Honda’s Ito Forecasts Business Results to Be Best in At Least Five Years

Honda Motor Co. (7267) President Takanobu Ito forecast that business results at Japan’s third-biggest carmaker will climb to the highest in at least five years, led by sales of Accord sedans and Civic compacts in North America.

Business results in the year ending March 2013 will recover to levels achieved before the failure of Lehman Brothers Holdings Inc. roiled global markets, as sales climb above 4 million vehicles for the first time, Ito said in an interview this week. Lehman filed for bankruptcy in September 2008, six months after Honda earned record annual profits.

“It will be the year of the complete rebound,” Ito said at the company’s Tokyo headquarters. “Sales in North America will lead the recovery. We’ll introduce a fully revamped Accord in the fall, and that will be a big plus to our sales.”

Ito’s comments reflect a revival in confidence by Japanese automakers as they recover from a year plagued by natural disasters at home and in Thailand. Toyota Motor Corp. (7203), Asia’s largest carmaker, said this week annual sales will be 100,000 units higher than it anticipated last month.

“Honda’s targets are definitely aggressive, but the U.S. economy seems like it’s going to recover to a better-than- expected level this year so it’s likely for them to achieve it,” said Mitsushige Akino, who oversees $600 million at Ichiyoshi Investment Management Co. in Tokyo. “They’ve remodeled their best-selling cars, and we can expect strong sales in North America to help them regain market share.”

Reversal of Fortune

Honda fell 1.9 percent to close at 2,689 yen in Tokyo. It’s gained 15 percent this year, the best performer among Japan’s three biggest automakers. That’s a reversal from 2011, when the stock’s 27 percent drop made it the worst performer.

Honda’s operating income, or sales minus the cost of goods sold and administrative expenses, will probably double to 586.6 billion yen ($7.6 billion) next fiscal year after shrinking 52 percent, according to the average of 24 analyst estimates compiled by Bloomberg. Earnings reached 953.1 billion yen, 851.9 billion yen and 868.9 billion yen, respectively, in the years before Lehman’s bankruptcy.

Ito, 58, is counting on the U.S. market to drive growth.

Redesigned Accord

The redesigned Accord sedan, the Civic and CR-V sport- utility vehicle will help Honda increase U.S. sales 24 percent to 1.43 million units in 2012, Ito said. Sales in the market, Honda’s largest, declined 6.8 percent last year, led by a 17 percent drop in deliveries of the Accord. The Accord is Honda’s best-selling U.S. model, followed by the Civic.

Ito ruled out any major overhaul of the Civic after the current version of the sedan, which failed to receive the “recommended” status its predecessors had from Consumer Reports magazine, was the best-selling model in the compact-car segment in the last three months of the year.

Honda’s new models will give it an edge in the U.S. over South Korea’s Hyundai Motor Co. (005380), which is producing close to full-capacity, said Kota Yuzawa, a Tokyo-based analyst at Goldman Sachs Group Inc. That puts Honda in “good position” to regain lost market share, he said.

Honda may not be alone. Japan’s three biggest carmakers are poised to gain market share this year at the expense of U.S. producers led by General Motors Co. (GM) and Ford Motor Co. (F), according to five analysts surveyed by Bloomberg.

‘Unstoppable’ Motorization

In China, the world’s largest auto market, Honda expects its sales to rise more than 20 percent to 750,000 units in 2012 after they shrank for the first time in 2011 in a slowing market, Ito said. The company plans to introduce three gas- electric hybrid models in the country this year, he said.

“China is still strong,” Ito said. “Once motorization captures a market, it’s unstoppable.”

China’s total vehicle sales -- including cars, trucks and buses -- grew 2.5 percent to 18.5 million units last year, according to the China Association of Automobile Manufacturers, trailing growth in the U.S. for the first time in at least 14 years. Honda expects the market to expand to 20 million this year, or “just above” China’s economic growth, he said.

In Thailand, where the country’s worst floods in almost 70 years disrupted assembly plants and supply of components in 2011, Honda plans to resume production starting in April, Ito said. Damages stemming from Thailand forced the company to scrap this fiscal year’s profit forecast.

Reorganizing Factories

As part of Honda’s strategy of producing cars where they are sold, the company plans to reorganize its Japanese factories so they focus on production of minicars, a growing category that makes up about 40 percent of the nation’s auto demand, Ito said. Orders for the N Box minicar in Japan reached 27,000 units in its first month of sales, more than double Honda’s original target.

Minicars, defined as vehicles no longer than 3.4 meters (11 feet) in length, will account for 40 percent of Honda’s Japan sales, compared with 25 percent now, Ito said.

Honda joins Toyota and Nissan (7201) in reorganizing operations as the yen, which has gained against the world’s 16 most-traded currencies for two straight years, erodes the value of exports. Honda plans to boost the portion of vehicles sold in the same region they’re built to as high as 80 percent, Ito said. In 2010, Honda sold about two out of three Japan-built cars in the country.

Officials at Toyota and Nissan this month have also echoed plans to increase their portion of vehicles sold in the region where they’re assembled.

“Minicars will be key for us in Japan in the next five years,” Ito said.

To contact the reporters on this story: Anna Mukai in Tokyo at amukai1@bloomberg.net; Yuki Hagiwara in Tokyo at yhagiwara1@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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