Fuji Heavy Industries, the parent company of Japanese automaker Subaru, has decided to suspend plans for localized Chinese production through a joint venture with Chery Automobile due to slowing demand, a senior company official announced last week.
Akira Mabuchi, executive vice president in charge of the project, said that Subaru will not start local production "even if Chinese government approves" its planned venture, as its executives forecast sales will not be enough to ensure profitability.
"Since the profits are split with your partner, you would have to double the sales to maintain the profits you earn by exporting from Japan," Mabuchi said to reporters. The Chinese government requires foreign manufacturers to form ventures with local firms.
Chinese lawmakers also previously criticized Subaru's proposed venture with Chery because Toyota, which already has the maximum of two joint ventures in China, is Fuji Heavy's biggest shareholder.
Known as one of Japan's best-performing car manufacturers, Fuji Heavy is seeing declining interest in China, the world's largest car market. The country's vehicle sales growth went down to 6.9 percent the previous year from 14 percent in 2013. The Chinese market is also experiencing its slowest growth in years in 2014, and analysts expect the slump to continue this year due to a sluggish economy.
Subaru sales also dropped by 2 percent to 55,000 in China the past year, although the company aims to increase deliveries by 10 percent in 2015, which surpasses the estimated industrywide growth of 7 percent.
In an interview, Yasuyuki Yoshinaga, president of Fuji Heavy, said that China remains a viable choice for building a new production facility, although this will not be so until after the company's current midterm expansion plans end in 2020.