Honda cuts forecasts, hopes for China recovery in February

Mon Oct 29, 2012 4:56am EDT
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By Yoko Kubota

TOKYO (Reuters) - Honda Motor Co (7267.T: Quote) cut its full-year net profit forecast by a fifth after sales in China were hit by a popular backlash against Japanese goods, and warned it could be February before business in the world's biggest autos market returns to normal.

The cut, prompted by a slump in sales amid often violent protests in a dispute about ownership of islands in the East China Sea, makes it likely that bigger Japanese rival Nissan Motor (7201.T: Quote), and possibly Toyota Motor (7203.T: Quote), will follow suit when they report quarterly earnings early next week.

"It's likely Toyota and Nissan are going to cut forecasts in the same way. A cut was to be expected because the problems with China weren't factored into forecasts," said Fujio Ando, managing director at Chibagin Asset Management.

Demand for Honda, Toyota and Nissan cars slumped in China in September as tempers flared in the territorial dispute, with South Korea's Hyundai Motor (005380.KS: Quote) and Germany's BMW (BMWG.DE: Quote) picking up market share. Toyota has said its China sales dropped 49 percent in September.

Sales by Honda and its China joint ventures dropped 40.5 percent last month. China is Honda's second-biggest market after the United States, accounting for 17 percent of 2011 sales.

Honda said on Monday that its two biggest China plants would continue to run on one shift, rather than two, until at least the middle of next month, with output then gradually picking up ahead of Chinese New Year in February - a traditional buying season. It cut its full-year China sales forecast by 17 percent to 620,000 vehicles, but said there would be no change to its investment there. Honda plans to invest $880 million to expand capacity at its plants in Guangzhou and Wuhan over the next few years.

"China is the world's biggest auto market and there's no doubt it will continue to grow. We will continue our current (investment) plan," Executive Vice President Tetsuo Iwamura told a results briefing.

Honda, whose models include the Accord, Fit/Jazz, Civic and CR-V, cut its net profit forecast for the year to March to 375 billion yen ($4.7 billion) from 470 billion yen. Last year, Honda reported net profit of 211.5 billion yen. It also cut its forecasts for annual operating profit and revenue, citing uncertain markets in China, Europe and India.   Continued...

A logo of Honda Motor Co is reflected on a roof of a vehicle at a Honda dealer in Kawasaki, south of Tokyo July 31, 2012. REUTERS/Yuriko Nakao