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Subaru Struggles Amid Recalls, Production Delays



The Japanese automaker, who grew rapidly earlier in this decade, feeding the Americans demand for sports equipment, said there was a lack of the US shipping target and his profit margins were reduced. Subarus's net profit for the current fiscal year, which ends in March, will fall to less than half of the peak.

The problems are partially temporary. Last week, Subaru recalled more than 400,000 Subarus and Subaru-made Toyota cars for engines that were at risk of breaking, a move that spared nearly $ 500 million in operating profit.

The company said it missed opportunities in the United States because it did not have enough vehicles available. "We are struggling with production," said Toshiaki Okada, Subaru chief financial director.

The company's factory in Indiana has not built enough of the new Ascent, a seven-seat SUV with 1

9 cup holders. Factory workers have been struggling to build Ascents fast enough while maintaining quality, Okada said.

Subaru is likely to register its third straight fiscal year with falling profits. Usually comfortably in double digits, the company's operating margin fell to 3.7% in six months to September from around 13% last year.

Subaru projects will sell 1.04 million cars a year ending in March, down from last year's 1.07 million units.

A business plan adopted in July under new CEO Tomomi Nakamura requires that Subaru lift its US market share to 5%, from just under 4% currently.

In Japan, Mr. Okada said that Subaru was struck with problems at the inspection lines at a factory where the company has recognized workers, was wrong with vehicle tests. He said that efforts to ensure that vehicles are inspected reduces production. The company said Monday that it would bring another 100,000 cars in Japan for newly discovered problems related to vehicle inspections.

Takaki Nakanishi, a Tokyo-based auto analyst, said the sales downturn is "an offer, not a demand issue. Demand is strong, the products sell well."

Even without recall-related costs, Subarus's operating profit for six months to September would have decreased by more than a third.

One reason is the growing bill of financial incentives in the United States. Subaru offers 0% funding on some of the best-selling vehicles, a common tactic of car manufacturers to reduce inventory before a model update. Subaru started selling an updated Forester sports utility vehicle in September.

U.S. The interest rate rises generally, raises the bill for subsidies Subaru offers customers.

Subaru said that it spent an average of around $ 2 200 per vehicle on financial sweeteners for customers, compared with around 1800 USD last year. The company said that the sale of new models like Ascent and Forester will be tough in expenses for incentives. New cars are usually offered with fewer deals.

Mr. Nakamura, General Manager of Subaru, said he was most concerned about Subarus's quality battle, which he owe to grow too fast. Subarus sales volumes increased to more than a million last year from 825,000 in 2014.

"There have been many recall-related issues lately, the reason is likely to be attributed to stretching too much for growth," Nakamura said.

Write to Sean McLain at sean.mclain@wsj.com


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