Fuji Heavy Industries, the maker of Subaru cars, said on Monday interim earnings and its full-year estimates skidded downhill, pummelled harder than expected by a vicious price war in the US market, according to Reuters.

The niche maker of off-road vehicles, which is one-fifth owned by General Motors, also said domestic sales were hit by the weak performance of its Forester sports utility vehicle, Impreza sports sedan and an ageing minivehicle line-up, the report added.

Its projection for consolidated operating profit, which had already been its lowest in seven years, was cut to 53 billion yen ($US488.9 million) for the year to March 31, 15% lower than its May forecast and a fall of 22% compared to the previous year, Reuters said.

"The revision can be attributed to higher sales incentive costs," executive vice president Shunsuke Takagi told a news conference attended by Reuters, adding: "Promotional costs in North America have risen much more than we had planned."

According to the report, first-half operating profit halved to 18.3 billion yen while operating income was, however, deflated by write-off costs associated with assuming control of the US plant that Fuji Heavy used to share with Isuzu Motors.

Without that factor, first-half operating profit would have fallen 41% from a year ago, while the slide in its 12-month estimate would have been 11%, Reuters said.

On a net level, Fuji Heavy reportedly said it was determined to meet its full-year forecast and even revised it up slightly to 36 billion yen, a 7.5% climb over the previous year.

Pushing up the bottom line are sales of stock in companies it does business with and a lower tax burden for the first six months, net profit rose to a record 19.4 billion yen, Reuters said.

According to the report, tough competition in North America led Fuji Heavy to cut its overseas sales projection, trimming its target by 2% to 300,000 units - its Japan estimate was lowered slightly to 259,000 vehicles.

Reuters noted that, while sales incentives are sapping profit, Fuji Heavy's efforts to cut inventories ahead of the US launch of the latest versions of its flagship Legacy models next year should lift full-year revenue by 4% to a record 1.43 trillion yen.

Reuters said Fuji Heavy sales incentives are not as high as some US vehicle makers, which are averaging around $2,700 per unit, but Takagi said that 2003 Subaru models were averaging $1,600 while 2004 models were averaging under $1,000, compared with an overall average of $900 last year.

Analysts, however, have told Reuters they 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.

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