DEI99662

The automaker posts a rise in earnings, but says sales of small and fuel-efficient cars slowed as gasoline prices eased down.

TOKYO (Reuters) -- Honda Motor Co. posted a smaller-than-expected rise in quarterly profit as fierce competition in China weighed on sales, and it left its operating profit forecast unchanged despite a big lift from a weaker yen.

The world's second-most valuable carmaker, with a market worth of $72 billion, had been riding demand for its small and fuel-efficient cars amid $3-a-gallon gasoline, but said it was feeling headwinds now with pump prices down at $2.20 to $2.30 a gallon.

The Tokyo-based automaker also said it had set its expectations too high for the booming Chinese market, and lowered its sales target there by about 20,000 units to around 360,000 vehicles for the business year to the end of March.

"The Asian market didn't recover for us as much as we had thought," Executive Vice President Satoshi Aoki told a news conference. "Our sales target for China ended up being too ambitious."

Sales of Honda's (Charts) flagship Accord sedan have been badgered in China by the launch of Toyota Motor Corp.'s (Charts) popular Camry. Toyota, meanwhile, this month raised its sales growth outlook for China in 2007 to 40 percent from 33 percent.

Honda's October-December net profit rose 8.8 percent to ¥144.83 billion ($1.19 billion), short of an average estimate for ¥153.6 billion in a survey of five brokers by Reuters Estimates.

Operating profit rose 5.2 percent to ¥205.11 billion, below market estimates for ¥215 billion. Foreign exchange gains added ¥10.6 billion, but cost cuts could not keep up with a rise in raw materials prices, Honda said.

Revenue grew 12 percent to ¥2.77 trillion on brisk car sales in North America, Europe and Asia.

"The profit numbers do not look appealing considering that their auto business is supposed to be doing well," said Masayuki Furukawa, analyst at Fukoku Capital Management Inc.

Honda nudged up its net profit forecast for the full year to the end of March to ¥560 billion from the previous ¥555 billion, attributing much of it to non-operating, derivatives-related gains.

At the operating level, it stuck to its forecast for an ¥820 billion profit despite additional currency windfalls of ¥51 billion on top of its reading three months ago. Honda altered its assumption for the dollar's average rate to ¥117 for the year from 115, and the euro to ¥149 from 145.

Weaker-than-expected sales volumes in each business segment - motorcycles, cars and power products - as well as a big rise in recall-related costs and incentives spending would offset forex gains of ¥107 billion for the year, it said.

"I think the market will be a bit spooked by this," said UBS Securities auto analyst Tatsuo Yoshida. "The positive impact from forex is huge."

Honda estimated it would spend about $100 million more on sales incentives this business year in North America than it reckoned in October.

Honda is one of the healthiest and fast-growing carmakers in the world backed by solid products such as the CR-V crossover and Fit subcompact. Big U.S. rivals, meanwhile, are losing customers and burning through cash as they restructure their North American operations.

Ford Motor Co. (Charts) last week booked a net quarterly loss of almost $5.8 billion - more than Honda expects to make in all of 2006-07.

But Honda's results underscore the unquestionable lead that rival Toyota enjoys in most markets as it looks set to overtake General Motors Corp. (Charts) as the world's biggest carmaker as early as this year.

Japan's top carmaker is expected to post a double-digit rise in third-quarter operating profit when it reports next Tuesday. Nissan Motor Co. (Charts), which lost its No. 2 sales ranking among Japanese automakers to Honda last year, is expected to report weaker profit this Thursday.

Earlier, Toyota's mini vehicle unit, Daihatsu Motor Co., reported a 20 percent jump in nine-month operating profit to ¥30.41 billion and a 16 percent rise in net profit to ¥16.80 billion on robust sales. It left its full-year forecasts unchanged.

Honda shares gained 18 percent in October-December, just beating the Tokyo transport sector subindex ITEQP.

The stock trades at around 15.3 times forecast earnings, against Toyota's 16.4 times.

Honda shares ended down 1.3 percent at ¥4,750 Wednesday ahead of the results.

http://money.cnn.com/2007/01/31/news...ion=2007013106

dom

Thats what happens when you refuse to make a V8 when the market demands it.

F23A4

I think Honda may be hedging on $5/gal gas prices stateside....too bad (for them) it is the middle of Winter and gas prices are still receding.

charliemike

Bush isn't doing well so prices are going down

fsttyms1

cp3117

X3......Yes, a MDX or RL with an optional V8 would sure fit in nicely now for the NA market.

mrdeeno

the market is cyclical, and flexible automakers have flexible products that can be brought to market to meet consumer demand as the market warrants. As a SMALLER automaker than toyota, they should be MORE flexible in meeting market demands...but that seems to not be so.

as flexible a "manufacturer" that Honda is, they are a very inflexible automaker and have a hard time following cycles (they were late to the SUV party, they still deny there is a RWD party when stability control and higher hp levels brought RWD back into favor, and they think they are too good and snooty for the v8 party).

Edward'TLS

On the other hand, without the V8's, that's why Honda is pushing the US government for higher fuel standard or higher gasonline mileage requirement for cars and trucks. Even Toyota is not doing too well in the cooperate mileage area with all its big V8 cars and trucks, but still much better than the domestic makes.

Moog-Type-S

...and add RWD to the list....and stop with the designs too.

mrdeeno

honda is a great automaker because they always give customers what they want.

jeez, why are you guys always honda bashing already?!?

TMQ

Honda should be applauded for setting its own direction and being environmentally responsible.

However, I think Honda does fumble in a couple of areas and scored low in business planning/execution:

1. Hybrid. Honda had the right technology but didn't plan the products well at all - Insight was too small, marketing is weak, civic hybrid doesn't seem too different, and accord hybrid doesn't save much gas. It's a mess. Look at Toyota:
"Toyota seeks 40% jump in hybrid sales"
http://money.cnn.com/2007/01/24/news...ion=2007012409

2. RWD. Honda has NSX and S2000, but didn't make good use of their engineering capabilities. Please leave the FWD to Honda, and stuff RWD onto Acura cars (at least TL and up). People will pay for them. Now that Honda is developing a V10, we all wonder why the heck they didn't do much with V8. That's probably what happens without a decision to implementing a RWD sedan platform.

heyitsme

Honda really isn't a leader as far as being environmentally responsible imo, they just are a small company with a small lineup.

Look at VW, tiny company offering diesels before anyone in the golf, jetta, passat, etc. I think thats something to be impressed about.

SiGGy

bashing? I don't see any bashing...

I don't know what you are so defensive over someone else's thoughts on why Honda is losing sales. What makes what you're saying the absolute truth? If you don't agree with it why not reply back with some facts as to why you think they are incorrect.

Honda caters to the non luxury market, they only make one luxury vehicle. The "RL". All the rest are near luxury level or less. A lot of people are stepping up to Lexus/Infinity/MB/BMW... They ARE losing sales because they don't have luxury amenities like the ones they mentioned...

So some of what they are saying is correct.

mrdeeno

sorry...fixed.

i was being sarcastic about the fact that when people tell honda they want a V8, or SUV's, or RWD, or less conservative styling, honda either does NOT cater to them or arrives late to the game.

as for the bashing part, i was making fun of the bois who think a statement like "honda doesn't make RWD" is honda bashing.

mrdeeno

last time i looked, Honda was a business, not an organization to save the environment.

Business planning and producing products that the MARKET wants WHEN they want them is its priority, not undercutting the closest competitor's emissions by 0.5%.

When the market is prime for them, they do great, and that keeps business going. (even a broken clock is rigth twice a day...in HOnda's case, they are very right twice a day, but that doesn't necessarily mean it isn't broken). BUt when the market changes, they cannot adjust fast enough. Look when SUVs came into favor...they held out until they realized they missed it and had to scramble and make a very good SUV in order to compete, but in the mean time they had to bring over Isuzu to help.

Look at the pickup truck market. When pickups were popular, they had to scramble to come up with a "truck", and their attempt, as nice as the ridgeline is, is not even a real truck.

trying to save the environment is great and all, but that's should not be their main concern. If they can save the environment and produce MORE products that customers want, that's great. But they should not let saving the environment interfere with producing more products that customers want.

And people can say they are a "small" company all they want...and Honda will remain "small" as long as they choose not to grow their product lines into different segments and demographics and taking advantage of economies of scale to a greater extent.

mrdeeno

oh yeah, and i'll probably be one of the first to bash honda for anything since i am a honda fan yet am severely disappointed in their offerings and lack of "growth" into new segments.

i was excited about the 2nd generation RL...before it came out and I knew what it offered. All the rumors of RWD or AWD with hybrid drivetrain driving the front wheels, rumors of a car that will blow the competition out of the water with high tech features like night-vision and all sorts of goodies...all of these rumors almost "confirmed" by dealers with rumors backing it up on vtec.net and people who were "insiders" that worked with the company telling everyone to be prepared to be "awed" or to have "faith" because Honda will not let us down.

For a company like honda, none of this was "hype" considering what Honda is capable of and what they were showcasing at auto shows back in the day (remember that purplish hybrid sedan they had that was rumored to be a basis for the next RL, or the prototype RDX with the transformer look?). But then when reality struck, Honda decided to "play it safe", once again.

Not to mention rumors of the next NSX that circulated about 5 years ago about how it was a "ferrari-killer", etc. etc. Even when the HSC came out, excitement came back...then they scrap it for the latest more conservative one they had on display at the prev. auto show.

I really wanted to like the RL and tried to, considering the prices they were going for. But "value" can only make up for so much of what was not there...and considering the sales, I'm not the only one that feels that way.

vishnus11

The Ridgeline was a "scrambled" attempt at making a truck. Its an innovative truck, and the first of its kind that uses a unit body construction. It rides and handles much better than competing trucks whilst being capable of towing upto 5000lbs. It meets the demands of many pickup truck buyers out there who need a decent people hauler as much as they need a truck.

They're commitment to the environment is part of their company philosphy. Yes, it can sometimes affect the business side of things; producing a sports car (s2000) that conforms to LEVII emissions for example. Most consumers, especially in the US where taxes aren't levied based on vehicle emissions, could care less about whether a vehicle conforms to LEVII emissions standards; however, Honda believes that its products should be "socially responsible" so to speak as so they choose to spend the extra R&D to make the car conform to those standards. Some can appreciate a manufacturer for that, others can't. Same thing goes for fuel economy - Honda's vehicles have always been extremely fuel efficient, especially in the real world, relative to their class and time. This has been Honda's approach regardless of fuel prices. Sometimes it favors them, and sometimes it doesn't. But as far as their concerned, environmental pollution is a priority and they believe that they have a responsiibility in minimizing their contribution via their products. It might not be a fiscally sound policy, but its an ethically sound one.

As far as Honda being a "small" company - I'm not sure their goal is to be a global giant like Toyota. "Small but sustainable growth" seems to be their aim, and judging by the fact that they've posted 10+ consecutive years of growing sales, it seems like they're on track.

vishnus11

Quote from GreenerCars:

"Capturing the “greenest vehicle” title with a photo-finish this year is the hybrid-electric Honda Insight. In second place is the natural gas-powered Honda Civic GX, while the Toyota Prius, Honda Civic Hybrid, and Toyota Corolla round out the top five."

3 Hondas, 2 Toyotas, and no VWs. Meanwhile, VW rounds up the bottom of the list with the Touareg.

VW's diesels get good fuel economy, but perform poorly with regards to emissions. They had to pull the plug on the V10 diesel in the Touraeg because it wouldn't pass emissions regulations.

AcuraFan

I agree with vishnus on this one. If I remember right, Honda has the highest mpg rating of any automaker in the world...mostly because they don't have scores of trucks and SUVs or offer a V8.

shrykhar

http://www.latimes.com/classified/au...,7869236.story

Sums up my feelings about a Honda V8 and SUVs/trucks in general.

mrdeeno

1) it's innovative, and it's the first to use a unit body construction because that's all that Honda had to work with. Necessity is the mother of all inventions (or innovations). Had honda at least invested in a truck/SUV study, even when trucks were not in favor yet, they could have been prepared if that day ever came rather than having to "scramble".

And yes, it's nice for what it is, but it's not a truck and most truck buyers buy trucks for 2 reasons...1. they need it for work (construction, hauling, gardening, etc.) and for work, people will choose cheaper REAL truck alternatives, and 2. the people who don't need a truck but buy them will buy them for image, and these people will not buy a "pseudo" truck for image. Sure it meets the demands of "some" pickup truck buyers, but at that price and not being a true truck, just enough is not enough.



that's fine and they've produced examples of this being the case. Example...S2000...it was a very sporty and image conscious car that also was environmentally friendly. Which demonstrates that they CAN produce cars that enthusiasts love as well as save the environment. And if they can continue to do this, then great...build a fuel efficient V8 SUV...build a fuel efficient V10 supercar, etc. etc. But priority #1 is still producing cars. if priority #2, saving the environment, interferes with #1, then #2 should be the first to go, and that historically has not been the case (look at the insight...a fine example of priority #2 over priority #1).

Yeah, sales increases in the same segments they've always been successful in. Which creates a PERFECT environment to take more risks in segments they have not explored. Unfortunately they have only done this a few times in the auto industry (NSX, S2000, hybrids), but now they seem to be crawling back under their rock, which confuses me because they've been successful when they do take risks, so why the change of heart all of a sudden for no reason?

mrdeeno

say it ain't so, Dick!

I am 99.9% sure Dick knew that Acura needed a V8 a decade ago after the first RL flopped, yet Honda won't even listen to their own executives.

vishnus11

I disagree with you in that Honda intentionally went with a unit-body construction to achieve their ride, handling, safety etc. requirements. Any major automotive publication will attest to the fact that the ride and handling of the Ridgeline is world's apart from the competition and that is largely due to its unit body construction. Yes, Honda worked with a platform that they already had, but I don't think they abandoned the idea of developing a body on frame platform because they didn't want to take on the costs associated with that - instead a body on frame platform probably wouldn't have allowed Honda to meet its goals in designing a truck.

Honda never intended to go run with the big boys ala Tundra. The Tundra is a real truck - brawny, V8 power, body on frame, the works. In spite of this, Toyota still has its fingers crossed and is hoping that the Tundra can break into this segment dominated by domestics. I highly doubt Honda wanted to take on the Rams, F150s and Silverados of the world; instead they wanted to explore a niche market. Most urban buyers of pickup trucks buy one to use for occasional runs to Home Depot and such light duty work. At the most, their towing a 3000lb boat. But 90% of the time, these types of buyers are using their trucks as daily transportation, and want something that is comfortable, fuel efficient and safe - the Ridgeline is aimed at this demographic, and IMO succeeds admirably in meeting these goals - its comfortable, safe, full of utility, and can tow 5000lbs.
[/QUOTE]

In the case of Honda, I get that feeling that #2 is #1 and #1 is #2 in that "saving the environment" so to speak comes first. Again, some can appreciate this, and others might not.

dom

Exactly. IMO the Ridgeline is a V8 option and a big styling overhaul short of being a great seller.

Honda knows it can't compete with the domestics and at this point Toyota or Nissan in the pickup segment. And IMO would be a huge mistake to try now. The industry is obviously moving away from body on frame SUV's.

mrdeeno

honda's goal in a "truck" should be the same goal in every car it produces...that it sells to the intended customer/market segment.

it sure wouldn't make sense if they developed a unit-body "truck" that had the same characteristics as regular body-on-frame trucks. So of course there are advantages to building the Ridgeline on a unit-body platform, otherwise there would be no benefit for this approach. but in the end, this is the answer to a question that was never asked, and it's obvious from a sales point-of-view.

standard trucks, from both the other imports and domestics, sell better than the ridgeline. If the advantages of the a unit-body truck were important factors in truck buyers minds, then the ridgeline would be selling very very well. But obviously it is not, because those advantages were not very important factors for most truck buyers. Honda can design a truck that is worlds apart better in handling, ride, comfort, etc. from what is on the market, but if those factors aren't important for truck buyers, then whats' the point? it's like giving the Toyota Avalon the handling of a Lotus Elise...sure it would be nice to have, but do you think grandpa's decision is based on that fact?

I don't think Honda ever intended to go against the big boys either, and that's because they knew their product could not compete with the big boys. But that's the point...the big boys are chasing a larger truck market. who is the ridgeline supposed to chase? a small group that does end up buying a ridgeline? why bother then? Plus, i remember seeing an article comparing the towing and handling of a Ridgeline vs. a F150...and if I recall correctly, this comparison was set up by Honda.

Last time I looked, Honda was in the business of making engines and cars and stuff. it's great that they are concerned with the environment, but if they really want to "save" it, they should close up shop and build windmills and solar panels instead. They make products that pollute and sell and that's how they make their money. If they made products that don't pollute, and the products don't sell, do you think they'd be in business much longer?

mrdeeno

I agree the industry is moving away from body-on-frame SUV's, but this is not the case for the truck market, otherwise the Ridgeline would be selling like hotcakes since it's one of the very few of this type.

Honda can't compete with the big boys, and they know this. But I know if I don't bring my game face and buy-in money to the poker game, I can't compete either. the point is that honda IS capable of competing with the big boys, yet they choose not to. There is a huge truck market out there, and even not doing well is doing pretty decent, yet Honda eschews the majority of the market for the tiny "niche" that would buy the ridgeline.

the RL is another model that comes to mind where there is a larger and more lucrative market in place, yet they would rather aim for a tiny "niche" of that market.

dom

I don't agree. I don't think Honda had to chase the domestics, Toyota and Nissan in the pickup segment. The Ridgeline is far from perfect, but its on the right track. Like its been said, its more than enough for 75% of consumer level pickup buyers.

Honda Posts Record January Sales



Looks like everything but the Accord, CR-V, MDX and Ody were down yet they still managed record sales.

BTW - I think the RDX is also officially a BUST.

I'd be worried about Civic sales. Its only in its second year and sales are tanking.

F23A4

I am impressed with Accord sales: up 12% going into its last model year.

Back on the Ridgeline topic: it was definitely not intended to compete with mainstream pickups rather, it seems designed for suburban/urban light pickup duty (i.e.: the Home Depot trips mentioned earlier). It is not my preference but, I think Forbes Magazine states the case well for the Ridgeline:

Forbes

shrykhar

Let's hope that their turbo R&D doesn't go to waste ... *cough* TSX *cough*

Weird stumpy cars with odd instrumentation don't do well as mainstream products? Makes you wonder what Toyota was so worried about then when it delayed the Corolla for a re-redesign.

Truth be told, I like the coupe except the gauges and the gutless engine. (For reference, I used to drive that thing in my avatar, so I KNOW what gutless is.) I'm surprised the K20A3 isn't anywhere to be found now that the old Si and base RSX are gone; it seemed like a decent tradeoff between gas mileage and performance, while still running on regular gas.

TSX69

I had read many times that Civic production was going to be cut to make more room for the new CRV. If true, that would explain the big dip.

Moog-Type-S

True, I always wanted a POS automatic transmission, & a rattle box for a car....Honda came through on my wishes with a 2001 CL-S.

mrdeeno

I have no doubt that it's more than enough for 75% of pickup level buyers.

but then again, a honda civic is probably more than enough for 75% of near-lux sedan buyers, but near-lux sedan buyers aren't buying civics even though they are "enough", they are buying near-lux sedans because of the things they WANT that comes in a near-lux sedan that doesn't come in a Civic, regardless of whether a civic is "enough" or not.

Same as pickup truck buyers, they are buying pickup trucks for what they WANT, not what they NEED.

I'm sick and tired of hearing that Honda is offering cars that are "enough" for buyers. That may work well in other markets, but the U.S. market doesn't buy cars that are "enough", they buy cars that they WANT. If most of the U.S. market bought cars that were "enough", we'd all be driving hyundais and compacts, not SUV's, pickups, or luxury sedans, not to mention there would be no MB, BMW, Audi, or any other premium brand here.

And no, Honda doesn't have to chase the domestics, and they know they couldn't anyway with the Ridgeline. That's my point, why are they chasing a tiny segment of the market? The Ridgeline was made FOR the U.S. market because pickups are popular in the U.S. if I was going after the pickup market, then i'd go after the pickup market...i wouldn't dip my toes in with an "alternative" to real pickups, I'd make a pickup that most of the pickup market WANTS, not what I personally felt was "enough" for most of the market.

IMO, honda's new products are based on what they personally feel is "enough" for the market rather than what the market WANTS...and in the U.S., my experience is that people are more wiling to skimp on what they need yet spend more on what they WANT.

mrdeeno

do you really believe those reports?

If Civic sales are HOT and keeps pace with production, there would be no way they would cut production. If they report that they are making room for another model, that is just to save face that a model is not selling per their expectations and the production rate was too high. It would be true if the CRV was a hot seller and it was either one or the other that got production cuts, but that's not really the case considering the CR-V and RDX share a platform and they can easily shift allocation for RDX's over to CR-V's.

At least they have the option of slowing production of models to keep the "excess" limited, which helps keep the model from suffering in the resale market. I'm sure the domestics wished they had the ability to slow production to keep pace with demand, but they had the UAW to contend with.

biker

Same excuse the Lexus fanboys make about the GS.

Shoofin

Guess what? Honda took away 1% of the holdback of all Honda automobiles (Not Acura), so the holdback now is 2%. They also increased the invoice by a few hundred. Overall they probably took at least $400 of profit out of the cheaper cars, and more from the more expensive ones.

F23A4

Well, I did my part for Honda this past weekend and purchased an 07 Accord EX-L sedan (w/Navi). So, when the sales figures for Feb 07 come out, think of F23A4 when noting the Accord sales.

AcuraFan

Rockin! Get out and vote for your favorite car!

Enjoy the Accord!

Infamous425

i read on business week the 5-6 yr old toyota corolla outsold the new civic by 10k units for the month of january.

AcuraFan

Hmmm...I wonder what Honda can do about it. I'm guessing sales are down because of styling. Are the sales so bad they can't ride out the generation? They can do some minor cosmetic tweaks (ala 2006 Accord) but they can't do much major.

dom

18,378 vs 25,519

Although I think some Corolla are fleet sales.