By Chang-Ran Kim, Asia autos correspondent
TOKYO (Reuters) - Honda Motor Co <7267.T> said its profits would be lower than expected due to a deepening financial crisis that has hammered demand for cars and sent the yen soaring, while U.S. rivals sought government aid to fund a proposed merger to survive a shrinking market.
Carlos Ghosn, chief executive at rival Nissan Motor Co <7201.T>, warned the industry was treading in "uncharted territory" that required a drastic shift in priorities to make it through the next few years.
"This is not going to be a short-term crisis. I don't think we'll get out next year, or even in 2010," Ghosn, also head of Nissan's French partner, Renault SA
He said that volatile markets, a sharp slowdown in global demand and generally tougher competition would likely prompt consolidation across a number of industries.
Honda is considered one of the best-placed among global automakers to weather the storm of collapsing car demand and shrinking margins thanks to its manufacturing flexibility and vehicle line-up that is geared toward fuel-efficient models.
But even Honda is struggling against a steeper-than-expected contraction in U.S. and European car sales and a spillover effect into China, India and other emerging markets that is seen continuing at least through next year.
"Market conditions have turned much worse than we had anticipated," Honda Executive Vice President Koichi Kondo told a news conference in Tokyo.
"Next (business) year is going to be very difficult to read. If the total U.S. market stayed flat from this year it would be nice, but that's looking rather doubtful."
Japan's No.2 automaker cut its annual operating profit forecast by 13 percent, setting the stage for sharper revisions at rivals when they report interim results in the coming weeks.
Other Japanese manufacturers are also suffering, with Sony Corp <6758.T> last week halving its annual operating profit forecast due to slowing demand and a surging yen.
SUDDEN SPIKE
Most analysts had expected Honda to keep its forecasts largely unchanged until just a week ago, when the yen suddenly jumped to multi-year highs against almost all major currencies, eroding the value of earnings made overseas.
Honda's new forecast called for its global car sales to fall to 4.015 million units from 4.08 million, and a yen at 100 to the dollar and 135 to the euro -- far from the less favorable levels of 95 yen and 120 yen on Tuesday.
Domestic rivals Toyota Motor Corp <7203.T> and Nissan are expected to post even bigger profit falls as sales of SUVs and pickup trucks plunge.
Across the Pacific, Detroit's loss-making General Motors Corp
Sources told Reuters overnight that GM and Cerberus Capital Management
That request is separate from whatever funds would be allocated under an already approved $25 billion government-backed program to provide low-interest loans to the U.S. auto industry for retooling to make more fuel-efficient cars.
"I personally do not believe deals involving cash will happen unless the cash comes from outside," Ghosn said, adding that managing cash flow was the top priority now for many automakers.
PROFITS DOWN
Honda now expects net profit for the year to March of 485 billion yen ($5.2 billion), down 19 percent from last year and a little lower than its previous forecast of 490 billion yen. Eleven brokerages had forecast an average 503 billion yen before the yen hit a 13-year high against the dollar on Friday.
It expects operating profit, which excludes earnings from China, of 550 billion yen instead of 630 billion yen anticipated three months ago.
Honda estimates that every 1 yen fall in the dollar shaves 18 billion yen from its operating profit.
Honda's July-September net profit fell 41 percent to 123.32 billion yen. Operating profit dropped 48 percent to 148.85 billion yen, while revenue fell 4.9 percent to 2.83 trillion yen.
As of Monday, shares of Honda had nearly halved in the past three months, in line with the Tokyo's transport sub-index <.ITEQP.T>, but the stock rallied 14 percent ahead of the results on Tuesday as Japanese stocks bounced from a 26-year low.
($1=93.26 Yen)
(Editing by Lincoln Feast & Ian Geoghegan)
