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Honda braces for lacklustre yearBack

HondaLogoHonda is bracing for another lacklustre year ahead after an underwhelming fourth quarter that saw a rise in recall costs and slower sales in its main markets due to quality issues. Japan’s third-largest auto group said it expected its net profit to grow 0.4 per cent to Y525bn ($4.4bn) for the fiscal year through March 2016 — undershooting analysts’ consensus expectations for profit of Y663bn. Honda expects to sell 4.72m vehicles worldwide, compared with 4.36m vehicles sold a year earlier, with sales expected to fall in Japan and Europe. In North America, sales is expected to grow 8.2 per cent.

The carmaker, known for its Accord and Civic models, has seen its home market sales dented by multiple recalls of the Fit hybrid model over the past year. The group is also grappling with costs to replace faulty airbags made by Japanese manufacturer Takata in millions of its vehicles.

Honda executives said they would set aside up to 1.7 per cent of sales — nearly Y250bn — for costs to address recalls and other quality issues, which would be about the same amount as the previous fiscal year. In addition to recall costs, Honda became the latest victim to the surge in the US dollar, saying weakness in emerging market currencies such as the Brazilian real and the Mexican peso increased its purchasing costs made in the US currency. That also wiped out the benefits it reaped from the yen’s fall against the US dollar. For the year ahead, the company expects a loss of Y85bn in operating profit due to the currency impact. For the three months through March, Honda reported a 43 per cent year-on-year drop in net profit to Y97.8bn while sales increased 8.3 per cent to Y3.35tn.

The company had trimmed its annual profit guidance twice and still missed the target it set only three months ago. Executives blamed the recall costs and weak sales in Japan and the US. Honda lags global rivals in capitalising on strength in the US market where demand for pick-up trucks and sports utility vehicles has been boosted by falling petrol prices. Honda’s performance contrasts with Daimler, which saw its first-quarter net profit almost doubled compared with a year ago, buoyed by surging truck sales in North America.

Tetsuo Iwamura, Honda’s executive vice-president, said sales in the US disappointed in the latest quarter due to the west coast port strike and a slower-than-expected pace of production at its new factory in Mexico to ensure quality.

The company is hoping to narrow the gap with rivals with the planned rollout of HR-V, a compact SUV, light truck Pilot, and the new Civic in the coming months. “We hope to recover the momentum in the US,” Mr Iwamura said.

The company is switching from US accounting rules to international financial reporting standards starting this year. Honda Motor shares, up 30 per cent over the past 12 months, had risen 0.3 per cent at Y4,330.5 on Tuesday before the results were released.

(Source: Financial Times)

Posted by Sue Robinson on 01/05/2015