Fuji Heavy Share Decline Proves Bad Bet for Toyota Shareholders



By Makiko Kitamura and Kiyori Ueno

March 13 (Bloomberg) -- Fuji Heavy Industries Ltd., the
maker of Subaru cars, has dropped 28 percent since Toyota Motor
Corp. became its biggest investor in 2005. The companies'
failure to take Subaru beyond niche-brand status may extend the
slide.

While Toyota is using a Fuji Heavy factory in Lafayette,
Indiana, to build Camry sedans, joint development of new models,
including a possible sports car, is still under discussion.
That's a setback for Tokyo-based Fuji Heavy, which is struggling
to refresh its lineup after a 16 percent cut in research
spending over four years.

Operating profit will slump 17 percent this fiscal year,
Fuji Heavy forecasts. The company's 3.2 percent operating margin
is the lowest among Japanese competitors after Mitsubishi Motors
Corp. One reason is an engine design that's twice as expensive
to build as conventional versions and is shared, among carmakers,
only by Porsche SE.

``Their margins are terrible, and with their low volumes,
they're at a huge disadvantage,'' said Edwin Merner, who
oversees $2 billion as president of Atlantis Investment Research
Corp. in Tokyo and doesn't own the shares. ``They may end up
becoming just a subcontractor for Toyota.''

With global auto output totaling 585,028 last year, or 7
percent of Toyota's, Fuji Heavy lacks the scale to spread costs
among more vehicles.

The company's shares may be little changed for the next 12
months at 410 yen, estimates Tatsuo Yoshida, a senior analyst at
UBS Securities Japan Ltd. They're already down 19 percent in
2008, making a third straight annual decline likely.

`No Light'

``I see no light at the end of the tunnel,'' Yoshida said
in an interview, citing rising raw-materials costs and a
widening quality gap. Subaru was the only Asian passenger car
brand to post a drop in U.S. sales last year.

Yoshida is among five analysts in a Bloomberg survey who
rate the shares as a ``sell.'' Ten say hold; one says buy.

Toyota, which owns 8.7 percent of Fuji Heavy, has had
better luck with truckmaker Hino Motors Ltd., whose sales have
been bolstered by demand from emerging markets. The stock has
climbed 51 percent since Japan's largest automaker increased its
holding to a majority stake in 2001.

Fuji Heavy forecasts operating profit will drop to 40
billion yen ($388 million) this fiscal year. It will fall 2.5
percent more in the 12 months ending March 2009 as the Japanese
currency strengthens against the dollar, Yoshida predicts. The
figure was as high as 91 billion yen in 2000.

Research and Development

Cutbacks in research and development spending, now 32
percent less than Honda Motor Co.'s as a percentage of sales,
limit the automaker's ability to attract more customers with new
products.

``Fuji Heavy is in the unfortunate position of being stuck
in this vicious cycle,'' said Tatsuya Mizuno, Tokyo-based
director at Fitch Ratings.

Vehicle development and production was part of Toyota's
reason for buying the Fuji Heavy stake from General Motors Corp.
in 2005. The companies are exploring collaboration on new models.
That could help the smaller partner boost output and lower costs.

``We are currently carrying out active discussion with Fuji
Heavy Industries regarding consigned research and development of
a Toyota-brand vehicle,'' said Toyota spokesman Paul Nolasco.

After a 3.3 percent decline in global sales in 2007, Fuji
Heavy is targeting overseas markets to help raise Subaru's tally
8 percent this year. That may not be easy.

U.S. Goal

The company is aiming for a 7 percent gain in the U.S. --
where Subaru sales fell 6.7 percent in 2007 -- and where this
year's industrywide total may drop to the lowest in a decade.
Fuji Heavy is counting on models such as a redesigned Subaru
Forester sport-utility vehicle and Impreza WRX STI hatchback. In
Japan, sales fell 7.9 percent last year as the auto market
posted a fourth straight decline.

Subaru is also struggling to hang on to niche markets it
cultivated.

After courting drivers in snowy climates by pioneering
four-wheel-drive in passenger cars in the 1970s, Subaru now
battles similarly equipped models such as Nissan Motor Co.'s
Rogue and Honda's CR-V compact SUVs.

Lesbian Fans

The carmaker is also facing more competition for gay and
lesbian drivers in the U.S., a segment Subaru pursued by hiring
former tennis champion Martina Navratilova, a lesbian, as a
spokeswoman in 2000. Other carmakers including Ford Motor Co.
and Bayerische Motoren Werke AG have stepped up advertising in
gay media.

``Subaru's stronghold on the top spot in brand awareness in
our community is slipping,'' said Joe LaMuraglia, founder of
Gaywheels.com.

Even the so-called boxer engine, with pistons arranged
horizontally, instead of standing up or in a V-shape, may not be
worth the extra production cost. The engine is also used in BMW
motorcycles.

Subaru says the boxer provides a smoother, steadier ride
that attracts well-educated drivers. Twenty percent of U.S.
Impreza buyers hold Ph.D. degrees, the company says.

While Toyota may be able to use the engines to enhance its
offerings, Fuji Heavy remains locked in shrinking niches because
consumers are unwilling to pay extra for the technology,
according to UBS's Yoshida.

``The sad fact is that most consumers can't tell the
difference,'' he said.


http://www.bloomberg.com/apps/news?pid=20601087&sid=aYwlkB4T.zzU&refer=home

"Even the so-called boxer engine, with pistons arranged
horizontally, instead of standing up or in a V-shape, may not be
worth the extra production cost. The engine is also used in BMW
motorcycles.

Subaru says the boxer provides a smoother, steadier ride
that attracts well-educated drivers. Twenty percent of U.S.
Impreza buyers hold Ph.D. degrees, the company says."

I think this is the problem with Subaru. No one knows anything about their engineering savvy beyond their AWD promise. Their engines are not heralded (but then again, they aren't the most powerful or gas efficient).

Subaru has a lot going for them, but there is a noticable lack of marketing and R&D compared to other companies.


BTW, I like BMW motorcycle engines. :D Too bad the bikes themselves don't handle too well in a racetrack... :rolleyes:

subaru has the same problem as saab. Saab makes great cars. Nobody knows about them. Remember the Saab 9-3 Viggen? Nobody does >.<

First problem, people don't know what Subaru is. Most believe that a Legacy is a Camry. They don't understand that a sedan or wagon like the Legacy GT can hit 60 MPH in well under 6 seconds. Which leads to their next problem, poor advertising. Thats why no one knows their name. Impreza and Legacy sales were up in February. Forester and Tribeca sales were stagnant. I expect the new Forester to boost Subaru sales.

What Subaru really needs is directed injected engines and CVTs. The Outback is a great alternative to a CUV, but it only get 27 mpg nor the N/A variant. Not much power there. So DI could offer the power of a CUV, but also the fuel economy of a car.

Gay people are also buying Rav 4s and CRV now.


Finally, if Toyota were really worried about their investment, they would modify the Venza to not be a direct competitor to the Forester, which it is.

Their engines are not heralded (but then again, they aren't the most powerful or gas efficient).


I dunno. An 175 hp N/A 2.5L 4 banger is pretty potent IMO. Im on my third and havent had any major problems to speak of. Even with AWD, I'll see 32 mpg hwy. I just drove to South Carolina, with 3 passengers and lots of luggage and went 400 miles and averaged 31.5 mpg. Pretty good since the EPA only estimated this car to get 27 mpg hwy.

I thought Subies are the the hot thing nowadays

I hardly think Subaru's future lies in the Gay and Lesbian crowd, so that statement tacked in there just seems out of place. They need a bigger customer base that will consider them as a viable option to the Toyota, Honda, Nissan and other brands. I own two Subaru's and they have been great cars, but very few people know anything about them. That is their problem, not better penetration (cough...) of the Gay and Lesbian crowd.

Lesbian Fans

The carmaker is also facing more competition for gay and
lesbian drivers in the U.S., a segment Subaru pursued by hiring
former tennis champion Martina Navratilova, a lesbian, as a
spokeswoman in 2000. Other carmakers including Ford Motor Co.
and Bayerische Motoren Werke AG have stepped up advertising in
gay media.

``Subaru's stronghold on the top spot in brand awareness in
our community is slipping,'' said Joe LaMuraglia, founder of
Gaywheels.com.

I think Subaru's new boxer diesel will definitely help, at least in Europe.

=SLegacy99;3357442]
Gay people are also buying Rav 4s and CRV now.

The Subaru-gay connection is just one more inaccurate and unwarranted automotive stereotype, like with VW convertibles. Sure gay people buy Subarus. They buy a lot of other brands, too.

Finally, if Toyota were really worried about their investment, they would modify the Venza to not be a direct competitor to the Forester, which it is.

The Venza will compete with the Outback more than the Forester....not to mention the fact, that, unlike the 2008, IMO, the 2009 Forester is a POS, for many reasons.

We have an Impreza and that little thing is GREAT. Handles good, it laughs at poor weather, build quality is high. Its really hard to discount Subaru once you have owned one.

If only the Can --> Price difference wasn't so high!

We have an Impreza and that little thing is GREAT. Handles good, it laughs at poor weather, build quality is high. Its really hard to discount Subaru once you have owned one.



No arguments there, bizzy. I like Subarus, as daily drivers, more than any other make....I have an Outback myself. But some of the newest 2008 and 2009 models are showing some serious signs of decontenting and cost-cutting. The new 2009 Forester, especially, is awful.

BTW, I like BMW motorcycle engines. :D Too bad the bikes themselves don't handle too well in a racetrack... :rolleyes:

But you have to admit, there's not much that's more exciting than grounding out the valve cover and levering your rear wheel off the ground. :eek2:

subaru isnt winning in the looks department either
brand perception involves visual perception of its products as well

toyota needs to help out subaru
but im guessing its HR resources are spreading too thin to really do much at this point in time

i hope they can recover. my wrx has been great. 70k miles now, modded for the past 30k and not one problem; and it gets beaten on too. excellent, tough little car.

Well, Subaru should be happy with how well they sell here in the NW, they're everywhere!

Their other big problem is exterior design. The last few years of the impreza looked like a pig and the Tribeca is still horrendous.

Well, Subaru should be happy with how well they sell here in the NW, they're everywhere! [QUOTE]

That's because they make some of the best all-weather cars for the money.

[QUOTE]Their other big problem is exterior design. The last few years of the impreza looked like a pig and the Tribeca is still horrendous.

I agree...I never liked the Tribeca...but the Alfa-Romeo nose is gone this year, replaced by a much more conventional grille and front end.

http://autoblognews.com/wp-content/plugins/auto-blogster/images/tribeca.jpg

Same with the Impreza....it is all-new this year, not just the front end, although the new interior has too much plastic for my tastes.

http://www.thetorquereport.com/subaruimpreza2008-thumb.jpg

No arguments there, bizzy. I like Subarus, as daily drivers, more than any other make....I have an Outback myself. But some of the newest 2008 and 2009 models are showing some serious signs of decontenting and cost-cutting. The new 2009 Forester, especially, is awful.

Thats very discontenting to hear. The Impreza is a bit small and the Forrester would be the logical step up. Same engine, drivetrain, and a little bit bigger. Plus with the price drop to 19k in the US, it makes great incentive importing the vehicle to Canada (26k here).

Special thanks goes to mmarshall too as he made himself avaliable for any questions prior to the Impreza purchase. Gave me a lot of great information! :thumbup:

Thats very discontenting to hear. The Impreza is a bit small and the Forrester would be the logical step up. Same engine, drivetrain, and a little bit bigger. Plus with the price drop to 19k in the US, it makes great incentive importing the vehicle to Canada (26k here).

Special thanks goes to mmarshall too as he made himself avaliable for any questions prior to the Impreza purchase. Gave me a lot of great information! :thumbup:

Thanks.:) and I'll give you some more info, right now, if you want to move up to a new Forester. In the meantime, a lot of '08 Foresters are still on the lot for sale, so you can compare them to the '09 and make your decision.

But in the meantime, based on the new '09 Foresters I HAVE seen, the '09s are strongly decontented over the '08's, even with the new L.L. Bean model.

Here are the main differences between the two: On the '09's:

1. The two-tone exterior paint is gone. All 2009 Foresters are now monotone.
2. The wood steering wheel and shift lever are now gone.
3. The coolant temperature gauge is gone, replaced by red/blue idot lights.
4. The cargo-area pull-cover is gone (though it can be added back as a dealer accessory)
5. The side-mirror-mounted turn signals are gone.
6. The instrument panel, dash and steering wheel are now the same as the new Impreza.....all solid plastic (it seems to be a thick, durable plastic, though).
7. The doors have gone to frame-surround windows, and they are much thinner and tinnier than the thick, solid doors on the '08s....you will notice this when you open and shut them.
8. There was no glove-compartment light on the prototype model, unless it was added back for production.
9. The new sunvisors are made of harder, less pleasant materials.

In other words, though the new 2009 Forester is wider and taller, inside and out, IMO, it is also C H E A P.

http://zenhabits.net/fotos/20070828savings.jpg