Subaru boss: Strong growth brings new challenges

TOKYO -- Hot-selling Subaru is going from strength to strength under Yasuyuki Yoshinaga, president of Subaru maker Fuji Heavy Industries.

The brand is poised for a sixth straight year of record U.S. sales, and profits are getting a big boost from favorable exchange rates. Fuji Heavy is far ahead of schedule in achieving the 2020 goals set in a midterm business plan unveiled in May.

Yoshinaga, 60, has positioned safety as a new selling point, based on the brand's EyeSight precrash braking system. And the company plans a new global platform that will underpin every vehicle in the lineup.

Yoshinaga, speaking through an interpreter, discussed the rosy outlook, plans for the next BRZ -- developed jointly with Toyota Motor Corp., which owns about 16 percent of Fuji Heavy -- and improving dealer service with Asia Editor Hans Greimel on Nov. 10.

Q: How is overall U.S. demand?

A: This year, as many reports show, we expect total industry sales to be over 16 million units. U.S. sales demand is very strong and I'm expecting this to continue for the next few years.

How much higher can U.S. sales climb?

I don't think sales will keep growing to 17 million or 18 million. But when we have meetings with investors, they say the economic recovery has just started. That's why I'm thinking the 16 million level will continue.

What are the concerns about U.S. sales?

None. No concerns.

What causes the most worries about Subaru's business?

For several years, Subaru has seen a sharp increase in sales. Now we are getting new customers. The most important thing is to satisfy these new customers. That's why we think we have to improve our service network and capabilities.

What is Subaru's forecast for U.S. sales next year?

This calendar year, we expect to reach 500,000 for the first time, and this is a big number for us. Next year, we are expecting further growth because we just launched the new Legacy and Outback. We have not decided next year's target. But if we can reach 500,000 this year, we have to target above that.

Can Subaru keep up this year's pace of 20 percent growth?

It will slow down. Twenty percent is too high. If we grew again at 20 percent next year, we would hit 600,000. That means we could reach our 2020 target. No, I don't think that will happen in 2015. We don't think reaching 600,000 will be such an easy thing.

Are you being too conservative?

You may say I'm being too conservative. But in Japan, I'm regarded as an aggressive CEO.

Subaru is already at 500,000 in the U.S., and the company expects 600,000 in North America in 2020. What is a more realistic target?

In our midterm plan, we announced a target of 600,000 in North America and 1.1 million globally [in the fiscal year ending March 31, 2021]. But that doesn't mean we just aim to expand volume.

Our sales momentum is very good worldwide. But we don't talk about targeting 1.5 million or 2.0 million.

If we started that discussion, the current business model would be changed. If we started that kind of discussion, it would involve making compact cars. That's not our intent.

Until we actually reach 600,000 units in North America, we won't change our plan.

Generally, when an automotive company expands sales volume, that company would have to increase sales in emerging markets. That means the company has to sell small cars in those countries. We don't want to start such a discussion.

One of the midterm goals is to increase the quality feel of the cars. Is Subaru trying to reposition itself?

We have no plan whatsoever to move into the premium market. We just want to make Subaru vehicles more enjoyable to our customers.

Subaru is already well accepted in terms of functions and features, but customers say the interior was not so good. So we are just reacting to those customer voices.

How many U.S. dealers does Subaru need?

There are 621 retailers in the United States. Subaru of America judges this number to be right. We want to keep that level. We are selling about 800 units per retailer, and because of that, profitability on the dealer side is good, or getting better. Of if we increase that number, dealers can get the benefit of better profits, and this profit can be used for improving service facilities and capabilities.

How much local production does Subaru need to support 600,000 North American sales?

It depends on the sales momentum, but in the midterm plan we announced we have the capability to increase production volume to 400,000 at Subaru of Indiana Automotive Inc.

Is that enough for 600,000?

Yes, enough. The rest we can ship from Japan.

How about expanding in Japan?

Now in Japan, we have production capacity of 627,000 units. By 2020, we will increase that to 650,000 units. So there will be 650,000 in Japan and 400,000 in the United States, for a total number of 1.05 million worldwide. But that's based at a normal operating pace. If we do overtime work, that output number can increase by 10 percent.

When does Subaru think it will be able to build its first plant in China?

The situation there has not changed. We haven't seen any progress.

And the government is blocking the application to manufacture there because it considers Fuji Heavy a unit of Toyota?

We don't know the exact reason the Chinese government isn't approving our application. But in general, you are right. But this is just our guess. And because we haven't gotten government approval, we have already changed our China strategy. We have started a new joint venture to sell completely built units there.

How is the relationship with Toyota?

We have not decided on any additional projects beyond the BRZ. But we want to continue the relationship with Toyota, especially in the product and engineering areas.

The relationship with Toyota started on the production side, when we began building the Camry for Toyota at Subaru of Indiana Automotive. But now the relationship is shifting from production to product and engineering. We want to continue that shift.

Is a next generation of the BRZ planned?

The full-model change of the BRZ will happen, but we have not decided about other new projects.

And Toyota will be Subaru's partner for the next generation?

Yes, of course. We cannot produce or develop the BRZ without the support of Toyota. That is our hope and intent, but we haven't made a contract or such yet. The BRZ is an important model for Subaru, so we will continue to develop the BRZ with Toyota.

Subaru will introduce a platform in 2016 that will underpin the entire lineup. What improvements will it deliver?

Right now, Subaru models get top safety marks from the Insurance Institute for Highway Safety, including Top Safety Pick+, and we want to maintain that world-class safety leadership with this new platform.

Using the standardized platform, we want to have greater efficiency in development and production.

Our target is to cut production costs by 20 percent, not only through using this new platform but also through other measures.

But the main goal behind the platform is not cost reduction but safety performance. We want safer, more attractive vehicles.

Subaru also will expand the use of direct-injection engines. When will those be deployed in every nameplate?

We have not decided yet whether all engines will be changed to direct injection. Cylinder deactivation and a lean combustion cycle will also be considered, depending on the country. We have to apply these functions depending on the different regulations.

How will Subaru maintain sporty performance if future engines use cylinder deactivation and lean combustion?

Subaru is now developing the new engine, and we want to keep Subaru's distinctive engine dynamics. We are still considering how to deploy direct injection across our models.

If we install all three elements in one engine, maybe we will lose some sporty feeling. Which technology we install in what model is still under discussion.

For example, we could just install direct injection and lean combustion and then have another model such as a plug-in hybrid to complement it. We are having this kind of discussion.

Regarding the Takata recalls, does Subaru plan to switch to another supplier of airbags or airbag inflators?

Our global service and recall campaigns for Takata airbags have affected 19,000 vehicles. It is a very small number. Discussions on whether to continue or discontinue our business with Takata are in the hands of our purchasing division, and I haven't received any information [on their decision] at this point.