Manila, Dec 20: Honda Cars Philippines Inc, the local unit of Honda Motor Co Ltd, is adjusting to falling sales after the regional currency turmoil but hopes the economy will recover in the second half of next year, company president Koji Miyajima told Reuters.

The fallout from the Asian financial crisis, which led to high domestic interest rates, is expected to cut further into car sales next year, he said.

"We are hoping the peso rate will stabilise and also everybody has confidence for the future growth of the Philippines...until then we have to be patient," he said.

"Of course, we are here to stay. (But) we have to adjust ourselves to the market situation," he said.

He said the adjustments would entail an increase in car prices to recover the costs of imported components.

About 50 per cent of the cost of a car comes from imported components and every one peso depreciation would mean an average 10,000 peso increase in the cost of a car, he said.

Starting January next year, he predicted an average increase of 140,000 pesos per car on an exchange rate of 40 pesos to the dollar, which is about the current rate.

Honda's prices are still based on the 26 peso to the dollar level, which was the rate before the currency was effectively devalued in July.

At the same time, the firm would have to produce more components locally, improve efficiency and minimise expenses without necessarily laying people off, he said.

"We'll continue current operations as long as possible. We are cutting company expenses. We try to minimise our loss...You cannot make profits under the current situation."

"We are not thinking the situation will continue in the Philippines...The situation in other Asian countries is much, much worse," he said.

Miyajima said he expected sales of Honda cars to reach between 13,000 and 14,000 units next year. In the 11-month period of this year, sales have reached 15,400. Full-year sales in 1996 were 20,200.

Industrywide, he said he expected domestic car sales to shrink to 65,000 from 77,000-78,000 this year. In 1996, car sales posted a record 88,000.

He said interest rates for car financing had surged to between 25 per cent and 29 per cent this year from between 15 per cent and 17 per cent last year.

"We are hoping towards the end of next year, the peso will stabilise...We'll be very happy if the peso is down to 32 but we're also even happy if the peso goes down to 34-35...and election of the president is finished, " he said.

The presidential election is in May.

"Even though the economic situation does not look bright, we have to introduce new models to encourage the market to buy," he said.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.