Honda heading into the red

Collapse of US and Europe market blamed for first ever operating loss in 10 years. NSX gets the chop but Green Tech is on course

Car and motorcycle maker Honda issued a warning to investors that its second half performance for 2008 may result in red ink on its books. This will be the company’s first operating loss since the Asian financial crisis.

CEO Takeo Fukui warns that the worst may not be over yet and expects the new year to be equally, if not more challenging as economic data from all around the world are painting a very gloomy picture.

Mind you, Honda was considered a very healthy and agile company able to weather the storm better than others so the profit warning and red ink caution is taking everyone by surprise, not just Honda.

Speaking to reporters earlier today, Fukui said that they are expecting profits to plunge from the $5.5, already a downward-revised figure announced just six weeks ago to $2.1 billion with the second half in the red. Deep red.

Sales are now expected to plunge $4.5 billion, to $131 billion, 10.3% worse than previously expected. That means Honda expects to lose more than $2.1 billion in the six months through March 2009 after making $4.2 billion during the first half. “The situation is worsening every day in all regions,” Fukui told a packed press conference at the company’s Tokyo headquarters.

In an earlier announcement, Nissan (NSANY) said it would cut production in Japan by a further 78,000 from January, which means it has now announced cuts of 238,000 vehicles in Japan. Nissan, which started the fiscal year in April with 2,000 temporary employees, also said it will employ none by March 2009. Toyota (TM) is delaying the opening of a new Prius plant in Mississippi.
Among the Japanese carmaker’s worst enemy right now is the falling dollar which now trades at 89 yen, a 13-year high .

The strong yen is a double whammy becuase it makes Japanese cars less attractive to buyers and when they bring back the money from shrinking sales, it transalates to even less yen.

Honda’s sales year-to-date are down only 5.4% which is better than what the others are suffering but its November numbers in the US is far more telling of the deepenign crisis, they recorded a startling 32% dive in sales.

“The impact of November says everything,” Honda Senior Managing Director Koichi Kondo said at the press conference when asked why Honda had slashed its projections so soon after the last revision.

Apart from cost cutting and deferring the openign of their new flagship plant, they will also postpone investment sin India and Turkey.

The worst news for car enthusiast was the decision to put the new NSX in the cold. Running prototypes have been spotted indicating that the project is at a very advanced stage, but with the money ebbing away this rxtravagant display of Honda’s engineering prowess is probably only going to contribute to the red ink.

Honda management will share some of the pain through a 10 per cent pay cut for all directors and they can expect to see year-end bonuses slashed.

So far honda has kept retrenchment at bay but 760 temporary workers have been told that their contract will not be renewedbeyond december while another batch of 460 will be released when their contract expires.

The good news is that Honda will put the FCX Clarity Hydrogen fuel cell demonstrator on sale as planned next year and they wil continue with research work on environmetnally friendly technologies.

Honda Malaysia is launchign theri new City tomorrow(Thursday) and they are probably banking on the new model to keep the company on course for the year. We will get theri reactions at the launch.