Japan's No.3 automaker, however, continues to struggle in its
largest market, North America, that accounts for a third of its
sales - where sedans, including Honda's top sellers the Accord
and the Civic, have fallen out of fashion as drivers opt for
bigger models including SUVs.
Making the situation worse is an overall slowdown in demand in
the U.S. auto market, the world's second largest after China,
following years of growth that boosted profits following the
global financial crisis.
Honda's sales in North America skidded 7.6 percent in the first
quarter ended June, but this was offset by a 10.8 percent jump
in sales in Asia, including China - which the automaker expects
will become its largest market this year.
The Civic sedan and the XR-V compact SUV model were strong
sellers in China. The country accounted for around 65 percent of
all of Honda's Asian sales.
The automaker's operating profit in the quarter edged up 0.9
percent to 269.2 billion yen, versus an estimate for a drop to
230.43 billion from seven analysts polled by Thomson Reuters.
For the year to March, Honda now expects an operating profit of
725 billion yen ($6.57 billion), versus 705 billion yen forecast
earlier, based on the U.S. dollar averaging around 107 yen <JPY=>
instead of 105 yen as expected previously.
"We had assumed a rate of 105 yen for the full year, but the yen
averaged around 111 yen in the first quarter, so that will have
a big impact on full-year operating profit," senior managing
director Kohei Takeuchi told reporters at a briefing.
A softer yen makes exports from Japan cheaper, while also
increasing the value of overseas proceeds when converted to the
home currency.
NORTH AMERICAN PAINS PERSIST
The Japanese automaker, however, expects weakness to persist in
the North American auto market and kept its forecast for a 2.5
percent drop in its annual sales in the region.
Honda is struggling to sell sedans in North America and has been
ramping up production of SUVs to keep up with the shift in
demand to SUVs and other larger models.
Its ratio of light truck to passenger car sales in January-June
was 51 percent to 49 percent, according to Autodata. While this
has tilted in favor of light trucks from a year ago, it still
lags average industry sales of around 62 percent.
Honda's operating profit from North America fell 40.6 percent in
the first quarter largely due to higher incentives to clear
inventory of older Accords. It was also hurt by production
adjustments for the model ahead of the July launch of a revamped
version, which Honda is betting will win market share.
Higher incentives are stinging other Japanese automakers too.
Nissan last week posted an almost 13 percent slide in operating
profit, dragged by rising incentives to sell its cars in the
United States.
Industry experts are increasingly concerned about growing
inventory levels and consumer discounts in the U.S. market as
automakers push harder to sell products. A pricing war in the
market could undermine automakers' profits.
(Reporting by Naomi Tajitsu; Editing by Himani Sarkar)
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