As Japan's Honda Motor pays hundreds of millions of dollars to replace potentially deadly air bags, hitting earnings, a new headache lies around the bend - cheaper U.S. petrol could lure buyers away from its fuel-efficient cars.
The country's third-largest automaker reports income for the October-December quarter later on Friday that analysts see falling 17 percent from a year earlier, squeezed by the cost of voluntary recalls involving air bag inflators made by top supplier Takata. The hit may be enough to trigger a full-year profit warning.
Still, Honda, like other affected automakers, expects to get those costs back eventually if investigations find Takata at fault. And many analysts say reputational damage seems minimal, including in the United States, Honda's most important market.
Potentially a bigger near-term concern is cheaper fuel as global oil prices slide, with U.S. sales of light trucks up 10 percent in 2014 against a 1.8 percent rise for passenger cars. That's a red flag for Honda, which excels in cars that have attracted buyers concerned about fuel economy.