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« on: August 23, 2013, 09:28:45 am »

Subaru's Got a Big Problem: It's Selling Too Many Cars

The Wall Street JournalBy Yoshio Takahashi | The Wall Street Journal – Mon, Aug 19, 2013 3:41 PM EDT

This photo provided by Subaru shows the Subaru 2014 XV Crosstrek Hybrid that will be unveiled Thursday, March 28, 2013, at the New York International Auto Show. It’s the company’s first gas-electric hybrid, and it will get better gas mileage than the conventional gas-powered Crosstrek. Yet it still has all-wheel-drive capability and the same 8.7-inch ground clearance as the gas model so it can go on trails. (AP Photo/Subaru)
Associated Press -
This photo provided by Subaru shows the Subaru 2014 XV Crosstrek Hybrid that will be unveiled Thursday, March 28, 2013, at the New York International Auto Show. It’s the company’s first …more
TOKYO—Subaru has a problem any auto maker would love to have. It's selling too many cars.
Subaru-brand sales in the U.S. are up 27% in the first seven months of 2013, more than three times the market overall. The auto maker, owned by Fuji Heavy Industries Ltd., is on track for a sixth-straight year of sales gains, a period that includes the 2009 financial crisis that bankrupted two of Detroit's Big Three.
But the sales boom has taken Subaru by surprise, and the company faces shortages of its newest models. That is forcing Japan's smallest car maker to ask some thorny questions about how much risk it can stomach if it wants to expand.
Subaru plans to increase its Japanese production capacity by 15% by the end of August compared with 2012. Subaru also is investing about $400 million to increase output at its U.S. factory in Lafayette, Ind., by 76% to 300,000 vehicles by 2016.
The U.S. sales surge and a weaker yen helped make Fuji Heavy Japan's most profitable car company between April and June with an operating profit margin of 12.7%, above Toyota Motor Corp.'s 10.6%.
Subaru's two main Japanese plants are already running at full capacity, and manager Masahiro Kasai said the company would likely add more capacity soon.
But Subaru's conservative approach is nearing its limit, said Mr. Kasai.
"It's like when the tube of toothpaste has run out and you try to squeeze out the last little bit from the bottom again," he said. For instance, its Forester crossover's U.S. inventory stands at a 15-day supply, compared with the U.S. industry average of around 60 days.
A Fuji Heavy executive said the company would finance a big expansion if it saw an opportunity for long-term growth.
Right now, Subaru's parent believes the strong demand for the redesigned Forester will run out at some point.
"For Fuji Heavy, no matter how cautious it becomes, that doesn't mean that they are overcautious," because they are so small, says Koichi Sugimoto, an analyst at BNP Paribas.
Subaru also is preparing to sell its XV Crosstrek Hybrid, its first hybrid gasoline-electric vehicle in the U.S. later this year, prompting debate over how much it is willing to spend to support the technology. The auto maker is late to the hybrid market and still doesn't have a full-electric or plug-in hybrid that meets California emissions rules that go into effect in 2016.
"We are a small company, so within our limited resources how much do we put toward [hybrids]?" asks Subaru of America Chairman Takeshi Tachimori, a 59-year-old Fuji Heavy veteran.
Subaru for years has operated as a niche player. It found its calling in compact SUVs and Outback wagons. Its all-wheel-drive cars earned the brand a loyal following among drivers in the northern corners of the U.S. Subaru started a decisive U.S. push in the past half-decade to counter the shrinking Japanese market.
Its vehicles are now wider and roomier, tailored to American tastes so much so that some Subaru models like the latest Outback are too big for some Japanese parking garages.
Subaru expects 51% of its sales to come from the U.S. in the year to March compared with 33% a decade earlier.
Rob Cori, a 23-year-old graphic designer, ordered a 2014 Forester in mid-July through a Subaru dealer in Arlington, Va. At the time, there was only one new Forester left on the lot. It wasn't the color he wanted and didn't have the transmission he preferred.
Mr. Cori says he considered Mazda CX-5 crossover and a Ford Escape, but decided to order the Subaru from Japan, and put up with the wait.
"If I had went with the Mazda and the Ford I could have walked off the lot with one that day, but I preferred to wait for a Forester," he said.
Subaru's dilemma over capacity is shared by bigger rivals, including Ford Motor Co. and South Korea's Hyundai Motor Co. Subaru's size currently accounting for just 2.6% of the U.S. market forces it to be more careful.
Adding a factory that can build 200,000 vehicles a year, the amount usually required to build a new assembly plant, represents 3.5% of Ford's global output but more than a quarter of Subaru's.
The way that Subaru was blindsided by its own U.S. success has been a cause of embarrassment for Mr. Tachimori. He said the company's sales projections were so conservative that he found himself apologizing instead of complaining to production officials for the shortages.
This missed opportunity has caused Mr. Tachimori, who previously led development the Subaru Outback and Legacy, to push other executives to soften its play-it-safe approach.
"It is something we haven't really done much of before. We know how to study worst-case scenarios, but we've never examined a best-case scenario," Mr. Tachimori said. "It will be more problematic if we miss out on an important opportunity so we should examine these kinds of best-case scenarios as well."

Write to Yoshio Takahashi at and Yoree Koh at

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