Subaru Profits Slip Despite Steady Sales; Self-Betterment and Currency to Blame

After several years of record growth, a combination of increasing costs and exchange losses forced Subaru’s operating profit to fall by 27 percent in its recently ended fiscal year. No longer Fuji Heavy Industries, and now focusing primarily on automotive product, Subaru Corporation announced its operating income had dipped to $3.69 billion in April. Net income also took a hit, falling by 35 percent to $2.54 billion.

Considering the company finally surpassed the one million annual sales mark for the first time in its history, it is surprising to see the brand faced with anything other than glowing praise. However, improved sales and continued revenue growth doesn’t tell the entire story. Subaru’s European sales declined by 2.6 percent — matching the trend in China and Japan. North America, which accounts for the majority of the brand’s sales, maintained its interest but the overall market has slowed.

“U.S. demand has peaked out,” Subaru CEO Yasuyuki Yoshinaga explained. “The market environment has increasingly become tougher. We will carefully the situation and will take the necessary steps to maintain our sales, including incentives.”

North America was still good to Subaru over the last 12 months, though. Regional sales expanded 14 percent to 721,000 annual vehicles. U.S. sales went from 582,700 to 667,600, while Canadian sales grew to 53,100 from 47,600 the previous year.

So why didn’t Subaru make more money? The yen’s appreciation against the dollar had a lot to do with it. Foreign exchange losses accounted for 143.8 billion yen ($1.29 billion), which is notably massive.

Production costs also played a part — $1.52 billion in all, according to Automotive News. Takata’s defective airbag recall hit Subaru harder than most automakers. The brand has also upped its ante in research and development programs and is spending capital to improve production capacity in both Japan and North America.

Subaru will adjust its current assembly schedule to account for the slowing demand. Still, it expects its global sales volume to continue rising to 1.2 million units over the next fiscal year, with an operating income on par with the current figures — assuming exchange rates stabilize.

[Image: Subaru]