Honda’s Q4 Profit drops due to recall costs

Honda’s Q4 Profit drops due to recall costs

Japan's third-largest automaker Honda, reported a drop in its net profit for the fiscal fourth quarter.

According to Honda, recall costs and a decline in auto sales in Japan dragged profits down. Quality problems delayed vehicle development and hampered sales.

The air bag recalls led to 43% drop in profit. The net profit shrank to 97.8 billion yen ($897 million), versus a year-ago profit of 170.5 billion yen.

The air bags were manufactured by Takata Corp. of Japan, which supplied air bags for a wide range of Honda models. In the defect, the air bag inflators can explode with too much force. The problem proved fatal to six people worldwide.

The automaker also suffered other quality lapses and recalled its hybrid models several times last year. The problems have tarnished Honda's reputation for quality, reduced sales and slowed down model development.

Executives have taken pay cuts and President Takanobu Ito has announced his resignation to take responsibility for the embarrassing problems.

However, the fall in Honda's profit as offset by weak yen as it added to the value of overseas sales of Japanese exporters.

The company delayed the launch of new cars after recalling the remodeled Fit hybrid car five times in less than a year in Japan.

For the fiscal year through March 2016, Honda anticipates that the profit would be little different from the year just ended March 2015. It projected a profit of 525 billion yen ($4.41 billion).

Honda is adopting international financial reporting standards (IFRS) from this year. Its quarterly sales rose 8% to 3.35 trillion yen ($28 million).

Meanwhile, Toyota Motor Corp., the world's biggest automaker in terms of vehicle sales, reported earnings on May 8.

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