Honda Motor Co forecast a smaller-than-expected 10 percent rise in full-year operating profit on Wednesday, warning tough competition would dent gains from improving sales in the United States and China.
Its comments came as SAIC Motor Corp, China's No.1 automaker, said first-quarter earnings more than quadrupled as it harnessed Beijing's stimulus measures, which continued to lure buyers after a banner year in 2009.
A U.S. recovery and strength in China, now the world's largest car market, are helping global automakers bounce back from the industry's worst downturn in at least three decades.
Honda, Japan's No.2 automaker, forecast China sales would rise 11 percent this year and U.S. sales increase 14 percent, helped by its lineup of gas-sipping models such as the Civic sedan, which will be joined by the CR-Z sporty hybrid in North America this summer.
But Executive Vice President Koichi Kondo said neighboring South Korea's Hyundai Motor Co was rapidly raising its game, particularly in Honda's most profitable U.S. market, while the U.S. Big Three were also beefing up their offerings.
More and more, the passenger car segment ... is becoming a fierce battlefield, Kondo told a news conference.
For the year to end-March 2011, Honda forecast an operating profit of 400 billion yen ($4.3 billion), up from 363.8 billion in the year to March 2010, but down on the 500 billion consensus forecast in a poll of 19 analysts by Thomson Reuters I/B/E/S.
Naoki Fujiwara, a fund manager at Shinkin Asset Management in Tokyo, said the profit outlook appeared conservative.
It's got environmentally friendly auto technology. It's got cost-consciousness. And it focuses on compact cars, Fujiwara said. All of these are required of the auto industry today. I don't see Honda's competitiveness eroding any time soon.
Others saw the competitive threat as more immediate.
It may be running ahead of competition in environmentally friendly cars, but this is the area all the world's major carmakers are focusing on, said Takeshi Osawa, senior fund manager at Norinchukin Zenkyoren Asset Management.
It needs a convincing strategy to maintain and boost its competitiveness in this field.
CEO Takanobu Ito, a 32-year Honda veteran and former chassis designer, has conceded that development of a new, more fuel-efficient hybrid system to power its bigger vehicles is an urgent task to compete with Toyota Motor Corp and a growing number of automakers launching full hybrid cars.
Honda's operating profit for the January-March quarter reached 96.1 billion yen, compared with a loss of 272.1 billion a year earlier, when it cut production to reduce inventory.
The result was slightly higher than the 94 billion yen average estimate in a poll of 19 brokers according to Thomson Reuters I/B/E/S.
Top Chinese automaker SAIC, which runs car making ventures with General Motors GM.UL and Volkswagen, posted a more than four-fold rise in quarterly net profit to 2.88 billion yuan ($421.7 million), its biggest quarterly earnings ever.
The result was largely in line with an average forecast of 3.1 billion yuan from three analysts surveyed by Reuters.
Analysts are upbeat about SAIC's prospects due to latent demand, especially in China's smaller cities, which could drive up the country's industry-wide car sales by one-fifth this year.
At the beginning of the year, many people expected car sales to slow after breakneck growth in 2009, but there is no sign the momentum is losing steam, said Zhang Xin, a Beijing-based analyst with Guotai Junan Securities.
Sales in the third quarter and second half won't match the 76 percent growth rate in Q1 as the year-ago comparative base gets higher, but they will still be solid.
Industry watchers were initially predicting 10 to 15 percent growth in car sales in China this year, but many have started revising those expectations upwards.
In the first quarter, SAIC sold 891,795 vehicles, up 63.6 percent from a year earlier. It aims to sell more than 3 million in 2010, up from 2.73 million last year.
Before the results, SAIC shares closed up 2.9 percent, better than a 0.3 percent fall in the benchmark index. The stock has dropped 26.9 percent so far this year. Honda fell 1.5 percent, while Tokyo's transport subindex .ITEQP.T fell 1.2 percent.