Subaru is on a roll. U.S. sales are up 23 percent through October and on pace to beat the market for a third straight year. The brand expects record U.S. sales this year and next. And Subaru of America's parent, Fuji Heavy Industries Ltd., just doubled its full-year profit forecast. Small wonder that Subaru's new tag line is "Confidence in Motion."
CEO Ikuo Mori says new product, including a sporty car that begins production next year and a hybrid that goes on sale in 2012, will help further elevate the brand's image.
But clouding the outlook is the Japanese yen's surge in value against the dollar. About half of all Subarus sold in the United States are imported, meaning profit margins are getting squeezed by foreign exchange losses. Producing more in North America remains a big challenge.
Mori, 63, spoke through an interpreter with Asia Editor Hans Greimel last week at Fuji Heavy's headquarters in Tokyo about Subaru's rapid growth, U.S. production and new-product strategy.
What is your outlook for the overall U.S. auto market?
If you look at the overall economic situation, it's not very good. I know there are many challenges ahead, but I also feel that in the future, things will continue to improve. Some people talk about a double dip, but my feeling is things will be OK.
Where do you see the U.S. market in 2015?
It's hard to say, but my hope is that by 2015, the market will go back to its normal level -- around 14 million or 15 million.
What is your forecast for Subaru sales in the United States this year?
I feel a wind at our back. Ever since cash for clunkers, we have been able to increase our sales volume. I feel that our brand awareness is gradually increasing.
For 2010, we were expecting 250,000 or 255,000 units. But we were able to achieve 217,000 units by October. So based on that, we should be able to attain 255,000.
Are you expecting further sales growth in 2011 and at the same rate?
Next year, we are planning a full model change. We have completed a product cycle that started with renewing the Impreza, the Forester and then the Legacy. We will try to continue increasing sales. If you look at overall market demand, it will probably be growing. And we want to maintain our market share. So if the total market grows, our sales volume would grow in turn.
I feel there is a solid trend for increasing sales. But if you're asking whether we can continue at 20 percent or 25 percent growth, I think it's too soon to know. Last year, we finally achieved market share of 2 percent. So I want to maintain and improve it.
How do you plan to keep this sales momentum going?
Right now, our market share is around 2.2 percent. But if you break it down, we have a market share of 4 percent or 5 percent in the Northern states. And in Southern regions, it is less than 1 percent. So I feel there is plenty of room to grow. In the Sun Belt, the awareness of our brand is still quite low.
How will you sell the brand in those markets?
In the North, our vehicles are well-known for their all-wheel drive. But all-wheel drive isn't just good for the snow. It's good for all road conditions. And it allows you to drive with good peace of mind. So in the South, we want to emphasize the safety of our cars.
Does your emphasis on safety tie in with Subaru's new tag line?
Our new brand message, "Confidence in Motion," conveys to people that they should enjoy driving our cars. But to enjoy driving, you need to feel safe.
What role will new models or segments, such as the sporty car, play in keeping your momentum going?
We aren't planning to enter new segments. We'd like to keep to our core business. One of the reasons we decided to do the sporty car is to enhance our brand image. In terms of boosting sales, we're not expecting the sporty car to be a big contributor. Another reason for the sporty car is to get younger people more interested in our cars. Our customers typically come from older age groups, so this is a good opportunity for us to reach younger customers and introduce them to Subaru.
What do you think about adding small cars the size of the Toyota Yaris or Honda Fit?
I think the overall market will probably gradually gravitate toward small cars. But I'd like to watch the market trends before making any decision on going that direction. As a commuter car, smaller cars are probably more accepted. But regarding whether we will have a gasoline engine small car, we will not launch such a vehicle any time soon.
Your vehicles gradually have grown bigger with redesigns. Where is that heading?
Basically, we have just finished one vehicle cycle, and the cars are now at their optimal size. We don't really need to enlarge them any further. In terms of demand for larger vehicles, the Tribeca isn't performing as well as we had hoped.
Will there be a next-generation Tribeca?
I think there is still some market for larger vehicles in the U.S. and China markets. We are currently analyzing why the Tribeca is not performing well.
You have to consider the size of the engine. We are not really seeking to develop larger engines. But as the vehicle increases in size, you need an adequately sized engine to really enjoy the driving experience. If we don't upgrade the engine size, it's probably no good.
U.S. sales are constrained by production capacity. You have expanded capacity at your Indiana plant to 150,000 units a year. Is that enough?
I do think we need to increase the volume, but when to make the investment is a difficult decision. Except for the Legacy, Outback and Tribeca, our other models are manufactured in Japan. To produce those in the United States would require a very big investment.
With the yen so strong, many companies want to transfer production overseas. But because we aren't high-volume, we are not thinking of transferring Japanese production capacity overseas. But when we think about markets that need add-on capability, the most appropriate market is the Chinese market.
How much capacity can you get from the United States without investing in a new vehicle?
Regarding Indiana, I think we are approaching the limit on how much we can increase production without making new investments. It is very difficult to start production of a new model in Indiana. If we can't increase the local content ratio, there is no meaning for us to produce the cars locally. And to increase the local content, we need to standardize parts.
So if we want to produce additional models in the United States, we need to change the design itself. And this takes time. So that's why we can't do anything in the near future. If we do that, we have to wait until a full model change.
What do you expect to get out of your partnership with Toyota that you couldn't get from your earlier relationship with General Motors?
At our plant in Indiana, we are producing Toyota vehicles. That contributes to our profit, but the fact that Toyota's production line is in our plant means we can see firsthand how it manufactures cars. And this has been a great learning experience for us, and we have been able to incorporate that into our own production.
How extensively do you intend to use hybrid drivetrains?
Our models are basically on the same platform. So if we develop the hybrid system for one model, we can deploy that to other models as well. We think hybrid offerings are necessary. But it's not the case that we are developing hybrid technology only for the sake of fuel efficiency. We have our own brand DNA and have to consider what kind of hybrid package is most appropriate for us. I don't think Subaru customers would be interested in a hybrid offering that is there just for the sake of fuel efficiency. We went with something that ties in to our heritage.
How close is Subaru to clearing the 2015 CAFE regulations?
We can clear the 2015 CAFE regulations without hybrids. I think the 2020 CAFE regulations would require us to have a hybrid, so that is why we are currently developing them. Hybrid cars will help us enhance our image. We'd like to come out with a hybrid as early as possible, but we won't be undertaking a wholesale shift toward hybrids.
What improvement do you want to see in your U.S. dealer network?
We need to have outlets in the necessary locations, but we don't necessarily want to increase the number of outlets. What is important is increasing the efficiency of each outlet and increasing the number of vehicles sold at each outlet.
Currently, we are saying we would like to increase to 625. Right now we are at 615. We wanted to get to 625 by the end of this year, but maybe we will extend that time frame by one or two years. If we can't find an outlet at a good location, we won't force an expansion.
The efficiency of the 615 dealerships is increasing, and the percentage of exclusive showrooms is 80 percent. But if you look at the number of units sold per outlet, it's not as high as other brands. So there is still some room to grow there.