Honda cuts profit guidance for current fiscal year by 6.5% due to Takata airbag crisis

Article by Andrew Christian, on February 2, 2015

Honda Motor Co. is expecting an annual operating profit for the fiscal year ending March 31 that is 6.5 percent less than its forecast. The previous figure was JPY770 billion, and the new number was placed at JPY720 billion, as the carmaker had to set aside JPY50 billion in extra cash to cover an extended car recall related to faulty Takata Corp. airbags.

Despite the airbag issue hounding the company, its Executive Vice President, Tetsuo Iwamura, is confident that it would not have a big impact on sales in North America. In the third quarter ending December 2014, Honda saw a 23-percent drop in operating profit to JPY177.2 billion, no thanks to costs related to recalls.

Takata recalls have reached around 25 million since 2008, over half of which involves Honda vehicles. Likewise, all deaths like to the issue each involved a Honda model fitted with Takata airbag. Honda is paying of the voluntary recall of around 4 million cars in the United States, but may get reimbursements once probers determine that it was Takata who at fault.

Analysts have even remarked that the damage on reputation from the recall has been minimal, including in the US. Honda’s sales have been helped by the fact that customers see the brand as a maker of fuel-efficient vehicles.

However, global oil prices have been on the decline and customers are now flocking to light trucks. "The fall in fuel prices represents a body blow to Japanese automakers," remarked Merrill Lynch analyst Kei Nihonyanagi.

According to Honda, it would not be able to achieve its original sales forecast of 4.62 million cars in the current fiscal year, placing the new figure at 4.45 million vehicles.

Honda also expects to sell 11-percent less vehicles in Japan in the current fiscal year to 790,000 cars, no thanks to new model launch delays and fierce rivalry in the domestic small car market.

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