Subaru Profit Forecasts Out The Window

TOKYO, Nov 17, 2003; Edwina Gibbs writing for Reuters reported that Fuji Heavy Industries , the maker of Subaru cars, said on Monday interim earnings and its full-year estimates skidded downhill, pummelled harder than expected by a vicious price war in the U.S. market.

The niche maker of off-road vehicles, which is one-fifth owned by General Motors Corp, also said domestic sales were hit by the weak performance of its Forester sports utility vehicle, Impreza sports sedan and an ageing minivehicle line-up.

Its projection for consolidated operating profit, which had already been its lowest in seven years, was cut to 53 billion yen ($488.9 million) for the year to March 31.

That was 15 percent lower than its May forecast and a fall of 22 percent compared to the previous year.

"The revision can be attributed to higher sales incentive costs," Executive Vice President Shunsuke Takagi told a news conference. "Promotional costs in North America have risen much more than we had planned."

First-half operating profit halved to 18.3 billion yen. Operating income was, however, deflated by write-off costs associated with assuming control of its U.S. plant that it used to share with truck maker Isuzu Motors Ltd (Tokyo:7202.T - News).

Without that factor, first-half operating profit would have fallen 41 percent from a year ago, while the slide in its 12-month estimate would have been 11 percent.

On a net level, the auto maker said it was determined to meet its full-year forecast and even revised it up slightly to 36 billion yen, a 7.5 percent climb over the previous year.

Pushing up the bottom line are sales of stock in companies it does business with and a lower tax burden. For the first six months, net profit rose to a record 19.4 billion yen.

Tough competition in North America led Fuji Heavy to cut its overseas sales projection, trimming its target by two percent to 300,000 units. Its Japan estimate was lowered slightly to 259,000 vehicles.

While sales incentives are sapping profit, Fuji Heavy's efforts to cut inventories ahead of the U.S. launch of the latest versions of its flagship Legacy models next year should lift full-year revenue by four percent to a record 1.43 trillion yen.

It sales incentives are not as high as some U.S. auto makers, which are averaging around $2,700 per unit, but Takagi said that 2003 Subaru models were averaging $1,600 while 2004 models were averaging under $1,000.

That compares with an overall average of $900 last year.

Analysts, however, have said they expect next year to be much better when the latest versions of its popular Legacy cars, which won the "Japan Car of the Year" award last week, go on sale in the United States.

With its sales at home and in the United States not doing as well as expected, the stock has risen only two percent in the business year to date, far underperforming a 28 percent jump in the transport subsector index (^ITEQP.T - News).