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Honda Recalls Fit MPVs

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Honda Motor Co. (HMC - Free Report) plans to recall 46,000 units of its Fit multi-purpose vehicles (MPVs) in the U.S. and Canada in order to fix their defective electronic stability control systems. Fit, also known as Honda Jazz in some non-U.S. markets, is a five-door mini MPV, first introduced in June 2001.

Honda’s decision to recall the vehicles mainly stemmed from a test conducted by the U.S. National Highway Traffic Safety Administration (NHTSA). The NHTSA test revealed that the vehicles have the tendency to tilt excessively on sharp turns and lose tire traction, which can increase the risk of an accident.

Honda will recall 43,782 Fits in the U.S. from model years 2012 and 2013. The remaining 2,000 units of the vehicle will be recalled in Canada.

Honda decided to begin notifying Fit owners on May 17. The company has not yet received any reports of accidents or injuries related to the problem in the vehicles.

Automotive safety recalls were brought into focus by media after Toyota Motors’ (TM - Free Report) announcement of the largest-ever global recall of 3.8 million vehicles in Sep 2009, triggered by a high-speed crash that killed 4 members of a family.

Later on, a string of recalls has led Toyota to face numerous personal injury and wrongful death lawsuits in federal courts. Last year, the Transportation Department of U.S. slapped a fine of $17.35 million on Toyota due to late response regarding a defect in its vehicles to safety regulators as well as late recall of those vehicles.

According to the department, it was the maximum allowable fine under the law for not initiating a recall in a timely manner. The latest fine adds to $48.4 million imposed by the U.S. government on the company in 2010 due to late recall of millions of defective vehicles.

Recently, another major Japanese automaker Nissan Motor Co. (NSANY - Free Report) recalled 123,308 units of Nissan Altima mid-size cars from model year 2013 in order to fix a potential problem with their tires, which may have been significantly over or under-inflated.

Honda, a Zacks Rank #4 (Sell) stock, reported an 8% rise in earnings to ¥75.8 billion ($805 million) or ¥42.03 (45 cents) per share in the fourth quarter of the fiscal year ended Mar 31, 2013 from ¥71.6 billion or ¥39.72 in the same quarter of prior fiscal year. However, earnings lagged the Zacks Consensus Estimate by 18 cents during the quarter.

Consolidated net sales and other operating revenues grew 14.1% to ¥2.7 trillion ($29.2 billion). The increase was attributable to improved revenues in automobile business operations as production recovered from the impact of Thai flood as well as favorable foreign currency translation effects.

Consolidated operating profit rose 21.4% to ¥136.0 billion ($1.4 billion) from ¥112.0 billion in the fourth quarter of fiscal 2012, driven by positive impact from cost reduction measures and favorable foreign currency effects, partially offset by higher R&D and SG&A expenses.

For fiscal 2014, Honda has projected revenues to increase 22.5% to ¥12.1 trillion. Operating profit is expected to surge 43.2% to ¥780 billion and profits are anticipated to jump 58.0% to ¥580 billion or ¥321.81 per share. The company expects higher revenues, favorable model mix and effective cost reduction measures to contribute to the increase in profits during the year.

Currently, Peugeot S.A. with a Zacks Rank #2 (Buy) is performing well in the global automotive industry.

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