China demand boosts Honda and Nissan

Chinese car-buyers are helping Japan's automobile industry to absorb some of the impact of the worst downturn in decades, quarterly results from Honda Motor and Nissan Motor suggested on Wednesday.

Honda, Japan's second-biggest carmaker, cited faster sales growth than expected in China as it reported a surprise profit for the three months to June and raised its forecast for the financial year to next March by 38 per cent to Y55bn ($578m).

Nevertheless, Honda saw net profit for the three months to the end of June slump 96 per cent to Y4.17bn, although analysts had expected the carmaker to fall into loss.

Honda's more optimistic outlook came even as it cut its sales projections for North America, its biggest market, and took a more conservative view of the yen's exchange rate.

Nissan, meanwhile, said its net loss shrank to a smaller-than-expected Y16.5bn in the quarter from Y277bn in the previous quarter, as Japan's third-biggest car producer was helped by aggressive cost-cutting and 28 per cent combined volume growth in China for its Nissan and Infiniti brands.

Nissan announced plans for a Rmb5bn ($732m) expansion of the passenger vehicle plant it operates in Guangzhou with its Chinese partner, Dongfeng Group. A new production line is to begin operating in 2012 and will boost the plant's output from 360,000 vehicles a year to 600,000.

Overall vehicle sales in China surged 18 per cent in the first half of this year to 6.1m, pushing the country past the US to become the world's biggest car market.

The expansion has helped other foreign carmakers with big operations in the country, such as Volks­wagen and General Motors, as well as the Japanese ­producers.

The carmaker's Japanese sales held steady in the quarter due to government incentives to buy environmentally friendly vehicles. Honda's Insight petrol-electric hybrid, reintroduced this year after a three-year production hiatus, was the best-selling full-size passenger car in the country in April.

Honda upgraded its Japanese sales forecast for the full financial year from 555,000 vehicles to 665,000. For China, it raised its projection from 775,000 to 840,000 vehicles.

In contrast, Honda said it now expected North American sales to decline by an additional 500,000 vehicles this year to 1.3m, compared with last year's total of 1.5m.

Koichi Kondo, executive vice-president, said: "I'm not very optimistic about the US market. We're already into July and I had thought it would have recovered more by now."

Both Honda and Nissan expressed doubts that the US government's "cash-for-clunkers" trade-in subsidy would do much to boost demand.

Referring to the scheme's $1bn budget cap, Toshiyuki Shiga, Nissan's chief operating officer, said: "We had been hoping for something on a larger scale. We don't have big expectations."