Honda is unique among its Automotive peers owing to its global leadership position within the motorcycle market, in which it maintains a 25% global market share and consistent low-double-digit operating margins. The larger automotive business – which accounts for roughly two-thirds of Honda’s consolidated revenue – has seen its profitability decline since 2017 and remains in turnaround mode. While the company’s Power Products segment provides it with added diversification, the segment has posted a profit only one year in the past decade.

Honda’s Non-Financial Services credit metrics are strong with cash and cash equivalents more than 3x its debt balance. While we believe its credit rating has upside potential to mid-A over time – its longtime rating prior to the pandemic that would enable it to access the Tier 1 CP market – we do not expect positive rating momentum until the automotive supply chain normalizes and Honda improves the performance of its automotive segment.

While we believe all automakers are susceptible to deteriorating vehicle sales in the event of a recession, Honda’s motorcycle segment sales and profitability have remained resilient in previous recessions including the 2008-09 financial crisis and could lead to modest outperformance versus its peers in a recessionary environment.

Management trimmed its expected FY23 unit wholesale growth for Motorcycles and Automobiles by 1% and 2%, respectively, with lower Automobile wholesales tied to semiconductor availability in North America. Higher operating profit guidance is related to strength in its Motorcycle segment and favorable currency effects.