What will drive that growth?
There are a couple reasons. One is that the Outback is also hitting the market right now, and it will also contribute a full year of sales. Also, the recently launched Forester is experiencing great sales, as well as the Ascent. Those vehicles are really contributing to the volume, and we think those numbers should be possible.
Subaru's STEP midterm plan targets worldwide sales of 1.3 million vehicles. How much will come from the U.S.?
We are targeting 850,000 units for the U.S. market and 70,000 units for the Canadian market.
We have set that absolute number, but it will actually depend on how the market trends. Our target is 5 percent market share. For calendar year 2019, we should exceed the 4 percent market share level. What we focus on is not the absolute sales number but more the market share. So the 5 percent market share is more important for us.
What adjustments in U.S. production capacity will you need to reach that?
Under the STEP midterm plan, standard-time production capacity in [Subaru of Indiana Automotive] will be 436,000 units. The number of 500,000 is what we can reach at full capacity [with overtime]. We don't think we will be producing at that level. So we have some leeway in our production.
Will you need full U.S. factory capacity to reach the midterm U.S. sales goal?
What we're seeing now is that the market is declining a little. So by 2025, we see that a 5 percent market share might be equal to around 810,000 vehicles. It may not be 850,000 at that time. We have the capacity to fulfill that demand. We are prepared to increase the capacity if needed. It's just a matter of adding people or adjusting the line speed.
How are you ramping up production at SIA to restock inventory?
Currently the operation is [producing] 380,000-plus. And next year, it will be around 410,000. The inventory situation in the U.S. is a little low. But that is not so much because of vehicles produced in the U.S. but more because of Japan-produced ones.
We have been slowing down the production speed in our Japan factory to focus on the quality of our vehicles. It resumed in September, and that will help in 2020.
And the startup of the new Legacy and Outback, which we launched last summer, it was a little slow because we focused on quality as well. But those will be in steady production [in 2020], and that will help capacity as well.
What can you tell us about the new global SUV planned under Subaru's midterm plan? Where will that fit in the lineup, and why does Subaru need it?
I can't talk in much detail about future product. It is still under discussion where we have an opening in our portfolio. But, of course, we are thinking of the U.S. as the main market because the volume is there. There may be some places we can get additional volume. We have several ideas. But we want more discussion with our U.S. retailers and Subaru of America.
Is Subaru weighing a larger vehicle to round out the upper end of its lineup?
We are still considering, so we can't say clearly. But we're not really concentrating on large-segment vehicles, like an E-segment or something.
Hyundai is trying to revive its compact-pickup segment with the introduction of its Santa Cruz. Has Subaru ever thought about re-entering that arena with an update of its Brat pickup?
Such ideas pop up every now and then, but it's not something we're focusing on at this point.
Subaru will source more hybrid powertrains from Toyota under the midterm plan. How much of Subaru's lineup will be electrified by 2025 or 2030?
We expect to be announcing in the near future what percentage of our global sales will be electrified. So I ask you to wait a little longer.
We do have e-Boxer vehicles in Japan that are self-developed. But for our next hybrids, we will be getting them from Toyota, and we will be adapting that to our Subaru all-wheel drive.
The hybrid system that we get from Toyota will not only go to Japan, but it will go global. We can't say when it will go to the U.S. market. It depends on how the market matures, because there is not that much demand for hybrids right now in the U.S. market.
We will also be jointly developing an electric vehicle with Toyota. Going forward, we will have to watch the market and what competitors are doing and decide the timing based on that.
Looking out to even 2030, is electrification not a major push for Subaru?
To cope with regulations, we will have to have an electric vehicle in our lineup. So that's something we are developing. But market demand is going to change. We think there is still a gap between the two. It's not just us, but other manufacturers, too, are having difficulty managing the gap between market demand and regulations requirements.
The U.S. makes up 66 percent of Subaru's global sales. Is that too lopsided?
We're not saying that a single-pole market centered around the U.S. is good for us. We have to look into other markets as well. When you look at volumes, there may be some possibilities in Asia. But Europe is very difficult, given the regulations and the market itself.
Considering all that, we think it is still possible for us to grow in the U.S. Sunbelt. We think that's a frontier market for us. But not just the Sunbelt. There is also the Snowbelt, especially the Northeast. We think there is still potential there as well.
What are the biggest risks for Subaru?
One thing that worries me is quality. In the STEP midyear plan, we made quality reform our most important activity. Recently, we have experienced some big quality issues. Some U.S. retailers have had a difficult time coping. In the U.S. market, our core brand value is having high-quality, durable and long-lasting vehicles. And there has been some deterioration there. Retailers still have high expectations for the brand. Reacting to retailer expectations is very important for sustaining the brand and maintaining our strength in the U.S. market. We have good communication with our retailers. Teamwork is very good. We will keep that going.
Why Subaru is issuing bonds to help cover increased quality costs?
We have had quality issues in the past, and we had reserved those costs in the profit and loss statement. But when we actually conduct the recalls, that's when the cash goes out. We want a cash reserve equivalent to two months' worth of revenue. We wanted to keep that cash on hand, so that is why we are issuing bonds.
What are the most important remedies you are undertaking to improve quality?
We are focusing on two points.
One is improving the quality of the vehicles we are developing right now. We are changing the development process. We are adding gateways to check quality in the development phase. We are changing the criteria for supplier selection with a greater focus on quality. We are checking the production process to make sure we have better quality. All that contributes to improving the quality of vehicles we are developing right now.
The next point concerns defects in vehicles that are already on the market. We are trying to shorten the time from when we first recognize a defect to understanding the root cause and coming up with a solution. To do that, we are investing in a quality assurance laboratory that researches defects. That helps us minimize the number of vehicles affected and minimize the cost impact.
What is Subaru's strategy for new mobility services, such as car sharing?
In the U.S., we are experimenting with a subscription service as a pilot program.
We are developing a one-year subscription program and an app for retailers. We will start this sometime in the near future in the U.S.
It is a matter of how many retailers are willing to join this pilot program.
This is intended to nudge customers into buying Subaru cars.