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Fuji Heavy forecasts bumper profits as Subaru demand takes off

By: | at 04:51 PM | International Trade  

Fuji Heavy Industries bumped up its forecast for record profits this year by another 40 percent and announced its sixth increase in production capacity in barely a year as it struggles to meet demand for its Subaru cars.

Fuji Heavy, along with fellow second-tier Japanese automaker Mazda Motor Corp, is enjoying a rebound in the market but bumping up against capacity constraints that limit their ability to take full advantage.

“We boosted capacity to match what we expected to sell, but it’s surpassed even that, faster than we’d ever imagined,” Fuji Heavy’s chief executive Yasuyuki Yoshinaga said in a results briefing.

Earlier the company announced that it expects to make an operating profit of 278 billion yen ($2.83 billion) in the current year ending next March, more than double last year’s result and up from its previous forecast of 198 billion yen.

It also raised its global sales forecast for Subaru cars, about half of which are sold in the United States, by more than 10 percent to 807,300 vehicles, and said it would boost output at its main plant in Japan by another 20,000 vehicles a year - more than 10 percent - by next summer to meet demand.

Meanwhile Mazda raised its full-year operating profit forecast by a third, to 160 billion yen, triple the year-ago result but still shy of a record, as it benefits from new versions of its key models, including the Mazda 3 and Mazda 6, which feature its latest fuel-efficient engine technology.

Shares in both Fuji Heavy and Mazda are up by around 150 percent so far this year, outperforming those of the three biggest Japanese automakers - Toyota Motor Corp, Nissan Motor Co and Honda Motor Co which are variously up by between 20 and 60 percent.

Bursting at the Seams

Profits at Fuji Heavy and Subaru have also been boosted by a weaker yen over the past year sparked by the reflationary policies of Prime Minister Shinzo Abe.

While the big Japanese automakers have moved most of their production for foreign markets overseas, spurred at first by trade frictions in the 1980s and more recently by the strong yen, their smaller rivals, each accounting for barely 1 percent of the global car industry’s total output, have continued to produce mostly in Japan and export to foreign markets.

This battered their bottom line when the yen was strong but delivered a windfall with the recent weakness, generating more yen from currencies earned overseas.

Mazda, which relies heavily on exports to Europe and other foreign markets, racked up $2.5 billion in combined net losses in the four consecutive financial years to March 2012, when the yen was strong.

Subaru, which relies on the U.S. market for about half its sales, has fared better with a devoted following for its four-wheel-drive, boxer-engined vehicles and a marketing strategy focused on its biggest market.

But the company is finding it increasingly difficult to keep pace with growing demand. Its volumes are still too low to justify a new plant, while its existing facilities are bursting at the seams.

At its U.S. plant in Indiana, it makes 170,000 Subaru vehicles a year along with 100,000 Camry mid-sized cars for its biggest shareholder Toyota, the world’s largest automaker with forecast production this year of more than 9 million cars.

Fuji Heavy plans to spend $400 million to boost capacity at the plant by another 130,000 vehicles, but that won’t be ready until the end of 2016.

The Nikkei business paper said last week that Fuji Heavy would more than double its U.S. output by 2016, partly by discontinuing the Toyota Camry production, but Yoshinaga on Thursday said any such move would be up to Toyota.

“Regarding Camry production, there have been some news reports but we ourselves have absolutely no desire to halt that,” Yoshinaga said, while stressing the importance of the Toyota alliance for a small automaker like Fuji Heavy. “We get first-hand exposure to Toyota’s production methods, which is a good learning experience for us.” (Reuters)