HONDA LIKELY TO SUFFER 40% DROP IN PROFIT ON STRONG YEN
October 28 2008.

Honda group operating profit is expected to plunge roughly 40% to 550-580 billion yen for the year ending March 31, 2009, taking a hit from the yen's sharp rise against other currencies.

The grim forecast suggests that Honda, too, is feeling the pinch from the global economic downturn triggered by the U.S. financial crisis, even though its lineup of fuel-sipping vehicles has helped the firm fare relatively well in North America, the world's largest auto market.

At the start of this fiscal year, Honda had expected its full-year operating profit to reach 650 billion yen. The figure was downgraded to 630 billion yen when the carmaker announced its April-June earnings results.

The actual decline is now expected to be steeper, mainly because of the yen's appreciation. Honda has assumed foreign exchange rates of 100 yen versus the dollar and 160 yen to the euro for the second half. On Friday, the greenback briefly touched the 95 yen level, with the euro tumbling to 113 yen. The Japanese currency also gained ground against Brazil's real, eroding Honda's profit in a major motorcycle market. The declines in the value of these foreign currencies are expected to slash Honda's profit by tens of billions of yen.

Vehicle sales in North America are decreasing. U.S. sales fell about 2% in the April-September half, and will likely drop 6% for the full year. Given that rival automakers sustained double-digit declines due to slumping sales of large vehicles, Honda weathered the rough patch well, relying on its smaller-car lineup, including the Fit subcompact. But demand has cooled for these models as well since September.

On top of that, sales are expected to slow in Brazil and other emerging markets in the second half.

Honda's total full-year sales are likely to dip below 12 trillion yen, undercutting its current forecast of 12.13 trillion yen and down from the year-earlier tally of 12.28 trillion yen.


Source: The Nikkei