Saturday , October 23 2021

Subaru struggles amid recalls, production delays



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The Japanese carmaker, which grew rapidly earlier this decade, fueling American demand for SUVs, said on Monday that it had fallen short of its US shipping target and its profit margins narrowed. Subaru's net income for the current fiscal year, which ends in March, is expected to fall to less than half the peak.

The problems are partly temporary. Last week, Subaru collected more than 400,000 Subori and Subaru Toyotas for engine parts that were in danger of collapsing, a move that eliminated nearly $ 500 million in operating profit.

The company said it lost opportunities in the US because it did not have enough vehicles available. "We are struggling with production a little bit," said Toshiaki Okada, chief financial officer of Subaru.

The company's factory in Indiana did not build enough of the new Ascent, a seven-seater SUV with 19 coasters. Factory workers struggled to build Ascents quickly enough, maintaining quality, Okada said.

Subaru will likely record its third consecutive fiscal year of declining profit. Generally comfortably in double digits, the company's operating margin dropped to around 3.7% in the six months to September, up from about 13% last year.

Subaru designs it will sell 1.04 million vehicles in the year ending March, down from 1.07 million units the previous year.

A business plan adopted in July under new chief executive Tomomi Nakamura calls for Subaru to increase its stake in the North American market to 5 percent from just under 4 percent today.

In Japan, Okada said that Subaru was struggling with problems on its inspection lines in a factory where the company acknowledged that workers were conducting vehicle testing improperly. He said efforts to ensure that vehicles are properly inspected have slowed down production. The company said on Monday it would call for another 100,000 cars in Japan for newly discovered problems related to vehicle inspections.

Takaki Nakanishi, Tokyo auto analyst, said the slowdown in sales is "an issue on the supply side, not a demand issue. The demand is strong, the products are selling well. "

Even without recall-related costs, Subaru's operating profit in the six months to September would have fallen by more than a third.

One reason is the growing supply of financial incentives in the US. Subaru offers 0% financing on some of its best-selling vehicles, a common tactic of automakers to reduce inventory before a model update. Subaru began selling an upgraded Forester utility vehicle in September.

US interest rates in general are rising, raising the account for the subsidies that Subaru is offering to customers.

Subaru said it spent an average of about $ 2,200 per vehicle on financial sweeteners for customers, compared with about $ 1,800 last year. The company said sales of new models such as Ascent and Forester would restrict its incentive spending. New vehicles are usually offered with fewer offers.

Nakamura, chief executive of Subaru, said he was more concerned about Subaru's quality difficulties, which he blamed for growing very quickly. Subaru's sales volume grew to more than one million last year from 825,000 in 2014.

"There have been a lot of recall issues lately. The cause could probably be attributed to too much stretching for growth, "Nakamura said.

Write for Sean McLain at [email protected]

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