Honda Motor Co. has disclosed that it may change its estimates on its full-year profit in October, the time when it posts its earnings in the first six months of 2011. The forecast will depend on how long the recent market turmoil lasts. A prolonged decrease in U.S. equities will lead to a drop in consumption as well as delayed vehicle purchases, Fumihiko Ike, chief financial officer at Honda, told reporters in Tokyo.
He added that the company is also concerned that the yen may strengthen to the low 70s versus the dollar, and will further adversely affect earnings from exports. U.S. stocks dropped the most since December 2008 and U.K. stocks sank since July 2010.
Policy makers of Federal Reserve are set to have a one-day meeting because the downgrade of the U.S.'s top credit rating by Standard & Poor's invoked rumors that America will be experiencing a recession.
According to Ike, the current question is what will happen to the macro economy and how long the current turmoil will persist. He added that "this is a new scenario" that is not part of the current forecast of the company. Last August 1, the company increased its full-year net income estimate by 18 percent to 230 billion yen ($2.98 billion), based on the quicker-than-expected recovery from the March 11 earthquake that hit Japan.
The company is basing its fiscal year estimate on 80 yen versus the dollar and 112 yen versus the euro. Tokyo-based Fukoku Capital Management’s president Yuuki Sakurai said that consumers in the U.S. react to the market very quickly, thus, their mindset could turn negative and they would abstain from buying new cars.