By Sean McLain 

TOKYO -- Honda Motor Co. is putting years of expenses related to recalled air bags in its rearview mirror. Now the company hopes U.S. President Donald Trump won't push its revival off course.

On Friday, Japan's third-largest car maker by global sales reported a 36% jump in net profit for the December quarter. Its latest cars and sport-utility vehicles have been well received, and the company predicts record sales of five million vehicles for the financial year ending in March.

But Mr. Trump's threats of a tax on car imports could throw a spanner in the works for auto makers globally.

The U.S. president has taken to social media to criticize car makers for producing vehicles in Mexico. He also has criticized Japan for setting up barriers to competition from American car makers there.

"He has been expressing his views on Twitter, but quite often his understanding is different from reality," said Seiji Kuraishi, Honda's executive vice president.

Honda, like many Japanese companies, hopes a coming U.S. visit by Japanese Prime Minister Shinzo Abe will clear the air. "We would like [Mr. Trump] to know the real situation, and we hope that Japan-U. S. relations will improve and the U.S. economy will grow stronger," said Mr. Kuraishi. "But first, we hope to clear his misunderstandings."

Honda sold 1.6 million cars and trucks in the U.S. last year. Of those, 1.3 million vehicles were built in the U.S.

Honda and other Japanese car makers have looked to Mexico to bolster U.S. sales growth. Honda imports 8% of the vehicles it sells in the U.S. from Mexico, compared with less than 5% for Toyota Motor Corp. which is building a $1 billion plant for Corolla sedans there. Nissan Motor Co. gets around a quarter of its U.S. sales from Mexican imports.

The White House is considering a 20% tax on imports from countries with which it has a trade deficit. Mr. Trump said he wanted to renegotiate the North American Free Trade Agreement that allows Mexico-made cars to be freely exported to the U.S.

Any cut in exports could cut into sales of the Honda's popular HR-V crossover. Increasing the vehicle's availability by building it in Mexico is a crucial part of Honda's strategy to maintain sales growth, the auto maker has said.

A slowdown in sales would come as the company is trying to repair its balance sheet after having set aside Yen556 billion ($4.91 billion) for costs related to recalls of faulty air bags made by Takata Corp.

Honda hopes to maintain production figures in Mexico, "but if a high tariff is imposed, we have no choice but come up with some response," said Mr. Kuraishi.

The company reported its second consecutive leap in net profit for the December quarter. Without provisions for expected recall expenses to weigh it down, profit rose 36% to Yen168.8 billion from Yen124.1 billion a year ago.

Honda raised its full-year earnings projection to Yen545 billion from Yen415 billion to account for a weaker-than-expected yen and cost cuts.

The company has been cutting costs to build a leaner, more profitable organization. Its operating profit, which has long lagged behind that of its rivals, is improving -- even if weighed down by the company's reliance on sedan sales in a U.S. market where most car buyers want SUVs.

Write to Sean McLain at sean.mclain@wsj.com

 

(END) Dow Jones Newswires

February 04, 2017 02:47 ET (07:47 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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