) is one of Japan's leading automakers and the recent
earthquake and nuclear disaster will take its toll on the company.
As the eighth largest car manufacturer based upon global vehicle
sales in 2010 and the third largest in Japan, we expect Honda could
face some challenges in the near term as it recovers from the
quake. The car giant competes like BMW (GR:BMW),
(ETR:DAI), Audi (
), Ford (
), Toyota (
) and others.
We have a
price estimate of $45.04
, which is over 30% ahead of the current market price.
Disruptions at Several Plants
Damage was widespread in the Tochigi area where Honda has a
number of operations.
The following plants were closed temporarily following the
earthquake, according to a press release from the company.
- Tochigi Engine, transmission and chassis parts.
- Saitama Two plants: Sayama plant in the Saitama factory
produces CR-V, Accord, U.S. Fit, Acura RL and TSX. In addition,
Ogawa Plant in the Saitama factory produces automobile
- Hamamatsu two plants - automobile transmissions, outboard
- Suzuka operated Friday, will not be in production Monday.
This factory produces Japan Fit, Civic, Civic Hybrid, Insight and
Honda CR-Z (all hybrid models).
Honda's Japan Automakers to Suffer in Short-Term
While we expect that most of these plants are back in operation
or will be soon, we believe that auto sales could suffer in the
near term as Japanese consumers struggle to get back on their feet.
In the last quarter of 2010, Japan contributed only 1.6% to Honda's
global motorcycle unit sales, but it contributed nearly 14% to
Honda's global automobile unit sales and so clearly is a meaningful
portion of sales.
We envision a scenario where Japan vehicle sales could drop by
as much as 10% this year before starting to recover next year.
Given the size of the auto market in Japan, the government may look
to offer incentives as consumers look to replace lost cars, which
could help limit these losses in the near term.
Leases and Loans Will Pull Back as Well
We believe that Honda will incur losses on its vehicle leases
and loans in Japan as many people have suffered immense personal
losses. Further, because many stores have been damaged and people
have lost their cars, we expect to see an uptick in loans
defaulting on their outstanding loans. We further believe that a
tough economic scenario in Japan can cause a drop in total
outstanding leases and loans in the short-term.
In such a scenario, we forecast that growth in total vehicle
leases and loans outstanding could slow by as much as 20% from our
current forecast levels.
Honda's North American Operations is Largely
However mitigating these headwinds, most of Honda's automobiles
(more than 80%) sold in North American markets are produced in
North America, and the bulk of the automotive parts are sourced
locally. We note that Japan supplies some auto parts as well as the
Honda Fit, Insight and CR-Z, Acura TSX and RL, and a small
percentage of CR-Vs are produced in Japan.
We expect that Honda sales in North America will suffer mildly
as a result. Instead of mild growth in market share that we had
expected earlier, we could see Honda's North America vehicle market
sharer remain stable in 2011, and then grow mildly but steadily by
0.1% each year over the forecast period.
See our full analysis for Honda