Tags: Honda | Takata | earnings | profit

Honda Cuts Profit Forecast as Airbag Recall Dents Bottom Line

Friday, 30 January 2015 08:11 AM

Honda cut its full-year profit forecast on Friday as the Japanese automaker grapples with soaring recall costs, including from an exploding airbag crisis linked to at least five deaths.

The downgrade came after Honda said it was probing a fatal crash in the United States that may have been caused by a defect in airbags made by embattled supplier Takata, which has sparked the recall of millions of vehicles worldwide by 10 major automakers.

Honda, Japan's third-biggest automaker, said Friday it was cutting its fiscal year to March net profit forecast by 3.5 percent to 545 billion yen ($4.6 billion), citing "quality-related expenses" as well as falling demand in Japan and the world's biggest vehicle market, China.

It blamed the move on a "decline in unit sales in Japan and China due to the difficult automobile market environment and a forecast increase in quality-related expenses, mainly in North America".

Honda's airbag recalls — and others involving its Fit compact car and Vezel SUV — diluted the positive impact of the yen's sharp decline, which has inflated profits among major Japanese exporters.

"It's a kind of a one-two punch for Honda — they are fighting for sales and at the same time they have the Takata problem. They are hit on two fronts, (so) it is a bad situation for them," said Hans Greimel, Asia editor for US-based Automotive News.

"Even though they are making some big gains on the foreign exchange, they are not able to capitalise on it like other Japanese companies."

Honda shares fell 0.78 percent to 3,581.0 yen on Friday in Tokyo.

Takata — whose Tokyo headquarters declined to comment on the latest death — has been plunged into a public relations crisis at it faces lawsuits, calls for a criminal probe and accusations of "deception and obfuscation" over the deadly defect.

Honda's October-December net income dropped 15 percent as rising costs hit its bottom-line, with the firm taking a $425 million recall-related charge in the quarter.

"These are deep-rooted problems and there are still uncertainties on what will happen next," Tachibana Securities Kentaro Hayashi told Bloomberg News.

Honda's US division said Thursday that a driver of a 2002 Honda Accord died in a crash this month in Houston, Texas, and the cause may have been a faulty inflator in a Takata airbag.

But "since this tragic event occurred very recently, no official cause of death has yet been determined by local authorities," the firm said in a statement.

"We are currently working with representatives of the driver's family to gain the access necessary to conduct a comprehensive investigation."

Bloomberg News reported that relatives of the 35-year-old father of two has launched a lawsuit against Honda, Takata and the dealership where the car was purchased.

Takata previously confirmed four US deaths and one in Malaysia involving its airbags, while hundreds of injuries have also been reported.

About 20 million vehicles produced by some of the world's biggest automakers, also including Toyota and General Motors, are being recalled due to the risk their Takata-made airbags could deploy with excessive explosive power, spraying potentially-fatal shrapnel into the vehicle.

One US woman's death was initially investigated as a murder due to her grisly injuries until police switched their focus to the vehicle airbag.

The US auto safety regulator has demanded a recall of all cars in the US with the suspect Takata airbags on the driver's side.

Despite the warnings over recall costs and weakness in the key Chinese market, the yen's decline did boost Honda's net profit by 5.3 percent to 424.9 billion yen for the nine months through December. Sales rose 6.3 percent to 9.3 trillion yen.

But demand in Honda's home market suffered after Japan raised its sales tax in April, slamming the brakes on consumer spending.

Honda is the first of Japan's "Big Three" automakers to post its earnings, with rival Toyota and Nissan both reporting over the coming weeks.

© AFP 2019

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Honda cut its full-year profit forecast on Friday as the Japanese automaker grapples with soaring recall costs, including from an exploding airbag crisis linked to at least five deaths.
Honda, Takata, earnings, profit
Friday, 30 January 2015 08:11 AM
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