Subaru Quarterly Profits Rise Because Of America, But It Could've Been Even Better

Global Subaru operating income rose 19 percent to $1.06 billion in the quarter ending June 30. Net income was up 4 percent to $733 million on an 11-percent revenue increase to $8.9 billion.

Why?

Subaru’s long since gone to look for America. And while U.S. auto sales keep on slowing — falling for a seventh consecutive month in July 2017, for example — Subaru’s U.S. sales keep on rising. July, in which Subaru begins the current fiscal year’s second quarter, was Subaru’s 68th consecutive year-over-year monthly increase.

The U.S. market generated six out of every ten global Subaru sales between April and June.

According to Subaru chief financial officer Toshiaka Okada, “There is a shift to SUVs from sedans,” Automotive News reports. “In that sense, that is a tailwind for us. As we mainly focus on SUVs, the growing popularity of SUVs is a good thing for us.”

But Subaru isn’t just experiencing improved U.S. sales because of its three-pronged crossover lineup. The launch of the new Subaru Impreza has been a particular success by Impreza standards, as well. Through July, year-over-year Impreza volume is up 45 percent as Subaru now generates its Impreza supply from the company’s Indiana assembly plant.

Utility vehicles are Subaru’s mainstay, however. The Outback, Forester, and Crosstrek — a trio of high riders — rank No. 1, No. 2, and No. 3 on Subaru’s U.S. sales charts. Collectively, the trio is up 8 percent this year despite the Crosstrek’s transition into a new generation this summer. The three crossovers account for 71 percent of Subaru’s U.S. volume.

Outside the U.S., Canadian sales in Subaru’s first fiscal quarter were essentially flat, Automotive News reports, while Chinese volume plunged 16 percent and European volume fell 4 percent. China and Europe account for just 3 percent of the brand’s global volume. Subaru’s Japanese sales rose 30 percent, but there, too, Subaru generated substantially less volume in the entire quarter than Subaru USA reports each month.

Yet the positive impact Subaru’s U.S. efforts had on the company’s bottom line would have been even better had the market not taken a downturn and become more competitive. Sure, Subaru is selling more new vehicles than ever before, but they’re also resorting to a rapidly escalating level of discounts the company didn’t have to utilize in the past. Subaru is still notoriously tight-fisted when new vehicle purchase negotiations begin — incentives in July were lower than any other major automaker and 72-percent below the industry average, according to TrueCar.

But Subaru incentives were also 51-percent higher in July 2017 than in July 2016, an additional $342 per-vehicle discount that ate into what would otherwise have been even more substantial black ink improvements.

Not surprisingly, Subaru is content at the current incentivization levels, well below rivals as they are. “Overall, our incentives stay within our expected levels. For now, we are not going to change our incentive program significantly going forward,” Okada says, “as our sales have been good.”

[Image: Subaru]

Timothy Cain is a contributing analyst at The Truth About Cars and Autofocus.ca and the founder and former editor of GoodCarBadCar.net. Follow on Twitter @timcaincars.