Thai Floods Slow Honda Output, Delay CR-V

By Michelle Krebs October 31, 2011

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American Honda, coming off one of its worst quarters ever, announced Monday it would slash vehicle production at its U.S. and Canadian plants to 50 percent through Nov. 10 as a result of the devastating floods in Thailand, which are causing shortages of electronics parts. Honda could also delay the launch of its 2012 CR-V sport utility (in "concept" form, above), shown to the media just last week, by “several weeks,” the automaker said. Honda, which was trying to accelerate production to replenish depleted inventory caused by the March 11 earthquake in Japan and make up resulting lost sales, said it would temporarily adjust automobile production at all six Honda auto plants in the United States and Canada.

From now through Nov. 10, Honda plants will operate at approximately 50 percent of the original plan. Further adjustments would be announced depending on parts supply. All Saturday overtime will be canceled through November. A full production shutdown is scheduled for Friday, Nov. 11. Non-production days will be treated as “no pay, no penalty,” meaning Honda associates can report to work, use a vacation day or take the day off without compensation or penalty, the automaker said. Honda also said the December on-sale date for the new 2012 Honda CR-V “could potentially be delayed by several weeks.” The new on-sale date will be announced in the near future, Honda said.

In a statement, Honda said in 2010, 87 percent of the Honda and Acura automobiles sold in the United States were produced in North America. “While the vast majority of parts and materials used to produce these products are purchased from suppliers in North America, a few critical electronic parts are sourced from Thailand and other regions of the world. Honda is working closely with its suppliers in Thailand and throughout its global network to reestablish the flow of parts for the products made in North America.”

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More Natural Disasters
The most recent news about production disruptions comes within hours of Honda reporting that its profits were halved by the production disruptions and lost sales caused by the March 11 earthquake and tsunami in Japan. Honda warned that its future financial performance will be hurt by destructive floods in Thailand that have caused Honda to close its massive plant there for up to six months and scale back production in North America, Japan and other parts of Southeast Asia. As a result, Honda said, in a highly unusual move, that it was withdrawing its previous profit forecast for the full fiscal year, which ends March 31, 2012, until it could assess the fallout from the latest natural disaster.  Honda is the first of the Big Three Japanese automakers to post quarterly earnings in the aftermath of the Japan earthquake and now the Thai floods. Nissan reports earnings on Wednesday; Toyota will do so on Nov. 8.

Honda’s net income for its second quarter that ended Sept. 31 fell 56 percent to 60.4 billion yen ($761 million) and 68-percent fall in operating profit to 52.5 billion yen ($693 million). Second quarter revenues fell 16 percent; they are down 22 percent for the first half. Car sales dropped 14 percent in the quarter. Honda’s financial performance was worse than analysts had predicted. In addition, Honda’s profits, like those of the other Japanese automakers, are being hammered currency-related losses. Japanese automakers had been operating on the assumption that the Japanese yen would trade at 80 yen to the U.S. dollar; it is running at about 78 yen to the dollar.

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Worst U.S. Performance In Decades
In the United States, Honda appears to just now be showing of an inventory and sales recovery. Edmunds.com forecasts that Honda, when it reports October sales with other U.S. automakers Tuesday, will finally be in positive territory compared with 2010. Edmunds.com predicts Honda will sell 2.4 percent more vehicles this October than last and 8.8 percent more vehicles in October compared with September. That would be welcome news for Honda as it is coming off one of its worst quarters in the United States in decades.

Honda was hurt more than any other automaker in the United States by the production disruptions in Japan, which spread to North America mostly because of parts shortages. Vehicle inventories were so low that when a Honda was delivered to a dealership it took on average only 40 days to sell it.  As a result, Honda sales were down nearly 21 percent in the most recent quarter compared with the same period a year ago, the biggest drop off on Edmunds.com’s records, which go back to 1991. And this comes at a time when U.S. auto sales in total were up 6 percent in the quarter ended Sept. 31. As a result, Honda lost 2.7 percentage points of market share this quarter compared with last year’s quarter.

But it is not only production problems and the strong yen that have plagued Honda. Competition has heated up especially from Detroit and Korean automakers. Plus its newly redesigned Civic, the launch of which was hampered by production problems, had its worst quarter at least since 1991. One of Honda's venerable high-volume leaders along with the Accord, the so-called “new” Civic has been highly criticized by the automotive media as not stacking up well compared with the new competition. The Civic was thrown off of Consumer Reports' coveted “recommended” list, and it did not make the cut as a candidate for the North American Car of the Year awards presented by journalists in a year when small car dominate the nominees. As a result of bad reviews, Honda reportedly is doing a quick makeover of the 2012 Civic.

Honda’s assembly plant in Thailand remains underwater. It was closed on Oct. 8, and estimates are that it will take another month just for the water to recede. Speculation is that it could take up to six months to get the plant online as it may require replacement of the tooling and other equipment. Before the floods, Honda was set to boost global vehicle production to 125 percent of capacity to make up for lost sales after the Japan earthquake.

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