Honda takes off 6.5 percent from its forecasted annual profit as the company prepares to cover expenses of an extended car recall involving the replacement of Takata Corp's faulty airbags. The company reported an almost a quarter fall of its third-quarter earnings and is now expecting to gain $6.1 billion in operating profit for the fiscal year ending in March 31.
Net income is speculated to reach $4.6 billion which is lower than the company's previous forecast of $4.7 billion and the average estimate of $5 billion made by analysts as compiled by Bloomberg. Earlier in October, Honda also needed to cut its forecast.
Earnings of the company were diminished by the need to recall the faulty airbags that are made by Takata Corp. So far, it has been the carmaker's worst issue in decades and has affected its plans to launch new models. Even the company president, Takanobu Ito, had to endure a three-month cut off his monthly pay by 20 percent a month.
According to Honda, the company needed to bring down its profit projection which it attributes to be triggered by the "decline in unit sales in Japan and China due to the difficult automobile market environment and a forecasted increase in quality-related expenses mainly in North America."
Previously, the company forecasted operating profits of $6.5 billion. However, they needed to set aside an extra $425 million in order to cover quality-related expenses which include the recalls on the faulty Takata airbags.
"We are not seeing a big impact on sales in North America from the airbag issue," said Honda's Executive Vice President Tetsuo Iwamura.
During the period of three months that ended in December, Honda's operating profit slid down 22.5 percent to $1.5 billion from $1.9 billion in the same period in 2013. The figure was obviously lower than the $1.6 billion forecast made by Thomson Reuters SmartEstimate which calculated the poll from 10 analysts.
More than half of the recall involving the faulty Takata airbags had to be accounted for by Honda. Inflators made by Takata tended to explode rather forcefully and produce metal shards. Five cases of the exploded inflators had also caused deaths, all of which occurred on a Honda vehicle.
Since 2008, around 25 million vehicles have been listed for the recall. In the U.S. alone, Honda needed to perform a voluntary recall of around 4 million cars.
Honda expects to gain back the recall costs if Takata would be proven to be at fault. Analysts also say that reputational damage caused by recalls is hardly felt.