Honda says profit goals "Herculean task"

TOKYO Fri Nov 28, 2008 2:16am EST

TOKYO (Reuters) - Honda Motor Co will have a tough time meeting its lowered annual profit forecasts due to an increasingly severe sales environment that is forcing carmakers everywhere to scale back output, a top executive said on Friday.

"The environment is becoming tougher by the day," Executive Vice President Koichi Kondo told Reuters in an interview.

"Reaching (the annual profit forecasts) is going to be a Herculean task," he said, adding that Japan's No.2 carmaker would need to update the figures again.

Trading volume in Honda shares spiked on the news. The shares ended up 3.2 percent at 2,085 yen in Tokyo, though off an intraday high of 2,120 yen.

Exactly a month ago, the maker of the Civic and Accord models lowered its operating profit forecast by 13 percent to 550 billion yen ($5.8 billion) for the business year to the end of next March, blaming declining vehicle demand and a stronger yen.

But global car sales have contracted even further since then, prompting Honda to announce plans last week to build about 80,000 fewer cars this business year compared with what it had planned at the end of October. The cuts will be implemented in Japan, North America and Europe.

Production and work force reductions have become an almost daily occurrence across the industry, from Toyota Motor Corp to General Motors Corp and Volkswagen AG.

Honda was the first major Japanese carmaker to announce April-September earnings results, on October 28, after which rivals Nissan Motor Co and Toyota more than halved their projections for 2008/09 operating profit.

Kondo conceded that the business environment had worsened considerably between October 28 and November 6 -- the day Toyota reported -- indicating that Honda's projections were less realistic.

A survey of 16 brokerages by Reuters Estimates puts Honda's operating profit at 496 billion yen for 2008/09.

Kondo said demand in the United States looked "bad" again in November, adding that Honda's sales in its single biggest market would come in near, but slightly better than, last month's 28 percent drop.

Industry-wide U.S. sales tumbled 32 percent in October to lows unseen in a quarter of a century. In annualized terms, tracked by analysts, the market recorded a sales rate of just under 10.6 million vehicles last month, down from over 16 million in the same month last year, according to Autodata Corp.

"There's a bottom somewhere but I'd like to know where it is," Kondo said.

Kondo, formerly in charge of Honda's North American operations, estimated latent U.S. demand at around 15 million vehicles at the current population of 300 million.

But a credit squeeze born of the financial crisis was sapping sales, while deep economic woes were keeping consumers away even as rivals offer zero-percent financing in the United States, he said.

"I hear it's not working," he said, referring to the zero-percent financing offered by Toyota, Nissan and others.

"If you can make sales through incentives, it's still a good sign. If that fails, then you're in trouble."

(Editing by Michael Watson)

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