New Subaru chief aims to shore up profits, sales -- and trust -- with new plan

TOKYO -- Newly appointed Subaru President Tomomi Nakamura has unveiled a fresh five-year business plan that aims to boost U.S. market share, stoke an 18 percent increase in global sales, shore up flagging profitability and invest more in next-generation technologies.

And crucially, the new roadmap calls for restoring trust in the brand at home.

Nakamura, 59, took the helm from departing chief Yasuyuki Yoshinaga in June, following a vehicle inspection scandal in Japan that hurt the brand"s image at home. The backlash was contained in the Japanese carmaker’s backyard because the lapses didn’t affect cars for export.

But in unveiling the new plan July 10, Nakamura pledged to prioritize cultivating a company that "does the right thing in the right way."

Indeed, he dubbed the blueprint STEP, with the T standing for trust. The other letters come from speed, engagement and peace of mind.

"We are committed to changing the corporate culture," Nakamura said. "We will take firm measures so that we will become a company that will never repeat such a mistake."

The plan runs through the fiscal year ending March 31, 2026, and Nakamura said it will keep small but expanding Subaru competitive in the rapidly changing international landscape.

"The automotive industry is now in a tumultuous time. Subaru’s fast growth in recent years has come to highlight our challenges," Nakamura said. "The question is how we, as a small-scale company, will be able to survive in this big-changing area."

Nakamura aims to lift global sales 18 percent to 1.3 million vehicles in the fiscal year ending March 31, 2026, from the 1.1 million units it expects to sell in the current fiscal year.

In North America, Subaru’s biggest and most important market, the all-wheel-drive niche player targets a 20 percent sales increase to 920,000 vehicles, from 770,000 forecast this year.

Subaru wants to lift its U.S. market share to 5 percent through strengthening the retail network and increasing penetration in sunbelt states where it has traditionally been weaker.

Through June, Subaru’s U.S. market share stood at 3.7 percent. U.S. sales climbed 5.9 percent to 322,860 vehicles in the first six months, outpacing the overall market’s 1.9 percent increase.

Among other initiatives unveiled under STEP:

  • Introducing a new hybrid vehicle in the early 2020s
  • Launching a new "global strategic SUV" in the early 2020s
  • Evolving the Dynamic X Solid design language into a "bolder" expression
  • Enhancing sporty models, include the STI tuner line
  • Delivering Level 2 autonomous highway driving around 2020 and higher levels by 2024
  • Offering connectivity in 80 percent of new vehicles in major markets, such as U.S., by 2022.

U.S. and Japan

Nakamura is well positioned to lead the U.S. advance. He was appointed Subaru of America CEO in 2014 and oversaw North American operations from Subaru’s regional headquarters in New Jersey. He returned to Japan this spring to take the wheel from Yoshinaga.

Yoshinaga’s tenure was marked by rapidly rising production and a string of record sales years.

Today, North America alone accounts for more than two-thirds of the company’s global sales. When Yoshinaga, 64, took the helm in 2011, it contributed only 44 percent of that volume.

Yoshinaga set a target of reaching global sales of 1.2 million vehicles in the fiscal year ending March 31, 2021, under the outgoing Prominence 2020 business plan unveiled in 2014. That goal marked a 12 percent increase over the 1.07 million units sold in the fiscal year ended March 31.

Under the old plan, Subaru aimed to boost North American sales 19 percent to 800,000 units in the fiscal year ending March 31, 2021, from 671,000 in the just-ended fiscal year.

While the U.S. remains a critical cash cow for Subaru Corp., the company is trying to win back trust at home after disclosing late last year that uncertified workers had for decades carried out tests of new cars for the domestic market.

The scandal deepened this year, when Subaru admitted final inspectors had also faked fuel economy and emissions data in some cases.

The problems led to reprimands from the country’s transportation ministry and the recall of 417,288 vehicles in Japan, including the Toyota 86 sporty coupe manufactured by Subaru.

Going forward, Subaru says it will reform "outdated aspects of its corporate culture" such as an authoritarian, top-down management style, a reliance on precedents and formalism.

Protecting profits

Subaru said it will invest 150 billion yen ($1.36 billion) over five years to improve quality.

"The quality of our company has failed to keep pace with our quantitative growth so far," Nakamura said. "We will focus on improving the quality so that qualitative growth will outpace quantitative growth. That’s how I see growth as a brand."

Under the midterm plan, the automaker has also set up a private venture fund, called the Subaru-SBI Innovation Fund, to pinpoint promising startups with next-generation technology.

Subaru has earmarked 10 billion yen ($90.4 million) for such investments over the next five years.

Subaru will also work to shore up profitability, especially in the important U.S. market, and address new trends in electrification and autonomous driving.

Retail volume in the U.S. is still booming -- Subaru is on pace for its 10th straight year of record sales. But the company is spending more on upgrades to move the metal.

Subaru’s global operating profit margin was long the envy of the industry, cruising above 10 percent for four-straight years and rocketing to 18 percent three years ago. But in the January-March period, it slumped below 10 percent for the first time in at least 15 quarters.

Subaru has forecast that operating profit margin would continue to erode to 9.2 percent in the current year ending March 31, 2019. Under STEP, Subaru wants to buoy margins to at least 9.5 percent in the fiscal year ending March 31, 2021.

The Japanese automaker also wants to boost operating profit to 950 billion yen ($8.59 billion), in that time frame. That would be more than double the operating profit of 379.4 billion yen ($3.43 billion) the company booked in the fiscal year ended March 31.

Going electric

Meanwhile, Subaru must invest more to develop next-generation drivetrain technologies, partly to meet increasingly stringent emissions standards. It must also increase outlays to expand its toolbox of connected car and autonomous driving technologies.

Nakamura said Subaru would continue its collaboration with Toyota for electrification.

Subaru has a long-standing partnership with Toyota Motor Corp., which owns 17 percent of the smaller Tokyo-based carmaker. But at the end of last year, Subaru decided to also join a new EV venture formed by Toyota and other affiliated manufacturers.

That venture, EV Common Architecture Spirit Co., was formed last September with Mazda Motor Corp. and supplier Denso Corp. to co-develop an architecture for EVs. Since then, Suzuki Motor Corp., minicar specialist Daihatsu and truckmaker Hino have climbed aboard.

Subaru’s dives into electrification this year with the U.S. launch of a plug-in hybrid version of the Crosstrek, followed by a full-electric vehicle in 2021. Subaru has an in-house electrification project, but it is also drawing heavily from partnerships to engineer the upcoming vehicles.

Subaru currently offers no electrified models, though it plans to start selling a hybrid version of the Forester crossover in Japan later this year. Its last full EV, the plug-in Stella minicar, was discontinued in 2011 after racking up fleet sales of only 200 units.

Naoto Okamura contributed to this report.

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