Honda Predicts 63% Profit Drop For 2012By Michelle Krebs June 14, 2011
Honda forecasts a 63-percent decline in profits for its 2012 fiscal year, due to production disruptions caused by Japans March 11 earthquake combined with the strong yen and higher research and development spending. In a statement issued Tuesday, Honda predicted: net income may plummet to 195 billion yen ($2.4 billion) from 534 billion yen ($6.5 billion) in the 2011 fiscal year, which ended March 31; global sales could fall 6 percent to 3.3 million vehicles, with U.S. sales and market share dipping; revenues are expected to drop 7.1 percent;and operating profit is forecasted to decline 65 percent. Hondas expected profit decline its first in three years is more than analysts predicted and is steeper than the 31-percent anticipated loss announced by Toyota Motor Corp. last week.
Honda estimates the earthquake cost it 40 billion yen ($500 million). In addition, Honda said raw material costs are higher. So too are research and development expenses for new models and technology. The companys R&D spending had been cut after the 2008 collapse of Lehman Brothers and the subsequent recession, but Honda since then has been boosting spending to prepare for the future, it said. Like the other Japanese automakers, the strong yen currently trading at around 82 to the dollar is reducing profits.
Japan Auto Production Normalizes; U.S. Dealer Ordering Resumes
Honda said production in Japan, caused by parts shortages from suppliers rather than assemblyline damage in its own plants, should normalize later this month. Honda executives said other plants globally will take longer to return to normal, probably in the August/September timeframe. Further, Honda said it will ramp up production in the second half to make up for the lost production in the first half, boosting output by more than 20 percent to 2 million vehicles.
As Honda expects global vehicle sales to drop, it also said theres no way to prevent U.S. sales and market share from sliding. It predicts full-year sales in North America to fall 11 percent to 1.3 million vehicles. Meantime, in the U.S., Honda told its dealers to resume taking orders for the subcompact Fit and Insight hybrid models, after earlier asking them to stop taking orders for these fuel-efficient models because of production disruptions in Japan where the models are made. Honda also told dealers that manufacturing will return to normal levels by the end of summer and urged them to be aggressive in marketing. Production of the redesigned 2012 Civic should normalize by November, Honda said, adding that there has been a limited supply of parts, particularly electronic devices for high-end versions. To keep potential U.S. buyers of the new Civic interested, Honda said it would be offering incentives.
Mitsubishi Expects Higher Production, Profits
In contrast to Toyota and Honda, Mitsubishi Motors Corp. expects an increase in profits on higher factory output. Mitsubishi said Tuesday it predicts a 28-percent increase in net profit for its 2012 fiscal year that started April 1 on higher plant production despite closing some for the earthquake. President Osamu Masuki, in his annual company outlook delivered Tuesday, said global production will climb 6 percent to 1.17 million units this year.
However, Mitsubishi does not expect the same results in North America, its worst-performing region. It expects to sell 108,000 vehicles in North America for a 15-percent increase; that includes a sales hike in the U.S. to 73,000 vehicles from 62,000, on the strength of the Outlander Sport crossover. Still, Mitsubishi expects to lose money in North America. The automaker said North Americas loss will widen to 33 billion yen ($411 million) from 28 billion yen ($348 million) last year. Mitsubishis underutilized plant in Normal, Ill., is being retooled to build the Outlander Sport and other vehicles for local consumption and export.
Japans third largest automaker, Nissan, has not provided guidance on its 2012 profits yet but is expected to do so soon. Meantime, Fuji Heavy Industries Ltd., the maker of Subaru vehicles, made another adjustment in its summer holiday schedule Tuesday, reflecting the improvement in parts availability. The plant will shut down for only 10 days in August instead of the 16-day layoff Subaru originally scheduled.