Honda drove up its profit forecast for the year, citing a more favorable currency exchange rate, after posting a surprise rise in quarterly earnings on the back of a weaker yen and solid demand in Asia.
Japan’s No.3 automaker, however, continues to struggle in its largest market, North America, which accounts for a third of its sales — where sedans, including Honda’s top sellers the Accord and the Civic, have fallen out of fashion as drivers opt for bigger models including SUVs.
Making the situation worse is an overall slowdown in demand in the U.S. auto market, the world’s second largest after China, following years of growth that boosted profits following the global financial crisis.
Honda’s sales in North America skidded 7.6 percent in the first quarter ended June, but this was offset by a 10.8 percent jump in sales in Asia, including China — which the automaker expects will become its largest market this year.
The Civic sedan and the XR-V compact SUV model were strong sellers in China. The country accounted for around 65 percent of all of Honda’s Asian sales.
The automaker’s operating profit in the quarter edged up 0.9 percent to 269.2 billion yen, versus an estimate for a drop to 230.43 billion from seven analysts polled by Thomson Reuters.
For the year to March, Honda now expects an operating profit of 725 billion yen ($6.57 billion), versus 705 billion yen forecast earlier, based on the U.S. dollar averaging around 107 yen instead of 105 yen as expected previously.
“We had assumed a rate of 105 yen for the full year, but the yen averaged around 111 yen in the first quarter, so that will have a big impact on full-year operating profit,” senior managing director Kohei Takeuchi told reporters at a briefing.
A softer yen makes exports from Japan cheaper, while also increasing the value of overseas proceeds when converted to the home currency.