Honda slashes profit forecast amid global downturn

[December 17, 2008]  TOKYO (AP) -- Japanese automaker Honda slashed its profit forecast for the fiscal year and said managers will take a 10 percent pay cut amid a global downturn in the auto industry.

President Takeo Fukui blamed the lower earnings forecast on declining demand set off by the U.S. financial crisis and the nose-diving dollar, which recently fell to a 13-year low against the yen.

Japan's second-biggest automaker now expects 185 billion yen ($2.06 billion) in group net profit for the fiscal year ending March 31, 2009 -- less than a third of the 600 billion yen earned last fiscal year -- it said Wednesday.

Tokyo-based Honda Motor Co. has already twice cut its forecast for the current year.

"Every day, the hardships we face are getting worse and worse. And there are no signs of recovery," Fukui said at a news conference that was hastily called two days ahead of schedule.

He said Honda's worldwide vehicle sales in 2008 are expected to reach 3.77 million units, almost unchanged from 2007. Sales are plunging in the U.S. and other regions, with even fast-growing emerging markets getting battered in recent months, according to Honda.

Underlining the tough times ahead, Fukui refused to set a vehicles sales target for 2009 -- an unusual move for Honda.

To take responsibility for the faltering results, Honda directors will take a 10 percent pay cut and further bonus reductions are likely, he said.

Adding to the dire outlook for automakers, Nissan Motor Co. said Wednesday it would reduce production by a further 78,000 vehicles and cut 500 temporary workers.

Nissan has cut production by a total of about 225,000 vehicles over the last year, 16 percent of its initial production forecast for 1.388 million vehicles in the current fiscal year through March. Other Japanese carmakers such as Toyota and Suzuki have also cut production and temporary workers.

Mamoru Katou, auto analyst at Tokai Tokyo Research in Nagoya, Japan, said Honda was taking the right action in guarding against a shrinking market.

"In about two years time, it can again expect growth. For now, it is going on the defensive," he said. "It's making clear that it's shifting gears."

Fukui said the automaker will focus on green technology, especially hybrid vehicles and small cars, to ride out the difficult times and prepare for recovery in the long run.

In recent years, the annual media event has usually been an occasion for Honda to announce ambitious plans for growth in key global regions and outline its strategy in green technology. But speculation had been rife that this year the news would be somber as the industry gets hammered by the global recession.

Honda also lowered its sales forecast for the fiscal year through March to 10.4 trillion yen ($116.9 billion) from 11.6 trillion yen ($130.3 billion). The new forecast marks a 13 percent drop from the previous fiscal year.

Honda said it was trimming investment spending by 60 billion yen ($674 million) to about 650 billion yen ($7.3 billion) to cut costs during hard times, including scrapping plans to introduce the Acura luxury line in Japan by 2010. Plans to develop a successor to the NSX sportscar were also canceled.

Some 450 temporary Honda workers in Japan will be reduced through February in addition to the 760 temporary workers -- about 18 percent of the company's temporary work force of 4,300 in Japan -- Honda had already said it would cut this month and next.

Particularly damaging to Japanese automakers has been the plunging dollar, which erodes their overseas earnings. For every yen the dollar declines, Honda loses about 18 billion yen ($200 million) in operating profit. In trading Wednesday, the dollar fell as low as 88.22 yen.

Honda had avoided the woes of its cash-strapped U.S. rivals, General Motors Corp., Ford Motor Co. and Chrysler LLC, which are asking for a government bailout. Honda makes models such as the Civic and Accord, which have a reputation for fuel-efficiency.

But the recent drop in auto sales is proving too much for even Honda. In November, when U.S. auto sales plunged 37 percent to their worst level in more than 26 years, Honda's vehicle sales sank 32 percent from a year earlier.

To cope with sluggish sales worldwide, Fukui said Honda will halt expansion at home and abroad.

The automaker will delay operations at a new vehicle plant in Saitama, northwest of Tokyo, until 2011. Its engine plant, also in Saitama, is scheduled to start operations in July 2009, but will not be running at full capacity.

Honda will postpone its operations at a mini vehicle plant in Mie, western Japan, until 2011.

In addition, Honda shelved a plan to boost production capacity at its vehicle plant in Turkey, and put off a plan to build a vehicle plant in India, Fukui said.

Honda shares closed down 4.2 percent at 1,891 yen in Tokyo.

Associated Press writer Jay Alabaster in Toyko contributed to this report.

[Associated Press; By YURI KAGEYAMA]

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