Honda Motor cut 6.5 percent off its core annual profit forecast as it set hundreds of millions of dollars aside in extra cash in order to cover an extended car recall to replace air bags made by car parts supplier Takata.
In its third-quarter earnings report, Honda confirmed that earnings fell by nearly a quarter over recall costs. The third-largest automaker in Japan said it expects an operating profit of 720 billion yen ($6.1 billion) for the year until March 31, according to Reuters.
The company previously forecast 770 billion yen, but it had to set aside an extra 50 billion yen to cover "quality-related costs" like Takata air bag recalls.
"We are not seeing a big impact on sales in North America from the air bag issue," Honda's Executive Vice President Tetsuo Iwamura said, according to Reuters.
During the three months that ended in December, Honda confirmed operating profit dropped 22.5 percent to 177.2 billion yen from 228.57 billion yen in the same period a year earlier. This was below the 189.11 billion yen forecast made by a Thomson Reuters SmartEstimate from a poll of 10 analysts.
The Japanese automaker said it expects to sell 4.45 million vehicles during this fiscal year, which is down from the 4.62 million it forecast, as sales in Japan dropped short of its expected target. In Japan, Honda expects to sell 790,000 vehicles this year over fierce competition in domestic small car market and new model launch delays. It expected to sell 890,000 previously.
Iwamura said the impact of lower sales on its earnings will be canceled by the beneficial effect of the weaker yen.
"The fall in fuel prices represents a body blow to Japanese automakers," said Merrill Lynch analyst Kei Nihonyanagi, speaking before the third-quarter results were published, according to Reuters.
Honda represents more than half of the Takata-related recall of 25 million vehicles since 2008.
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