Despite the turmoil faced during the Japanese crisis and the subsequent disruptions in production in Japan, Honda (NYSE: HMC) was still in the green at the beginning of the year, posting a profit of close to $538 million in its fourth quarter.
But the start to the new fiscal year hasn't been great, with Honda having to face many setbacks. In an earlier article I had mentioned how Japanese carmakers, such as Honda and Toyota (NYSE: TM), might struggle to get back on track following the quake. Honda now seems to be bearing the brunt of it, following its announcement that it would cut production this year.
Planned reduction
Honda said that the production of its flagships cars will take a major hit this year. The launch of its 2012 CRV has been delayed, and in an effort to keep production going, it is planning to continue producing its older 2011 model. Its passenger car, the Civic will also be in short supply, at least during the next couple of months.
Post-quake, auto parts suppliers have struggled to recover, and this has sent ripples everywhere, disrupting auto manufacturers across the globe. Although almost 80% of the cars Honda sells in the U.S. are built in the U.S., Hybrids such as the Honda Fit and Civic Hybrid, and the Insight and a few others are all produced in Japan and sold in the states. This is a very serious problem for consumers, shareholders, and employees of the popular company.
Honda is not alone
The world's largest automaker, Toyota, has also suffered following the Japanese crisis. Toyota looks set to cut production by close to 200,000 vehicles, according to the Asahi Shimbun, meaning that for a third straight year now its global production will fall short of its 8 million target. Toyota was also the only carmaker to report a drop in sales in the U.S. in the last few months. All in all, the future in the U.S. for these Japanese carmakers, at least for the next couple of months, looks lousy at best.
With supply shortages forecast in the U.S., this won't be good for auto parts manufacturers either. Tire makers such as Goodyear (NYSE: GT) may face difficulties as well, as the overall car sales, at least from Japan, drop. Its strong Q1 earnings report indicates otherwise for the tire giant. In this case, only time can tell if spillover from the carnage in the auto industry sidetracks tire makers as well.
Demand for hybrids
Demand for hybrids is growing, spurred by the staggering rise in oil prices since the start of the year, sending the transportation industry into a tizzy. The demand for fuel-efficient cars is high as rising gasoline prices have forced consumers to tighten their purse strings.
Cars such as Honda's Fit and Toyota's Prius are in great demand. These hybrids could have been a major revenue maker, but they are solely produced in Japan. So demand for these cars may never ultimately be satiated.
This may, however, be a good sign for rival U.S. carmakers, as they look to capitalize on the Japanese automakers' woes. Sales of General Motors (NYSE: GM) and Ford's (NYSE: F) hybrid offerings may go up as consumers look for more fuel-efficient alternatives. Given these firms' strong recent earnings reports, both companies appear poised to improve their respective footings while their competitors across the Pacific struggle.
The Foolish bottom line
All in all, the prospects for Japan's top automakers such as Honda are rather bleak this year. With planned cuts in production and supply shortages, the signs definitely aren't positive.
