Subaru Struggles: Annual Profit Effectively Halved Due to Quality Control Issues

Subaru may be getting too big for its britches. Despite seeming like it was positioned for nearly incalculable growth at the start of last year, the automaker’s latest financial report showed the period was actually plagued with problems. Over the full fiscal year, which ends on March 31st for Subaru, the company basically showed that its operating profit had been cut in half.

How could this have happened? Subaru’s commitment to all-wheel drive has given its sales a shot in the arm as the crossover craze has escalated and it has one of the best reputations in the business. Seriously, ask any automotive layperson what they think of the brand and they will almost always have something positive to say. However, for all of its presumed advantages, the company is reporting a 48.5-percent decline in operating profit (to 195.5 billion yen) and a 6.3-precent loss of global sales volume.

Let’s start with sales. While the new Ascent did fairly well in North America, helping to further boost annual brand volume within the region, it’s far too big to support in all markets. European sales continued to struggle, with Subaru having continued difficulties maintaining its share of the market. In its annual earnings report, Subaru also noted that consolidated unit sales in Japan decreased by 17.2 percent.

Part of this was down to idling production. Last January, Subaru suspended assembly at its Yajima facility over a suspected defect affecting the electric power steering unit of Impreza, Forester and Crosstrek models. What would have been a big issue for some automakers turned into a gargantuan one for Subaru because Yajima accounts for around 60 percent of the company’s global production. When it idled the facility to deal with the affected models, it also had to halt assembly of everything else manufactured there for nearly two weeks.

Prior to that, Subaru was faulted with improper certification procedures and manipulating vehicle emissions data — resulting in another temporary closure while it conducted an internal investigation and a government-mandated recall totaling over 500,000 units. There were, of course, other huge recalls throughout the period, tempered by growing criticism from inside Japan that it was overworking employees to cope with rising global demand. Following a highly publicized workplace suicide, Subaru even acknowledged that some facilities in Japan had compelled thousands of employees to forgo millions of dollars in unpaid wages by working overtime off the clock.

As growing pains go, these have to be some of the worst we’ve ever heard of. Subaru is still a relatively small automaker as Japan’s 7th largest, but increasing demand (stemming primarily from the United States) has kicked it into overdrive. Unfortunately, in a bid to meet volume targets, quality has suffered — something the company now seems painfully aware of.

“Quality and production issues slowed output, which led to the drop in sales,” Chief Financial Officer Toshiaki Okada told Reuters following the report’s unintentional release.

From Reuters:

Domestic output will remain curbed during the first half of the current financial year while Subaru improves inspection and production processes, and then return to normal at “some” of its three production lines, said Chief Executive Tomomi Nakamura.

The report, officially released at 10:25 a.m. (0125 GMT) instead of the scheduled 1:00 p.m., showed an operating profit forecast for the year through March 2020 of 260 billion yen ($2.37 billion). That would be 33 [percent] higher than the year prior under international accounting standards adopted from this year.

Under the previous Japanese accounting standards, the forecast would be 250 billion yen, up 28 [percent], Subaru said.

[Image: Subaru]