TOKYO -- Fuji Heavy Industries Ltd., the maker of Subaru cars, posted a surprise rise in half-year operating profits on Tuesday due to loftier-than-expected earnings at group firms and said it would cut up to 1,000 jobs in a bid to slim its ailing operations.
The headcount reduction, equivalent to 7 percent of its work force, would be the first for Fuji Heavy since its founding in 1953.
The niche maker of all-wheel-drive cars has been struggling to get back on a recovery track due to sluggish sales at home and in its all-important North American market, which accounts for a third of its total vehicle turnover.
Fuji Heavy, now owned 8.7 percent by Toyota Motor Corp. after it dissolved its capital ties with General Motors last month, said it expected the second half to be difficult, lowering its vehicle sales forecasts for the full year.
"The U.S. market is very uncertain and conditions in Japan are still severe," Chief Executive Kyoji Takenaka told a news conference. "We have a pretty grim view of the second half."
Fuji Heavy had been counting on the B9 Tribeca SUV to raise profit margins and sales in the United States, but retail demand has fallen far short of targets.
For the six months to Sept. 30, the maker of the Legacy model booked an operating profit rise of 12.3 percent to 17.41 billion yen ($147.9 million) against its estimate just one month ago for a fall of 9.7 percent to 14 billion yen. The company attributed the gap to better profits at dealers and other group-based firms.
Net profit fell 3.8 percent to 7.96 billion yen due to derivatives and other financial losses and special charges to account for the cancellation of joint development projects with GM. The result was better than its revised guidance of 5 billion yen announced in early October.
For the year to March 2006, Fuji Heavy lifted its operating profit forecast to 39 billion yen from 36 billion yen projected in October to factor in a weaker yen at 108 to the dollar instead of 105 yen.
But it left its net profit forecast at 12 billion yen due to expected losses on currency hedging.
SAVINGS FROM JOB CUTS
With former majority holder GM facing even bigger financial woes, Fuji Heavy last month joined up with Toyota, which bought part of GM's 20 percent stake in Fuji. The U.S. automaker sold the remaining stake in the open market.
Toyota and Fuji Heavy are exploring cooperation in development and production in a move that could shore up the latter's operations, but Takenaka said he didn't expect benefits to appear in earnest for at least a year or two.
To cope with the persistently tough environment, Fuji Heavy will seek voluntary retirement from up to 700 employees aged 45 or above, as well as permanently transferring 300 or so workers currently on loan to outside firms.
Costs related to the job cuts will be booked this year, and the move will generate yearly labor cost savings of about 7 billion yen starting next business year, it said.