Breaking News ... Honda Posts Bad Results Due to China and U.S.

We've reported on the bad situation in Europe for auto makers.

Let's add China and Japanese auto makers to the sad saga.

Honda Chops Forecast says this in part:

"TOKYO—Honda Motor Co. cut its fiscal-year earnings forecast by 20% on Monday, reflecting a boycott in China and inventory issues in the U.S.—its two largest markets—in a gloomy harbinger of Japanese auto makers' half-year reports. . . .

"Our earnings outlook has been affected by lower sales due to the situation in China" and other key markets, CFO Fumihiko Ike said at a news conference Monday, during which Honda also posted disappointing second-quarter results. Mr. Ike said higher spending on marketing and incentives in the U.S. to clear out older inventory also acted as a drag on profits.

Honda's earnings warning may set the pace for the industry, ahead of reports next week from Toyota Motor Corp., Japan's largest auto maker, and No. 2 ranked Nissan Motor Co. All three leading Japanese car brands have faced a boycott since last month in China, the world's largest auto market, as a result of a diplomatic standoff between Beijing and Tokyo over a territorial dispute.

Honda, the maker of the Accord sedan and CR-V crossover vehicle, also cut its global sales volume outlook to 4.12 million vehicles for the fiscal year to March 2013, down 4.2% from its previous forecast of 4.3 million vehicles. . . .

Earlier this month, Honda said sales in China plummeted 41% in September from a year earlier. Nissan saw its sales tumble 35% and Toyota reported a 49% drop. The fall in sales for Japan's big three auto makers came after the outbreak of sometimes violent anti-Japanese protests in China last month sparked by Japan's renewed claim to some contested East China Sea islets.

The reaction of investors to the quarterly results was harsh. Honda shares slid 4.7% . . . .

"It is obviously a surprise," said Christopher Richter, an auto analyst at CLSA Asia Pacific Markets in Tokyo, noting that Honda's profit growth in North America and Asia outside Japan in the most recent quarter was much weaker than anticipated. "Those two (factors) seem to be the main things that drove the (latest) quarter's numbers lower and the lower full-year forecast," he said.

While sales in North America increased 32.8% from the previous year to ¥1.05 trillion in the quarter ended September, that was down sharply from ¥1.21 trillion in the previous quarter. And quarterly operating income in North America sank 44% to ¥26.7 billion, from ¥82.2 billion last quarter.

Honda said profits were dented by higher spending on ads and incentives to clear out older inventory and make room for newer models such as the latest Accord, its top-selling model in the U.S. The car maker's average incentive spending on the Accord came to $3,853 per vehicle last month, it said, citing Autodata.

Company officials expect profitability to improve in the back half of the fiscal year following the introduction of the 2013 Accord model on Sept. 19. "Our incentives on the new Accord are zero," Executive Vice President Tetsuo Iwamura told reporters. "We remain committed to a strategy of limiting incentives to a bare minimum.""

SUMMING UP

Stay tuned as China and perhaps the U.S. may be joining Europe in the global slowdown for auto sales.

We'll keep monitoring the global auto selling, inventory, production, capacity utilization and profitability situation, including the U.S., as it's important for the successful growth of economies everywhere.

Thanks. Bob.