It is one of the largest absurdities of the North American auto industry.

Toyota Motor Corp. and Honda Motor Co. are selling some of the continent’s for the most part popular vehicles, like the Corolla, Civic, Camry and Accord. And yet, they’re posting year-over-year volume numbers that are causing analysts to gasp.

"The world must be coming to an end," industry consultant Dennis DesRosiers said in a note to clients Tuesday in reference to Honda's 25% sales decline in Canada this year and Toyota’s 20% drop, punctuated by another challenging August.

In fact, the Japanese-based automakers are being pummelled by currency, by choice, and by a growing pool of rivals that are pressing hard, industry experts say.

The rise of the Japanese yen in recent months has been the so-called silent killer for the country's carmakers. It has crushed their bottom lines by lowering the revenue they get from automobiles they make in Japan and sell overseas. And it has made it more difficult to offer higher incentives on their products.

At the same time, Honda and Toyota have chosen to stick with a general corporate philosophy of holding the line on pricing in order not to devalue their vehicles. That has sent some recession-weary buyers scrambling to the showrooms of the competition.

"When times are good, when people want to buy your product anyway, the strategy of maintaining price pay off," said Jesse Toprak, vice-president of industry trends for auto research website TrueCar.com. "But when times are not good, then you need to sacrifice somewhat unless you're okay with losing sales. There’s an equilibrium there where Toyota and Honda are trying to figure out where they should land."

Rivals Hyundai and Kia, benefiting from a low Korean won, nearly doubled their incentive spending in the United States this year versus 2008. That has had clear results.

While Japanese automakers overall gained 0.23 points of U.S. market share in the first five months of 2009, holding 38.8% of new vehicle sales, Korean automakers won 2.29 points of share to boost their sales stake to 7.3%, according to brokerage CLSA Pacific Markets. "The Koreans have been taking some of their competitive advantage and spending it on marketing costs, which helps volumes but has less of an impact on profits at this point."

In Canada, Toyota is pursuing a strategy of offering deals on the vehicles it builds here -- a way to boost its local manufacturing output. Honda has said sales of its new Insight hybrid model have been disappointing because gasoline has remained relatively affordable.

Automakers sold 135,351 vehicles in Canada in August, a 7.9% decline from August 2009. "This represents the best back-to-back performance since last October," said Scotiabank analyst Carlos Gomes. He increased his 2009 sales forecast to 1.445 million units from 1.42 million.

U.S. sales benefited from a government cash-for-clunkers program, lifting volumes above year-earlier levels for the first time since October 2007. General Motors Co., which reclaimed its spot as Canada's top vehicle seller from Ford, will build 655,000 vehicles in North America in the fourth quarter, a 20% increase over third quarter output.

Source: canada