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Wednesday, December 24, 2008

Honda Slashes Outlook for Full-Year Sales, Profit

As posted by: Wall Street Journal

TOKYO -- Honda Motor Co. slashed its earnings forecast and announced further cuts in its Japanese production and work force, as global demand for cars continues to falter and the soaring yen hits its overseas profit.

Honda Motor President Takeo Fukui spoke during a news conference in Tokyo Wednesday.

Honda, Japan's No. 2 car maker by volume, Wednesday cut its net profit forecast for the fiscal year ending March 2009 to 185 billion yen ($2.08 billion) from the 485 billion yen profit it expected in late October. In the year ended March 31, 2008, Honda's net profit totaled 600.04 billion yen.

This was the second downward revision in two months, highlighting the rapid deterioration in the auto industry.

The company reduced its operating profit outlook to 180 billion yen from its previous forecast of 550 billion yen. Given that the company posted an operating profit of 370.2 billion yen in the fiscal first half, the latest outlook suggests Honda expects an operating loss in the second half.

It cut its sales projection to 10.4 trillion yen from 11.6 trillion yen.

Also on Wednesday, rival Nissan Motor Co. said it will cut domestic production by an additional 78,000 vehicles and eliminate its 500-strong domestic temporary work force by the end of March 2009.

The announcements come just a few days before rival Toyota Motor Corp. releases details of its business plans for the next year. Standard & Poor's Rating Services Wednesday cut to negative from stable its outlook on Toyota's long-term corporate credit ratings.

Highlighting growing concerns of Japan's export-dependent corporations, Honda President Takeo Fukui said the soaring yen against major currencies was a major factor behind the company's latest earnings downgrade. In a news conference, he called on the Bank of Japan and the government to take steps to stabilize foreign-exchange markets.

Honda revised its exchange rate forecast for the fiscal second half to 95 yen from 100 yen. On Wednesday, the dollar fell to as low as 88.17 yen. Almost all major exporters have pegged full-year earnings expectations to a dollar-yen exchange rate of 100 yen.

While the pressure for consolidation has been mounting in the global auto industry, Mr. Fukui said Honda isn't involved in any alliance talks for now. Earlier this month, Fiat SpA Chief Executive Sergio Marchionne predicted the global crisis will end with only six global auto makers still in business.

In Japan, Honda said it will postpone starting operations at a new plant north of Tokyo by more than a year from its initial plan for 2010. The car maker will reduce domestic production by 54,000 vehicles and cut its domestic temporary work force by 450 by early February.

Separately, Honda said it will set up a joint venture with Japanese battery maker GS Yuasa Corp. next year to make lithium-ion batteries for Honda's gasoline-electric hybrid cars. GS Yuasa will have a 51% stake in the company, with Honda taking the remaining 49%.

Honda shares fell 4.2% to 1,891 yen ($21.30) in Tokyo.