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Honda May Revise Profit Forecast on Possible U.S. Downturn
The rear of a Honda Motor Co. Inc. 2012 Civic SI is seen at the New York International Auto Show in New York, U.S.
The rear of a Honda Motor Co. Inc. 2012 Civic SI is seen at the New York International Auto Show in New York, U.S. Photographer: Jin Lee/Bloomberg
Honda Motor Co., Japan’s third-
largest carmaker, said it may revise its full-year profit
forecast when it announces first-half earnings in October,
depending on how long the current market turmoil lasts.
A prolonged drop in U.S. equities will lead to a decline in
consumption and delayed car purchases, Honda Chief Financial
Officer Fumihiko Ike told reporters in Tokyo today. The company
is also concerned the yen may strengthen to the low 70s against
the dollar, further hurting earnings from exports, Ike said.
U.S. stocks yesterday sank the most since December 2008 and
European stocks today retreated for an eighth day, the longest
losing streak since 2003. Federal Reserve policy makers will
hold a one-day meeting today as last week’s downgrade of the
U.S.’s top credit rating by Standard & Poor’s fuels speculation
the world’s largest economy may be headed for a recession.
“The question is what will happen to the macro economy and
whether the current turmoil will persist over a prolonged
period,” Ike said. “This is a new scenario” not incorporated
into Honda’s current forecast, he said.
Honda raised its full-year net income forecast by 18
percent to 230 billion yen ($2.98 billion) on Aug. 1 on a
quicker-than-expected recovery from the March 11 earthquake. The
carmaker is basing its fiscal year forecast on 80 yen to the
dollar and 112 yen to the euro.
‘Turn Negative’
“In the U.S., consumers react to the market very quickly,
so it’s very possible that the consumer mindset will turn
negative, and that people will refrain from purchasing new
cars,” said Yuuki Sakurai, president of Fukoku Capital
Management in Tokyo.
The Japanese currency today rose to as much as 77 against
the dollar as investors shunned the U.S. currency after Standard
& Poor’s cut the rating on the U.S.’s long-term debt to AA+. The
yen’s strength last week prompted the government to sell the
nation’s currency for the first time since March 18. A stronger
yen cuts the value of repatriated profits from exports.
The Tokyo-based carmaker can meet its full-year forecast
announced on Aug. 1 if the yen returns to 80 yen to the U.S.
dollar, Ike said. Multilateral intervention is needed to prop up
the dollar as last week’s unilateral action has proven to be
ineffective, he said.
U.S. Market Demand
Every one yen gain against the dollar cuts Honda’s
operating profit by 15 billion yen. A one yen gain against the
euro reduces profit by 1 billion yen.
Honda has hedged against the dollar at 80 to 81 yen through
the fiscal second quarter, Ike said.
While Honda has been conservative in estimating the U.S.
auto market’s overall demand at 12.4 million units this year,
“we will have to see how big the shock will be,” Ike said. The
biggest risk is a global “chain reaction” from the U.S. and
Europe, particularly to Asian economies that are tied to the
U.S. dollar, he said.
Honda expects its sales in North America this fiscal year
to drop 5.7 percent to 1.38 million units, it said on Aug. 1.
“Honda and other Japanese carmakers have been making up
for lost production after the earthquake at a faster pace than
expected,” said Masatoshi Nishimoto, an analyst at consulting
company IHS Automotive in Tokyo. “If the U.S. market stalls,
they’ll have to put the brakes on exports.”
Honda fell 2.8 percent to 2,722 yen at the 3 p.m. close in
Tokyo, while the Nikkei 225 Stock Average declined 1.7 percent.
To contact the reporters on this story:
Makiko Kitamura in Tokyo at
mkitamura1@bloomberg.net;
Yuki Hagiwara in 東京 at
yhagiwara1@bloomberg.net
To contact the editor responsible for this story:
Kae Inoue at
kinoue@bloomberg.net
7267 JT <Equity> CN