Subaru (Part 1): Global sales target of over 1.1 million units in 2020
Planned increases of US production capacity to 400,000 vehicles in 2017
The recent business development at Fuji Heavy Industries Ltd. (FHI), the manufacturer of Subaru automobiles, is reported in two separate parts. This report, Part 1, contains a summary of FHI's new mid-term management vision "Prominence 2020" for 2014 to 2020 that was announced in May 2014. It also looks into the company's consolidated financial statements for the fiscal year ended in March 2014 (referred to as FY 2013).
FHI aims to achieve global sales of over 1.1 million vehicles in FY 2020 with annual production capacity of 1.07 million vehicles. Rather than competing with the leading automakers face to face, FHI's corporate vision for FY 2020 is "not big in size but a high-quality company with distinctive strengths."
Partially helped by the correction of yen's appreciation, FHI achieved an operating income ratio of 13.6% in its consolidated financial statement in FY 2013. The company aspires to maintain the industry-leading high profitability by focusing on "enhancing the Subaru brand" and "building a strong business structure" under the new mid-term plan.
Despite the prevailing yen's depreciation in excess of 100 yen to the dollar, FHI plans to increase production especially in the United States. The production capacity at home will increase only by 50,000 units from 600,000 units in FY 2013 to 650,000 units in FY 2020. In contrast, FHI will increase capacity in the U.S. from 170,000 units in FY 2013 to 400,000 units in FY 2020. Overall, FHI intends to increase its overseas production capacity so that it will account for 40% of its total global production capacity, thereby lowering its sensitivity to currency fluctuations.
Subaru (Part 2): To be posted soon
Subaru: FY2012 ends with record sales and net income (April 2013)
New mid-term management vision "Prominence 2020"
FHI has been steering itself according to the "Motion-V" mid-term management plan for the period from FY 2011 to FY 2015. The company has accomplished the main goals of the mid-term plan ahead of schedule. It has also encountered a major change in its business conditions resulting from the faster-than-expected growth during the period. Hence, FHI has formulated a new business vision targeting further growth.
The new mid-term management vision, "Prominence 2020," aims for sustainable growth and expansion. Being a relatively small automaker, FHI's corporate vision for sustainable growth through FY 2020 is "not big in size but a high-quality company with distinctive strength." To achieve that vision, FHI will focus on two activities - "enhancing the Subaru brand" and "building a strong business structure."
Under the new vision, FHI aims for global sales of over 1.1 million vehicles in FY 2020. However, it will not press itself for sales quantities far in excess of the 1 million units mark.
New mid-term management vision "Prominence 2020" in summary
|Corporate vision||"Not big in size but a high-quality company with distinctive strengths." To achieve that vision, FHI will focus on two activities - "enhancing the Subaru brand" and "building a strong business structure."|
Six initiatives to enhance the Subaru brand
|1. Overall performance||Subaru will focus on fundamental driving performance and performance feel to pursue further peace of mind and enjoyment for the customers. * A new-generation design platform "Subaru Global Platform" (SGP) has been developed. It will apply to various ranges of models from the Impreza to Outback. The SGP will reach market in 2016 with an eye on inter-model sharing of parts.|
|2. Safety||Subaru aims for No.1 position in terms of "all-around safety" for passengers and pedestrians. * The EyeSight Ver. X (launch plan yet to be disclosed) provides all-around collision avoidance. The future EyeSight will help achieve autonomous driving which is unique with Subaru.|
|3. Environmental compatibility||Subaru aims for top-level environmental performance in both areas of the internal combustion engines and electrified vehicles.|
|* FHI aims to achieve net thermal efficiency of over 40% for internal combustion engines. Starting in or about 2016, FHI will expand application of the direct-injection units (eventually to all vehicles), variable cylinder management, and lean combustion technology. FHI is considering the development of a "new-generation environmental strategic car" for the automobile market beyond 2020.|
|* Initiatives addressing electrified vehicles include the launch of Plug-in Hybrid Vehicles (PHV) compatible with the California ZEV regulation, phased launch of the next-generation Hybrid Vehicles (HV) with improved fuel efficiency, and market launch of next-generation electrically driven products.|
|(Other)||4. Design, 5. Quality and service, 6. Communication|
Eight initiatives to build a strong business structure
|1. Product strategy||To enhance product lineup with focus on SUVs along with continuous launch of new products.|
|2. Market strategy||To achieve global sales of 1.1 million vehicles with North America as the top-priority market and Japan and China as the second important markets.|
|3. Production strategy||To increase the ratio of overseas production and annual global capacity up to 1.07 million vehicles as necessary.|
|(Others)||4. Total cost reduction, 5. Alliance with Toyota 6. Aerospace business 7. Industrial products 8. Human resources development, organizational structure and corporate culture|
Source: FHI mid-term management vision "Prominence 2020" announced on May 9, 2014
Business operation/Profit plan for FY2014-16 (3 years)
|Net sales||JPY 8 trillion|
|Operating income||JPY 1 trillion|
|Operating income ratio||12.5%|
|R&D expenses||JPY 250 billion (up 59% from the previous 3-year (FY2011-13)period)|
|Capital expenditures||JPY 330 billion (up 71% in the same time frame as above)|
|Depreciation & amortization||JPY 200 billion (up 22% in the same time frame as above)|
Source: FHI mid-term management vision "Prominence 2020" announced on May 9, 2014 (Note) The foreign exchange rate is set to a conservative level of 95 yen to the dollar through the three years. If the yen depreciates further, FHI's operating income may fluctuate by JPY 100 to JPY 200 billion upward in three years.
FHI's consolidated unit sales plan by region
FHI considers North America as the most important market and Japan and China as the second-pillar markets.
Consolidated unit sales plan
|(in thousands of units)|
|North America||480||530||Not announced||600|
Source: FHI's New Mid-term Management Vision "Prominence 2020" announced in May 9, 2014. (Note)"Consolidated" includes sales in other regions.
Consolidated unit sales by region
|(in thousands of units)|
Source: FHI's financial results
To produce 400,000 units of Subaru vehicles in U.S. in 2017
FHI intends to increase annual production capacity to 1.07 million units in FY 2020. Toward this goal, FHI will invest JPY 120 billion in FY 2014 (up 82% from JPY 68.5 billion in FY 2013), and a total of JPY 330 billion in the three years from FY 2014 to FY 2016 (up 71% from the previous three-year period).
The capacity increase will take place chiefly at FHI's plant in the U.S. The plant's production capacity for the Subaru-brand vehicles will be increased from 170,000 to 310,000 units by the end of 2016. When the consignment production of the Toyota Camry ends in the fall of 2016, the line will be modified for producing Subaru-brand vehicles.
FHI's production at home in Japan will increase only slightly (up 8%), but the company plans to increase the ratio of overseas production to nearly 40% of its total production to reduce sensitivity to exchange fluctuations.
Production capacity plan for Japan
|Gunma Main plant and Gunma Yajima plant (CBU plants)||The present production capacity is 180,000 units at Gunma Main plant and 422,000 units at Gunma Yajima plant that add up to 602,000 units a year. FHI produced 650,000 units at the two plants in FY2013.|
|The capacity at the Main plant will be increased to 200,000 units in the summer of 2014. The combined capacity at the two plants in Gunma will be increased by another 5,000 units after the summer that will add up to a new annual capacity of 627,000 units. FHI's domestic production plan in Japan is set at 702,000 units in FY 2014.|
|The same platform will be shared among all Subaru-brand models to be launched in or after FY 2016. In addition, they will feature same types of engines. Toward this goal, the Yajima plant will be renovated in the next two years for producing vehicles built on the new platform and equipped with new engines.|
|The two plants in Gunma are able to produce the Impreza and other Subaru-brand vehicles to absorb demand fluctuations (this flexible style of operation is called 'bridge production').|
|Oizumi engine plant||FHI will invest JPY 20 billion in two years to increase production capacity by 20% at Oizumi engine plant to 960,000 units. The engines to be used on the models produced in the U.S. are machined at Oizumi plant and are assembled at FHI's plant in the U.S. This arrangement will remain unchanged.|
Production capacity increase plan for the U.S.
|2014||FHI has production capacity to roll out 170,000 Subaru-brand CBUs and 100,000 Toyota Camry complete vehicles in the U.S. The capacity for the Subaru-brand complete units will be increased to 200,000 units in 2014. The company is studying the feasibility of introducing 'bridge production' between Japan and the U.S. to maintain the high plant utilization ratio.|
|2017||As a next step, FHI will increase its Subaru-brand production capacity to 310,000 units by the end of 2016. Additionally, when the consignment production of the Toyota Camry ends in the fall of 2016, the available capacity will be switched to the production of Subaru-brand vehicles. As a result, FHI's production capacity in the U.S. will be increased to 400,000 units in 2017.|
Production capacity expansion plan
|Production capacity||Ratio||Production capacity||Ratio||Production capacity||Ratio|
|Japan||Gunma Main Plant & Gunma Yajima Plant||600,000||77%||630,000||66%||650,000||61%|
|Overseas||US (Subaru of Indiana Automotive)||170,000||22%||310,000||32%||400,000||37%|
|CKD Plant in Malaysia||5,000||1%||20,000||2%||20,000||2%|
|Production capacity (two 8-hour shifts)||780,000||960,000||1,070,000|
Source: FHI's New Mid-term Management Vision "Prominence 2020" announced in May 9, 2014
Achieves consolidated operating income ratio of 13.6% in FY 2013
FHI's consolidated results for FY 2013 show a remarkable growth with a 25.9% year-on-year increase in net sales to JPY 2,408.1 billion and a 2.7-folds increase in operating income to JPY 326.5 billion. As a result, FHI registered an operating income ratio of 13.6%, 70% higher than the industry average (8.0% among eight Japanese passenger car manufacturers).
According to FHI, the remarkable increase in profitability resulted from concentrating on specific areas where the company is good at, "SUVs" and "the U.S. market." It also resulted from a highly efficient production structure coming on track, partly after the company's departure from mini-vehicle production. Additionally, export from Japan increased by 116,000 units y/y from 383,000 to 499,000 units in FY 2013. This led to a larger effect of correction of yen's appreciation with a profit increase of JPY 170.2 billion from foreign exchange fluctuation. More than 50% of FHI's exports go to the United States.
The growth ratio of the operating income in FY 2014 is likely to remain low at 4.1% despite the 13.0% growth forecast in net sales. Nevertheless, FHI's investment plans for FY 2014 include JPY 120 billion in capital investment (compared to JPY 68.5 billion in FY 2013) and JPY 74 billion in R&D expenses (JPY 60.1 billion in FY 2013). The investments will be spent for increasing production capacity, modernization of equipment and enhancing R&D activities in environment and safety areas.
Consolidated financial results
|(in millions JPY)|
|Japan Overseas||507,500 938,300||520,800 907,900||467,300 1,113,200||498,500 1,018,600||671,800 1,241,100||672,100 1,736,100||703,200 2,016,800|
|Operating income Operating income ratio||(5,803) -0.4%||27,350 1.9%||84,135 5.3%||43,959 2.9%||120,411 6.3%||326,489 13.6%||340,000 12.5%|
|Ordinary income Net income||(4,600) (69,933)||22,361 (16,450)||82,225 50,326||37,277 38,453||100,609 119,588||314,437 206,616||330,000 215,000|
|Capital expenditures Depreciation & amortization R&D expenses||58,000 65,100 42,800||56,100 57,100 37,200||43,100 49,800 42,900||54,300 53,700 48,100||70,200 55,900 49,100||68,500 54,900 60,100||120,000 66,000 74,000|
Increasing and decreasing factors of operating income
|(in billions JPY)|
|Former term operating income||Gain on exchange rate||Model mix, etc||Cost reduction||Overhead increase||Increase in R&D costs||Current term operating income|
Source: FHI's financial results
FHI's production and export
|Production in Japan||Small Mini total||362,395 111,571 473,966||356,734 96,012 452,746||381,783 77,005 458,788||404,340 63,665 468,005||583,078 0 583,078||649,911 0 649,911|
|Overseas production Production Total||83,239 557,205||104,346 557,092||164,773 623,561||170,629 638,634||181,184 764,262||163,511 813,422|
|Export/production in Japan||63.1%||61.7%||71.9%||67.3%||65.8%||76.8%|
Source: FHI's flash reports on production/sales in Japan and export
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