TOKYO — Despite booming sales in North America, Subaru Corp.'s biggest market emerged as a weak link in the latest quarter.
Rising incentives and slipping model mix deflated Subaru's North American operating profit by 62 percent to ¥14.3 billion ($126.9 million) in the carmaker's fiscal third quarter that ended Dec. 31. The slide marked the sixth quarterly decline in North American operating profit over the past seven quarters.
The downturn came as Subaru sales inched ahead less than 1 percent in the cooling U.S. market to 175,800 vehicles in the October-December period. Sales in Canada rose 14 percent, but to only 13,700 units.
Subaru is forecasting its 10th straight year of record sales in the U.S., which alone accounts for about 65 percent of the carmaker's worldwide sales.
The steady march masks rising incentives and a deteriorating product mix. In announcing financial results last week, CFO Toshiaki Okada warned that spiffs are rising as competition intensifies and said margins are shrinking as customers snatch up more Impreza small cars.
The hot-selling Impreza pushed Subaru's car sales ahead 8.5 percent in 2017. The brand's more profitable light trucks, by contrast, notched only a 4.2 percent increase.
"The sales environment has been tough in the U.S.," Okada said. "This year, sales ratio of the Impreza has grown bigger while sales of the aging models, the Forester and Outback, are falling a little. As such, we have been struggling with our model mix."
Meanwhile, Subaru's average incentive spending rose 26 percent to $1,047 per vehicle in 2017, from $832 the previous year, according to data from Motor Intelligence Corp.
Subaru's spending was still far lower than the industry average of $3,672 per vehicle in 2017. But Subaru's outlays were increasing faster than the industry average rate of 9.7 percent.
"It is difficult to determine when to rein in incentive, whether we should do so at the time of model year replacement, or when we release a full new model," Okada said. "We are trying to do so very carefully, and we have so far spent a bit more on incentive."
The North American erosion contributed to a 4.2 percent decline in global operating profit to $836.2 million in the fiscal third quarter.
Parent-company net income climbed 55 percent to $601.9 million. But that increase was compared against a year-before result that was depressed by special factors, such as the liquidation of Subaru's Industrial Product business and the revaluation of derivatives.
Global revenue advanced 3.3 percent to $7.80 billion in the three-month period, despite a 1.2 percent decline in global sales to 270,600 vehicles.
Naoto Okamura contributed to this report.