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Subaru recalls more cars, slashes guidance as cheating scandal widens

Costs to fix errors will lop off a quarter of profit, Japanese automaker warns

Even before the latest scandal, Subaru was reeling from a series of recalls for issues ranging from faulty components to inspection do-overs.   © Reuters

TOKYO (Reuters) -- Japan's Subaru Corp said it would recall more vehicles sold in the domestic market on new cases of inspection cheating, and cautioned that rising recall costs would lop off about a quarter from its annual profit forecast.

Shares in Subaru, already reeling from a series of recalls for issues ranging from faulty components to inspection do-overs, fell 5 percent to a four-year low on Monday after news of the fresh recalls and the bleak outlook.

The company, the smallest among Japan's major automakers, said it would recall around 100,000 vehicles at home, including its popular Impreza sedan after discovering that performance tests for components including brakes were not conducted properly. Vehicles sold overseas will not be affected.

The automaker expects to incur 6.5 billion yen ($57 million) in costs related to the latest recall. This, along with other quality-linked issues, is expected to push Subaru's operating profit to 220 billion yen in the year to March 2019. It had previously forecast a 300 billion yen profit.

Subaru posted a surprise operating loss for the three months ended September, first time in the red for a quarter since 2009 and lagging a consensus estimate for a profit.

Last month, Subaru nearly halved its operating profit view for the April-September period, citing higher quality-related costs. It later announced a global recall of around 400,000 vehicles, including its Forester SUV and Impreza sedan, to fix a design flaw in the engines' valve springs.

That came on the heels of another series of recalls stemming from revelations last year that uncertified workers had been submitting final inspection reports for vehicles sold in Japan. That had also led to a recall of about 400,000 cars.

Shares of Subaru, which so far has not been able to improve compliance at its plants, have shed almost 20 percent this year, on track for a third straight annual drop - pressured also by bleaker prospects in the United States, its biggest market where overall demand has cooled since record-high sales in 2016.

Subaru is bracing for a possible hike in U.S. tariffs on Japanese auto imports, which would hurt it given it imports half of the vehicles it sells in the United States from Japan.

The automaker reported an operating loss of 25 billion yen for the quarter just ended, versus a profit of 92.8 billion yen a year earlier and a mean forecast for a profit of 68.46 billion yen from 10 analysts polled by Refinitiv.

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