Honda warns on profit

By Chang-Ran Kim, Asia autos correspondent

TOKYO (Reuters) - Honda Motor Co warned of lower-than-expected annual profits as a deepening financial crisis has hammered demand for cars and sent the yen soaring, while U.S. rivals sought government aid to fund a proposed merger to survive a shrinking market.

Carlos Ghosn, chief executive at rival Nissan Motor Co, warned the industry was treading in "uncharted territory" that required a drastic shift in priorities to make it through the next few years.

"This is not going to be a short-term crisis. I don't think we'll get out next year, or even in 2010," Ghosn, also head of France's Renault SA, told a business seminar in Tokyo.

Honda is considered one of the best-placed among global automakers to weather collapsing car demand and shrinking margins thanks to its manufacturing flexibility and vehicle line-up that is geared toward fuel-efficient models.

But even Japan's No.2 automaker is struggling against a steeper-than-expected contraction in U.S. and European car sales and a spillover effect into China, India and other emerging markets that is seen continuing at least through next year.

"Market conditions have turned much worse than we had anticipated," Honda Executive Vice President Koichi Kondo told a news conference in Tokyo.

"What's different now is that it's not just light trucks that aren't recovering (after a recent drop in gasoline prices). Passenger cars have started to fall, too, and that suggests the credit crisis is sapping the desire to consume."

Honda cut its annual operating profit forecast by 13 percent, setting the stage for sharper revisions at rivals including Toyota Motor Corp and Nissan when they report interim results in the coming weeks.

Other Japanese manufacturers are also suffering, with Sony Corp last week more than halving its annual operating profit forecast due to slowing demand and a surging yen.

SUDDEN SPIKE

Most analysts had expected Honda to keep its forecasts largely unchanged until just a week ago, when the yen suddenly jumped to multi-year highs against almost all major currencies, eroding the value of earnings made overseas.

Honda lowered its global car sales forecast for this year by 65,000 units to 4.015 million units, mainly blaming a sharp fall in European demand. It now expects the yen at 100 to the dollar and 135 to the euro in the second half -- far from the less favorable levels of 95 yen and 120 yen now.

"If there are risks for Honda to cut its forecast again, they are the euro and Asian auto sales," said Takeshi Osawa, senior fund manager at Norinchukin Zenkyoren Asset Management.

Across the Pacific, Detroit's loss-making General Motors Corp, Chrysler LLC and Ford Motor Co face an increasingly uncertain future as they burn through cash, while many European peers brace for razor-thin margins.

Sources told Reuters on Monday that GM and Cerberus Capital Management, which owns 80 percent of Chrysler, had asked the U.S. government for about $10 billion in an unprecedented rescue package to support a proposed merger.