Subaru to increase Japanese production 78 percent, despite strong yen

Article by Christian A., on May 29, 2012

While major automakers based in Japan have been frantic at expanding their overseas production in order to avoid the impact of the strong yen, Fuji Heavy Industries Ltd. is doing the exact opposite. It has decided to increase its domestic manufacturing. Earlier this month, Fuji Heavy said that it aims to raise Japanese production to make up around 78 percent of output for the fiscal year that ends March 2013, compared with 73 percent the prior year.

Fuji Heavy, the maker of Subaru cars, said that it would be “cheaper” to raise the capacity in Japan rather than in the United States, which it considers as its largest market.

On May 18, Chief Financial Officer Mitsuru Takahashi was interviewed in Tokyo where he said that it will “cost a lot” to have a big-scale expansion in the U.S. and put up new factory buildings and such. He explained that Fuji Heavy isn’t similar to Toyota, Honda or Nissan, so it won’t be proper to make sudden, huge investments.

Takahashi said that with this move, Fuji Heavy would be the sole automaker to divulge plans to raise its proportion of Japanese output, increasing its vulnerability to a currency that has gone up by 40 percent in the past four years and compelled rivals to build factories overseas.

The yen’s weakening this year has helped Fuji Heavy shares to rally more than other automakers. In fact, several investors said that the company is making the risk unnecessarily.

Yuuki Sakurai, CEO at Fukoku Capital Management Inc. in Tokyo, which handles $7.3 billion of assets, said that what automakers are most concerned about is “localizing production where demand is." He said that the yen isn’t likely to weaken significantly anytime in the near future and so those with a relatively low level of localization will feel the impact on their shares sooner or later.

Meanwhile, Subaru of America saw its sales jump 6 percent in April, which marks the fifth straight of month of profits and leading the way for another record year. The company's sales leaped to 26,310 units in April even while suffering from an inventory shortage. According to a company spokesperson, Subaru is down to an 11-day supply of light vehicles in some parts of the country.

The inventory of Subaru vehicle remains low no thanks to the production disruption caused by the tsunami and earthquake in Japan. Subaru of America's spokesperson Michael McHale remarked that inventory has "never recovered" from 2011 as "strong demand keeps eating at it."

Subaru’s sales in April were fueled by the next generation of the Impreza compact vehicle that was launched into the market late last year. Impreza sales jumped 124 percent in April from a year earlier. [source: Autonews]

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Topics: subaru, production, japan

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