Tokyo: Shares in Honda Motor Co slid 8% as Japan’s No.2 automaker looked set to issue its third profit warning in five months on Wednesday, due to huge currency losses and tanking global car sales.
Due to a global recession automakers everywhere are reeling from a sharp downturn in demand and tight credit, and are under pressure to put off big investments and expansion plans to weather the storm.
In the US, General Motors Corp and Chrysler LLC are awaiting word from the US government on billions of dollars in emergency loans they say they need to avert near-term collapse.
Honda’s local rival Nissan Motor Co Ltd announced further planned cuts to production and contracted short-term workers in Japan.
A source with knowledge of the situation said Honda was preparing to lower its profit forecasts after having abruptly moved up its year-end news conference scheduled for Friday to Wednesday.
Tokyo Stock Exchange rules stipulate that listed companies must swiftly announce any changes to guidance if their new profit figure is different by more than 3%, or revenue by more than 10%.
The Nikkei business daily said Honda would cut its operating profit forecast for the year to March to about $3.33 billion, down around 70% from last year or 45% from its most recent forecast.
In late October, Honda lowered its forecast to 550 billion yen, setting its assumption for the dollar to average 100 yen in the second half far more favourable than the current rate of 89yen.
Every 1yen swing in the dollar affects Honda’s annual operating profit by about 20 billion yen ($220 million), cutting the amount of overseas earnings when translated back into yen.
Analysts have said Honda’s latest profit projections would be difficult to reach in light of the big production cuts it has announced to bring down bloated inventory. Honda has so far scaled back output plans by about 200,000 units for this business year.
A poll of 18 brokers surveyed by Reuters Estimates forecasts Honda’s 2008/09 operating profit at 486 billion yen, although most estimates have not been updated in the last month.
Other automakers have also been slashing production.
Nissan, Japan’s No.3 automaker, said it would cut a further 78,000 units from local production, taking the tally for production cuts this business year to 225,000, or about 6% of its original 3.856 million unit forecast.
Nissan said the cuts at its three assembly plants and two engine factories in Japan would reduce its contracted short-term workers to zero by end March, from 2,000 at end October.
The Japan Automobile Tyre Manufacturers Association forecast local vehicle production would fall nearly 9% in 2009 and sales would fall by more than 7%.
But in China, GM and its local partner SAIC Motor pushed ahead with the opening of a plant in the country’s northeast. China is one market where auto sales are still growing, albeit more slowly than previously.
With Honda likely to be loss making for the October March second half, Chief Executive Takeo Fukui is expected to outline steps to clamp down on non essential spending.
Among projects in the pipeline, Honda has new car and engine factories near Tokyo scheduled to begin production in 2010.
It has already said it would delay the start of a new factory in India, while gauging demand to ramp up production at a new factory in Indiana. It could also shelve plans to sell its luxury Acura brand in the slumping Japanese market.
Earlier this month, Honda pulled out of Formula One racing, saying it needed the resources to weather the economic downturn and develop next-generation vehicles as competition intensifies.
The Topix subindex for the auto sector fell 4.6%. Nissan was down 6.4%.