Subaru’s Record-Breaking Forester Sales Are Making Toyota Happy

2014 Forester XT. Photo: Subaru.  

To say that Fuji Heavy Industries' (NASDAQOTH: FUJHY  ) Subaru is having a good year is like saying Mike Tyson is a good boxer -- it just doesn't do it justice. In fact, thanks to its Impreza and Forester, Subaru has seen record-breaking sales. And the streak is likely to continue -- which, in a surprising twist, is also great news for Toyota (NYSE: TM  ) . 

The allure of an affordable AWD vehicle
When I turned 18, I got a Subaru Impreza RS, and it was a blast to drive. Moreover, it was affordable and got great gas mileage -- even with all-wheel drive -- and when I totaled it by plowing into the back of another car, neither I nor my passengers were injured. Now that I have a family, I drive a Subaru Impreza Outback Sport, and barring another accident, I'll probably drive it for years to come. It's a great car. 

2013 Subaru Impreza. Photo: Subaru.

And that's not just my opinion of Subarus. U.S. News and World Report's "Best Cars" survey ranked the 2014 Subaru Forester at No. 3 for best small SUV under $30,000, while the 2013 Impreza came in at No. 7 for best affordable compact car -- a highly competitive segment. What's more, Kiplinger awarded the Forester a place in the "12 Best Cars With the Highest Resale Value, 2013," an award that measures a vehicles overall value and appeal. Clearly, Subaru has quite a bit going for it, and that's driving sales.

Money, money, money
According to its first-quarter results, Fuji Heavy's operating income jumped 301.8%, thanks in part to surging Forester and Impreza sales. In fact, in Japan, Forester sales increased nearly fivefold and Impreza sales doubled, compared with the same time last year. Moreover, Subaru's U.S. vehicle sales rose 29.1%, while global vehicle sales rose 15.3%, for a total of approximately 191,000 units sold. That, in turn, has affected Fuji Heavy's stock, which rose from $16.10 a share last September to $51.22 as of now -- a 221% increase. 

Fuji Heavy has now raised its projected full-year net income forecast by 11 billion yen, or approximately $110.8 million. That's great news for investors. 

Other factors to consider
There's no doubt that Fuji Heavy had a strong first quarter, but there are some things to consider. First, one of the contributing factors to Fuji Heavy's operating-income jump was a favorable yen exchange gain. Second, in China -- one of the hottest-growing vehicle sales markets, Subaru sales declined 5%. The same kind of performance holds true for Japanese car manufactures as a whole, because of anti-Japanese protests in China, but unless anti-Japanese sentiment subsides, Subaru sales are unlikely to take off in China, meaning it can't capitalize on that growth potential.

What to watch
Putting aside lackluster sales in China and the yen exchange gains, Subaru sales are booming, and that's great news for Fuji Heavy. Further, thanks to its automobile partnership -- Subaru and Toyota collaborated on a two-door sports coupe -- and a 16.5% stake in Fuji Heavy, Toyota is also reaping these benefits.

Thanks to Subaru's high-demand, Fuji Heavy is investing $400 million, and hiring 900 workers, to expand its Indiana manufacturing plant. Starting in 2016, this move will help increase production of the Impreza to more than 300,000 a year and will help improve sales of the model, which saw a decline earlier this year -- because of a lack of inventory.

Fuji Heavy looks to have a promising future.

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Read/Post Comments (10) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 07, 2013, at 12:11 PM, Pray4Peace wrote:

    We love our his and her Outbacks and even the Subaru Love commercials. However, the GPS system in the newer Outback is a piece of junk that does not tell one to turn until you are nearly through the intersection. It is really difficult to use for this computer programmer who is not a technophobe. I'm thinking of getting a new Subaru, but I'm tired of having to carry around a portable GPS.

  • Report this Comment On September 07, 2013, at 12:32 PM, friends1stu2 wrote:

    My wife loves her Outback and will probably buy another one when it is time, but the navigation system screen is too hard to touch. This is not like using a smart phone. You have to almost punch this screen take your inputs. Way too hard to use. We use Siri on our iPhone for navigation functions because the screen is too hard to input data.

  • Report this Comment On September 07, 2013, at 2:45 PM, hospiceclown wrote:

    I love my Subaru, but wait till you deal witht he service departments.......

  • Report this Comment On September 07, 2013, at 4:04 PM, satcheluk wrote:

    The headline indicates this is good news for Toyota, yet this fact is never addressed.

    Journalism 101 failure.

  • Report this Comment On September 07, 2013, at 4:18 PM, TMFKSpence wrote:

    Satcheluk,

    Read the paragraph titled “What to watch.”

    TMFKSpence

  • Report this Comment On September 07, 2013, at 5:32 PM, CrazyDocAl wrote:

    Toyota owns stock in Subaru, clearly that should have been included.

    After 3 years I sold my Impreza this summer. The AWD was great, couldn't ask for better. But the interior was a real let down. The car had too many rattles. The seats were too low, I'm 5'11" and I had the driver's seat as high as it could go. It has red dash lights yet used green background for the odometer and a black background with green numbers for the clock and radio. The manual gearbox was too hard to shift. The sheet metal was as thin as a sheet of paper. I could go on but wont.

    The problem with Subaru is that they are small. For a large company they have teams of people to decide where the best place for a switch or cup holder. Large companies must spend millions, I doubt that Subaru spends anywhere near as much.

  • Report this Comment On September 07, 2013, at 6:39 PM, TMFKSpence wrote:

    CrazyDocAl,

    Feel free to reread the paragraph titled “What to watch.” There you’ll find Toyota’s stake in Fuji Heavy.

    Best,

    TMFKSpence

  • Report this Comment On September 08, 2013, at 12:50 AM, CrazyDocAl wrote:

    TMFK, maybe you missed it but it was sarcasm. I assumed that people could piece together that Toyota has a a stake in Subaru since you said Toyota has a stake in Fuji Heavy and that Fuji is the parent company of Subaru.

  • Report this Comment On September 08, 2013, at 1:37 AM, Dadw5boys wrote:

    Great cars hold their value. The darn head gaskets easy fixes but a pain.

    Love you can pull that fuse by the drivers door and switch to 2 wheel front drive only from all wheel drive. If transmission messes up pull the fuse and drive a long time

  • Report this Comment On September 08, 2013, at 2:35 AM, TMFKSpence wrote:

    CrazyDocAl,

    Ah! I did miss the sarcasm. I incorrectly assumed your comment was similar to a previous comment on this thread. My apologies. :)

    Very witty, and Fool on!

    TMFKSpence

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