TOKYO - General Motors and Fuji Heavy Industries Ltd. are nailing down plans for a jointly developed vehicle that could enter production at Subaru's Indiana plant by 2004 or 2005.
The vehicle, a sport wagon to be badged for both companies, would be the first concrete result of the alliance the two formed in December 1999, when GM bought a 20 percent stake in Fuji, the maker of Subaru cars. They have been promising close cooperation ever since but have provided few details.
'This year is the year when we should act with our partners,' Takeshi Tanaka, Fuji's president, told reporters in January when he announced Subaru's 2001 sales plan.
At the Los Angeles auto show in January, GM showed an all-wheel-drive rally car concept that uses the Subaru Legacy platform and a 2.0-liter Subaru engine. It's not clear how much influence that concept, the Chevrolet Borrego, will have on the joint sport wagon.
A GM international spokesman in Detroit last week referred all questions on the joint venture to GM Asia headquarters in Singapore, which did not respond by Friday, March 16. But according to a Subaru source, the two companies are close to agreement after several days of intensive discussions in Detroit.
The broad outline of the joint project was clear before the Detroit meetings began. It calls for a sport wagon in the traditional Subaru mode: lower to the ground than a sport-utility, with all-wheel drive and powered by a Subaru 6-cylinder horizontally opposed engine.
The vehicle will not be a behemoth. The engine is expected to be about 3 liters displacement, in line with a projected downsizing trend in the U.S. market.
Fuji initially aims to sell between 24,000 and 36,000 of the vehicles a year under its own brand in the U.S. market, said Hideo Wada, Fuji's senior vice president in charge of overseas sales. He added that he hoped the sales target could be doubled.
The vehicle would debut in three or four years.
What badge and where?
Two key questions remain and were among the main points of last week's talks: what GM badges the vehicle will wear and where it will be built.
Wada says that labeling the car as a Saab or a Pontiac rather than a Chevrolet makes the most sense. Saab and Pontiac would be more consistent with the premium nature of the Subaru brand, he said.
'Chevrolet is a mass brand,' Wada said. 'The purpose of our alliance is to get the most out of Subaru's features.'
Giving the car a premium brand also would allow higher pricing. 'Subaru's powertrain is expensive, and they need a prestige badge to pay that off,' said Takaki Nakanishi, an analyst at Merrill Lynch Japan Inc.
'Subaru has a strong brand image in the United States,' said Koji Endo, an analyst at Credit Suisse First Boston. 'Their cars appeal to conservative people with a high income.'
Endo thinks the jointly developed wagon could be on par with the Honda CR-V and Toyota RAV4.
An ambitious plan
The Subaru side favors building the new model at Subaru-Isuzu Automotive Inc., a Lafayette, Ind., joint venture between Fuji and Isuzu Motors Ltd.
The plant makes the Subaru Legacy and Isuzu Rodeo.
Furthermore, 'SIA already is experienced in making the engine,' Wada said.
Subaru has an ambitious plan to boost sales in the United States by 40 percent to 240,000 units in the fiscal year ending March 31, 2005.
That sales target does not include the GM-Subaru vehicles, so it could jump if the project goes ahead earlier than planned.
To achieve the target, Fuji will boost annual output at its Lafayette plant by roughly 70 percent to 162,000 by March 2005 at a cost of some $150 million at current exchange rates.
The factory expansion covers higher output of existing vehicles, not the new sport wagon. Subaru will have to expand Subaru-Isuzu Automotive capacity further if it adds the new vehicle to the mix.
That should not be a problem, because the Subaru-Isuzu Automotive plant occupies less than 10 percent of the site.
A good choice
Analysts agreed that the plant is a good choice to build the GM-Subaru vehicle, because the investment will be less than if a GM plant were tooled to build it.
'I'm 100 percent sure they will make it at SIA,' said Tsuyoshi Mochimaru, an analyst at Dresdner Kleinwort Benson in Tokyo.
Looking ahead, some analysts speculate that GM or Fuji could take over the plant entirely by buying Isuzu's 49 percent stake.
Last year, Isuzu made 100,000-plus Rodeos and other models there. But it lost $22 million on its sport-utilities, half of its total losses from North American operations in the six months that ended Sept. 30.
GM, which owns 49 percent of Isuzu, has been suggesting publicly that its struggling Japanese partner should drop its unprofitable businesses.
'Clearly, Isuzu must consider immediately exiting models and businesses that are unprofitable and which do not appear likely to return to profitability in the very near future,' Rudy Schlais, head of GM's Asia-Pacific operations, told analysts in Detroit last month.
Isuzu has shrugged off the suggestion. It plans to roll out a new sport-utility, the Axiom, at the Lafayette plant in April and aims to produce 2,000 a month.