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UPDATE 2-Japan truckmaker Isuzu falls deeper into red in H1

(Recasts, adds details and comments from news conference)

By Chang-Ran Kim

TOKYO, Nov 25 (Reuters) - Struggling Japanese truckmaker Isuzu Motors Ltd said on Monday slack demand and ballooning restructuring costs pushed it deeper into the red in the first half, but pledged a return to operating profit for the full year.

Japanese truckmakers are all suffering from record-low demand at home. But Isuzu as well as Nissan Diesel Motor Co , which also posted a half-year loss last week, are considered the weakest, reeling under a mountain of interest-bearing debt.

Isuzu's group net loss for April-September was 84.23 billion yen ($684.5 million), more than triple the loss of 23.56 billion yen a year earlier, on increased pension liabilities and special losses from paying early retirement fees.

Reflecting the weakness of its core business, Isuzu posted an operating loss of 21.35 billion yen, compared with a profit of 4.5 billion yen a year earlier, as sales plunged 24 percent to 632.49 billion yen.

"There were some cost reduction benefits from last year's voluntary retirement programme, but sales in North America and Japan declined, leading to an operating loss," Isuzu said.

But the truckmaker said it would post an operating profit of five billion yen for the full year to March, saying most of the necessary restructuring worldwide including inventory adjustments will be completed by the end of December.

Still, that would amount to only a third of last year's profit, and far from enough to comfortably pay interest on its group debt, now at 678.2 billion yen.

Isuzu also expects a group net loss of 170 billion yen on sales of 1.27 trillion yen this year, compared with a loss of 42.99 billion yen and sales of 1.60 trillion yen in 2001/02.

NEAR-TERM SOLUTIONS

Escaping near-term cash problems, Isuzu said exactly a month ago that it had won agreement from its banks and part-owner General Motors Corp for an aid package that included about $800 million in debt-equity swaps.

In return for the aid, Isuzu vowed to slash its debt and return to profit over the next two years as part of a new three-year revival plan.

"We're getting support from GM and Mizuho Financial Group, and we're determined to rack up an operating profit this year," Shigeki Toma told a news conference. Toma is due to become Isuzu's chief financial officer this week upon receiving shareholders' approval.

Toma, who will join the executive board from Mizuho, said Isuzu used to take a lot for granted, viewing itself as a company that was "too big to fail". But it is determined to change, he said.

"When you say you will do something, it is a commitment. Not to parrot Nissan's (Carlos) Ghosn, but the company must be committed to do what it has set out to do," Toma said.

To weather the severe business climate at home, Isuzu has said it would shift more of its focus overseas, especially China -- a market that President Yoshinori Ida had declared last month was Isuzu's "last hope" for survival.

But analysts have said the aid package was only a short-term solution to Isuzu's cash flow problems, and did not change the view that Isuzu's stock was below investment grade.

Isuzu's shares ended trade flat at 34 yen, far into what is considered the two-digit danger zone. The price is the fourth-lowest among the issues that make up the benchmark Nikkei 225 average.

And despite the aid package, some analysts said that with GM's stake due to fall to 12 percent from 49 percent, the U.S. auto giant could be deliberately putting some distance between it and the truckmaker, in which it first invested in 1971. ($1=123.04 yen)