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Honda cuts profit forecast as airbag recall weighs heavy

30 january 2015, 15:32
0

 Honda on Friday cut its full-year net profit forecast as the Japanese automaker faces soaring recall costs, including those from an exploding airbag crisis linked to at least five deaths, AFP reports.

The downgrade came as Honda said late Thursday that it was probing a deadly crash in the United States possibly linked to exploding airbags made by embattled supplier Takata, which has sparked the recall of millions of vehicles worldwide.

Takata has been plunged into a public relations crisis over the deaths. The Tokyo-based company is facing lawsuits, calls for a criminal probe, and accusations of "deception and obfuscation" over the potentially deadly defect.

On Friday, Honda, Japan's third-biggest automaker, said it was cutting its fiscal year to March net profit forecast by 3.5 percent to 545 billion yen ($4.6 billion), citing "quality-related expenses" and falling sales in Japan and the world's biggest vehicle market China.

Honda said it cut its annual projections owing to a "forecast decline in unit sales in Japan and China due to the difficult automobile market environment and a forecast increase in quality-related expenses, mainly in North America."

Honda's October-December net income dropped 15.1 percent as rising costs dug into its bottom line.

"The worst may be over for the recalls but we don't know how much it will have to pay in the end for the costs" for airbag-related recalls, Koichi Sugimoto, an analyst at Mitsubishi UFJ Morgan Stanley Securities, told Bloomberg News.

"The full year target is a challenge."

The driver of a 2002 Honda Accord died in a crash last week in Houston, Texas, and the cause may have been a faulty airbag inflator produced by Takata, Honda's US unit said late Thursday.

"American Honda has been informed of a possible Takata driver's airbag inflator rupture in the crash... which resulted in the death of the driver," the automaker said in a statement.

"Since this tragic event occurred very recently, no official cause of death has yet been determined by local authorities...We are currently working with representatives of the driver’s family to gain the access necessary to conduct a comprehensive investigation," it said.

    Five confirmed deaths 

 The US safety regulator has demanded a recall of all cars in the US with the suspect Takata airbags on the driver's side.

Takata's Tokyo headquarters on Friday would not comment on the latest fatal accident, despite a Bloomberg News report quoting the airbag maker as saying it was working with Honda to determine the cause of the accident.

Bloomberg also reported that the family of the 35-year-old father of two has launched a lawsuit against Honda, Takata and the dealership where the car was purchased.

Takata previously confirmed four US deaths and one in Malaysia involving its airbags, while hundreds of injuries have also been reported.

About 20 million vehicles produced by some of the world's biggest automakers, also including Toyota and General Motors, have been recalled due to the risk their Takata-made airbags could deploy with excessive explosive power, spraying potentially-fatal shrapnel into the vehicle.

One US woman's death was initially investigated as a murder due to her grisly injuries until police switched their focus to the vehicle airbag.

Despite the warnings over recall costs and the key Chinese market, a sharply weaker yen has boosted the bottom line at Honda which saw net profit rise 5.3 percent to 424.9 billion yen for the nine months through December.

A cheaper yen boosts the competitiveness of Japanese exporters and inflates their repatriated overseas profits, although the effect has been waning in recent months, analysts say.

Sales for the nine months rose 6.3 percent to 9.3 trillion yen, while operating profit fell 7.7 percent to 539.7 billion yen.

Demand in Honda's home market suffered after Japan raised its sales tax in April, slamming the brakes on consumer spending.

Honda is the first of Japan's "Big Three" automakers to post its latest earnings, with rival Toyota and Nissan both reporting over the coming weeks.

"We continue to monitor the situation in expectation of a rebound as these issues are resolved and investor attention turns to improving profitability," Barclay's said before the results were published.


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