Honda Slashes Profit Forecast Amid Global Downturn

Honda hmc, Japan's No. 2 carmaker, said Wednesday that it is slashing its annual profit forecast, curtailing investment and slowing production to ride out a global slowdown.

Nissan nsany, the nation's third-biggest automaker, added to the dismal news by saying it is reducing domestic production by another 78,000 vehicles and cutting 500 temporary workers.

What's more, the dollar fell to a fresh 13-year low against the yen, further pinching the automakers' income from exports. That's because as the dollar falls, it translates to fewer yen when the Japanese companies bring the money home.

For every yen the dollar declines, Honda loses about 18 billion yen ($200 million) in operating profit. In trading Wednesday, the dollar fell as low as 88.15 yen.

"Every day, the hardships we face are getting worse and worse. And there are no signs of recovery," Honda President Takeo Fukui said at a news conference that was hastily moved up two days from the initial schedule.

To take responsibility for the faltering results, Honda directors will take a 10% pay cut and further bonus reductions are likely, he said.

Honda now expects 185 billion yen ($2.06 billion) in group net profit for the fiscal year ending March 31, 2009 — less than a third of the 600 billion yen it earned last fiscal year.

Honda has already twice cut its forecast for the current year. In October, it said it expected 485 billion yen ($5.4 billion) in profit.

Fukui said Honda's worldwide vehicle sales in 2008 are expected to reach 3.77 million units, almost unchanged from 2007. Sales are plunging in the U.S. and other regions, with even previously healthy emerging markets getting battered, according to Honda.

Underlining the tough times ahead, Fukui refused to set a vehicles sales target for 2009 — an unusual move for Honda.

Earlier this month, Honda said it was pulling out of glamorous but expensive Formula One racing to save money and focus on its core car business.

Mamoru Katou, auto analyst at Tokai Tokyo Research in Nagoya said Honda is taking the right action in guarding against a shrinking market.

"In about two years time, it can again expect growth. For now, it is going on the defensive," he said. "It's making clear that it's shifting gears."

Fukui said Honda will focus on green technology, especially hybrid vehicles and small cars, to prepare for recovery in the long run. He tried to strike an upbeat tone by announcing a joint venture with Japanese battery maker GS Yuasa gyuaf to develop next-generation batteries for hybrid vehicles as part of the future growth program.

In recent years, the president's year-end news conference has been an occasion for Honda to announce ambitious plans for growth in key global regions.

Honda lowered its sales forecast for the fiscal year through March 13% to 10.4 trillion yen ($116.9 billion).

The company also trimmed annual investment spending by 60 billion yen ($674 million) to about 650 billion yen ($7.3 billion) to cut costs during hard times, including scrapping plans to introduce the Acura luxury line in Japan by 2010. Plans to develop a successor to the NSX sports car were also canceled.

Honda had already said it was cutting 760 temporary workers in Japan, or nearly 18% of its Japan temporary work force of 4,300. On Wednesday, Honda said another 450 temporary workers in Japan will be cut through February.

To cope with sluggish sales worldwide, Fukui said Honda will halt expansion in Japan and abroad, including Turkey and India.

With its plans to cut 78,000 vehicles, Nissan has now cut production by 225,000 vehicles over the last year, 16% of its initial production forecast of 1.398 million vehicles for the fiscal year.

Toyota is also cutting production. In a key setback, Toyota said earlier this week that it's delaying indefinitely the start of production at its plant in Blue Springs, Miss. The plant had been scheduled to begin in 2010, marking the first time the gas-electric Prius hybrid would be built outside Japan and China.

Japan's automakers have avoided the serious woes of its cash-strapped U.S. rivals, General Motors, Ford and Chrysler, which are asking for government help.

But the drop in U.S. sales has hurt Japanese carmakers. In November, when U.S. auto sales plunged 37% to their worst level in more than 26 years, Honda's sales sank 32% from a year earlier, Nissan's were down 42% and Toyota's 34%.

Fukui said he hopes the Detroit automakers will get some kind of rescue.

"A collapse of any of the Big Three would be a negative for all the automakers in the world, including Honda," he said. "It is best that they return to sound health."

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