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Subaru maker Fuji Heavy aims to sustain 10% profit margin over six years

By: | at 09:01 AM | International Trade  

Subaru maker Fuji Heavy Industries aims to sustain an operating profit margin of 10 percent or more over the next six years by staying small and developing niche and profitable cars, its chief executive said.

Japan’s smallest car maker likely enjoyed the highest operating profit margin among its seven domestic peers in the year ended March, when it booked record profit for the second year in a row. On Friday, Fuji Heavy projected another record for the current year on strong demand in the United States.

The maker of four-wheel drive vehicles also said it plans to boost global sales by 20 percent to 1.1 million vehicles or more by the year ending in March 2021, yielding a market share of around 1 percent, Chief Executive Yasuyuki Yoshinaga said.

High profitability is important for small players like Fuji Heavy to survive in an intensely competitive global auto industry. The second-tier automaker records only about a 10th of Toyota Motor Corp’s sales volume and profit.

“For a small-scale car maker like Subaru to continue growing in a sustainable manner, we need to polish our brand and be more resistant to changes in the external environment,” Yoshinaga said at an earnings briefing on Friday.

To boost brand image, Fuji Heavy will focus on building safe cars loaded with a high-level anti-crash system, the auto maker said.

The company will also address its high exposure to currency movement. Fuji Heavy, which exports around 70 percent of the vehicles it makes in Japan, has been especially sensitive to change in the value of the yen.

Expanding Capacity

Over the next six years, Fuji Heavy is likely to more than double manufacturing capacity at its Indiana plant in the United States, its biggest market, to 400,000 vehicles a year, Yoshinaga said.

That expansion, by 230,000 vehicles, includes the capacity of 100,000 vehicles which is currently dedicated to making Toyota’s Camry but will be used by Fuji Heavy from late 2016.

The two companies said on Friday that Toyota will stop manufacturing the Camry sedan at Fuji Heavy’s Indiana plant in the autumn of 2016 and shift production to Toyota’s Kentucky plant. Toyota owns 16.5 percent of Fuji Heavy.

Globally, Fuji Heavy plans to increase annual manufacturing capacity over the next six years by 37 percent to 1.07 million vehicles.

For this financial year to March 2015, Fuji Heavy expects operating profit to grow 4.1 percent to 340 billion yen ($3.35 billion), backed by strong sales of its Impreza and Forester crossover SUV in the United States.

That would come after the company nearly tripled operating profit in the just-ended year to a record 326.5 billion yen, helped by depreciation of the yen. Its operating profit margin is likely to fall to 12.5 percent this year from 13.6 percent.

The auto maker said it plans to sell a record 916,000 vehicles this financial year, up 11.0 percent.

Shares of Fuji Heavy closed 0.6 percent lower, compared with a 0.3 percent gain in the benchmark Nikkei index.

Also on Friday, Suzuki Motor Corp announced record profit for the year ended March. Its shares closed 1.7 percent higher ahead of the result.

Japan’s fourth-biggest car maker expects a tough business environment at home where the sales tax rose in April, as well as in emerging markets including India which is undergoing a change in government.

Suzuki projects operating profit of 188 billion yen for the financial year to March 2015, a rise of just 0.1 percent. (Reuters)