May 13, 2016 / 8:32 AM / a year ago

Honda posts loss as it seeks to draw a line under Takata recalls

The logo of Honda Motor is pictured at the company's showroom in Tokyo, Japan, May 13, 2016.Toru Hanai

TOKYO (Reuters) - Honda Motor Co (7267.T) posted a quarterly loss on Friday, hit by massive recall costs for Takata air bags but forecast a rebound this year as it took dramatic steps to put the debacle behind it.

Japan's third-largest automaker by sales said it would recall 21 million more vehicles, on top of the 30 million already recalled, to replace potentially deadly air-bag inflators made by Takata Corp 7312.T.

"Honda accounted for the worst of the Takata-related issue in the last financial year," said a brokerage analyst who asked not be named because he covers Honda as part of a team. "The worst could be over and that's positive."

With the new recall, Honda, Takata's biggest customer, will have replaced all the ammonium nitrate-based inflators that do not use a chemical drying agent, Executive Vice President Tetsuo Iwamura told an earnings briefing.

These are thought to be responsible globally for at least 11 deaths - all but one in Honda vehicles - and more than 100 injuries since 2008.

When exposed to moisture, ammonium nitrate, used to explosively inflate the air bag, can cause the inflator to rupture with deadly force, spraying shrapnel into vehicle occupants.

For the three months ended March 31, Honda posted a net loss of 93.4 billion yen ($860 million), dashing expectations of a 115.35 billion yen profit, as forecast in a survey of nine analysts by Thomson Reuters I/B/E/S.

"Recall-related costs nullified profit growth that was driven by increased auto sales, cost cuts and lower materials costs in the last financial year," said Senior Managing Officer Kohei Takeuchi.

Honda said its full-year results absorbed the impact of roughly 267 billion yen more in quality-related costs than its original estimate after the U.S. Transportation Department ordered an expansion of Takata recalls.

The company said it had set aside a total 436 billion yen for air bag-related costs in the last business year, nearly quadruple the 120 billion yen in the previous year.

Honda has been phasing out the use of Takata's replacement kits and said recently they were no longer used.

FUEL-ECONOMY TESTS

Iwamura said that Honda models are all compliant with regulations, when asked about Mitsubishi Motors' (7211.T) fuel-economy cheating scandal. Japan has ordered domestic automakers to submit fuel-economy test data by May 18.

Nissan Motor (7201.T) is set to take de facto control of Mitsubishi with a $2.2 billion investment.

Honda forecast a 13.2 percent rise in net profit to 390 billion yen for this business year on smaller recall costs. It assumes the dollar will average 105 yen this year, compared with last year's average of 120 yen and a current rate around 108 yen.

Its profit growth forecast for this year came after Toyota (7203.T) predicted a drop in net profit and Nissan saw flat growth, largely due to the stronger yen, which makes exports less profitable.

"Compared to Toyota and other automakers, Honda looks very good," the analyst said. "But compared to Honda's fiscal 2014 results, its outlook is not that great because of a negative impact of a stronger yen."

Reporting by Makiko Yamazaki; Writing by Chang-Ran Kim; Editing by William Mallard and Muralikumar Anantharaman

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