Subaru Increasing Japanese Production Despite Exchange Rate Fears

Derek Kreindler
by Derek Kreindler
subaru increasing japanese production despite exchange rate fears

Rather than expand production in North America, Subaru is taking a contrarian route and expanding their manufacturing in Japan – even as everyone is scrambling to get out.

According to Automotive News

“A large-scale expansion in the U.S., where we build new factory buildings and such, will cost a lot,” Chief Financial Officer Mitsuru Takahashi said in a May 18 interview in Tokyo. “We’re not like Toyota, Honda or Nissan, so it’s not appropriate for us to make sudden, big investments.”

The move comes with a planned 28 percent boost in Japanese output by March, 2013 while cutting U.S. output by 1 percent. Subaru is betting that a weakening yen will help increase profitability – Takahashi’s own outlook is of a drop in the yen over the next decade – but as of now, Japanese automakers can’t build North American factories fast enough.

Subaru recently lost a bid to begin a joint venture with Chery in China, and will now be forced to import cars and face a 25 percent duty on each one. That resulted in Subaru shifting their focus to American, where the brand has seen strong growth. Although Subaru has a U.S. manufacturing presence (and Subaru decided that, even with the strong yen, it’s more cost-effective to expand in Japan) an erratic yen could wreak havoc on Subaru’s profitability, ala Mazda – but by the same token, Subaru’s bet on a weaker yen could also pay off handsomely. The nature of the auto business in today’s world is that long-term decisions must be made in a world where events like last year’s tsunami can turn one’s world upside down in a very short time frame. We’ll just have to sit tight and watch how Subaru’s bet pans out.

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