Honda warns of falling profit margins

But that comes from more competition, not just more advanced vehicles. Admittedly, making cars with better safety features does cost the automaker more in terms of building and supply costs, but in a less competitive market, that cost could be passed onto the consumer. The problem is Honda wants to compete, price-wise, with all the other carmakers out there. So they can't raise their selling price. And so, you get slimmer profit margins.

Hagino, Senior Managing Director, pointed out that profit margins mattered little as long as absolute earnings were growing, i.e. more cars are selling. And the way to sell more cars is to continue spending on R&D, since consumers are more likely to buy the better, safer car. The article writer points to how this could be taken as a jab at Nissan, whose reputation is for caution in approaching and researching new ideas (including hybrids).

Honda exec says margins to fall as cars advance | Reuters.com

TOKYO, June 12 (Reuters) - A top executive at Honda Motor Co. (7267.T: Quote, Profile, Research) said on Monday profit margins would inevitably fall as more advanced vehicles spread through the market, but he stressed that skimping on R&D costs would do greater harm in the long run.

Japan's third-biggest auto maker last month outlined plans to reduce its cars' carbon dioxide emissions by an average 10 percent by 2010 compared with 2000 levels, mainly by developing more efficient gasoline engines, clean diesel engines and improving its hybrid powertrain.