of total lease payments using the effective interest method. In comparison, operating lease revenues include the recognition of the gross lease payment amounts on a straight-line basis over the term of the lease arrangement, and operating lease vehicles are depreciated to their estimated residual value on a straight-line basis over the term of the lease. It is not anticipated that the differences in accounting for operating leases and direct financing leases will have a material net impact on the Company's results of operations overall; however, operating lease revenues and associated depreciation of leased assets do result in differing presentation and timing compared to those of direct financing leases. |
Business Plan for Fiscal 2009
In fiscal 2009, although the slowdown in the U.S. economy will continue, customer needs for financial services, principally in North America, are expected to increase, leading to a higher balance of credit assets in Honda's financial services business. Going forward, as in the past, Honda will apply strict credit criteria when considering the approval of financing contracts and strengthen its methods for recovering its credit exposure to maintain a high-quality portfolio of credit assets and will work to substantially further improve its financial services.
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