Subaru raising 'brand value' to offset costs

TOKYO -- Subaru is on a red-hot sales tear in the U.S. Now it's time to leverage that popularity to offset the mounting costs of making cleaner cars, the brand's global boss says.

In an interview with Japan's Nihon Keizai business newspaper, the head of Subaru maker Fuji Heavy Industries Ltd. didn't call outright for higher sticker prices. But he said the all-wheel-drive specialist needs to raise its "brand value" to counter the increased costs for green technologies.

"Related costs are going up more than expected, bringing the profit margin downward," Fuji Heavy President Yasuyuki Yoshinaga said in an interview published June 5.

"We are a small company," he said. "We do not benefit as much from economy of scale as bigger companies, so we will have to make up for the increased costs by raising our brand value."

Research into hybrid drivetrains, a favored way to meet increasingly stringent emission standards, is contributing to the pressures that drive those development costs higher, Yoshinaga said. He said Fuji Heavy is working to comply with California's zero-emission vehicle standards taking effect in 2018.

Subaru has said it plans to introduce a plug-in hybrid for North America by then.

With a lineup skewed heavily toward midsize, all-wheel-drive vehicles, Subaru is under pressure to improve fuel efficiency across its range and is busy investing in new powertrains. 

As part of the overhaul, Subaru will upgrade all gasoline engines to direct injection starting in 2016. The technology will be standard in a next-generation boxer engine Subaru will roll out. Subaru also will add cylinder deactivation and lean combustion cycles by 2020. 

The work will push r&d spending 16 percent higher to ¥97 billion ($780.2 million) in the current fiscal year, which ends March 31, 2016, the company has projected. Outlays for r&d rose 39 percent in the year just ended. 

Fuji Heavy predicts its r&d spending will rise to 3.2 percent of revenues in the current fiscal year, from 2.9 percent last fiscal year and 2.4 percent the year before that. 

Subaru is gunning for a seventh calendar year of record U.S. sales. It is boosting sorely needed production capacity in North America, the carmaker's biggest market, four years ahead of schedule. 

Yoshinaga unveiled that plan while announcing record revenue and profits for the fiscal year that ended March 31. Subaru needs the added production at its only assembly plant outside Japan -- in Lafayette, Ind. -- because of surging sales in North America, which accounts for 62 percent of its global volume. 

Subaru now expects North American sales of 600,000 units in the current fiscal year. Just a year ago, the target was to sell that many in the U.S. and Canada in the fiscal year ending March 31, 2021. U.S.-only sales are forecast at 554,000 vehicles this fiscal year.