Honda slashes annual profit forecast on slumping sales, recall costs

Honda Motor Co. on Friday lowered its annual profit forecast for the current business year through March, as the automaker has taken a financial drubbing over a series of vehicle recalls related to faulty airbags and slumping sales at home and in China.

Honda, Japan's third-largest automaker, announced its third- quarter earnings had fallen by almost 25 percent, owing to the global recall debacle, related to faulty airbags made by Takata Corp. Honda said it currently projects an operating profit of 720 billion yen (6.1 billion U.S.) for the fiscal year ending March.

The automaker said it has had to siphon of 50 billion yen from its profits for costs including the air bag recalls and now expects its group net profit to come to 545 billion yen for fiscal 2014, down from its earlier projection of 565 billion yen.

"It may have an impact like a body blow," Honda Executive Vice President Testsuo Iwamura told a news conference with reference to the air bag recall issue. "But we have not seen any serious impact on our sales in North America from the air bag issue," he said.

In the three months ended December, the maker of the Accord and Insight sedans said that its operating profit had dropped more than 22.5 percent to total 177.2 billion yen, compared to 228.57 billion yen netted by the automaker in the same period a year earlier.

The Tokyo-based automaker also said, however, that for the nine months ended December, its net profit rose 5.3 percent from a year earlier to 424.93 billion yen, while its operating profit skidded down 7.7 percent to 539.74 billion yen, on 6.3 percent more sales totaling 9.29 trillion yen.

Honda, which sells the popular CR-Z hybrid compact sports coup , added that it now expects to sell 4.45 million vehicles this fiscal year, with the number revised down from a previous forecast of 4.62 million vehicles, owing to sluggish sales in both its markets here and in China.

It now expects to shift just 790,000 cars in Japan this year, Honda said, significantly less than the 890,000 units it previously forecast.

Iwamura said, however, that the weaker yen would help balance out the firm's lower earnings. Overseas sales are a boon for the automaker when the yen is weak versus its major counterparts, as not only does Honda become a more competitive brand in terms of price, the company's foreign-made profits are augmented when the yen is weak, as favorable exchange rates boost the yields when they're repatriated. Endi