Fuji Heavy to focus on U.S. to lift mid-term profits
Wed Feb 28, 2007 2:07am
By Chang-Ran Kim, Asia auto correspondent
TOKYO, Feb 28 (Reuters) - Subaru car maker Fuji Heavy Industries Ltd. unveiled a new business plan on Wednesday that places greater importance on the U.S. market to help boost its operating profit by 60 percent in four years.
Fuji Heavy, held 8.7 percent by Toyota Motor Corp., has had to dramatically rewrite a five-year business plan that wraps up next month as sales fell far short of targets.
Since taking the wheel last June, Chief Executive Ikuo Mori, who hails from a marketing background, had been crafting a new roadmap for growth, stressing the need to build cars that are not only well-engineered but respond to drivers' changing needs.
"There's been a major gap between what we produced and what the market wanted," he told a news conference to detail the much-awaited four-year plan.
As one step to close that gap, Mori said its New Jersey-based U.S. headquarters would open a satellite office in Los Angeles to better define customer needs and boost sales in the elusive Sun Belt states of the southern and southwest United States.
With little hope for a recovery in vehicle demand in Japan, Mori said the maker of the Legacy model would concentrate much of its energy on the profitable U.S. market, with plans to add 24 dealers by 2010 for a total 625 sites.
By the end of the business plan in March 2011, the United States would account for 236,000 units -- or 35 percent -- of its global sales target of 683,000 units, equalling Japan in volume.
In the 2006/07 business year, ending March 31, Fuji Heavy expects to sell 179,000 vehicles in the United States and 242,000 units in Japan. Global shipments are set to total 575,000 units.
To support the growth in overall sales, Fuji Heavy said it would consider establishing a manufacturing base somewhere outside Japan and the United States.
In an endorsement of profitability over size, Fuji Heavy said it would refrain from chasing sales volume in Japan even if that meant pulling back sales of 660cc minicars in the popular segment, and focus on full-sized cars to secure solid earnings.
"We are by no means a big company," Mori said. "The best strategy for us is to market our vehicles as high value-added products and lift profitability."
Fuji Heavy said it would aim for an operating profit of 80 billion yen ($675 million) in 2010/11, up from the 50 billion yen it has projected for this year, and an operating margin of around 5 percent, against a projected 3.3 percent in 2006/07.
In the longer term, it would seek a stable margin of at least 8 percent.
The 50 billion yen profit expected this year is in line with a revised target announced in 2005, when currency rates were much less favourable. Under the original five-year plan mapped out in 2002, Fuji Heavy envisaged a profit of 110 billion yen.
The company also said it would target a return on asset (ROA) ratio of 7 percent in four years and 10 percent in the long term, and maintain a stable dividend policy for the time being.
Further out, analysts say Fuji Heavy could benefit from deeper ties with Toyota, which took an equity stake in it a little over a year ago.
So far, the companies have announced two concrete agreements -- for Toyota to use Fuji Heavy's U.S. plant to build the Camry model, and for Subaru to buy 6,000 compacts cars a year from Toyota unit Daihatsu Motor Co. (7262.T: Quote, NEWS , Research) for sale in Europe.
Mori said he viewed the strengthening of Fuji Heavy's relationship with Toyota as a long-term project, through measures such as joint development of advanced vehicles and powertrains.
After the news, shares in Fuji Heavy ended down 4.7 percent at 643 yen, mirroring a slide in other auto stocks and the overall market.
($1=118.12 Yen)
Autoweek:
For Subaru boss Ikuo Mori, success in the United States is critical.
Mori, president of Subaru maker Fuji Heavy Industries Ltd., said the United States is the "highest-priority market" in his new four-year plan for the carmaker.
To support U.S. operations, Mori plans to add dealerships, forge closer ties between Subaru's U.S. manufacturing and sales arms in America and pay greater attention to U.S. automotive trends at their source: Southern California.
He unveiled a new plan to guide Subaru until March 2011. The company fell short of its previous five-year goals. The new plan sets more modest targets.
Mori, a marketing executive named president in June 2005, made it clear he no longer is pursuing the dream of his predecessor, Kyoji Takenaka, to remake Subaru into a "global premium brand." In recent years, Subaru added luxury features and raised stickers on many models but fell short of its sales goals.
"The goal of being a global player hasn't changed," Mori said. "But 'premium' carried a 'luxurious' implication. That's not who we are."
Mori also seemed to question Subaru's recent push to expand its dealer network in Sun Belt states. Its dealer expansion efforts had been devoted largely to the South but hadn't made much progress, he said.
To boost sales worldwide, Subaru will take 6,000 compact cars a year from Daihatsu Motor Co., a unit of Toyota Motor Corp., for sale in Europe starting this autumn. Subaru also will develop a compact car for global markets.
Diesel for America?
Next year, a diesel-powered car Subaru is showing at the Geneva auto show will go on sale in Europe. It might go to the United States, too.
"Make no mistake - diesels are coming to America," Mori predicted.
By the fiscal year ending March 31, 2011, the Subaru plan sees U.S. sales rising to 2.36 million from an estimated 1.79 million in the current fiscal year. Subaru's U.S. sales then would equal those in Japan.
Subaru plans to raise its total U.S. dealership count to 625 by the end of 2010 from 601 at the end of 2006. It also aims to convert more stores to exclusives. The number of exclusive Subaru stores is expected to jump to 290 by 2010's end, up from 272 at the end of 2006. Stores with separate Subaru showrooms will total 170, up from 164.
Subaru of America, the marketing arm based in Cherry Hill, N.J., is scouting locations in the Los Angeles area for a satellite office to open this year. It will have only about 10 staffers.
Mori said Subaru needs the office "to watch that fast-moving market on the West Coast."
