Honda Motor Co. (NYSE: HMC) ended fiscal 2015 on a rather dismal note, with global automobile unit sales rising merely 0.9% and profit plunging 40% under the shadow of recalls. The car maker now projects global unit sales to rise by 8% in the fiscal year ending March 2016.
However, May production data shows the sales slide in Japan hasn't yet stopped. And there is fresh set of recalls, too. Can Honda reach its goals? Here's a market-by-market look at the company's prospects for the fiscal year.
North America may do better this time
Honda sells almost half of its cars in North America, so it's crucial that the region does well. In the last fiscal year, car sales in North America were roughly flat (down 0.6%) as recalls delayed new launches. Recalls centered around faulty Takata airbags in various Honda models and technical issues in the redesigned Fit. Takata airbag-related problems have resulted in the largest recalls in the auto industry worldwide. Honda has been the worst affected, being Takata's biggest customer, and the number of recalls in 2014 was quite high.
Honda hopes to fare better in North America in 2015-2016, looking to sell 8% more vehicles than last fiscal year. The U.S. auto market is expected to do better than last year, in which the industry unit sales grew 6%. Roughly 3% more cars were sold in April and May than in the same period last year. However, Honda's sales were flat in the two months against the year-ago period.
Honda could strengthen its sales with help from the all-new 2016 Pilot SUV and Civic compact. Pilot sales improved 22% year over year in April and May, and could rise further when the all-new version is released in June. Honda's other sports utility models, such as the CR-V and the newly launched HR-V, stand a good chance as consumers' preference has shifted to this category because of low fuel prices. Hopes are also tied to the refreshed version of the Civic (expected to be available later this year).
Europe could go either way
Europe is proving to be a bit of a headache for Honda. The automaker's market share in Europe has dropped from 2% in 2007 to 1% in 2014, and car sales in the fiscal year ended March 2015 were flat. For the current fiscal year, the company has projected a 4% decline in unit sales in the region.
Some experts believe the car market in Europe, though recovering, will slow in the second half of this year, while some believe depressed oil prices and an improving economy (i.e., a growing real wage rate) could sustain the momentum.
Honda has already launched its 2015 CR-V in Europe, and the Honda Jazz (the Fit in the U.S.) is slated to hit dealers soon. The company might have taken an extra-cautious stance for the European forecast, as things could go either way.
Asia is coming on strong
Asia has grown into a prime revenue generator and profit center for Honda. In the past fiscal year, Honda Asia sold 11% more vehicles than in the year earlier. Models such as Mobilio (in India), City (India and Thailand), and Fit and Vezel (in China) did quite well during the past fiscal year. As far as units sold are concerned, Asia now comprises 33% of Honda's global sales, second only to North America.
Honda is quite bullish on this market and expects unit sales in Asia to increase by 16% in this fiscal year, double what it has projected for North America.
Honda has successfully increased its share in India (the fifth-largest auto market in the world) with the introduction of a redesigned City sedan and the new Mobilio multipurpose vehicle. The redesigned Jazz was recently launched, and is expected to widen market share in the small-car category, which is presently dominated by domestic player Maruti.
New launches have helped Honda outshine other carmakers in China (the world's largest auto market), and it has plans to launch five more models through 2015. Steady growth in China and India will boost total Asian sales.
Home turf could remain challenging
Honda has projected a 3% sales slide in Japan in the 2016 fiscal year. That would improve on the 7% fall in the last fiscal year. Honda is not the only victim, as the Japanese auto industry as a whole is anticipated to fall by 5.4% in the fiscal year. A sales tax hike in April 2014 and the negative environment created by continuous car recalls have affected all three key players in the market.
Honda fears that its move to recall around 5 million more cars on a precautionary basis, to replace faulty Takata airbags, could further hit sales in Japan.
Honda is trying to lower its dependence on Takata – its newly launched Shuttle wagon in Japan has airbags made by Daicel Corp, a Takata rival.
Rounding it up
Honda is dealing with different challenges in different markets. U.S. and Asia look to be the strengths, while Japan and Europe are weak areas. The 8% sales gain forecast looks achievable if everything goes right in the U.S. and Asia. Recalls are a pain point, however, and Honda no doubt hopes to get ahead of matters on this front.
ICRA Online and Eshna Basu have no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.