Honda Motor Co. (HMC) intends to build its first assembly plant in Russia in order to reap profits from the fast-growing automotive market and improve its global competitive position. The automaker plans to roll out 30,000 to 50,000 cars per year from the plant.
The company has not yet decided about the location of the plant. It will source components for the plants from its global facilities.
Honda’s sales in Russia were dampened by the import tariffs of about 50%, making them more expensive compared with the cars offered by its peers, which are produced locally. Therefore, local production will help the company avoid tariffs and boost sales. Last year, the automaker sold about 18,000 cars in the country.
Automobile sales in Russia are expected to double to 4 million units per year by 2015. As a result, top automakers are planning to ramp up production in the country in exchange for lower import tariffs for parts.
This year, General Motors Co. (GM) signed an agreement with the Russian government in order to meet new local regulations for automotive industry assembly. The agreement will allow GM to invest more than $1 billion over the next several years in the country. The automaker plans to manufacture up to 350,000 vehicles annually and achieve an average-component-localization rate of 60%.
Honda, a Zacks #4 Rank (Sell) company, posted a sharp 88.3% fall in profit to ¥31.8 billion ($394 million) or ¥17.64 per share (22 cents per share) in the first quarter of its fiscal year ended June 30, 2011 from ¥272.49 billion or ¥150.27 per share in the same quarter of prior fiscal year. The decline in profit was attributable to the adverse impact of the earthquake and tsunami in Japan on March 11 and unfavorable currency translation effects.
Consolidated net sales and other operating revenues dipped 27.4% to ¥1.71 trillion ($21.24 billion) on the back of the same factors outlined above, despite increased revenues in the motorcycle business. However, at constant exchange rates, revenues decreased 22.7% from the prior year.
Consolidated operating profit plummeted 90.4% to ¥22.6 billion ($280 million) from ¥234.44 billion due to lower sales volume and model mix, increase in fixed cost per unit as production output has reduced and the unfavorable foreign currency effect, despite a fall in selling, general and administrative expenses.
The automaker has projected revenues to fall 2.7% to ¥8.70 trillion in fiscal 2012. Unit sales are expected to rise by 1.26 million to 12.71 million in the Motorcycle segment; fall 77,000 to 3.44 million in the Automobile segment; and go up 566,000 to 6.08 million in the Power Product and Other segment.
Operating profit is expected to decrease 52.6% to ¥270 billion, profit is anticipated to decline by 56.9% to ¥230 billion and earnings per share are expected to be ¥127.61.
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