Honda Motor Co. has raised its incentives on Accord sedans, its bestselling model, in China to about the same level as in the U.S., hurting profit from affiliates this year.

"Competition is getting very severe," said Chief Financial Officer Fumihiko Ike in an interview at the company's headquarters in Tokyo yesterday. "We expect lower earnings from affiliates due to falling profit in the Chinese auto market."

Honda is offering incentives of at least 20,000 yuan ($2,640) on the Accord in the world's second-largest auto market, because of increasing competition from Toyota Motor Corp.'s Camry model. The automaker cut its full-year profit forecast for affiliates, including those in China, by 15 percent last month.

"China has become a buyers' market from a sellers' market," said Xin Tianshu, director of Global Technical Research at Global Insight Inc. in London. "Honda also needs to put incentives on the Accord as the model is getting old."

A revamped Accord will be introduced in the U.S. later this year and then in China and other markets, Ike said. The Accord, built by a venture with Guangzhou Automobile Group Co., accounts for about 38 percent of Honda's production in China.

The automaker expects full-year net income to rise 5.5 percent to a record 625 billion yen, and sales to increase 11.4 percent to 12.35 trillion yen.

Honda's shares fell 1.7 percent to 4,170 yen in Tokyo.

U.S. Incentives

Honda, Japan's second-largest automaker, offers incentives of $3,000 on its 4-door Accords in the U.S., where the model retails from $18,625. The Accord costs 199,800 yuan in China, according to Web site sina.com.cn.

The automaker expects its affiliates to make a profit of 97 billion yen in the year ending March, compared with an earlier forecast of 114 billion yen, it said on July 25. That represents a drop of 6.2 percent from a year earlier.

Honda, the first Japanese automaker to set up a venture in China, aims to raise sales in the country by more than 20 percent this year to at least 400,000 vehicles. Larger rival Toyota expects to boost its sales in the country about 50 percent to more than 450,000.

Toyota's Camry was the fourth-bestselling car in China in the first half, with sales of 80,664 vehicles. The Accord ranked seventh with sales of 64,443.

Chinese carmakers' margins have slumped as they cut prices to boost sales. Automakers' profit margins in the country averaged 3.1 percent last year, compared with 9 percent in 2003, according to calculations based on figures issued by the country's automakers association.