Honda's 3Q Profit Plunge

Jan. 31, 2011
Strong yen and falling demand in Japan

Honda Motor said on Jan. 31 that its net profit for the three months ended December fell nearly 40% year-on-year, blaming the strong yen and sliding Japan demand, but lifted its full year profit forecast.

The October-December plunge, Honda's first in five quarters, indicated that Japan's automakers may have felt the effects of the yen's strength more in the months that followed the September expiry of government green car subsidies.

But Honda's performance overseas in emerging markets and the U.S. helped it to lift its full year profit forecast to 530 billion yen, up 97.5% year-on-year, up from 500 billion yen forecast in October.

The automaker said net profit for the nine months ended December was 489.5 billion yen, up nearly 150% from the same period last year.

It saw a near 10% increase in U.S. sales in the nine-month period, pointing to recovery in the key market.

In the October-December period, the maker of Accord and Civic vehicles posted a net profit of 81.1 billion yen (US$995 million), missing a Nikkei forecast for a 93 billion yen net profit. Sales fell 5.8% to 2.1 trillion yen.

Honda blamed the fall on the impact of a strong yen and the expiration of rebates for buyers of more fuel efficient vehicles. "The impact of the end to government incentives was bigger than expected," said Honda's executive vice president Koichi Kondo, adding that the strength of the yen made it harder to compete with other carmakers overseas.

For Japan's automakers in particular, the yen's surge against the dollar and the euro has mitigated a post-financial-crisis revival in demand and undermined the benefits of earlier cost cuts and restructuring. More companies are considering moving production overseas to stay competitive against rivals benefiting from weaker currencies in their home countries.

The strong yen reduced operating profit by 44.5 billion yen in the third quarter, Honda said. The unit hit a 15 year high against the dollar at 80.21 yen in November.

Honda's operating profit slumped 29% to 125.6 billion yen. The automaker said the fall was "due primarily to the unfavorable currency translation effects and decreased sales in the automobile business in Japan." It warned that the economy of its domestic market was "at a standstill", with the slow recovery of consumer spending and prolonged high unemployment still keeping demand at home weak.

Despite the third quarter setback, the automaker said net profit for the nine months ended December was 489.5 billion yen, up 149.5% from the same period last year with brisk sales in Asia and North America.

Operating profit surged 95.6% to 523.57 billion yen on sales of 6.72 trillion yen.

Honda's sales on two wheels continue to show growth in emerging markets, with third quarter motorcycle sales up 21.7% on year.

Copyright Agence France-Presse, 2011

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