HMC Honda Motor Co Ltd

By Sean McLain 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 1, 2018).

TOKYO -- Like other auto makers, Honda Motor Co. is getting hit by higher costs resulting from U.S. metals tariffs. But helping ease the pain for the Japanese company are its two-wheelers.

Sales of Honda's motorcycle models, which are doing well in Asia, rose 14% and drove up earnings in the latest quarter, the company said Tuesday. Honda also raised profit projections for the full fiscal year ending in early 2019.

The bulk of its motorcycles are sold in poorer nations, often for less than $1,000. But they are profitable. Honda's operating margin for its motorcycle business was 16.6% for the June-ended fiscal first quarter, compared to 5.3% for its car business.

In India, Honda's biggest motorcycle market, sales grew by 28% in June. It sold more than 800,000 Activa scooters there during the quarter. The bike starts at around $800. Another popular model, the Dream Yuga, is targeted at younger Indians and comes in colors with names like lemon-ice yellow.

Honda became famous in the 1950s for its motorcycles and entered the car market only later -- an unusual heritage for car makers. Today, revenue from cars far outweighs motorcycles, but profit from the inexpensive bikes is bailing out Honda's car business, some of which is literally underwater.

Honda said Tuesday that its auto plant in Celaya, Mexico, was damaged by floodwaters and wouldn't resume production until mid-November. The factory produces the Fit subcompact and the HR-V small sport-utility vehicle.

The company said the plant shutdown will reduce operating profit by Yen50 billion ($450 million) this fiscal year and reduce sales volume in North America by 75,000 units.

An even bigger hit -- an estimated Yen75 billion -- will come from rising raw-material costs, Honda said. Prices for steel and aluminum have risen sharply, particularly in the U.S. as a result of tariffs imposed by President Donald Trump's administration. That makes foreign steel more expensive and allows domestic producers to raise prices, boosting costs at Honda's production facilities in the U.S.

Honda also produces more than 200,000 vehicles in Mexico, including some of its best-selling models. Seiji Kuraishi, Honda's chief operating officer, said the "biggest impact" from trade conflicts would come if there were changes to the North American Free Trade Agreement, which allows Honda to export freely to the U.S. from Mexico.

Overall for its latest quarter, Honda posted profit of Yen244.3 billion, up 18% from a year earlier, while revenue climbed 8.4% to Yen4 trillion.

Write to Sean McLain at sean.mclain@wsj.com

(END) Dow Jones Newswires

August 01, 2018 02:47 ET (06:47 GMT)

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