Honda’s North American Profits Plunge Amid Recalls and Sluggish Sales
Honda’s operating profit in North America dropped 31% to $1.67bn for the fiscal year ending March 2015, as recalls and production issues weighed on results.
Honda’s North American business reported a 31% drop in operating profit to $1.67 billion for the fiscal year ending March 2015, as the region slipped behind Asia as the company’s main profit centre. The Japanese manufacturer cited slower sales growth, the impact of widespread airbag recalls and delays ramping up production at its new Mexican plant as key factors behind the decline.
While Honda continued to sell more cars in North America than in any other region in the 2014-2015 fiscal year, the company’s biggest revenues now come from mainland Asia. Operating profit in Asia rose 28% to $2.32 billion, driven by strong results in China, India and Thailand. Japan did not contribute to this Asian profit growth.
Sales growth stalls as recalls bite
North American sales increased 2.8% to 397,000 units in the fiscal fourth quarter, but full-year sales slipped 0.6% to 1.7 million vehicles. The first quarter of 2015 was especially weak, with operating profit in the region plunging 72% year-on-year to $97.7 million. Honda’s recall of millions of vehicles to replace potentially faulty airbags, as well as the slow ramp-up of HR-V crossover production in Mexico, were cited as major drags on performance.
Honda missed its internal targets for revenue, net income, operating profit and vehicle sales in the fiscal year, with the North American market largely responsible for the shortfall. The company’s performance in Asia provided some offset, as sales there increased 15% to 464,000 vehicles in the latest quarter and 11% to 1.4 million for the year.
What it means for Honda’s North American operations
The combination of product recall costs, production delays and flat sales has forced Honda to reassess its North American strategy. The region, once the company’s most reliable profit engine, is now second to Asia in terms of operating profit. Honda’s experience mirrors broader challenges faced by manufacturers operating in North America, where regulatory scrutiny and shifting consumer demand can quickly erode margins. For more on how other carmakers are adapting, seeChrysler’s North American production changes.
