Honda cuts annual profit forecast after recall

Image source, AFP

The Japanese carmaker Honda has cut its profit forecast and seen third quarter earnings drop sharply following a vehicle recall linked to airbags.

Honda, whose products include Civics and Accords, is forecasting full year net profits of 545bn yen ($4.6bn, 拢3bn) 3.5% less than it previously hoped.

Third quarter net income was down 15% at 136.5bn yen.

Honda has had to recall millions of vehicles amid an exploding airbag crisis in which five people died.

Honda has already been fined $70m by the US authorities, a record civil penalty for a carmaker, for not telling regulators about 1,700 complaints about deaths and injuries caused by its vehicles, and for not reporting warranty claims.

The airbags are supplied by fellow Japanese company, Takata.

Aside from that crisis, sales in its home market were dented by a recently introduced sales tax.

Overall, though, sales for the past nine months were up by 6.3%.

The weak yen flattered repatriated profits for the whole nine-month period, leaving net profits for the period 5.3% higher.

The move will help it set aside more cash to pay for an expanded recall of its cars to replace potentially faulty air bags made by supplier Takata.

Defective air bags

Shares in Takata, meanwhile, took another hit on Friday, closing down 2.5% in Tokyo after Honda said that a driver was killed in the US last week in a 2002 Accord equipped with a Takata air bag that may have ruptured.

The announcement was the latest in a string of deaths since 2008 that have been linked to defective Takata air bags.

More than 24 million cars worldwide have been recalled because of its air bags.

But despite the decline in earnings, Honda's executive vice president Tetsuo Iwamura said at a press conference that the carmaker was "not seeing a big impact on sales in North America from the air bag issue".

Honda has also slashed its full year sales target and expects to sell a total of 4.45 million cars, down from the 4.62 million it previously forecast due to slowing sales in Japan.

Honda's Tokyo listed shares had closed down 0.8% before the earnings results were released.