TOKYO (Reuters) -- Honda Motor Co. sliced 7 percent off its core annual profit forecast as it set aside hundreds of millions of dollars in extra cash to cover an extended car recall to replace potentially faulty airbags made by Takata Corp.
Honda now expects an operating profit of 720 billion yen ($6.1 billion) for the year to March 31. It previously forecast 770 billion yen, but has set aside an extra 50 billion yen to cover what it said were quality-related costs including the Takata airbag recalls.
Still, Honda's Executive Vice President Tetsuo Iwamura said, "We are not seeing a big impact on sales in North America from the airbag issue."
Honda's third-quarter earnings fell by nearly a quarter as it soaked up recall costs, the company said in a statement today. Operating profit for the quarter dropped 23 percent to 177.2 billion yen from 228.57 billion yen in the same period a year earlier.
Honda accounts for more than half of the Takata-related recall of about 25 million vehicles since 2008. Takata's inflators can explode too forcefully and send metal shards into cars, and have been linked to five deaths, all on Honda's cars.
Honda is paying for the voluntary recall of about 4 million cars in the United States alone. But it expects to get those costs back if investigations find Takata at fault, and many analysts say reputational damage from the recalls seems minimal, including in the United States, Honda's most important market.
Potentially a bigger near-term concern is cheaper fuel as global oil prices slide, with U.S. sales of light trucks up 10 percent in 2014 against a 2 percent rise for passenger cars. That's a red flag for Honda, which excels in cars that have attracted buyers concerned about fuel economy.
"The fall in fuel prices represents a body blow to Japanese automakers," said Merrill Lynch analyst Kei Nihonyanagi, speaking before the third-quarter results were published.