Japan's Honda issued its third profit warning this year, slashing its operating forecast by two-thirds as the global recession batters car sales and sends the yen soaring.
The deeper-than-expected revision at Japan's second largest automaker could touch off similar moves at domestic rivals Toyota and Nissan also reeling from the dollar's fall to 13-year lows against the yen.
Automakers everywhere are under enormous pressure to cut costs and save cash to weather the storm as tight credit and weak consumer sentiment hammer demand.
In the United States, General Motors and Chrysler LLC are awaiting word from the US government on billions of dollars in emergency loans they say they need to avert near-term collapse.
Rating agency Standard & Poor's revised its Triple-A outlooks on Toyota's long-term debt to negative from stable, saying it was not immune to the weakening global auto market.
"The sudden change in the global auto industry from mid-September, triggered by the financial crisis, has forced all automakers to alter various plans over a short period of time," Honda Chief Executive Takeo Fukui told a news conference.
"The situation is worsening by the day and is showing no sign of recovery."
Honda, also the world's largest motorcycle maker, said it now expected an operating profit of just 180 billion yen ($2 billion) in the year to March, down 67 per cent from the 550 billion yen it forecast in October.
The new target is more than 80 per cent below last year's 953 billion yen operating profit and was worse than the 300 billion yen reported earlier by the Nikkei business daily.
Investors said the brutal downgrade may still not be enough.
"The new earnings projections are worse than expected but still look tough to meet," said Toshiyuki Matsushita, chief investment officer at Bluebear Investment Managers.
"I would expect the company to issue another profit warning to reflect a stronger yen."
Honda revised its assumption for the dollar to average 95 yen in the second half, from 100 yen in October, but this is still more favourable than the current rate of 88 yen.
Every 1-yen swing in the dollar affects Honda's annual operating profit by about 20 billion yen ($220 million), cutting the amount of overseas earnings when translated back into yen.
Shares of Honda closed down 4.2 per cent in Japan as investors braced for the profit warning after the company abruptly moved up its year-end news conference scheduled for Friday. Its Frankfurt shares fell 7.5 per cent in thin volume.
Reuters