TOKYO -- Rising incentives, higher recall costs and big foreign exchange rate losses torpedoed profits at Subaru-maker Fuji Heavy Industries in the latest quarter.
Fuji Heavy said mounting price pressure in the U.S. forced the all-wheel-drive specialist to stoke incentives, especially on slower-selling cars such as sedans.
North American sales remained robust in the company's fiscal third quarter ended Dec. 31, the company said while announcing financial results Feb. 8. Regional volume was driven higher by a 9.3 percent increase in U.S. sales to 168,245 vehicles in the three months.
But rising incentive spending undercut profitability. Average outlays in the U.S. rose to around $1,700 per vehicle in the quarter, Executive Vice President Mitsuru Takahashi said.
"Competition has been heating up in the U.S.," Takahashi said while announcing earnings. Average incentive spending is expected to dip to $1,650 in the January-March quarter, but Subaru may have to put more cash on the hood if U.S. interest rates rise, he warned.
The U.S. and Canada, which together account for 68 percent of Subaru's global sales, saw regional operating profit fall 9.4 percent to ¥37.7 billion ($323.0 million), from a year earlier.
At the parent level, Fuji Heavy's operating profit fell 35 percent to $841.3 million in the fiscal third quarter, while net income plunged 70 percent to $374.4 million. Takahashi said earnings were further weighed down by foreign exchange losses from a more expensive yen and by higher outlays to replace defective Takata airbag inflators.
Naoto Okamura contributed to this report.