Honda Motor (HMC, Financial) released outstanding results the last time, exceeding the company’s expectations. The strong results revealed a doubling of the profit. Honda managed to post such strong profits as a result of weakness in the yen. However, Honda saw poor sales in Thailand, which resulted in weaker than expected sales. However, the company performed well, but on the other hand the analysts’ were expecting better performance from Honda which it missed.
Trying to perform
In a highly competitive market, Honda faces stiff competition from automaker Toyota (TM, Financial). Honda, with its strategies, is focusing on improving its market share in the U.S. It is likely to face stiff competition from Ford (F, Financial) and General Motors (GM, Financial).
Honda managed to see a two-fold increase in the earnings mainly due to currency fluctuations. Besides the weakness of the Yen, increased sales and reduction in costs also helped Honda to see strong profits. Honda is dealing in four sectors worldwide, namely automobile, motorcycles power products, and financial services. Out of the three, the automobile segment is the primary contributor to Honda’s revenue and performed remarkably well in the previous quarter.
As a result of liberal economic policies, Honda is enjoying benefits which can be seen by its outstanding results. The economic policies helped weakening of the Yen by 18% as against the dollar in 2013. This helped Honda to increase its earnings.
The threats
Moving forward, Honda is facing neck to neck competition with world’s largest auto maker Toyota. Toyota, on the other hand, is reaping handsome earnings and is also well positioned for competition. Toyota is also focusing on various aspects to improve its product line to gain market share across the world. It is loaded with many new products and is launching 30 new vehicles this year in South Africa. On the other hand, in Philippines, with its new launch of the Wigo, it is working on cutting the price of its vehicles to gain higher acceptance.
However, Honda can be benefited by Toyota’s reputation supported by the fact that the company has been a serial re-caller of vehicles. The company recalled around 295,000 Lexus and Toyota brand vehicles across the globe earlier this year, with the majority being in the United States. It had also recalled 1.9 million of the third-generation Prius cars sold worldwide due to a software problem.
Other markets
Moving to India, where the consumers prefer diesel vehicles as a result of high petrol prices, Honda had seen weakness due to the absence of a diesel motor. But with the launch of the Amaze, it has started to turn customers towards the brands. In addition, the Honda City sedan is in great position to benefit in the Indian market.
Honda has great expectations from the emerging markets and is expecting to sell 6 million cars by 2017. China, being one of the largest markets with immense potential, has proved a key region for the company’s success. After the solution of the territorial dispute with Japan, Honda’s sales doubled in the third quarter in China. For the future, Honda is expecting a 10% growth in the coming days. Also, it is planning to increase its sales by 19% in 2014.
Moving on to North America, having launched a new small car, the Fit, Honda is expecting great sales in the future. With the Fit, Honda is promoting high fuel efficiency and hopes to grab market share from GM’s Chevrolet Sonic and Ford’s Fiesta. Also, with launches like Vezel and others, Honda is expected to grow in the U.S market.
Honda has stiff competition from Ford’s Fiesta as it is popular in the U.S due to its solid MPG figure and eco-friendly engine. Fiesta is the most fuel efficient non-diesel car and it might capture Honda’s market in Japan. So, Honda should be alert regarding its American rival moving forward
Conclusion
But, looking at the growth prospects and strong fundamentals, Honda's prospect look promising. It can become a good investment option as it launches more and more cars going forward.
