IBJNews

Subaru parent set to reevaluate strategy amid rapid growth

Back to TopCommentsE-mailPrintBookmark and Share

What car company’s stock has risen the most—fivefold—since the beginning of 2012? Besides Tesla Motors Inc.

It’s Fuji Heavy Industries Ltd., maker of Subaru, which employs about 3,600 people in Indiana who assemble more than 270,000 cars annually.

Profit and sales are heading toward records after the company benefited more than most Japanese carmakers from the weakening of the yen and as new models such as the BRZ sports car have become so popular that U.S. consumers need to wait months to get one. The success is leading President Yasuyuki Yoshinaga to worry whether the niche maker of all-wheel-drive vehicles is getting too big.

“We’re standing at a major turning point for Subaru,” Yoshinaga said in an interview this week in Tokyo. “It shouldn’t just be about volumes. We should be making cars only Subaru can make that are a little more expensive and more profitable than the competition.”

Debates are raging internally whether to expand Subaru’s lineup of cars, make a push for cheaper vehicles for markets such as India or stick to the products the company sells well, Yoshinaga said. Executives at the company, which counts Toyota Motor Corp. as its biggest shareholder, will begin discussions this month through next year to determine the long-term direction of the Tokyo-based company, he said.

“Some people in the company may want to make mass-market products or cheaper cars, but is this really the right direction for Subaru?” Yoshinaga, 59, said. “We’re not a carmaker that can grow as big as Toyota. And even if we could, reaching that sort of scale would mean we’d stop being Subaru.”

Toyota-backed

Takaki Nakanishi, founder of Nakanishi Research Institute Co. and Japan’s top-ranked auto analyst this year by Institutional Investor magazine, said Subaru is better off small.

“Subaru is a niche product,” Nakanishi said. “They have a strong partner in Toyota, which is complementing Subaru’s product development so that they can focus their strategy on being a niche player.”

While the company has a midterm target of reaching 850,000 units by March 2016 and estimates deliveries to reach 1 million by the end of the decade, Subaru may be speeding ahead of schedule. Sales climbed 13 percent, to 724,000 units, in the year ended March and may rise to 752,000 this fiscal year, according to the company’s latest forecasts.

Waiting lists

Among those sales is the BRZ, jointly developed with Toyota, which was so popular it once had an eight-month waiting list in the U.S. Sales of Impreza sedans more than doubled in 2012 after the company introduced a remodeled version in 2011. The new Forester SUV introduced last year earned the highest safety evaluation by the U.S. Insurance Institute for Highway Safety this year, making Subaru the only carmaker with a Top Safety Pick winner in its lineup for four consecutive years, the company said.

With Subaru on such a roll, discussions that could put a brake on expansion would risk the company missing out on record demand. Debates about preserving Subaru’s niche status also come as the weakening yen makes it more favorable for manufacturers to expand production in Japan.

Yoshinaga said producing as many as 1 million units would be an “appropriate level” for Subaru.

Still, the company isn’t halting expansion. Subaru is investing $400 million to expand output at its Lafayette factory in Indiana by 100,000 units by the end of 2016 as demand rises for its vehicles.

Chinese luck

For now, the company’s enjoying its salad days. Profit almost tripled to a record $500 million last quarter and its 12.7-percent operating margin was second only to China’s Great Wall Motor Co., according to data compiled by Bloomberg. Analysts estimate the company will finish the fiscal year ending March earning more than Suzuki Motor Corp., which sells more than twice as many vehicles as Fuji Heavy.

Part of its recent success can be attributed to luck. The company’s failure to win Chinese approval to build cars in the country became a blessing last year, after a territorial dispute over a group of uninhabited islands fueled a wave of anti-Japan protests across China. Fuji Heavy was largely immune to the backlash that led Toyota, Nissan Motor Co. and Honda Motor Co. to report drops in China sales in 2012.

Then there’s the yen, which has weakened against every major currency in the past year, including 19 percent versus the dollar. Fuji Heavy made three-quarters of its vehicles at home and sold 80 percent of them overseas last quarter—mainly the U.S.—which is why it benefits from a weaker yen more than all Japanese carmakers except for Mazda Motor Corp.

Currency manipulator

Though the yen has allowed some Japanese carmakers to sweeten car deals— Nissan cut prices of seven models in the U.S.—Yoshinaga said Subaru will resist following suit. Subaru offers the lowest incentives among automakers tracked by researcher Autodata Corp.

Competitors are complaining. Ford Motor Co. CEO Alan Mulally in June called Japan a currency manipulator that’s giving local exporters an unfair edge. John Krafcik, CEO of Hyundai Motor Co.’s U.S. unit, said the discounting by Nissan has put the rest of the industry on watch.

“We haven’t raised incentives at all,” Yoshinaga said. “We are not aiming at taking market share. I hate that Japanese cars are seen as a group and being attacked altogether. I hope there won’t be such unfair criticism.”

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. I think the poster was being sarcastic and only posting or making fun of what is usually posted on here about anything being built in BR or d'town for that matter.

  2. Great news IRL fans: TURBO the IMS sanctioned movie about slugs running the Indy 500 has caught the Securities and Exchange Commission because Dreamworks had to take a $132MILLION write down...because the movie was such a flop. See, the Indy/IMS magic soiled another pair of drawers. Bwahahahahahaha! How's CARTOWN doing? HAHAHAHA...Indy is for losers.

  3. So disappointed in WIBC. This is the last straw to lose a good local morning program. I used to be able to rely on WIBC to give me good local information, news, weather and traffic on my 45 minute commute.Two incidents when I needed local, accurate information regarding severe weather were the first signs I could not now rely on WIBC. I work weekend 12 hour nights for a downtown hospital. This past winter when we had the worst snowfall in my 50 years of life, I came home on a Sunday morning, went to sleep (because I was to go back in Sunday night for another 12 hour shift), and woke up around 1 p.m. to a house with no electricity. I keep an old battery powered radio around and turned on WIBC to see what was going on with the winter storm and the roads and the power outage. Sigh. Only policital stuff. Not even a break in to update on the winter storm warning. The second weather incident occurred when I was driving home during a severe thunderstorm a few months ago. I had already gotten a call from my husband that a tornado warning was just southwest of where I had been. I turned to WIBC to find out what direction the storm was headed so I could figure out a route home, only to find Rush on the air, and again, no breaking away from this stupidity to give me information. Thank God for my phone, which gave me the warning that I was driving in an area where a tornado was seen. Thanks for nothing WIBC. Good luck to you, Steve! We need more of you and not the politics of hatred that WIBC wants to shove at us. Good thing I have Satellite radio.

  4. I read the retail roundup article and tried Burritos and Beers tonight. I'm glad I did, for the food was great. Fresh authentic Mexican food. Great seasoning on the carne asada. A must try!!! Thanks for sharing.

  5. John, unfortunately CTRWD wants to put the tank(s) right next to a nature preserve and at the southern entrance to Carmel off of Keystone. Not exactly the kind of message you want to send to residents and visitors (come see our tanks as you enter our city and we build stuff in nature preserves...

ADVERTISEMENT