HONDA Motor Co, Japan's second largest car maker, raised its full-year net income forecast 7.8 percent because of cost cuts and higher sales of fuel-efficient cars in the US and Asia.
The car maker expects a record profit of 690 billion yen (US$6.5 billion) in the year to March 31 compared with an October forecast of 640 billion yen, it said yesterday, Bloomberg News reported. Net income in the quarter to December 31 rose 38 percent to 200 billion yen.
With gasoline prices in the US near a record US$3 a gallon, customers opted for smaller models such as Honda's Fit compact and the CR-V small sports utility vehicle over larger SUVs and pickup trucks. Tokyo-based Honda also won customers in China, Europe and India.
"Higher gasoline prices will continue boosting demand for Honda," said Hitoshi Yamamoto, who manages the equivalent of US$5.5 billion in Japanese equities as chief executive officer of Fortis Asset Management in Tokyo. "Japanese automakers will grab market share from their US rivals with their fuel efficient models."
Honda's third quarter sales rose 10 percent to 3.04 trillion yen. Its net income in the period was higher than the 148.2 billion yen average of six analyst estimates compiled by Bloomberg.
Honda rose 1.2 percent to 3,300 yen at the close of trading in Tokyo before the earnings were released.
The company has streamlined production and spent less than planned on research and development, Executive Vice President Koichi Kondo told reporters in Tokyo yesterday. Cost cuts more than offset higher prices for raw materials.
"The market price of aluminum and copper was lower than our expectations," Kondo said. Honda also expects a weaker yen against the euro, the Brazilian real and other foreign currencies to raise its operating profit by 33 billion yen for the year ending March 31. The company in October expected a weaker domestic currency would raise profit by 6 billion yen.
US sales of the Fit, which debuted in the country in 2006, doubled to 56,432 vehicles last year. Honda raised US sales of the CR-V by 29 percent. The Fit, with a 1.5 liter engine, gets up to 34 miles per gallon, according to Honda's US Web site. That compares with 20 mpg for General Motors Corp's 5.3 liter TrailBlazer SUV, according to GM's Web site. GM's Chevrolet Aveo, with a 1.6 liter engine, also gets 34 miles to the gallon.
Deliveries of TrailBlazers fell 23 percent and those of Hummer H3s fell 22 percent in 2007, GM said on January 3.
Honda grabbed 9.6 percent of the US market last year compared with 9.1 percent in 2006. In contrast, GM's market share slipped to 23.7 percent from 24.6 percent.
Trimmed
The subprime mortgage crisis in the US has trimmed demand for motorcycles and power products, Kondo said. Demand for cars has not been affected, he added. The company expects to sell a total of 3.9 million vehicles in the year ending March, missing its previous target by 35,000.
"Demand for motorcycles in California and all terrain vehicles in Louisiana and Georgia dropped" after the Thanksgiving holiday in the US, Kondo said. "There was a big impact in those places where housing prices are falling."
Under Honda's new forecast, the company will earn a net income of 116 billion yen in the fiscal fourth quarter, according to Bloomberg calculations. That would represent a 34 percent drop in year-on-year profit.
"The latest quarter results were incredibly good but the coming quarter is worrisome," said Takashi Aoki, who helps manage about 130 billion yen at Mizuho Asset Management Co in Tokyo. "Inventory in the US seems to be increasing."
In the fiscal third quarter, Honda's operating profit rose 35 percent to 276 billion yen. A weaker yen boosted profit by 2.9 billion yen, the car maker said. The company expects an exchange rate of 105 yen to the dollar and 155 yen to the euro for the fourth quarter.