Risk and uncertainty in international markets has never been more obvious than it is now, in 2014.There is environmental risk with the constant debate about alternative forms of propulsion coupled with the linked debate about just how much of what fossil is likely to be left for us to enjoy 50 years hence. Subaru, even hitched to Toyota as it is, is not totally immune from this process. In many ways this is why the Toyota link is so propitious for Subaru; ‘big Daddy T’ can be left, like most good parents, to sort out the boring issues of propulsion and fuels and the financial consequence of ever growing world legislation, while little lad Subaru does what he always liked best : the driving and development of the crumbs thrown down from Dad’s table.
Industry uncertainty has always included product market uncertainty also.Anyone operating in the international sphere, like Subaru and Toyota, needs to be conscious of the three potential gremlins :environmental, industry, and firm-specific risks. Subaru, like every other manufacturer, has to consider the environment. In these terms they will need to consider whether they are to be present to any significant extent in the electric propulsion arena. They have essayed this of course but in a way which suggests that the toe is a bit too shy of the bath water at present. Again, it is tempting to suggest, they do so in a way cushioned ultimately by Big Daddy Toyota. Industry uncertainties entail a consideration of the labour market and the vexed matter of location, location, location. Presently, this too has the umbrella effect of Toyota operating to Subaru’s advantage. Lafayette, Indiana has seen the big production push by Subaru in the past decade linked inexorably to the continued appetite of Uncle Sam for Subaru’s mid range grey porridge. The success of Subaru there points up the old marketing chestnut: how different is the US market from its European, and indeed Asian, counterpart.Subaru, by dint of the stakeholder Toyota, is fortunately shielded from taking the many big decisions in this macro economic arena. Toyota takes most of them. In previous posts I have examined the issue of risk specific to Subaru. In this one we look at this manufacturer from the global macro economic standpoint.

There are political risks too. Parent Toyota currently has a production facility in Derby. The traditional risks of nationalism and chauvinism have always been factors in production location. Now more than ever the big manufacturers are watching whether or not the UK will commit the, to them ,suicidal step of exiting the EU. These sorts of risks propel car manufacturers to one location or another. It is safe to assume that parent Toyota will be less than keen to persist in Derby if the UK exits EU. In that event it makes sense, especially given current penetration figures, to boost the Lafayette facility further. This, of course, has a knock-on advantage to Subaru, not in any event big in the UK. There are many other ‘dull’ things Dad Toyota has to think about as well as the potential for domestic policies to turn against the good climate enjoyed by manufacturers in a given continent. Car manufacturing risk is by no means confined to UK. Labour costs in the engineroom of Europe, Germany, are not showing signs of flagging whilst the incentives in tax, pressure to employ nationals at top decision making levels and the cost of permits required for importation of equipment, parts,personnel and technology, all figure in Dad Toyota’s reasoning. The pooling of the Indiana facility between Subaru and Toyota has therefore been an economic inspiration. It provides the opportunity for Subaru to insulate itself from the rough edges of decision making in the macro sphere whilst giving attention to what it does best : perfecting the market niche. Toyota, arguably, if it continues to play the enlightened parent, will allow Subaru this little luxury.

The decision to stay in Indiana therefore looks inspired.All the signs are that Toyota/Subaru will not fall into the never-ending pensions trap which killed MoTown. The decision of the parent to remain in Derby, UK, will also look very sensible if events in the Eurozone continue to provide the political backdrop we knew so well in 2013.However, the Eurozone itself is beginning to realise that true federalism, or federalism worth its salt, will entail a much more joined-up approach to macro economic thinking and , just perhaps, a new capacity to undertake Quantitative Easing on the US/Anglo-Saxon model. If this occurs the good news will be that, with the continent of Europe veering towards this eminently sensible model, there will be no need for non-Eurozone members to leave, so rendering the UK debate otiose.

Risks of this kind are the preserve of Toyota rather than Subaru. The smaller minnow snuggled up to Big Daddy for precisely this reason. There has always been a direct correlation between a zone’s level of political credibility and growth of GDP – and the latter is central to the buoyancy of the new car market. It is safe to assume that the Eurozone will get its affairs in order from necessity and Toyota will then assess its position in Derby once again. But recent events in Australia are surely salutory ; the loss of Holden from the GM portfolio of companies proved locally toxic. It is easy to see how fortunate Vauxhall has been in UK with the expansion of Ellesmere Port. One flip of a board room decision can mean the difference between local employment and unemployment. But Subaru need not worry too much for now. It will let Toyota think about the macro economics and burnish its brand niche accordingly. Most would say it is very lucky indeed to have only these preoccupations…….


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