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Is Subaru On The Voyage To Achieve The ‘Prominence 2020’?

September 04, 2014 | About:

Subaru – the name first tickles my memories of the swanky ‘NASCAR’ in the racing circuit. But let us take a look at the who’s who of Subaru. It is the automotive division of Fuji Heavy Industries (NASDAQ: FUJHY). The specialty division of Subaru, the crossovers, are essentially all-wheel-drive (AWD) vehicles – a feature that is rare among the standard models in its category. The U.S. auto space is dominated by names like General Motors (NYSE:GM), Volkswagen (VOW) and Toyota (NYSE:TM).

But Subaru has exuberantly carved a niche for itself in the U.S. market with its exclusivity of all-wheel-drive and has earned its own fanfare among the other market leaders. In order to grab the spotlight of the U.S. automotive sector, the Subaru management has geared up to bolster Subaru’s car sales exponentially in the U.S. where it already has a strong presence, besides the home turf. Also, the management targets to sell at least 1 million vehicles globally by end of 2020. Let’s fasten our seat belts and take a test drive with Subaru and find out how team Subaru is tuning up to reach the goals set in “Prominence 2020” – the management mission to reach the targets set until the year 2020.

The management outlook

In the month of July 2011, the first five-year management plan was postulated and was called the “Motion – V”. According to the “Motion V,” Subaru was slated to achieve the global sales target of 850,000 vehicles by 2016. Owing to the growing popularity of Subaru models in the U.S., Subaru achieved the target by the year 2014, two years ahead of schedule. The unit sales expectation in North America (comprising U.S. and Canada) was pegged at around 410,000 vehicles by 2016; it recently crossed 478,000 units mark in the final quarter of 2014 fiscal year.

To boost the sales mission further, the management has formulated the next plan called the "Prominence 2020" in May this year that is broadly based on two targets – first to enhance the Subaru brand value and second to build a reinforced business structure against sudden changes in business environment. The specific goal lies in creating more Subaru fans by adding to the count of C-SAT (customer satisfaction) number, building a strong brand presence in the U.S. and other developing markets and racing towards achieving the worldwide sales volume of 1.1 million units by 2020.

Through this current mission, the management expects to achieve sales of around 600,000 units from the U.S., and 320,000 units from China and Japan by end of 2020.

Quarter numbers are impressive

Subaru posted its first-quarter results of the 2014-15 fiscal year on July 31, and U.S. contributed to nearly 75% of the company’s overseas sales. On the contrary, sales numbers saw a dip at the home turf due to the hike in consumption-tax that came into effect from April this year.

Overseas sales saw a jump of 10.7% to 166,000 units this quarter, when compared to the similar quarter last year. U.S. sales alone witnessed a jump of 6.4% to 123,000 units from that reported a year ago. The growth in the U.S. was primarily driven by Forester sales which has picked up good momentum and has grown 46.8% year to date, until July this year. Also, the new 2015 Subaru WRX series launched recently in the U.S. and the Subaru Outback sales which grew 12.6% through July of this year have reinforced the U.S. sales figures for the first six months of the year.

Evidently for Subaru, the U.S. remains the prime sales spot outside Japan. All the positive factors in the U.S. have led to 1.3% increase in global quarterly sales to 194,000 units, though Japanese sales for Subaru dipped by a whopping 33.2% in the first quarter of 2014-15 fiscal year.

Japanese exports speak abound

Though domestic sales are currently under pressure, exports have grown at an astounding rate in the first six months of the year. When compared on a half-yearly basis the export numbers have raced ahead by 19.5%, primarily driven by strong sales in North America and other overseas markets. Also, production improved 4.5% through June of this year. Rising demand for the Forester and Impreza models in the U.S. has been the key behind the boost in production capacities.

In fact, the U.S. remains the key export market for Subaru cars. And the management strategy seems to be in place as the Japanese carmaker’s exports to the U.S. are slated to continue rising in the near future as existing and new Subaru models gain quick popularity among U.S. car buyers.

Solid strategies in place

Having achieved the previous target set in Motion V, Subaru is now poised to achieve the next milestone mission of "Prominence 2020," and the management is devising firm strategies to achieve and exceed expectations by reaching the targets before the stipulated time schedule.

Let us take a look at what team Subaru is doing to achieve "Prominence 2020" and how it is going to impact their hike towards achieving the milestone.

Subaru is launching new models and redesigned models of their old popular models with improvised features to suit the generation next car buyers and gain firm ground in the U.S. For example, the redesigned fifth generation Outback was launched in July and the new 2015 Forester was released in May this year. Also the redesigned 2015 WRX model was launched this summer.

Subaru also wants to launch the seven-seater SUV which would replace the Tribeca that has recently gone out of production. Currently Subaru has unveiled the new 2015 Exiga Airbreak SUV in Japan, and company sources have confirmed that this model will be the forerunner of the SUV scheduled to hit the U.S. shores between 2016 and 2017. Subaru plans to produce the units for U.S. roads locally in order to attach a reasonable price tag to the cars and maintain competitive pricing policy for the U.S. market.

To further reduce the production costs, Subaru hopes to adopt a new modular platform assembly line called the Subaru Global Platform (SGP) by 2016 for component manufacturing across models – this platform could be on par with the MQB of Volkswagen and TNGA of Toyota. Through this platform Subaru would support assembly of all models from the Impreza to the Outback simultaneously.

The company has a single assembly plant in the U.S. at Indianapolis, which also produces Toyota Camrys as the former shares a contract with Toyota. However by the end of 2016 this contract will be over, after which Subaru will have increased production capacity of around 100,000 units. To start with, Subaru plans to manufacture the Impreza model at this facility, besides continuing with the Outback and Legacy production after the expiry of the contract.

The management believes that local production at the Indianapolis facility will make the cars more affordable in the U.S. and will further boost sales. And to attain the unit sales target in the U.S., Subaru hopes to improve the annual production in their Indianapolis plant to 400,000 units post the end of contract term with Toyota.

Concluding note

U.S. is the bright spot for Subaru from both production and sales angles. The management yearns to strengthen its revenue base in the U.S., and Subaru is enforcing solid strategies to reach the set goals. In a nutshell, the firm and efficient measures being taken by Team Subaru for attaining the management plan of action augurs well for the company that stands determined to reach the finish line in lesser time than estimated. So, let’s stay tuned and watch Subaru carve its ultimate niche.

About the author:

We are a group of analysts exploring and analyzing different domains of business and writing reviews based on information available in public domain web portals. We do not hold any stock or investment position in any of the companies that we write for.

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