One of the auto industry's little guys is quietly emerging as one of its biggest when it comes to profit margins.
Fuji Heavy Industries Ltd., the maker of Subaru all-wheel-drive wagons, on Friday posted a 17.5% operating margin for its latest quarter, far exceeding larger Japanese auto makers and widely outpacing German luxury brands.
The company, which also makes airplane components, said net profit rose 61% from a year earlier as its strategy to stay relatively small and limit most of its production to its home market paid off.
"We want to be an auto maker that dominates with profit margins and quality rather than quantity," Chief Financial Officer Mitsuru Takahashi said at an earnings briefing. He said the company, in which Toyota Motor Corp. holds a 16.5% stake, aims to keep margins above 10%, though he acknowledged that the current level is unsustainable.
Subaru's performance for its fiscal first quarter was aided by continued momentum in the U.S., slim labor costs and the weak yen.
Riding U.S. sales, Honda Motor Co. on Friday reported a 6.5% quarterly margin, while earlier in the week Nissan Motor Co. booked a 6.7% margin. Toyota, a top seller in the global auto industry, is expected to post an 11% global operating margin next week, far in excess of U.S. rivals' global margins.
Subaru is earning a spot among premium brands, analysts say.
"It would be safe to say Subaru is Japan’s second-most successful luxury automobile brand" after Toyota’s Lexus, Christopher Richter, a Tokyo-based auto analyst at CLSA.
Subaru has been on a roll since the late 2000s, a point when it decided to focus on the U.S. market over Japan by building bigger versions of wagons and sport-utility vehicles long seen as functional and quirky. In 2008, as the U.S. economy was pressured by a financial crisis, Subaru held just 1.4% share in the American market.
This year through June, its U.S. market share stands at 3.2% after more than a half-decade of steady increase. Once among the smallest players, Subaru now solidly outsells Mazda Motor Corp., Volkswagen AG's VW brand and Germany's luxury brands, having posted an average annual sales increase of nearly 19% since the financial crisis.
While peers such as Honda produce a large percentage of vehicles near local markets, Subaru exports nearly 80% of the cars it makes in Japan. Not so long ago a liability, that factor has helped the company take advantage of a weakening yen, especially as the dollar has been strong.
For every one-yen rise in the value of the dollar, Fuji Heavy’s full-year operating profit increases by ¥10 billion ($80.7 million). The company's average exchange rate in the April-to-June quarter was ¥120 against the U.S. dollar, compared with ¥102 for the same period a year ago.
Honda said profit for its June-ended fiscal first quarter rose 20% from a year earlier, backed by the weaker yen and strong sales of SUVs in the U.S. and China, which offset slipping sales in Japan. The nation's third-largest auto maker by global car sales volume posted a ¥186 billion ($1.5 billion) net profit, beating a mean estimate of ¥145.8 billion, according to a poll of analysts by Thomson Reuters.
Quarterly revenue was ¥3.7 trillion, up 15.5% from a year earlier.
Fuji Heavy had a net profit of ¥84.2 billion for the period on revenue of ¥765.3 billion, up 29%.
Honda moved away from exporting from Japan and toward manufacturing in most key markets, a shift that limited its benefit from the yen’s retreat.
It is now backtracking from that strategy with plans to increase exports in the near future.
In the U.S., Honda's biggest market, sales volume grew 1.2%, though that was slower than overall U.S. market's growth of 3.3%. It is set to launch a redesigned Civic sedan this autumn in North America, which could help sales in the coming quarters.
In Japan, sales have fallen in recent quarters due to launch delays, after a series of recalls prompted Honda to stiffen quality checks.
