Manufacturer Spotlight: Subaru Thriving Thanks to Brand Consistency
By Michelle Krebs January 20, 2010In an era of automaker marketing that finds almost everyone struggling to either reinforce or redefine their "brand," Subaru of America Inc. is plenty happy to have its customers thinking 
of Subarus the way they always have: as durable, reliable and well-made vehicles with the high levels of safety and the security of standard all-wheel-drive.
This consistently managed image is resonating as buyers seemingly turn more cautious and more considered, propelling Subaru to an all-time record of 216,652 sales in 2009 - despite the year being the industry's worst in nearly two generations.
Setting an all-time sales record during the sharpest industry downturn in 40 years? It shouldn't really surprise anyone, says Michael McHale, Subaru's director of corporate communications and one of the company's most dialed-in execu-enthusiasts.
"We've done it selling proper cars to proper customers," he says, summarizing with a few clipped words several of the reasons why Subaru's flourishing while most flounder.
McHale's phrase captures the essence of Subaru's growing appeal: its buyers are well-educated, well-earning and know enough to shop for a "proper" vehicle. They could afford more, but choose the reverse snob-appeal of Subaru (many industry analysts have long believed that, in this measure, Subaru mimics Audi's blend of upscale-but-unpretentious, particularly now that Saab appears to be out of the picture).
"We're true to who we are," said Thomas J. Doll, executive vice president and COO.
Subaru: The 'Anti-Escalade'
Downshifting to less-ostentatious automotive nameplates is a practice currently in vogue both for customers whose priorities have shifted out of necessity, but also for an expanding cadre of those who are doing okay despite the battered economy - but figure it's better not to spotlight their blessings.
It's a mindset that's always been present in the down-to-earth Subaru demographic, only now it's trendy - and part of the reason the brand now is favored in wider circles. "Sensible quality" is the new black, and Subaru's been doing that gig for a long time.
Nor has Subaru entered into goofy sales schemes or courted credit-challenged buyers, volume-pumping mistakes rivals have regretted in the past.
People who buy Subarus "tend to underbuy" by nature, says McHale. More than 40 percent pay cash. Only 10 percent to 20 percent lease. Hardly the kind of folks who started the economic inferno - and now that it's cooler than ever to be one of the less-flashy types, Subaru seems to be in its wheelhouse.
Lower Incentives, Resonant Models = More Sales
Although Subaru's brand ideals haven't changed much, the same can't be said for its industry profile, which is charging like one of Subaru's mud-flinging rally racecars.
Data from Edmunds.com indicate Subaru leapt from a rank of No. 19 in brand sales to No. 11 last year. Those left in the dust from Subaru's four driving wheels include brands like Chrysler and Mazda.
And in a joust that went down to the last weeks of the year, Subaru's 216,652 sales even surpassed much-larger Volkswagen of America (213,454), an automaker that has been vocal about ambitious expansion in the U.S. market.
Subaru executives are pleased and slightly amused at passing VW, a company McHale reckons "should be selling three or four times the cars, given (the size of) the model range."
He said Subaru sales are growing because while there may be but five vehicles in the entire lineup, "the products are good." Particularly strong is the Forester crossover; a redesign last year that improved some shortcomings (along with incisive marketing) was fortuitously timed and the Forester's 77,781 sales in 2009 set an all-time record.
The Legacy lineup was redesigned for 2010, with the main focus being a significant boost in rear-seat legroom. "Our vehicle is the right size now," in relation to its Honda Accord and Toyota Camry competition, McHale said.
Legacy sales were up a healthy 37 percent last year, and the popular Outback, based on the Legacy, also improved by 25 percent. Three quarters of 2010 Outback buyers were downsizing from a truck or SUV.
Even though the late-summer Cash for Clunkers program "was huge for us, surprisingly," said McHale, the Impreza compact car was off 5 percent for the year. And Subaru's ineffective foray into the upper-midsize crossover market, the Tribeca, was down 46 percent in 2009 to a thin 5,930 units, although McHale insists that's partly because Subaru prioritized Legacy and Outback production over the Tribeca at the Subaru of Indiana Automotive plant in Layfayette where all three are assembled.
Best of all, executives crow, Subaru blasted to record sales volumes without the profit-slicing cash incentives most automakers have required to stay afloat in these trying times.
Edmunds.com's proprietary Total Cost of Incentives metric indicates Subaru has in fact been cutting incentive spending - to the point where it's cash-on-the-hood figure is one of the lowest in the industry. In December, Subaru's average TCI was just $497, the company's lowest since early 2002. The broad-industry TCI in December, $2,542, was five times Subaru's incentive outlay.
All of this selling-near-retail has a happy secondary effect: used-vehicle values have jumped, too. Edmunds.com's analysis of Subaru residual values after three and five years on the road show the brand to be strong.
"After Subaru's record sales year in 2009 - and if demand remains strong - residual values for the brand should rise down the road," said Edmunds.com Analyst Joe Spina. "However, they they get over zealous, over produce and are forced to resort to incentives, values could get hurt.
"I suspect they'll stay strong," he added.
'Just Doing Things Right'
Subaru also has helped its sales by adding a handful of dealers - mostly in the "smile belt," rather than in the snowbelt regions were the brand is already strong - in the past year. The number now stands at around 600.
Doll said at least 94 percent are profitable and the company has no trouble recruiting potential new franchisees: "Dealers know they can make money with us."
McHale also points to a new lead-generation program that has greatly improved sales from non-traditional routes such as non-auto events and internet leads.
Awareness of the brand is at record levels, Subaru claims, and the dealers' "close" rates are the second or third-highest in the industry.
"If we can get you into a showroom, we'll sell you a car," McHale bragged.
Slow And Steady Growth
With more buyers locking into Subaru's attributes and a vital product mix locking in, Subaru executives figure the growth path can continue. Customers are receptive, the product is clicking and everyone's predicting a gradual but marked recovery for the industry.
Doll thinks the growth is sustainable.
"We're kind of at the beginning of what this franchise is capable of doing," he said in an interview with AutoObserver at the recent Detroit auto show.
Meantime, there are only modest plans for expansion of Subaru's no-frills model line. Evolving as a soup-to-nuts, full-line automaker - the growth template almost since the industry began - doesn't appear to interest Subaru's U.S. executives or their counterparts at Subaru's parent company, Fuji Heavy Industries Ltd., in Japan.
There will be hybrid-electric vehicle - admittedly overdue, but developed in-house - for 2012. And a year later comes a new halo car, a small and affordable sport coupe co-developed with partial owner Toyota Motor Corp. but based almost entirely on Subaru engineering.
There might be another run at a successor for the Tribeca, but nobody's saying. As for an A-segment subcompact smaller than Subaru's entry-level Impreza, Subaru likely will let the big shots fight it out in that segment.
"It's tough to make money on those cars," McHale said.
"What we're looking for is slow and steady growth," he countered. "The size of company we are - and the kind of company we are - that's what people like."
The big-fish-in-a-small-pond mentality? Few automakers ever seem satisfied with the notion.
But Subaru's executives seem to appreciate it's a state of mind serving the company well. - Bill Visnic, Senior Editor, and Edmunds.com analyst David Greene
Photos
Subaru celebrated its record 2009 sales at the Detroit auto show. (Photo by North American International Auto Show in Detroit)
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