Honda CEO warns strong yen to cripple Japan industry

Fri Dec 19, 2008 9:01am GMT

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* Says strong yen could prompt hollowing out of Japan industry

* Determined not to lower 08/09 profit forecasts again

* Aims to stay in black next year even if dollar around 90 yen

* 200,000-unit annual target for Insight hybrid may be tough

* Says sees no advantage of tying up with another carmaker

By Chang-Ran Kim, Asia autos correspondent

TOKYO, Dec 19 (Reuters) - The head of Honda Motor Co (7267.T) warned the strong yen could cripple Japanese industry and spur massive layoffs, and said the automaker would be forced to bring more production overseas if the dollar persisted below 100 yen.

"If the government is saying, 'We don't care about the export industry', then that's fine -- we'll act accordingly," Chief Executive Takeo Fukui told a small group of reporters in an interview on Friday.

Honda, Japan's No.2 automaker, this week slashed its operating profit forecast by two-thirds to 180 billion yen ($2 billion) for the business year to March 31, dragged down by an estimated currency loss of twice that amount. [ID:nLH665893]

Expressing frustration with Japanese authorities' slowness to act, Fukui said Honda had set long-term business plans at what was until recently a cautious assumption of a 100-yen dollar, and that any level below that would necessitate a fundamental rethink of the way the company operates.

"If we go beyond (100 yen), we would simply have to transfer more production overseas, cut more temporary workers and even start laying off permanent jobs," he said.

"Beyond that we could switch to importing more cars into Japan, bring research and development facilities overseas, and in an extreme scenario move our headquarters offshore. It would cause nothing short of a hollowing out of Japanese industry."

Under pressure to reverse the dollar's fall and an economy already in recession, the Bank of Japan on Friday cut its key policy rate to 0.10 percent and took other steps aimed at easing corporate credit strains. The dollar budged little, however, briefly falling below pre-announcement levels under 89 yen. JPY= [ID:nT108858]

NO MORE REVISIONS

Fukui, who mapped out this week about a dozen steps aimed at saving near-term cash and focusing on core projects, said Honda was determined to meet its new profit forecasts after issuing its third profit warning this week. [ID:nT225198]

"We don't want to revise again no matter what, so we issued our forecasts with that in mind," he said.

Honda changed its dollar-yen assumption for the second half to 95 yen, far more favourable than current levels, but Fukui said the assumption for the final January-March quarter factored in a rate of about 90 yen and presented little risk for now.

He added that the counter-measures announced this week, including delaying the start of a new domestic factory by more than a year, would help lower capital spending "significantly" next year from the 650 billion yen planned this year.

"We'll have to make sure we can secure profits next business year even if the dollar averages 90 yen," Fukui said.

NO NEED FOR TIE-UPS

Global automakers are reeling from a sales slump on scant availability of financing and weak consumer sentiment. In the United States, Honda's single-biggest market, the sales slide has spread even to fuel-efficient cars, such as Toyota Motor Corp's (7203.T) Prius hybrid.

With the timing of an economic recovery difficult to read, Fukui said Honda's annual sales target of 200,000 units for its new, low-cost Insight hybrid could be tough to reach after it goes on sale in North America, Europe and Japan next spring.

"We'll need to be more cautious about this target."

He stressed, however, that with governments tightening fuel efficiency and carbon dioxide emission standards, technology to develop better hybrid systems, smaller diesel engines, and a combination of the two, among others, would be even more crucial over the next few years.

In that sense, Fukui said, carmakers without the advanced technology would probably seek tie-ups, adding that Honda, an industry leader in such technology, wasn't one of them.

"At this point, I don't think there's any need or advantage for us (to form an alliance)," he said.

"In fact, there are risks involved in boosting volumes that way, because the partner could bail at any point, and it's also not good for Honda's dealers," he said, shooting down the possibility that Honda would drop its go-it-alone policy. ($1=89.17 Yen)

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