Business has been looking up for certain American auto manufacturers as of late, but the same can't generally be said for their Japanese counterparts. Buffeted most notably by a steep decline in sales in China following a lingering diplomatic dispute, Honda (NYS: HMC) delivered results for its second quarter that fell well short of expectations. Compounding that, the company cut estimates for its fiscal 2013. The months ahead will be anything but a joyride for the automaker.

Sputtering engine
Honda's key financial numbers all rose. Net sales for the quarter advanced to 1.9 trillion yen ($23.7 billion), while bottom line came in at 60.4 billion yen ($758 million). The former was 20% higher than last year's second quarter, while the net profit number represented a nice 36% gain over that time.

Pretty good, huh? Well, not particularly. The year-previous period was a bad one for the company (and many Japanese industrials) since it had to contend with a big hit to its operations from the powerful one-two punch of the earthquake and tsunami that shook the country in May of that year. This affected operations in five of the firm's factories, not to mention its sales throughout Asia.


Meanwhile, in 2012, sales of vehicles worldwide are generally up, a trend that has benefited most manufacturers. Honda rode this wave and managed to take advantage of a specialty niche or two (motorcycles in India, anyone?). Despite that, unit sales only rose significantly in one of its three product categories -- cars, which saw a 47% leap year-over-year to 996,000 vehicles.

Many don't realize it, but cars are the smallest product category for the company in terms of units sold. It moves far more motorcycles, sales of which -- despite those eager Indian customers -- grew sluggishly at just under 2% year-over-year (to 3.9 million units). The company's third category, power products, also failed to record powerful growth, coming in at an annual clip of less than1%.

Protesting with their wallets
The market didn't like this at all. The average analyst estimate for revenue was around $30 billion; Honda skidded well short of that mark. It barely got out of the driveway in terms of net profit, meanwhile. Expectations were for approximately $1.4 billion, a good $600 million higher than the reality. No wonder the stock price dropped by nearly 5% on the local exchange after the results were announced. Toyota and fellow domestic carmaker Nissan also saw share-price skids.

Much of the financial shortfall has to do with an ugly problem that the company did nothing to create or exacerbate. The governments of Japan and China are locked in a nasty spat regarding ownership of several tiny, uninhabited private islands in the East China Sea, which are seen as strategic to each country's national interest. Japan has agreed to buy what it calls the Senkaku islands (the other side knows them as Diaoyu), which has inflamed nationalist feelings in China. Worse, it's taken the form of vandalism and the occasional act of violence against anything outwardly Japanese... such as Honda or Toyota (NYS: TM) cars.

Needless to say, sales of Japanese products in that market have taken a tumble. Honda's sales in the country dropped a steep 41% year-over-year in September, while Toyota's decline was even more precipitous, at nearly 50%.

These losses are their rivals' gains; Ford (NYS: F) , despite being a Westerner-come-lately to China, had its best month ever in the country in September, selling nearly 60,000 cars for a pretty 35% year-over-year increase. GM (NYS: GM) is more of a veteran on the market and perhaps not as new and exciting as Ford -- but at least, for locals, it's not a company owned by the Japanese. As such, its sales also gained (by 1.7% over September 2011).

Diminished expectations
The road ahead also looks dimmer for Honda. In announcing its results, it also sliced its guidance for the remainder of the current fiscal year (2013). For the year, sales in all three product categories are expected to come in lower than the company previously anticipated; all told, it expects to move a total of around 25,900 products, as opposed to the original forecast of 27,200.

This, of course, means lower revenues and a thinner bottom line. The company shaved its revenue forecast by half a trillion yen ($6.2 billion) to 9.8 trillion yen ($123 billion). Net income got a more severe haircut, in percentage terms, by 95 billion yen. This means a revised bottom line estimate of 375 billion yen ($4.7 billion).

On the bright side, Honda did boost its dividend payout, by 16 yen to reach an annual disbursement of 76 yen ($0.95) per share.But that probably won't be enough to bring the share price back to where it was. For that, the company's going to have to drive harder and push its results higher than they've been lately.

Honda may be stalling, but its Chinese market share poacher, Ford, has been performing incredibly well -- it's making good vehicles, is consistently profitable, recently reinstated its dividend, and has done a remarkable job paying down its debt... although like Honda, its share price has taken a few hits. One of our top equity analysts has compiled a premium research report with in-depth analysis on whether Ford is a buy right now, and why. Simply click here to get instant access to this premium report.

The article This Global Carmaker Is Sliding on the Road originally appeared on Fool.com.

Fool contributor Eric Volkman has no positions in the stocks mentioned above. The Motley Fool owns shares of Ford. Motley Fool newsletter services recommend Ford and General Motors Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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