Honda second-quarter profit to rise, but recalls cloud outlook

Mon Oct 27, 2014 8:05am EDT
 
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By Mari Saito

TOKYO (Reuters) - Honda Motor Co (7267.T: Quote) is likely to post its best July-September profit since the global financial crisis, but a slew of vehicle recalls threatens to delay the roll-out of new models, crimping domestic market sales growth.

Japan's third-biggest car maker last week apologized for a fifth domestic recall of its Fit hybrid subcompact, prompting a pay cut for CEO Takanobu Ito and a dozen executives. Honda said it would re-examine its process for developing cars, a move that could delay their debuts.

The Fit recalls come on top of more than 5 million cars that Honda has called back in the United States over unrelated issues with Takata Corp's (7312.T: Quote) potentially defective airbags that have been linked to four deaths in Honda's single-biggest market.

Honda first recalled the Fit hybrid in October 2013, just a month after its launch, for defective controls on a newly developed transmission system. The latest recall was to fix noise-related glitches unrelated to the transmission. To date, Honda has recalled 163,885 Fit hybrid vehicles in Japan.

The series of Fit recalls has so far cost 16.5 billion yen ($153 million), though Honda sees minimal impact on its earnings - due on Tuesday. July-September operating profit is forecast to rise just over 7 percent to 184.1 billion yen ($1.7 billion), according to the average of 14 analysts polled by Thomson Reuters I/B/E/S.

The Fit recalls could delay other vehicles designed to use the new transmission, said Koji Endo, autos analyst at Advanced Research Japan.

Analysts expect the recalls and potential development delays to slow Honda's domestic sales, which the company hopes to push up to a record 990,000 cars in the year to next March.

The Nikkei business daily reported on Monday that aggregate domestic sales at Japan's eight car makers would drop below 5 million cars for the first time in two years, with Honda seen selling 950,000 cars. Another drag on Honda's earnings could be a slowdown in high-margin motorcycle sales in Southeast Asia.   Continued...

 
Man are reflected on a Honda Motor car outside the company showroom in Tokyo July 29, 2014.   REUTERS/Toru Hanai