HONDA Motor Co, Japan's second-largest auto maker, posted an unexpected 8.1-percent gain in fiscal first-quarter profit after record gasoline prices spurred demand for its fuel-efficient Fit and Civic cars.

Net income totaled 179.6 billion yen (US$1.7 billion), or 98.98 yen a share for the three months ended June 30, compared with 166.1 billion yen, or 91.38, a year earlier, the company said yesterday. 

The result was more than the 120.5-billion-yen median estimate of six analysts compiled by Bloomberg News. Sales fell 2.2 percent to 2.87 trillion yen.

Honda boosted United States sales of the Fit, the most fuel-efficient small station wagon sold in the country, and cut rebates for dealers as gasoline prices above US$4 a gallon caused drivers to opt for smaller cars. The auto maker's earnings from ventures in China and elsewhere also rose 3.2 percent to a record 38.1 billion yen.

'This was a surprise, and will be a buffer for Honda's full-year earnings,' said Ichiro Takamatsu, chief investment officer at Alphex Investments Co, a Tokyo-based hedge fund. 'The company has got one of the strongest brands in Asia and was the best performer in North America where everyone else was struggling.'

Honda is the only major car maker to have boosted sales in the US this year, where it surpassed Chrysler LLC as the fourth-biggest seller in May and June.

Its Fit gets 34 miles a gallon (14.45 kilometers a liter) in highway driving, according to a US government Website.

Kia Motors Corp and Fiat SpA, both of which specialize in small cars, reported higher earnings this week. That contrasts with a US$8.7-billion loss for Ford Motor Co as the maker of the F-150 pickup truck and Explorer sport-utility vehicle closes factories.

'Sales of SUVs will continue to be weak while smaller cars will do better,' said Paul Heaton, who manages US$500 million in Japanese equities at Pyrford International Ltd.

'They've been able to swing around and produce a lot more smaller cars quickly.'

Honda reiterated its net income forecast for the year ending March 31. Honda in April said net income may fall 18 percent to 490 billion yen in the full-year period. It cut its operating profit forecast by 3.1 percent to 630 billion yen and reduced its sales forecast to 4.08 million vehicles from 4.14 million vehicles.

Among affiliates, Guangzhou Honda Automobile Co and Dongfeng Honda Automobile Co raised sales in China by 15 percent to 114,837, thanks to higher demand for the CR-V sport-utility vehicle.

'Honda's forecast seems overly pessimistic,' said Tatsuya Mizuno, a director at Fitch Ratings in Tokyo. 'Unlike other car makers, sales are growing in the US, the yen is weaker than the original assumption and there is growth in emerging markets.'

Higher raw materials costs will trim annual operating profit by 199 billion yen, more than double the company's initial estimate of 74 billion yen, Executive Vice President Koichi Kondo said at a press conference in Tokyo.

The company will build 50,000 fewer Pilot and other light trucks than initially planned in North America, Kondo said.

In contrast, it will boost production of Civics by 20,000 units in North America.