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UPDATE 1-Subaru H1 profit drops on weak sales, cuts forecast

(Adds share price)

TOKYO, Nov 17 (Reuters) - Fuji Heavy Industries , the maker of Subaru vehicles, posted a drop in interim earnings and cut its full-year forecasts on Monday, hurt by an ageing line-up at home and higher sales incentive costs in the U.S. market.

The niche maker of off-road vehicles, which is one-fifth owned by General Motors Corp , said consolidated operating profit for April-September slid 50 percent to 18.31 billion yen ($168.9 million), although sales edged up 2.6 percent to 665.39 billion yen.

The company, which had already been set to post its lowest operating profit in seven years this business year, cut its 12-month estimate to 53 billion yen from a May forecast of 62 billion yen.

In Japan, its recently launched flagship Legacy sedan and wagon were unable to offset weaker-than-expected sales of its Forester sports utility vehicle and Impreza sports sedan, while higher research and development costs weighed on the company.

In North America, sales have been hurt by intense competition as a brutal price war waged by Detroit's major auto makers pushed up the cost of incentives.

But analysts expect next year to be much better when the latest versions of its popular Legacy cars, which won the "Japan Car of the Year" award last week, go on sale in the United States.

The company's shares moved little on the news, down 5.1 percent at 447 yen in late afternoon trade, compared with a 3.88 percent decline in the Nikkei average .