Honda Motor Co. earnings took another tumble as the maker was hit by both a stronger yen and the ongoing recall of faulty Takata airbags.
The third-largest of Japan’s automakers recalled about four times as many vehicles last year – largely due to the Takata problem – than it sold. And the issue, now linked to 13 deaths, isn’t about to go away. Pressed by concerns that the defect is more widespread than originally believed, Honda will recall another 21 million vehicles, Executive Vice President Tetsuo Iwamura said Friday.
Honda net income for the fiscal year that ended March 31 fell to 344.5 billion yen, or $3.2 billion. That not only trailed the consensus estimate of industry analysts but came in 34% short of the company’s own forecast earlier in the year.
Looking forward, Honda is expecting to see its profit for the current fiscal year rise to 390 billion yen, but that is almost a third less than what the consensus forecast compiled by the Bloomberg news service originally called for. And because the carmaker expects the yen’s value to rise by more than 10%, it will actually wind up being able to bring less of those earnings from abroad back home.
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Toyota and Nissan also warned this week that their profits for the coming year will be negatively impacted by the strong yen.
More than a dozen different automakers have, separately, been affected by the Takata airbag crisis, but none worse than Honda which traditional had a strong relationship with the Japanese supplier. So far, all but one death caused by faulty Takata airbag inflators have occurred in Honda vehicles.
The problem is linked to both a manufacturing defect at two component plants in North America, as well as the chemical compound used in Takata’s airbags. Over time, a research panel recently concluded, ammonium nitrate can break down and become unstable. The problem appears to be worse in areas where vehicles are exposed to high humidity. If one of the inflators malfunctions, it can send shrapnel firing into the passenger compartment.
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So far, 24 million vehicles have been recalled in the U.S. alone due to the defect, and the National Highway Traffic Safety Administration recently ordered the recall of an additional 35 million to 40 million Takata airbags. Because some models use several of the inflators, however, a final tally of vehicles has not been released. But Honda on Friday said it would recall 21 million cars and crossovers, which would be more than half the total.
During the most recent fiscal year, the Takata problem cost Honda 436 billion yen, up from 120 billion yen a year earlier.
Further complicating Honda’s problems, the maker had to suspend production at a motorcycle and power products plant in Southern Japan as a result of that region’s big earthquake last month. While some operations have resumed, the plant won’t be back to full capacity, Honda said, until August.
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The Takata crisis and other issues have slammed Honda’s stock which fell 29% during the past year. The maker suffered another dip on Friday.