Honda sees bumper year as it leaves disasters behind

TOKYO (Reuters) -- Honda Motor Co. is set to end a five-quarter drop in operating profits and forecast a triple-digit surge in annual earnings after a 2011 hammered by the yen's record strength, natural disasters and a crisis of reputation in its key U.S. market.

On top of being the last Japanese automaker to get its supply chain in order after a massive earthquake and tsunami in March last year, Honda was alone in having one of its factories inundated by Thailand's floods in October, only resuming work there late last month.

Japan's No.3 automaker is expected to report on Friday a more than doubling in operating profit for the January-March fourth quarter, lagging an earlier recovery from both disasters by rivals Toyota Motor Corp and Nissan Motor Co.

But despite a year that executives characterized as the toughest the 64-year-old company had faced, Honda is expected to remain in the black thanks to its dominant and profitable motorcycle business and a globally diverse manufacturing footprint that helped it cope better with the strong yen.

In the business year that ended last month, Honda exported just 253,000 cars from Japan, or less than 30 percent of its domestic output. Toyota shipped 1.67 million vehicles, or 54 percent of the cars it built in Japan and Nissan exported about 741,400, or 62 percent.

Helping its turnaround, Honda is expected to ride faster-than-expected growth in demand in the United States, its biggest and most profitable market, where sales of the remodelled CR-V crossover have jumped by more than a quarter so far this year.

Honda will also make minor changes later this year to the one-year-old Civic after the latest version of the perennially popular model got panned by critics, raising deeper concerns over whether the automaker was slipping in a battlefield made tougher by products from Hyundai Motor Co and resurgent U.S. rivals Ford Motor Co. and General Motors.

Switching gears

Honda CEO Takanobu Ito has conceded that the company he took over in mid-2009 may have let down its guard during the previous decade of rapid expansion, while pulling back on vehicle development too much after the global financial crisis.

Honda is under intense scrutiny to redeem itself this fall with the next version of the Accord, which will be the first major model to carry a new generation of engines and transmissions that it hopes will make its future cars the most fuel-efficient in their categories.

Ito has put in place structural changes to respond more nimbly to competition, including by doubling as the head of car operations for now. He also said this week that Honda would step up its game in China, where its market share has slipped in the past four years, announcing plans to boost output capacity and beef up its local R&D function.

"We need to move further away from a U.S.-centred growth," he said at the Beijing auto show.

Ito has said he expects record car sales this business year of at least 4 million vehicles.