Honda sees auto sales edging up, profit sliding in 2017-18

By Naomi Tajitsu

TOKYO (Reuters) - Honda Motor Co forecast a 16 percent fall in operating profit for the current financial year as the Japanese automaker sees higher auto sales being offset by a stronger yen and research and development costs.

Japan's No. 3 automaker said it expects an operating profit of 705 billion yen (4.94 billion pounds) in the year to March, down from 840.7 billion yen posted in the year just ended, and lower than an average estimate of 850.8 billion yen according to 23 analysts polled by Thomson Reuters I/B/E/S.

It sees a 14 percent slide in net profit to 530.0 billion yen this year.

Honda's projections are based on a forecast that the yen will average 105 yen to the U.S. dollar through March, stronger than both its 108 yen rate in the year just ended.

Executive Vice President Seiji Kuraishi acknowledged that Honda's expected currency hit of 95 billion yen was based on a "conservative" yen forecast, adding that growing costs to create next-generation cars would also impact earnings.

"Our costs are rising to develop new technologies which will be needed in the future, like automated driving functions and electric cars," he told reporters at a results briefing.

Honda's ongoing research and development of self-driving cars, lower-emissions powertrains and new mobility services comes as Japanese automakers look for ways to add more value to their cars beyond the quality and reliability which fuelled their global growth over the past decades.

SUVS VS SEDANS

Honda expects its global vehicle sales to edge up 1 percent to 5.08 million this year, bolstered by growth in Asian sales to 2.06 million units, beating out North America to become Honda's top market as more Chinese drivers flock to its cars.

The company expects to sell 1.92 million vehicles in North America, 2.5 percent less than the year just ended as it struggles to sell sedans including the Accord, which have fallen out of fashion in the past few years.

Honda has been ramping up production of SUVs to keep up with strong demand for larger models in the United States, although overall vehicle sales show signs of slowing following a boom cycle after the global financial crisis.

Mazda Motor Corp is taking a similar strategy, announcing on Friday it would expand production of SUV crossover models at home, while equipping overseas plants to enable more flexible production of models according to market needs.

Japan's No. 5 automaker forecast a 19 percent jump in operating profit for the current financial year as it expects higher sales volumes, particularly in North America, to help it recover from last year's profit slump.

Industry experts are increasingly concerned about rising inventory levels and consumer discounts as automakers push harder to sell products. A pricing war in the market could undermine automakers' profits.

To view graphic on comparison of Japan's top auto makers, click on http://tmsnrt.rs/2qdMdIq

(Reporting by Naomi Tajitsu and Maki Shiraki; Editing by Muralikumar Anantharaman)