Rough Times Ahead for Subaru? Operating Costs and Recalls Put Company In the Red [News]

[Photo: Subaru]

Subaru reported an operating loss of $22 million last quarter.

For even a medium-sized car company, a loss of 2.5 billion yen ($22 million) doesn’t seem like a huge hit. However, Automotive News reports that Subaru posted a profit of $816.3 million at the same time last year. As the company slumps into the red, it also managed to erase nearly $1 billion of income. Overall, Subaru reported a net loss of 1.2 billion yen ($10.6 million) from July to September. Last year, the company brought in a net income of 2.7 billion yen ($23.8 million).

Late last month, Subaru cut its operating profit forecast from earlier predictions, but why? The company cited higher quality-related costs. That comes on the heels of news that Subaru’s inspectors tampered with fuel economy data with cars built in its Japanese plans, destined for Japan’s domestic market. As a result, Subaru had to recall up to 530,000 cars for re-inspection. Again, the problem did not affect export models, but the company did face a $57.2 million hole in its budget because of the inspection problems.

That recall is not the only one Subaru has faced, either. The company also recalled 411,000 vehicles globally for valve spring issues that can cause their engines to stall. That recall cost Subaru $483.8 million. According to the Japanese Nikkan Jidosha newspaper, as cited by Automotive News, the repair on each vehicle can take up to 13 hours to complete.

Subaru lays out plan for growth in the coming years

Subaru President Tomomi Nakamura presented a new five-year plan against the backdrop of inspections, recalls and slowing sales to boost Subaru’s fortunes in the coming years. Nakamura seeks to build the company’s sales by 18 percent, to 1.3 million vehicles sold per year. Subaru’s goal in North America is to boost sales by 20 percent to 920,000 cars. The company’s current U.S. market share stands at 3.9 percent as of October – under that plan, its market share would rise to 5 percent.

Subaru fails to meet deadline to submit findings on alleged fuel economy cheating
[Photo: Subaru]
Even with the higher sales of the Forester and all-new Ascent, Subaru’s sales across the rest of its range have slowed. So far this year, sales are up 5 percent, but global sales have slowed and revenue went down by 2.1 percent. In light of the downturn, in addition to its recent scandal and recall woes, it seems the company is in for a rough patch. As it cuts its earnings outlook, we’ll have to see how Subaru fares moving forward.