Subaru: 42% operating profit decline forecasted for FY2018 due to sales decline and recall expenses

Subaru introduces its first PHV, the new HV (e-BOXER) in 2018, EVs to follow in 2021

2019/02/13

Summary

 This report focuses on the impact of Subaru’s recall issues, the finished vehicle inspection cheating scandal in Japan, the quality issues that spread to the U.S., and well as some of Subaru’s product and technology development trends.

Subaru Ascent
The three-seater SUV Subaru Ascent launched in the U.S. market in July 2018
(All images in this report from Subaru)

 In the October to November 2017 timeframe, the inspection cheating scandal was exposed, indicating that final vehicle inspections were being improperly conducted by using unqualified technicians. Subsequent investigations revealed further new problems leading to recall of 530,000 vehicles including the Toyota 86. Subaru cars account for 500,000 units of the total number of vehicles recalled.

 These quality issues also made their way to the U.S. market. In November 2018, Subaru recalled 410,000 vehicles globally due to a valve spring defect of which 140,000 vehicles were in the U.S. Parts replacement costs were estimated at 55 billion yen and accrued in the company’s July-September quarterly financial results.

 Subaru’s sales in the U.S. had been steadily increasing for the past 10 years until 2018. In addition, with the rapid growth of its consolidated performance, in the fiscal year 2015 its operating profit was JPY 565 billion with a consolidated operating profit margin of 17.5%. It also maintained operating profit margins exceeding 10% in fiscal years 2016 and 2017. However, due to recalls, its sales volumes in the April-September quarter of 2018 dropped by 9.2% y/y, with sales revenue dropping by 7.5%, reporting JPY 77.1 billion for recall expenses (warranty claims) resulting to a dismal financial report showing a 74.1% drop in operating profit. Subaru has since made a significant downward revision for its FY2018 forecast with a net sales revenue of JPY 3.21 trillion (down by 0.7%), operating profit of JPY 220 billion (down by 42%), and an operating profit margin of 6.9%.

 Subaru has made it a top priority to reform its corporate culture, securing JPY 150 billion in investment funding over 5 years that will be targeted at initiatives to regain customer trust and improve quality.


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