Subaru's Parent Kills Industrial Division, Plans to Coddle Its Overachieving Child

It was a bombshell decision that Fuji Heavy Industries describes as “extraordinary.”

Subaru’s parent company announced today that its board of directors has decided to eliminate its industrial division to free up resources for its car division. FHI built its empire on small industrial powerplants, spawning a quirky car company in the process, but that car brand is now the corporation’s main focus.

What does the new love mean for Subaru?

For starters, the automaker must decide what it wants to be.

By closing the last page on a book that started in 1951, FHI will no longer build engines for construction, industrial, and agricultural equipment, nor will it make any powerplants for snowmobiles, ATVs, pumps or generators. Production stops on September 30 of next year. Meanwhile, FHI’s aerospace division lives on.

Two years ago, FHI launched a strategic vision to bolster the car division, sending more personnel to Subaru’s engineering and product development division. Next April, the FHI name will cease to exist, replaced by a new moniker: “Subaru Corporation.”

That tells you something about the car division’s long-term importance. FHI claims that dropping the industrial division allows it to move resources to “more effectively to enhance the competitiveness of its core automotive business in the aim of achieving sustainable growth in the future.”

The key word in that statement is “sustainable.” Subaru is notoriously averse to overproduction, which seems odd given that it currently sells all the cars it can build. FHI president Yasuyuki Yoshinaga recently told the Wall Street Journal that he’d rather have a vehicle shortage than an oversupply, admitting that the level of caution is unusual for the industry.

Blame the U.S. for the increased demand, as it gobbles up 60 percent of the company’s volume.

Global sales rose 8.4 percent in the first nine months of 2016, while Japanese sales sank by 8 percent. While its Indiana assembly plant is expected to double in capacity to feed Impreza, Outback and Legacy models to a hungry America, most of its manufacturing capacity remains in Japan. No new factories are planned there, and a year ago, FHI president Yasuyuki Yoshinaga announced a production cap of 1.03 to 1.1 million vehicle per year. Through the end of September, global production increased 7.9 percent (mostly due to the Indiana plant), for a total of 751,562 vehicles.

Where Subaru suffers in certain overseas markets, Europe especially, boosting production and hoping the vehicles sell isn’t Subaru’s game plan.

“While (the industrial products division shutdown) doesn’t help us with capacity, in that it doesn’t take up line space…it does help the company focus its financial resources on automotive,” Michael McHale, director of corporate communications for Subaru of America, told TTAC.

Much of that newfound money will no doubt go into developing new products and technology. Subaru needs the goods — and the strategy — to compete in new or underperforming markets before it lifts the production cap and builds new factories. If Subaru does decide to ditch its niche brand status, it can’t go into battle with an unloaded gun.

[Image: Subaru]