Honda Reports Good First Quarter
Focus on light cars, reducing incentives bodes well for Honda.
Net income rose 8.1% year over year while operating income remained relatively flat. Operating income is being pressured by continued rises in steel prices, which have been higher than management originally estimated. The weak dollar is not helping results, but increased unit sales in the automobile business, allowing for fewer incentives in North America, helped mitigate the decline in profits from commodities. The automobile operating margin was 7.2% this year, compared with 6.4% in the first quarter of last year. Increased sales from Asia, Brazil, and Australia helped offset revenue declines in Japan, North America, and Europe. The operating margin in emerging markets also increased to 13.4% in Asia and 13.3% in Brazil and Australia, which indicates that emerging-market nations continue to do well despite the slowdown in the industrialized world.
Unlike U.S. automakers, Honda is actually reducing vehicle incentives in North America, which will preserve resale values and increase demand for its cars. For the first half of calendar 2008, Honda's U.S. light-vehicle mix was about 62% cars and 38% light trucks, and more hybrid vehicles are on the way. With petrol prices likely to stay high, we think Honda is suited to do well despite the severe decline in U.S. auto sales.
