Honda cuts target amid China dispute

BACKLASH::Analysts expect Toyota and Nissan to follow suit and cut their full-year earnings forecasts after seeing sales in China slump because of a territorial dispute

Reuters, TOKYO

Tue, Oct 30, 2012 - Page 15

Japan’s Honda Motor Co cut its full-year net profit forecast by a fifth after sales in China, the world’s biggest auto market, were hit by a popular backlash against Japanese products in a dispute over East China Sea islands.

The substantial cut makes it likely that bigger rival Nissan Motor — and possibly Toyota Motor — will follow suit when they report quarterly earnings early next week.

“It’s likely Toyota and Nissan are going to cut forecasts in the same way. A cut was to be expected because the problems with China weren’t factored into forecasts,” Chibagin Asset Management managing director Fujio Ando said.

Demand for Honda, Toyota and Nissan cars slumped in China amid violent protests last month over the territorial dispute, with South Korea’s Hyundai Motor and Germany’s BMW picking up market share. Toyota has said its China sales dropped 49 percent last month.

Sales by Honda and its China joint ventures dropped 40.5 percent last month. China is Honda’s second-biggest market after the US, accounting for 17 percent of last year’s sales.

Honda, whose models include the Accord, Fit/Jazz, Civic and CR/V, cut its net profit forecast for the year to March to ¥375 billion (US$4.7 billion) from its earlier estimate of ¥470 billion. Last year, Honda reported a net profit of ¥211.5 billion.

Shares in Honda — which fell 15 percent to near nine-month lows amid the China protests — dropped nearly 6 percent yesterday, and closed down 4.3 percent at ¥2,408.

Honda’s net profit for July to September rose 36.1 percent to ¥82.2 billion — far below the average estimate of ¥107.2 billion from six analysts polled by Thomson Reuters I/B/E/S.

The quarterly profits were also dented by start-up and advertising costs for the new Accord sedan, which went on sale in the US last month, but the refresh helped Japan’s third-biggest automaker increase its share of the US car and light truck market to 8.7 percent last month.

The fallout from the Japan-China dispute could run into the current and fourth quarters, analysts have warned.

Takaki Nakanishi, an analyst at Bank of America Merrill Lynch in Tokyo, said the impact could, at best, last three months, and up to six months in a pessimistic scenario.

Honda chief executive Takanobu Ito, 59, an engineer who took over three years ago, has set a demanding goal to nearly double global car sales to 6 million in four years. Worldwide production jumped 69 percent in April to September to above 2 million vehicles. The carmaker trimmed its full-year global sales forecast to 4.12 million vehicles from an earlier estimate of 4.3 million.

Toyota and Nissan report their quarterly earnings on Monday and Tuesday next week respectively.