Subaru Parent Fuji Heavy's Profit Lowest in 6 Years

TOKYO, May 16, 2003; Chang-Ran Kim writing for Reuters reports that Fuji Heavy Industries, the maker of Subaru cars, reported a 24 percent drop in annual earnings on Friday, its lowest operating profit in six years, and forecast a further fall due to weak sales in the key U.S. market.

Fuji Heavy's fortunes stand in stark contrast to those of most other Japanese automakers, which have reported strong profit growth thanks mainly to success in the United States despite depressed demand and heavy discounts by local car manufacturers.

The company, 20 percent owned by General Motors Corp, said group operating profit for the year ended March 31 was 67.52 billion yen ($580 million), in line with the median forecast of 68 billion yen in a survey of 16 brokerages by Reuters Research.

A year earlier, it logged a profit of 88.48 billion yen.

With much less exposure to Europe than its domestic rivals, Fuji Heavy received little lift from a stronger euro. The currency factor added 3.2 billion yen to profit last year, and is expected to slash 13 billion yen this year due to the dollar's fall against the yen.

Citing a tough sales environment in the United States and Japan due to those countries' sluggish economies, the maker of all-wheel-drive vehicles said its operating profit would likely fall further to 62 billion yen for the year to next March.

"Obviously, what will be really key for us going forward is how demand in North America pans out," chief financial officer Hiroshi Suzuki told a news conference.

For the year to next March, Fuji Heavy forecast a net profit of 35 billion yen. Last year, net profit was 33.48 billion yen.

The automaker, which generates about four-fifths of its operating profit in the United States, fell short of its sales target there in calendar 2002, with volumes dropping 3.2 percent.

Analysts said Fuji Heavy's prospects in its most important overseas market continued to look bleak.

Although sales are up 10 percent so far this year, that is mainly due to increased spending on incentives. With no new model planned in the U.S. until next year, profits are set to come under more pressure, analysts said.

"They're expecting to boost global sales volume by 5.2 percent (to 568,000 units) this year, but that's looking difficult for the time being," said Nikko Citigroup auto analyst Shotaro Noguchi.

Fuji Heavy hopes to make up for any weakness by improving its sales in Japan, where it will soon launch a new version of the flagship Legacy model. But CFO Suzuki said bigger spending could dampen the effects of a sales rise.

"We're going to be seeing an improvement in sales mix and growth in vehicle unit sales, but there will be a rise in spending, including promotional costs for the new Legacy and R&D," Suzuki said, adding a weaker dollar would also hurt.

Fuji Heavy is assuming an average dollar rate of 118 yen for this year, compared with 124 for the just-ended year. The dollar was fetching around 116.5 yen (JPY=) in late afternoon trade.