Subaru to Maintain Japan Production Focus Despite Stronger YenMa Jie and Yuki Hagiwara
CEO says company’s advantage is in making ‘unique’ vehicles
Fuji Heavy has highest profit margin among Japanese peers
Fuji Heavy Industries Ltd., the carmaker most reliant on exports from Japan, said it’ll stick to a strategy of producing the bulk of the company’s Subaru vehicles at home as the yen strengthens.
The owner of Subaru brand, long known for all-wheel-drive vehicles, doesn’t want to focus narrowly on the impact of foreign exchange, Chief Executive Officer Yasuyuki Yoshinaga, 62, said in an interview Friday. “We will end up adopting strategies similar to big automakers and lose our uniqueness.”
Yoshinaga is looking to maintain course at a time the company has forecast its first profit decline in five years, even though its deliveries will cross 1 million vehicles in the current fiscal year. A stronger yen makes its cars sold overseas more expensive, hurting demand as well as cutting the value of repatriated earnings. A change to offset the impact of the yen would mean more fixed costs, and building compact cars that Subaru isn’t good at, he said.
Instead, Subaru will focus on sustaining an operating profit margin that’s higher than peers. At 17.5 percent of revenue, the figure was the highest in the industry in the year ended March 31, according to data compiled by Bloomberg. The margin will be 11 percent to 12 percent even when the yen trades at 100 to the dollar, Yoshinaga said in Tokyo, where the company is based.
“I don’t think there’s a problem as long as we can keep the margin at a high level,” said Yoshinaga. “Investors will support us if we can show that we improved earnings by our real strength, rather than the tailwind of foreign exchange.”
Shares of Fuji Heavy have declined 23 percent this year, compared with the 13 percent drop in Japan’s benchmark Topix index.
The Japanese company this month forecast net income may fall 33 percent to 293 billion yen ($2.7 billion) in the year ending March 2017, on assumption the yen on average will trade at 105 against the dollar. The yen has strengthened more than 9 percent against the dollar this year, after weakening more than 30 percent between 2011 and 2015.
Fuji Heavy, which will change its name to Subaru Corp. from April 1, 2017, was the most vulnerable among Japanese automakers to a stronger yen as it stepped up shipments to the U.S. from Japan in the past few years. While other manufacturers such as Nissan Motor Co. and Honda Motor Co. sell most of their autos where they’re produced, Subaru exports about 80 percent of its vehicles made in Japan.
With demand for its Outback crossover and Forester sport utility vehicle rising in its largest market, Subaru has been gradually boosting production in the U.S. This month, Subaru said it will stop making the Camry sedan for Toyota Motor Corp. at its U.S. plant and will start producing the Outback on the same line from June.
The company will also stick with its strategy of collaborating on new vehicles. Fuji Heavy has agreed with Toyota to build a new generation of their co-developed sports car -- called the BRZ for Subaru and 86 for Toyota. The two will decide on specific plans in the next 12 months, Yoshinaga said. The move would deepen a partnership that began in 2005, when Toyota bought 8.7 percent of Fuji Heavy, increasing the stake to 16 percent three years later.
The relationship is also extending to alternative-energy vehicles. Subaru has planned a plug-in hybrid in 2018 and an electric vehicle in 2021 to meet stricter emission regulations to be introduced globally. The two models will be variants of existing iterations, and Subaru is learning hybrid and plug-in hybrid technologies from Toyota, Yoshinaga said.
“Alliance is a must,” said Yoshinaga. “Without an alliance, smaller carmakers won’t have the capability to develop cars that meet environment standards, and that will be the end of the story.”