SUBARU CORPORATION
Financial Results for 3rd Quarter of FYE2018
Analyst Briefing Q&A

Financial Results for the 3rd Quarter of FYE 2018
Analyst Briefing Q&AFebruary 8, 2018
SUBARU CORPORATION

Ｑ : What is the reason for the U.S. incentive cost per unit increasing by $150 over theprevious plan?
Ａ : The recent rising interest rates were the main reason for this, but strengthening theprogram also had an effect. The market is in the period of changeover from the 2017 tothe 2018 models, and although this is more than 90% complete for us, depending on thebrand, there are many 2017 models that are being sold with heavy incentives attached. In
these circumstances, while we compete we are also fine-tuning our program specifics,
such as with the launch of 0% interest for 2018 models, and extending the period of
applicability somewhat. We are still not doing cash incentives.
Ｑ : How are domestic orders trending?
Ａ : The order status for passenger vehicles in January 2018 is 75% that of the previous year.
This time last year was a busy period for registrations and orders for Impreza, which
went on sale in October of 2016. The plan we drafted internally takes into consideration
the effects of the new models last year, and this is mostly in line with this plan.
Ｑ : The plan for delivery from SUBARU to the United States in 4th quarter is negative
compared to the same period year-on-year. Retail sales in January were barely positive
compared to the same period last year, but what is the forecast going forward? What is in
the background of the large downward revision for Forester?
Ａ : Inventory shortages continued for some time in the United States, but with the increased
production capacity in the year before last, we attempted to optimize inventory levels. For
that reason, the numbers for vehicles delivered to United States last year were greaterthan for retail sales. For this fiscal year, since inventories are at appropriate levels andhence the number of delivery is not increased, the results for last year are better.
Retail sales in January recorded results greater than the same month year-on-year forthe 74th consecutive month. Although Forester sales has started to decline due to thepassage of time, Crosstrek, which was introduced last year, compensates for this and ourplan is to continue beating the record in the future as well.
Ｑ : What is the appropriate inventory level?
Ａ : The appropriate inventory level is about a month and a half of sales.

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SUBARU CORPORATION
Financial Results for 3rd Quarter of FYE2018
Analyst Briefing Q&A

Ｑ : What is the impact of the U.S. corporate tax revision?
Ａ : Since specific regulations have yet to be announced, we cannot calculate this precisely, butthere will be no major impact because we don’t own a financing company.
Ｑ : With respect to quality-related expenses, please give us a summary of the recall costs inrelation to “nonconforming final vehicle inspections” In addition, what are the major
quality-related expenses expected for the fourth quarter?
Ａ : We are forecasting the recall expenses for " nonconforming final vehicle inspections " atabout 25 billion yen. At the time of the last announcement, the plan was for about 5billion for the first half and about 10 billion for the fiscal year, but we posted a total forthe fiscal year of about 25 billion yen, this time.
The reason for quality-related expenses being high for the fourth quarter is that, due tosystem improvements, we are able to more precisely estimate the provision for productwarranties, so we are incorporating an increase of about 20 billion yen inprovision. Thisis transient, so from next period it will return to the normal base.
Ｑ : Please give us a summary of overall quality-related expenses.
Ａ : We posted 56.7 billion yen in recall costs related to airbags for the past fiscal year. For thisfiscal year, since airbag related recall costs were treated as extraordinary losses, the sameamount will be a factor in increasing profits. But, the costs associated with warranty
claims for this fiscal year will be improved by 13.9 billion yen over the previous year. In
other words, there will be 42.8 billion yen in extra costs. Recall costs related to“nonconforming final vehicle inspections” (about 25 billion yen) and the addition ofprovision for product warranties (about 20 billion yen) are the primary factors.
Ｑ : Regarding the sales situation for Outback in the United States. Numbers were down fromlast year, and the incentive amount increased, so how do you seethe competition
environment?
Ａ : When the sales results for 2016 and 2017 are compared, because supply drasticallyjumped with the strengthened production capacity in 2017, the comparison from the year
before is large; however, in 2018 the supply situation has already been straightened out
so the numbers should not be much different from the year previous. We are approaching
the latter half in model life as well, and there is also the situation with SUVs wherecompetition is becoming tougher as well. Meanwhile, the environment is slowly changing
as the incentives are being suppressed for some brands in which the transition from the2017 to 2018 models has settled down. Although we must not be unguarded and the toughenvironment will continue, Outback sales for January set a new January single month
record. Going forward we will hold on and maintain competitiveness while controllingincentives.

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Financial Results for 3rd Quarter of FYE2018
Analyst Briefing Q&A

Ｑ : How do you see the trend of sales incentives in United States for the next period andthereafter.
Ａ : Interest rates are forecast to keep rising, and the most recent long-term and short-term
rates have been rising. It’s said that the federal fund rate will be hiked three or four times,and if they go up 25 basis points each time, long-term rates and our funds procurement
rates will also probably rise. The average incentive per unit for the industry was $3740
for January, and was up $289 year-on-year, and down $240 from the previous month. As
the amount borne on the company side, around $4000 per unit is the limit, we thus
believe that the some companies will re-think this at the time of the new model change, orat another time – nevertheless, the current level may continue for some time.
Ｑ : Although the operating income for the Aerospace Company was quite good for the thirdquarter (3 months) at 7.4 billion yen, were there any transitory factors in this? Can you
expect improvement of profitability for the next year and thereafter as well?
Ａ : A factor in this is that overhead charge portion of the fixed cost for the Boeing 787 delivery
was finished and the profit per unit improved. We cannot specify it in detail, but there
was a transient profit.
Ｑ : Could you comment on the suspicion on “rewriting data in fuel economy testing conducted
as part of the sampling vehicle inspections” which was covered at the end of last year?
Ａ : This is now under investigation, and we hope to announce the investigation findings by
the end of March.

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