Honda to Recall 21 Million More Vehicles to Fix Takata Air Bags

VW Hurt by Diesel Scandal, Shares Slump
  • Forecast for $3.6 billion profit trails analyst estimates
  • Profit last fiscal year missed company’s forecast by 34%

Honda Motor Co.’s annual profit fell again on the costs of recalling four times the number of vehicles it made last year to replace Takata Corp. air bags. Now a stronger yen will weigh on prospects for a rebound.

Net income fell to 344.5 billion yen ($3.2 billion) in the full-year period ended in March, the Tokyo-based automaker said in a statement Friday, missing its forecast by 34 percent. Honda will recall 21 million more vehicles to replace Takata air bags, Executive Vice President Tetsuo Iwamura told reporters.

With the yen strengthening more than 10 percent this year, profit this fiscal period will probably rise to 390 billion yen, the company said. That trailed the 574.2 billion yen average of 22 analysts’ estimates compiled by Bloomberg.

A stronger yen weighs on the repatriated value of profit earned overseas. Honda is assuming the yen will average 105 per dollar in the current fiscal year, compared with 120 in the previous 12-month period.

For more on the currency swings impacting corporate Japan, see: Japan Inc. Sees End of Cheaper Yen Exposing ‘True’ Toyota

Japan’s third-largest automaker took another 267 billion yen charge related to Takata air bag recalls. The U.S. National Highway Traffic Safety Administration has ordered the replacement of as many as 40 million more Takata air bag inflators that can deploy too forcefully, rupture and spray plastic and metal shards at motorists.

Takata Costs

Auto manufacturers led by Honda and Toyota Motor Corp. had already recalled more than 60 million air bags worldwide before last week’s order. Honda’s profit forecast for this fiscal year doesn’t factor in estimates for air-bag recall costs.

The company has booked provisions for all Takata air bag inflators that lack a moisture-absorbing desiccant, Iwamura told reporters Friday. Those cost the company 436 billion yen in the latest fiscal period and 120 billion yen a year earlier.

NHTSA has ordered all inflators that lack the material recalled, as researchers have said exposure to moisture is the root cause of the devices rupturing.

Honda suspended production at its motorcycle and power-product factory in Japan’s Kumamoto prefecture after earthquakes struck the southern Japan region last month. Honda has restarted some output at the plant this month and expects to fully recover production in mid-August.

The company’s shares declined 2.2 percent in Tokyo trading, before the earnings release. Honda has slumped 29 percent in the last year, trailing the 18 percent drop for the benchmark Topix index.

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