Honda Motor Company (HMC)

Competition is increasing in Honda's fuel efficient automobile business, meaning profits could be squeezed.

Confronting its first quarterly loss in at least 15 years, Honda Motor Co. Ltd. (ADR: HMC) will scale back plans to make business jets and may offer voluntary retirements for the first time as it slashes costs in the United States. The worst global financial crisis since the Great Depression has cut corporate demand for jets.The company will produce 70 to 80 jets a year for delivery from the end of 2010, compared with an earlier plan to make 100 planes a year, CEO Takeo Fukui said in a Monday Bloomberg News interview.

Honda slashed profit forecast for 2008 by almost 62% on December 16th, 2008. Bloomberg also reported -

Honda may report a half-year operating loss for the first time in at least in 11 years, as the global recession cripples sales in the U.S., Japan and Europe. The yen’s 26 percent gain against the dollar and 30 percent rise against the euro this year has hammered Honda’s profit, forcing it to cut jobs, lower management pay and withdraw from Formula One motor racing.

The fear is that the environment is getting worse and with every 1 yen gain vs the dollar and the euro, Honda stands to lose a lot of revenue. Moreover, sales dropped 32% in the US and 34% in Europe, the most since 1981^[1].

1. ↑ [http://www.bloomberg.com/apps/news?pid=20601101&sid=asDCdNdT2a2E&refer=japan

Despite efforts to hedge currency risks, Honda's global operations expose the company to fluctuating foreign exchange rates.