Quality Magazine

Honda Predicts 63% Profit Drop For 2012

June 15, 2011

TOKYO, JAPAN (Courtesy of Edmunds Auto Observer )-Honda forecasts a 63% decline in profits for its 2012 fiscal year, due to production disruptions caused by Japan’s March 11 earthquake combined with the strong yen and higher research and development (R&D) 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% to 3.3 million vehicles, with U.S. sales and market share dipping; revenues are expected to drop 7.1%; and operating profit is forecasted to decline 65%. Honda’s expected profit decline-its first in three years-is more than analysts predicted and is steeper than the 31% 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 company’s 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 assembly line 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% to 2 million vehicles.

As Honda expects global vehicle sales to drop, it also said there’s no way to prevent U.S. sales and market share from sliding. It predicts full-year sales in North America to fall 11% to 1.3 million vehicles. Meantime, in the United States, 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% 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% 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% increase; that includes a sales hike in the United States 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 America’s loss will widen to 33 billion yen ($411 million) from 28 billion yen ($348 million) last year. Mitsubishi’s underutilized plant in Normal, IL, is being retooled to build the Outlander Sport and other vehicles for local consumption and export.

Japan’s 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.