Honda’s Profit Margin May Fall in the Second-Half
(Update1)
Oct. 28 (Bloomberg) – Honda Motor Co., Japan’s third- largest automaker, will probably see average profit margins drop in the second half as consumers favor smaller and more fuel- efficient cars that earn the company less income, analysts said.
Honda is cutting production of its new Ridgeline pickup truck next quarter by 3,000 units in Canada as inventory has risen to more than 100 days, while it can not meet demand for the redesigned Civic compact, said Executive Vice President Satoshi Aoki yesterday in Tokyo.
U.S. retail gasoline prices have risen 45 percent this year prompting automakers including Honda and General Motors Corp. to curb output of light trucks and sport-utility vehicles. Honda gets twice as much profit from an eight-seat Odyssey minivan as it does from a Civic. The carmaker plans to start selling the Fit compact next year, which will be its smallest U.S. model.
The introduction of the Fit compact car to the U.S. in 2006 will also worsen its profitability,'' said Shotaro Noguchi, an analyst at Mitsubishi Securities Co., who rates Hondaoutperform.’’
Shares of Honda fell as much as 2.5 percent and traded 2.2 percent lower at 6,220 yen at the 11:00 a.m. close of morning trading in Tokyo.
General Motors
General Motors Corp., the world’s largest carmaker is developing a group of small sport-utility vehicles to boost offerings of crossovers, which blend features of cars and trucks. The company will offer 14 crossovers by 2009, compared with seven now, GM Vice Chairman Bob Lutz said yesterday.
If gasoline prices continue to be so high in the second half, Honda may need to adjust its production plans,'' said Koji Endo, an analyst at Credit Suisse First Boston in Tokyo who rates Hondaneutral.’’
The profit margin on an Odyssey minivan is about 600,000 yen ($5,200) compared with 300,000 yen on a Civic, Endo said. The company said yesterday it expects a fifth year of record earnings as the yen weakens against the dollar.
Honda’s second-quarter profit margin in North America fell to 5.4 percent from 7.8 percent in the same quarter a year ago, the automaker said. Honda is spending $990 million to $1 billion, or an average $660 per vehicle, in total incentives in the U.S. in 2005, up from its July forecast of $890 million, or $610, Aoki said.
Higher Incentives
The automaker will raise incentives for its light trucks, such as the Ridgeline pickup truck, Pilot SUVs and Odyssey minivans. Honda began selling the Ridgeline, the first pickup truck with a trunk, in March in the U.S. Since then, it’s sold 25,787 models as of the end of September, which is falls short of meeting its target of 60,000 Ridgelines a year. The company will introduce the Fit compact car in the U.S. next year.
Honda’s light truck sales fell 0.6 percent in September, compared with the same month a year ago, while Toyota Motor Corp had a 3.9 percent drop, General Motors Corp. had 30.1 percent decline and Ford Motor Co. had a 28 percent drop, according to Autodata Corp.
Honda raised its global vehicle sales forecast to 3.425 million from 3.415 million, while it lowered its Japan vehicle sales estimate by 20,000 units to 720,000 from 740,000 units, citing weaker-than-expected sales in the first half.
The carmaker is lowering sales outlook of regular passenger cars in Japan, and increasing forecast of minicars, Endo said.
Honda yesterday raised its full-year profit forecast for the second time this year as a weaker yen increased the value of repatriated U.S. sales.
Profit will probably rise about 1 percent to a record 490 billion yen ($4.24 billion) in the year ending March 31, Honda said. It previously forecast 470 billion yen. A falling yen and higher sales of Civic and Accord vehicles in the U.S. helped Honda increase second-quarter profit 5.2 percent.
``Given the performance of shares, you were hoping for a stronger outlook,’’ said David Turry, associate director at HSBC Securities (Japan) Ltd.'s Japanese equity sales in Tokyo.
Doesn’t really surprise me, as the Ridgeline fails to be all that innovative for a pickup. It should get better gas mileage, for example.