FUJHY Subaru Corporation (PK)

   (FROM THE WALL STREET JOURNAL 11/17/15) 
   By Yoko Kubota and Eric Pfanner 

Subaru, headed for its seventh consecutive year of record U.S. sales, expects further growth and plans to offer a new seven-seat sport-utility vehicle to ensure it keeps up with strong demand, its chief executive said.

Fuji Heavy Industries Ltd., the parent of Subaru, is the smallest of Japan's seven passenger-car makers by global vehicle sales volume, but in recent years has become the fourth-most profitable, after Toyota Motor Corp., Nissan Motor Co. and Honda Motor Co.

Yasuyuki Yoshinaga, CEO of Fuji Heavy, said Subaru has established a brand position that attracts customers regardless of the market cycle. "Usually, even if a specific model is very popular shortly after it's launched, it slows down after a while. But now, all kinds of models are selling well," he said. "It's Subaru itself that is in high demand."

Much of the company's revenue and profit originate in the U.S., where its vehicle sales volume has tripled over the past eight years. More than 60% of Subaru's revenue comes from North America, backing the company's outlook of record profit for the fourth year in a row for its fiscal year through March 2016.

A number of global auto makers are similarly optimistic on demand in the U.S., where car sales are surging on strong consumer confidence and low fuel prices, putting the market on track for what could be its strongest annual showing in history. General Motors Co. last month posted record third-quarter operating profit in its core North American unit, on strong demand for profitable trucks and SUVs. Toyota, the world's best-selling auto maker, this month said it expected the U.S. market to stay strong for the foreseeable future, as it reported record quarterly profit, though it trimmed its sales outlook on expected weakness in emerging markets.

Subaru expects to sell 570,000 vehicles in the U.S. this year, up 11% from 2014. Subaru sales have increased steadily since 2007, when it sold around 187,000 vehicles, in part because the company expanded the size of its vehicles to match U.S. demand. The export-reliant auto maker has also been buoyed by a weak yen and the popularity of its driver-assist system called EyeSight that includes precollision braking.

Karl Brauer, senior analyst at Kelley Blue Book, said Subaru as a brand has become more widely accepted over the last decade. "Subaru has extended its following beyond a core, dedicated group of buyers into mainstream consumer awareness and nearly universal affinity," he said.

To stoke demand, Mr. Yoshinaga said, Subaru plans to introduce by 2018 an SUV that can seat as many as seven people, a successor to its Tribeca model, which ceased production in 2014. The company is also nearly doubling vehicle production capacity at its Indiana plant by the end of 2016 to 394,000 vehicles, he said.

Subaru's focus on the U.S. has limited its exposure to emerging markets like China and Russia, where demand for autos has been slowing or declining, prompting overcapacity concerns. Subaru hasn't been able to obtain permission from the Chinese government to start local production.

"Auto makers are in a competition to undersell one another in these markets. Until that calms down, we are not going to pursue sales volume in China and Russia," he said.

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(END) Dow Jones Newswires

November 17, 2015 02:47 ET (07:47 GMT)

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