Subaru production, profits undercut in latest quarter by fatal plant accident in Japan

TOKYO — The on-the-job death of a Subaru worker, a decadeslong veteran crushed to death by a 25-ton mold at a factory in Japan, undercut earnings in the carmaker's latest quarter by eating into global production and denting sales, despite robust demand for the brand's vehicles.

But export-dependent Subaru Corp. still managed to surf a wave of foreign currency windfalls to eke a small profit increase, despite the lower sales and production and rising incentives.

The death happened in February after a mold fell on a worker at the Yajima assembly plant north of Tokyo. Police identified the worker as a 60-year-old man who was a 35-year company veteran.

Subaru halted production to review safety protocols at domestic operations, and output remained slower than usual through the end of April.

In Subaru's April-June fiscal first quarter, domestic output fell 11 percent.

As a result, global wholesale deliveries declined 10 percent to 212,000 vehicles. Wholesale volume in the U.S., the company's biggest and most important market, retreated 9.8 percent to 147,000 vehicles. About half of Subaru's U.S. product is imported from Japan.

"Since we had to slow down the pace of our production at our plant due to an accident and the subsequent measures between February and April, we shipped a lower volume of cars to the U.S. as a result," CFO Katsuyuki Mizuma said Aug. 5 while announcing the financial results.

"This translated into lower wholesale units from Subaru of America to our retailers in the U.S."

Subaru needs to pick up the pace of sales to meet its U.S. sales target, Mizuma said.

The company eyes retail sales of 680,000 vehicles in the current calendar year, which would require a 7.6 percent increase over 2023. Through June, however, U.S. retail sales increased only 6 percent to 322,443 vehicles. Deliveries will have to grow 9 percent in the second half, he said.

Full supply of the imported Forester crossover, redesigned last year, is crucial to the plan.

"This is a high hurdle. But we are going to boost our sales from August to October, a sales expansion period for us in the U.S.," Mizuma said. "The new Forester will be the key to our sales recovery going forward. The full-scale sales of the new Forester will be a positive factor."

U.S. retail volume of the Forester jumped 51 percent to 92,849 vehicles in the first six months.

In July, Subaru's U.S. sales posted their 24th consecutive month of year-on-year increases.

Still, Subaru's selling expenses also rose over the period amid increased competition and higher interest rates. In June, its average incentive spending was $1,976 per vehicle, but that was still below the industry average of $3,143, Subaru said, citing figures from Autodata.

Shipments to Europe fell 14 percent to 6,000 vehicles.

Despite the slowdown, Subaru's operating profit increased 7.9 percent to ¥ 91.13 billion ($566.7 million) in the fiscal first quarter June 30, pumped up largely by foreign exchange rate gains.

Net income advanced 15 percent to $522.4 million.

Revenue inched ahead 0.9 percent to $6.78 billion, even as total wholesale deliveries declined 10 percent to 212,000 million vehicles.

At the same time, export-dependent Subaru got a big foreign exchange boost. The weakening of the Japanese yen against the U.S. dollar and euro added another $254.3 million.

The windfall more than offset the impact of falling sales and a weakening product mix, delivering a modicum of profit growth in the April-June quarter.

The foreign exchange rate has been a boon for Japan's exporters because it makes their products more affordable overseas. The yen's implosion also inflates the value of dollar-denominated sales that are repatriated to headquarters in Japan and converted into yen.

From January through June, the yen has lost 14 percent of its value against the dollar, helping push up profits at Subaru and other Japanese automakers.

But in July, the currency rapidly appreciated against the dollar to levels seen at the beginning of the year. The Japanese currency's strengthening will make such windfall earnings more difficult to reap in the coming quarters. Subaru assumes the yen will strengthen to 139 yen to the dollar in the second half of its fiscal year, after clocking 145 yen to the dollar in the first half.

The yen has appreciated partly because of the Bank of Japan's decision to tighten monetary policy by raising interest rates and cutting back on its purchase of government bonds.

Looking ahead to the current fiscal year ending March 31, 2025, Subaru kept its financial outlook unchanged.

It expects global sales to inch ahead by only 4,000 vehicles, or less than 1 percent, to 980,000. North America is as seen a growth market, as sales there add 5,000 units to 700,000 vehicles. Deliveries in Europe are forecast to retreat by 12,000 vehicles to 15,000.

Subaru predicts operating profit will decline 15 percent to $2.49 billion, while net income falls 22 percent to $1.87 billion.

Flatlining volume and a deteriorating mix will drive profits lower, as will a strengthening yen.

Subaru forecast that the yen's increase in value against the dollar will trim $174.4 million in foreign exchange windfall gains that Subaru reaped in the just-finished year.