DETROIT — There is only one auto company publicly traded in the United States that is losing money today--and it's Japanese. Subaru of America is hemorrhaging red ink.
In the throes of a severe sales slump, the U.S. distributor for Subaru of Japan lost $57.9 million in fiscal 1988, nearly double 1987's losses, the company reported this month.
In response, Subaru of America has pared its U.S. payroll by "5% to 10%" in recent months, said a spokesman for the Cherry Hill, N.J., firm, while reorganizing and streamlining its distribution system.
Subaru's worsening financial health is just the latest sign of the turmoil now confronting the smallest Japanese auto makers in the increasingly congested U.S. car market.
With limited product lines, small dealer networks and tight ad budgets--and with their supply of cars restricted by import quotas that tend to favor the largest Japanese auto makers--small Japanese companies like Subaru, Daihatsu, Isuzu and Suzuki are now caught in a squeeze that, some analysts believe, could force them to merge their U.S. operations with larger Japanese firms in order to remain competitive.
"We think it's likely that a number of the smaller firms will be merged into big ones," said William Pochiluk, an analyst with Autofacts, a Paoli, Pa., automotive market research firm. "These companies don't have the strength of a Toyota, and we think the big guys stand the best chance of winning in this market. It's just a tough time for them."
The larger Japanese auto companies--Toyota, Nissan, Honda and Mazda--have had the resources to remain competitive in the United States despite the rapid appreciation of the Japanese yen, which has forced all of the Japanese auto makers to hike their prices here.
By investing billions of dollars in new products and new U.S. manufacturing plants, the Big Four of Japan have held onto their share of the passenger car market.
But the smaller companies have taken a beating from the yen. And, with profits plunging, they have been unable to spend enough to match the speed with which the bigger Japanese firms spit out new products.
"The big guys--Toyota, Nissan, Mazda, Honda--have really been making substantial investments in their long-term future with new products," Pochiluk added. "This has been going on at the same time the small guys have been getting squeezed by the yen and haven't been able to generate the revenues to support R&D (research and development)."
For instance, it still takes Subaru at least five years to develop a new car; the larger Japanese auto makers are cutting that to three years. As a result, the company has been saddled with aging cars that must compete against the newest from giants such as Toyota and Ford.
"What we're facing now is that we are at the end of a relatively long product cycle," conceded Subaru spokesman Fred Heiler.
Product Line Limited
Finally, the company has brought out a redesigned Justy mini-car with an advanced, "continuously variable" transmission that eliminates gears and increases performance and fuel economy. In the spring, it will also introduce the Legacy, a larger car that will eventually be produced by a U.S. joint venture with Isuzu. The Loyale, a replacement for its current Subaru sedan, will follow next summer.
But Subaru's product line remains limited. It offers only three models today, and it has pulled out of the light truck market. As a result, its car sales have plummeted by nearly 20,000 units this year.
Now all Subaru can do is grit its teeth until its new products arrive in dealer showrooms. Heiler admits that Subaru of America doesn't expect to make money in the first half of 1989.
"Certainly we're concerned," Heiler said. "But our strategy is to get through the current period with sales incentives, so our dealers will be healthy as our new products arrive."
But Subaru is hardly the only Japanese company facing tough times. While Isuzu has been relatively successful in the U.S. truck market, especially with its Trooper II utility vehicle, it has taken a beating in its efforts to break into the car business.
In fact, the company is actually forecasting a further car sales decline for itself in 1989--an almost unprecedented act of realistic thinking in the ever optimistic auto industry.
"The (sales) decline has come because our car line is not fresh, as opposed to some other (companies) that do have new cars out there," acknowledged Isuzu spokesman Jeff Ringsrud. Isuzu will introduce new cars in the fall of 1989 for the 1990 model year, but until then must make do with an aging I-mark subcompact and its Impulse sports coupe. The company projects it will sell just 17,000 cars next year, down from 23,000 in 1988.
Apparently the firm has decided to focus on the truck market, where Isuzu is forecasting a sales gain. Instead of cars, it will build pickups and utility vehicles in the Indiana plant it will share with Subaru. The joint venture facility, in Lafayette, Ind., is scheduled to open next fall.
Tough Developing Image