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Honda (HMC)
Honda President to Stop Driving the Company
After 6 years of being in charge, Honda's President Takeo Fukui will be stepping down from his position. This move follows a similar one made by Toyota (TM: Charts, News, Offers), when Katsuaki Watanabe was replaced by Akio Toyoda. The head of its core carmaking business, Takanobu Ito, will become the new chief at the second-largest Japanese car-making company. Mr. Fukui will remain with the company as a member of the board. With the global slump adversely affecting manufacturing companies, and particularly car manufacturers, is this the right time to be replacing the CEO?
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Despite what the Japanese carmaker is saying, probably not. The company stated that this occurred in order to provide the company fresh leadership. However, Honda did not necessarily need new leadership. They were doing better than many of their rivals in this global climate and were still able to turn a profit. In fact, on January 30, Honda was able to post a profit of 0.12 per share for its recent quarter ending in December. This represented a 90 percent profit decline, but is far from the losses experienced by US rivals, General Motors (GM: Charts, News, Offers) or Chrysler. Still, the company is not invincible. They are planning to eliminate 4,300 temporary jobs in Japan and reducing workers at their plants. For this current quarter, they expect to post a loss of 243 billion yen ($2.6 billion). In terms of earnings, they expect 80 billion yen ($856 million) in profits for the fiscal-year ending March. This is down about 87 percent from previous forecasts and takes into consideration the stronger yen hurting exports. Other efforts to cut costs include the selling of its Formula One racing team. All things considered, Mr. Fukui has been doing a good job with keeping the company profitable in uncertain times.
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So, why would the company plan to change the CEO if the current one is doing well? The company has been anticipating a change in leadership for a while, and the advent of the recession just gives them a catalyst. Furthermore, the company feels that research and development will be what saves the company. Mr. Ito has experience in that division and has proven a sound manager in others as well. Therefore, when Mr. Ito takes over, he will be heading both Honda R&D and Honda Motor. This is the first time since 1982 that a CEO headed both business segments. This is intended to streamline costs and centralize decision-making. However, with the yen rising in strength, it is speculated that R&D will be shifted outside of the country in order to prevent high-rising costs. On the surface, this seems like it would make things less streamlined. Still, it is hard to deny that Mr. Ito knows what he is doing. In his earlier years, he was an engineer at the research division in the US and has plenty of experience in this area.
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In the end, it is not that Mr. Ito would not be a competent leader, it is just that Mr. Fukui's experience and sound decision-making is needed until the end of this recession. As a board member, his influence will be relatively subdued compared to his current position. Investors seem to agree, and have responded negatively thus far as shares of Honda traded lower on the Tokyo Stock Exchange by 4.5 percent. But, it will still be some time until Mr. Ito takes over. Perhaps in June during the shareholder's meeting he will be ready to take over the reins and guide the company towards profits.
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