Why This Month Could Be a Great Time to Buy a Honda

If you're thinking about buying a Honda, December might be the month to do it.

In an attempt to reignite sales growth after a sluggish November, Honda Motor (NYSE:HMC) is offering dealers a significant incentive to sell more vehicles than they did last year. For each car a dealer sells beyond its December 2012 total, it will get a $3000 bonus -- up to a 20% increase in sales.

Honda dealers thus have a lot to gain if they can beat their December sales numbers from last year. As a result, Honda buyers could get steeper than usual discounts this month as dealers race to close sales and thereby maximize their bonus payouts. If you're looking to get a great deal, your best bet may be to wait until the very end of the month, when dealers will be the most motivated to hit their targets.

A surprise decline
Last month, the U.S. auto industry recorded its strongest seasonally adjusted sales pace in years. Chrysler and General Motors posted particularly strong performances, with sales up 16% and 14%, respectively. For the industry as a whole, vehicle sales grew 9% year over year to 1.25 million.

However, Honda's performance lagged the industry badly. On a company-wide basis, sales declined 0.1% despite an extra selling day in the calendar. Sales at the Acura luxury division actually help up well, increasing 18.9% year over year, but this growth was offset by a 6% drop for the Honda nameplate.

2013 Honda Civic inventory is high, and dealers need to clear these old models out quickly.

The Civic -- always one of Honda's top-selling models -- was a particular laggard last month, with sales down 12.6%. Inventory of the outgoing 2013 model is still high, according to The Wall Street Journal, making it very important for dealers to boost the sales pace this month.

Enter the discounts
This is probably a major rationale for Honda's December dealer incentive program. (That said, the company denies that it is disappointed by the November sales result, arguing that it had a tough comparison to 2012.) Another factor enabling higher than normal incentives for Honda is the weak yen, which is giving many Japanese automakers a cost advantage over their American peers.

Whatever the reasoning for Honda's new incentive scheme, dealers will be very motivated to maximize their bonus payouts come the end of December. (To be exact, the incentive period runs through Jan. 2, the last day of the fiscal month.)

Dealers are likely to offer more aggressive discounts as they get closer to their December, 2012 sales mark, when the bonus kicks in. However, most car dealerships do a high proportion of their December business in the last week of the month, as most consumers are focused on their Christmas shopping before then.

As a result, if you're looking to buy a Honda, your best bet is to wait until the end of the month; most dealers will reach the bonus range in the last few days of December. Don't be afraid to shop around, either. Dealers who are in the bonus range will lose out on a $3,000 incentive payout if you walk away, so they may be willing to knock the price down significantly in order to close the sale by the end of the month.

Foolish bottom line
Honda is breaking with its normal practice by offering dealers big bonuses this month if they can beat their December 2012 sales numbers by up to 20%. This is great news for anyone in the market for a Honda. As dealers get close to triggering their bonus payouts, they will become ever more eager to close sales. Customers who walk into a Honda dealership near the end of the month could therefore walk out with a great deal on a new car.