Subaru chief eyes record sales, greener cars

What recession? That's the question at Subaru.

While rival automakers struggled amid a 27 percent drop in total U.S. sales in the first nine months of the year, Subaru racked up an impressive 10 percent sales gain.

Subaru, Hyundai and Kia are the only brands that are up so far this year. And Ikuo Mori, president of Fuji Heavy Industries Ltd., which makes Subaru vehicles, expects record U.S. sales this year and even higher sales in 2010.

Yet Subaru's outlook is far from trouble-free.

Subaru needs more environmentally friendly drive trains to meet stringent emissions regulations. It is working on hybrid, diesel and electric cars.

Mori will be leaning on Toyota Motor Corp., which owns 16.5 percent of Fuji Heavy, to provide much of that alternative power-train technology. Toyota and Fuji Heavy also are jointly developing a new sports car.

Mori, 61, spoke this month about his sales outlook, thoughts on green cars and plans for the U.S. dealer network with Asia Editor Hans Greimel.

Subaru is having a great year, despite the market slump. What is the secret to your success?

The market situation is very severe for everyone. But I always say it seems unlikely that a small niche player like Subaru is much influenced by total market demand. The key is the product itself.

We are proceeding with the midterm management plan started in 2007. There are three pillars. The first is to provide a distinctive Subaru experience for drivers and passengers. The second is to increase sales globally and position the U.S. market as the most important market. The third is to enhance our competitiveness in cost and quality.

In our current midterm management plan, we changed our product development policy. Until 2007, we used to develop products based on the Japanese market and then export them globally. But now we design a vehicle to suit global markets.

In the United States, Subaru is on pace to surpass its record sales of 200,703 units set in 2006. What is your outlook for sales there?

Thanks to cash for clunkers, I assume we increased our sales volume by 15,000 to 20,000 units over our initial expectations. So we can expect to achieve a sales record this year. We have exceeded 200,000 units a year in the past. But at that time we spent more on incentives. This year we expect to achieve over 200,000 without spending more on incentives.

So far the new Legacy and Outback haven't even contributed a half year of sales. Next year we can expect a full-year contribution, and that will likely lead to another all-time record.

We need to keep the sales penetration ratio at 2 percent. In September we reached 2 percent. Last year it was 1.4 percent. By the end of the year, if we can keep 2 percent, that will be great.

What is Subaru doing to improve its low U.S. dealer inventory levels?

It's very low. It is dangerous. We are working hard to fill up the pipeline again.

Some media reported that the inventory figure is around 16 days at our dealers. We'd like it to be around one month.

The pipeline of the Impreza and Forester are long, since they are exported from Japan. As for complete knockdown kit parts, which are produced in Japan and exported to SIA [Subaru of Indiana Automotive Inc.], we can also ship them earlier if we can produce them quickly. Then we will fill up the inventory shortage.

Of course we have local procured parts. But we can't manufacture the Legacy, Outback and Tribeca in the United States without [knockdown kit parts] from Japan.

The yen has climbed 10 percent against the dollar in the past six months, cutting your export profits. The Japan-made Forester is a big hit in the United States. How are exchange rates affecting production plans?

The Forester is a product for the global market, and we build it in Japan. If the yen continues to be strong vs. the dollar, Forester production in the United States might be one scenario. But currently we have no plan to produce the Forester in the United States.

We have to think about all our suppliers in Japan and other conditions. It's not so easy to just pick up and move production from Japan to the United States.

Subaru has been slower than some rivals in rolling out next-generation, environmentally friendly drive trains. What are your latest plans for launching a hybrid?

We recognize that green car technology is quite important. There are some technologies such as diesel, hybrid and electric power trains. I think those technologies will be positioned separately in the market according to their different uses. So we are now developing those technologies. Among them, we will make good use of the alliance with Toyota. We will consider the launch timeline from a business perspective, judging by market demand.

Our task is how to integrate green-car technology with distinctive Subaru performance. We won't introduce a people mover or a volume car just for the sake of having green technology.

Looking at long-range emissions regulations, such as 2015 regulations, it is very difficult to achieve that target with the current gasoline engines. We need a hybrid system.

Will you develop your own hybrid system or use Toyota's?

We will develop our hybrid system by making good use of Toyota technologies. However, it is impossible to simply transplant Toyota's systems into a Subaru vehicle, so we will research how to match it with Subaru's platforms.

We don't have any plan to develop a dedicated hybrid model like the Toyota Prius. We will use models from our lineup. The system will be introduced when the model is changed or redesigned.

Actually all-wheel drive is our core technology. To make full use of such core technology in our hybrid vehicle, a hybrid awd system will be necessary. So we are considering that.

Subaru is rolling out diesel engines in Europe and soon in Japan. When will they come to the United States? Why no plans yet?

It's not that we don't have a plan. We are developing diesel technology for the U.S. market as part of our advanced technology development. We are developing diesel technology in preparation for the time when the market is ready and customer demand is sufficient.

In Europe, where the market share of diesel models stands around 50 percent, we are marketing diesel models because we cannot increase sales there without diesel models. On the other hand, the current market share of diesel models in the United States is quite low.

We need to carefully study whether U.S. customers would really want diesels. But I understand there is some demand for the diesel in the United States, so we are still working on diesel technology.

Some years ago, the demand for diesel was higher than what it was for hybrids. But these days, the hybrid system is very popular in the United States. So the market is changing. When we discuss this with our dealers, some say diesels are important. Some say hybrids.

What opportunities does Subaru have for picking up new locations or dealers with so many being shed during the reorganizations of Chrysler and General Motors?

We won't rush to increase dealers on this occasion. Currently we have around 600 dealers in the United States. We will pick up dealers if necessary through our routine market development activities, such as updating dealerships, if there is a possibility of a good location or a dealer coming onto the market.

Under our midterm management plan, we will increase the number of dealerships to 625 [by March 2011]. I think we have 603 dealers at this moment.

We will bring new dealers in open points and important areas. But an attractive area for the Big 3 is not always attractive for Subaru.

(Source: Automotive News)