Subaru to Increase Domestic Production Despite Strong Yen

While other Japanese automakers are focusing on overseas markets, Subaru’s parent company Fuji Heavy Industries Ltd. is ramping up domestic production.

Earlier this month, Subaru announced that it plans to increase domestic production to account for 78 percent of its annual production this fiscal year. Last year, Subaru’s domestic production accounted for 73 percent of its total output.

The reason for the increased focus on domestic production boils down to pure economics. Despite the strong yen, increasing production capacity in the U.S. is far more expensive. Building a new production facility in the U.S. would likely cost upwards of $1 billion.

In a May 18 interview, the company’s CFO Mitsuru Takahashi said, “A large-scale expansion in the U.S., where we build new factory buildings and such, will cost a lot.” Takashi added, “We’re not like Toyota, Honda or Nissan, so it’s not appropriate for us to make sudden, big investments.”

The announcement has caused some analysts and investors to question Subaru’s decision, which they feel may be too risky. Although the yen has weakened some this year, during the past four years, it has risen 40 percent.

Fuji Heavy Industries, Ltd. spokesman Fusao Watanabe said, every yen gain against the U.S. dollar reduces the company’s operating profit by about 6.5 billion yen, or $82 million.

Fukoku Capital Management Inc. CEO Yuuki Sakurai said, “What matters most for carmakers is localizing production where demand is. I don’t expect the yen to weaken much anytime soon and their relatively low level of localization will have an impact on their shares sooner or later.”

Unlike many of its competitors, including Toyota and Honda, Fuji Heavy Industries Ltd. already produces a larger percentage of its vehicles within its home market. Now it says it will increase domestic production by 28 percent, to 598,000 units by March of next year.  Meanwhile, it plans to cut production at its Indiana manufacturing plant by 1 percent, to 169,000 units.

Rival Japanese automaker, Toyota Motor Corporation, has announced that it will maintain its current domestic production level of 3 million vehicles annually. The company plans to increase output in the U.S., Russia and Indonesia.

Nissan Motor Company also plans to maintain its current domestic production level or 1 million units. The automaker plans to expand its market share in Brazil, Mexico and Southeast Asia.

Honda Motor Company also hopes to increase its market share in Southeast Asia and North America.

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