Subaru's fortunes sinking - can they turn it around?

nippononly · May 2005

Subaru is on the back side of a five year revitalization plan that so far has produced anything but. An article at Autoweek today gives a good summary:

http://autoweek.com/news.cms?newsId=102385

Basically, back in 2002, Fuji Heavy Industries (FHI), the Japanese corporation that owns Subaru, set goals for sales and income increases it hoped to achieve at Subaru by March 31, 2007 (the fiscal end of a five-year period). it was also during this period that Subaru announced the goal of moving upmarket over the next few years to become more of a premium brand.

Instead, sales have stagnated and, worse yet, income has fallen sharply. Subaru accounts for 90% of FHI's global revenues (I had no idea it was that high). Subaru expects sales in North America to be about 201K this fiscal year, as opposed to its original goal of 250K. It is hoping that the launch of the new Tribeca will boost those numbers a little. But it cannot be a good sign that its most popular model, the Outback, was completely revised last fall, and yet sales have not increased but rather have remained flat. Other models (Forester and Impreza) are at the very end of their model cycles and will not be completely revised for more than a year.

As for income, SIA (the Subaru plant in Indiana) lost $74 million last year and is on target to lose more than twice that much this year. Meanwhile, GM waits in the wings, already owning 20% of the company and perhaps willing to take a more active role if it perceives the company is performing weakly.

Can Subaru turn it all around? I truly hope they are not selling rebadged Trailblazers in 2010.

jeffmc · May 2005

Over the past 15 years, Subaru has doubled their number of vehicles sold in the U.S., and their product keeps getting better and better... and keeps getting better reviews. It takes time for positive press to affect the carbuying public and for Subaru to become more of a household name. You can bet many more people are considering Subaru than in the past, but it takes many years of quality production to reach that critical mass when it stops being an uphill struggle just to get average Joe/Josephine to think of Subaru as an option when shopping.

They need to be getting that good press at least through a 5-year purchase cycle. Doesn't do much good to see a great Subaru review today, but then see nothing for the next 3 or 4 years when it comes time to purchase a car. Heck, neither of my mid-sized hometown paper's two automotive reviewers have even received an '05 Outback or Legacy to review, and this is a Subaru stronghold.

Think of the Field of Dreams - build it (with style and quality) and they will come.

Also, to pick a nit, Outback wasn't "completely revised last fall"... it was about a year ago.

nippononly · May 2005

It is true that Subaru's sales have increased a lot since 1990, which was the depth of their doldrums and around the time they almost went bankrupt. But since the major sales resurgence that began around 1995, not coincidentally with the debut of the Outback, sales have peaked and then plateaued.

1995 was 10 years ago - two car generations ago and longer than the average Joe or Josephine keeps a car before buying a new one. The press have always liked the Outback, and LOVED the WRX. Safety results have been strong, especially with Forester. Basically, Subaru has been doing most of the important things right, and yet this cycle of increasing brand recognition you refer to doesn't seem to be happening.

Heck, what you said is true - it was more like last SUMMER that Outback was redone. Not only that, GM's input has led to some of the best financing deals on Subarus in the last year that Subaru has ever offered. Both of which make it MORE significant that sales have not risen in that time.

rsholland · May 2005

Subaru here in the USA just had their best April ever in terms of sales. The redesigned Legacy and Outback have been a clear success, and everything looks good for the new B-9 Tribeca, as there is a lot of interest in that model. The Forester and Impreza are getting major facelifts for '06 too.

Bob

sweet_subie · May 2005

the question is NOT sales but the margin. high-end legacys/outbacks are 3-4k off MSRP now within a year of introduction.

nippononly · May 2005

when you say that Legacy and Outback have been a clear success, I am not sure what it means. Sales did not rise when the new models were introduced. Do flat sales indicate a clear success? The new Outback is the first one ever where I recall dealers running ads in the paper within a month or two of launch with discount deals for "all in stock".

Forester is getting a prettier face and little else for '06, from what I understand. Impreza gets a new face too, but this is not a major model revision, which isn't due for another year for this model.

As for Tribeca, yes, everyone from Sube execs to fans is banking on it drawing good sales. I hope it does. It is entering one of the most flooded segments in the market - midsize SUV/crossovers. It is the first Sube ever to base above $30K. I have already read some derogatory comments in here about its new corporate nose. So it will definitely have its work cut out for it.

davem2001 · May 2005

Yep, I, for one, do not like the new corporate nose on the Tribeca...the rest of it looks nice, but the front end ruined it....It didn't work for Edsel back in the 1950s, either! LOL! Also, we mentioned this in the VW thread, why is everyone trying to go "upmarket"?

I look at Subie as a nice, rugged, affordable car, not a "luxury" car...

mirth · May 2005

I have considered Subarus in the past, and, at least for the models I was looking at, it was always price that kept me away. I could get similarly equipped cars (without the AWD of course) for much less. For the price I would have to pay for a decent Sube, I could get an Acura or an Infinite. I still get that impression with the new generation.

As far as the Tribeca goes, I don't like the new nose. If all Subes go with that nose it would completely turn me off the brand.

davem2001 · May 2005

Agree totally - I liked Subie better when they were in more direct competition with Honda/Toyota, but with AWD...rather than moving "upscale" ....like you said, for the price of a new Legacy, you could be looking at an Acura or a Volvo or something like that.... And the new Tribeca "edsel" front end makes the "bug eye" Imprezza look good....

nippononly · May 2005

I believe that is the plan, though. All Subes to have that nose by the end of the decade. They have already done some concept stuff for the new Impreza using that new nose. It looks a little better when it is smaller.

In the meantime, Impreza will have its third face in four years this fall. They are having a lot of trouble finding a look that suits them.

And yes, you have to want AWD for a Subaru purchase to make sense most of the time. Otherwise it seems expensive relative to the competition. That is one of the limiting factors for increasing Subaru sales, IMO. Back when they started the "AWD all the time" theme, it was a great niche and they were one of the few companies in it. Now everybody and their mother has AWD in all sorts of different models.

mirth · May 2005

Yeah, that's true. Ford for one is making a big push towards offering AWD on their new cars.

I mean, living in the snowy north as I do, I would be willing to pay an extra grand or so for AWD. But with all the Subes I ever looked at, the premium over comparable models was always more like 2-3 grand.

The only Sube I ever really liked (other than the WRX) was the new turbo Forester, but my wife hates the look.

nippononly · May 2005

Actually, I have thought from time to time that since Sube already has the running gear and boxer engines in all their cars anyway, why couldn't they be the first ones to start offering RWD compact and midsize cars (and wagons) again? They could knock $1000 or more off the price of every RWD car, when compared to its AWD equivalent. It would make them more competitive on price, and it would also be a plus to have RWD instead of the junky FWD everyone else has. I think they should definitely consider it. Their advertising campaign has moved on from the days when it was "the beauty of AWD", and they are cultivating the image of sporty cars. What is more sporty than RWD?

dino001 · May 2005

Don't you think AWD has to come with some premium? So, if you want same price, you must get less other "stuff", or i fyou want stuff and AWD, you have to fork over more dough. Simple fact of life, can't have both: superior drive/perfmormance and same features for same price. So complaints that Legacy is more expensive than say Camry or Accord are just based on expectations of sime kind of miracle (lower volume, more content, same price).

Legacy was a clear success with the press, but I agree that if it sells for 3-4K off MSRP just one year after the debut, something is not working. One may debate if "upscale" aim was a good idea. Perhaps it was, but execution was quite poor: no "premium" features (HID lamps, nav system, etc.), limited option list, and no manual on 6 cylinder (no 6-cylinder on Legacy) - these are major misfires. As I understand, they are not going to fix them in 06, yet.

Legacy is not a premium car. Call it semi-premium, if you will. I suspect, it will take another redesign and some real upgrades in dealership networks and ownership experience (warranty, maintenance), etc.

I think Subaru is fine, at least from marketplace standpoint. I am not familiar with their financial situation. It would be really horrible, if they had to go. I would rather see all Big Three go before them...

xwesx · May 2005

I agree, mirth. I think part of the reason why sales have remained so flat is that the price of the car has crept up at about the same rate as interest. Sure, part of the goal was to go "upscale," but to do so at the expense of leaving the commodity market means that those margins that sweet_subie mentioned must be maintained. Perhaps GM has had more influence on FHI than we'd like! :mad:

nippononly · May 2005

you can get a Matrix XR 4WD for what, $18K? This is a car with almost the same cargo space as an Outback, a viscous center coupling that runs 50/50 front/rear, and costs about $6K less at sticker than an Outback now. Meanwhile, Legacy is in the Mazda6 class of "tweeners" - significantly smaller than the majority of midsize sedans. Impreza and Forester are of a size that four adults is only a comfortable fit for short rides. Tribeca will be the first Sube to have a cabin big enough to accomodate 5 proper adults (and two kids, if you get the 7-passenger), and again, it will start over $30K.

dino: "Don't you think AWD has to come with some premium?"

Of course it does. At present competitors are beginning to offer their AWD vehicles at LESS of a premium. And what you said is also very true - how can Subaru say they are going upscale and introduce a new generation of Legacy/Outback without an optional NAV? In cars that sticker (many of them) over $30K? Heck, you can get NAV in a $20K Mazda3. There are other ways that the "upmarket" claims ring a little hollow too.

I like Subes, and I wouldn't mind seeing them just scrap all these upmarket pretensions and new sales goals, and just go on doing what they do so well. But apparently they can't afford to, if SIA is losing so much money.

varmint · May 2005

Back when there was a thread dedicated to the idea of Subaru going premium, it was explained to me that the goal was not become a near luxury brand. SOA targeted Honda and Toyota as the brands which were able to command a "premium" for their ordinary cars. In other words, not have to use huge discounts.

Frankly, I thought Subaru was doing very well. The Legacy/Outback is the best looking Subaru I've seen in a long time. The WRX is practically a performance icon. I would have thought that they could build more effectively on those models. I guess I just wasn't looking closely.

Now that I think about it, Subaru has probably had as many losses as wins. We'd all like to forget the Baja, but I'm sure it has cost SOA some cash. People don't seem to be buying the up-market models Subaru is offering (even though I think they do represent a decent value). Gas prices have people rethinking turbo power and AWD. And Subaru's most successful model, the Outback, is now facing a much more crowded field.

Perhaps Subaru should have targeted Hyundai instead of Toyota. Building basic cars for us cheap yankees in the north may have been the way to go.

One last thought... Nissan was able to turn themselves around in about 4 years. That's remarkable. Even though I wouldn't expect Subaru to do the same, I don't buy the notion that 10 years is too soon to make judgments.

nippononly · May 2005

I don't know about the Hyundai model - that is what got Subaru into trouble in the 80s.

But how about Nissan? They incorporated HUGE economies of scale for one thing - one engine doing service in about a gazillion models, three or four platforms serving all the different models. They poured on the power and lowered the prices in real dollars. Can Subaru afford to do that? Renault provided most of the initial cash for Nissan. I don't think GM is going to do the same thing for Sube without insisting on running the show, and if GM is allowed to run the show, it will be an unmitigated disaster for the long-term fortunes of Subaru.

10 years is a little soon to start making pronouncements. But Subaru always seems to be behind the curve financially. They needed all those fat profits of the late 90s to make up for the almost-bankrupt early 90s. So not enough of it got reinvested into expanding the line-up, trying something different. So that today ten years later, they are only just introducing their fourth model (not counting the Baja, which wasn't that "new" - it was an Outback with the rear roof sawed off). And now, when they need to be reinvesting in a big way, sales have stagnated and income is down. What this bodes for the Forester and Impreza revisions in the next 18 months, I dare not imagine. But the sporty direction that Subaru has been going the last few years is a hard path to follow competitively, because it is what almost everybody else is doing also.

varmint · May 2005

In the eighties and early nineties, Subaru had to grapple with Toyota, Mazda, Nissan, Hyundai, and Honda who were also selling inexpensive cars. Now that most of those import marques have moved into bigger and more expensive variants, it leaves something of a vacuum. A lot has changed since the eighties.

From another perspective. If you were forced to pick a fight, who would you rather punch in the nose... Toyota, Honda, and Nissan... or Hyundai, Kia, and Mitsubishi?

As for economies of scale, I think Subaru is doing okay on that front. The Outback/Legacy/Baja is one platform. I believe the B9 Tribeca is another from that group. The Impreza/WRX/Forester is another. Except for the Tribeca, they all use a variant of Subaru's 2.0 or 2.4L boxer four. Or the H6, which is shared by the larger vehicles.

FWIW, I think the H6 was another "miss" for Subaru.

rroyce10 · May 2005

...... I wouldn't worry too much about the Subu's ...

They have a very loyal customer base, their reliabilty is super and the longevity is a matter of history .. folks don't bat an eyelash at a 65/85k Subu that's on the market "for sale" .. and their resale value is stronger than the 101st Airborne in a fire fight .....

Do they have the slickest looking vehicles on the road, or the cleanest lines, or the biggest interior.? - Nope .... but, not bad for a manufacturer that has AWD down to a science, a less than average dealer base and spends tons less money than the others on Ad's and commercials ... most of it is done with word of mouth .......... unless they do something really stupid, I think they will do "just fine" ...

Terry.

dino001 · May 2005

nippon: I gather you never drove Matrix, otherwise you would never compare it to Outback. It is like saying that Hyundai XG 350 or Kia Amanti are almost as good as Mercedes E350: same size, similar performance, and look how much cheaper! I don't know the datails but I was under impression that this 4WD from Matrix is nothing like AWD from any Subaru. It comes with weak engine, automatic only and don't mention the interior! The car is at Impreza level, just slightly larger inside (because it is taller) and should be compared to that one. If you do, then the price spread suddenly disappears in a snap.

I essentially agree with other parts saying there is a problem if they claim to be a BMW fighter (look at their commercials), but they don't even offer "basic" luxury conveniences/options. But to be exact - Mazda3 with nav and other goodies gets closer to $25K than to $20K - just for the record.

davem2001 · May 2005

I agree to a point, but I think they need to stay closer to their roots - affordable, sturdy, durable, AWD cars/stationwagons/SUVs.....and not stray too far off into the "upscale" world.......Plus, I still say the new corporate "face" is ugly!

rroyce10 · May 2005

... **they need to stay closer to their roots - affordable, sturdy, durable, AWD cars/stationwagons/SUVs.....and not stray too far off into the "upscale" world** ...

I agree 110% ...........

Terry.

nippononly · May 2005

"nippon: I gather you never drove Matrix, otherwise you would never compare it to Outback"

I actually owned one, LOL! I can lie flat in the backs of both the Matrix and Outback, both with little room to spare. The Matrix's back seat is actually more roomy than the Outback's, believe me, I have driven the new Outback twice now and spent a half hour tinkering around it after the drive the second time. As for cubes, I think the Outback has the edge, but not by much, maybe 5-8 cu ft? I should check that.

Power is the only differentiator between the two really. Yeah, the Matrix's interior is a little tacker, but both are not up to their sticker in terms of interior. As for power, the Matrix struggles a little up long freeway hills but gets the job done. And returns 10% better fuel economy than the Outback as a small reward for your patience.

Anyway, I didn't mean to make this the "Outback v Matrix" thread, but some of the Subaru models DO get a little on the pricey side, and Outback is one of them. They are trying to take advantage of the fact that they are a wagon that can do everything an SUV can do. That worked in 1996 when there were few choices. But there are an awful lot of crossovers on the road today...

varmint: "From another perspective. If you were forced to pick a fight, who would you rather punch in the nose... Toyota, Honda, and Nissan... or Hyundai, Kia, and Mitsubishi?

Well, I am not sure it would be that much easier to pick a fight with HyunKia - they are a bunch of serious go-getters, looking for more market share every day, and it would be hard to beat them on price if they perceived a threat to their title of lowest-priced vehicles in America. But anyway, I think that is beside the point. Subaru has been selling here for more than 30 years. It would be going backwards to pick a fight with those guys, the level of Toy/Hon/Niss is where they need to be aiming for, without merely mimicking them of course.

rwoods · May 2005

I was surprised to see that Subaru is perceived to not be doing well. I've owned my OB XT Ltd wagon for seven months and just love it. And the Subaru boards on Edmunds are so addictive. I always read all the posts. The love I hear from these boards is so heartwarming. I feel the car has a cult following and I'm loving that aspect. The performance of my vehicle has been superb. I bought it instead of my previous Lexus RX300 and it has not disappointed me. The Lexus was top heavy and slow. The Sube is quick, comfortable, stylish. When my wife decides to trade her Audi A4 sedan I will encourage her to buy a Forester. She is quite fond of the Forester already so my selling will be an easy job. Given the reliability I've had and anticipate continuing to get I will be very unhappy if the company folds.

nippononly · May 2005

The company wouldn't fold, but there is the ever-present threat of more intrusion by GM because of its investment in Subie, if the books continue for long in the red.

One thing Subie definitely has going for it is very satisfied customers. The "problem" is that they can't find a big enough audience.

lfdal · May 2005

I've driven a Matrix as a rental for 3 days. Nice car, not in same league as wife's 03 Outback Wagon and my 04 Forester XT, IMO. Great bang for the buck, however.

As regards Subaru targeting Hyundai, when I compare what I spent on my XT vs my ex's 04 Elantra GT, the Hyundai wins by a mile. No its not AWD, and is a lot less horsepower, but it was also less than half of my XT, and 9K less than my wife's 03 OBW. So if Subaru wants to target that price range, go for it. And as far as Hyundai build quality goes, I went over that car top to bottom several times, and found absolutely Zero defects when it was delivered. Not one. I was astounded. Each of our Subaru's had 2 or 3 little things wrong, my 04 XT had the whole steering column misaligned, but we won't go there....

Build quality - the 03 OBW is solidly built. It also has an ungodly piston slap and had its transmission replaced at 28K. :sick: My XT has more shakes and rattles than any car with 23k on it should. Tracking down the rattles and removing them has become a hobby.

The weakest link, I think is the dealer network. I know there are some out there blessed with high quality and great service. My dealer's service dept still hasn't come to terms with the fact that he's selling cars that sticker well into the 30k range.

Kind of hard to quantify that one, I realize, but they seem not to respect their own product. On a recent survey my wife savaged the service department for the rebuilt transmission that leaked gear oil all over our driveway, but gave the highest marks to the sales and parts depts.

Also, the loss of Patti on the Subaru boards is making another kind of statement, and not a very positive one.

Only my 0.02.

Larry

bottgers · May 2005

....of the auto industry really needs to rethink the pricing of their vehicles. The prices of almost any vehilce worth having these days are absolutely ridiculous. I think this is what has many companies in the industry in the red. Economy cars like the Civic and Corolla are quickly approaching $20K, any mid-sized to large sedan worth owning will run you at least $25K, and full-sized SUV's and pickups run $35K and up. A lot of people just can't afford a car payment that's as much as their house payment, or like myself, they really aren't crazy about the idea of having to finance their vehicle for 8-10 years just to get the payment down to a reasonable level. Prices are out of control and until the auto industry realizes this, they're going to continue to see a lot of red.

ll1 · May 2005

Recently bought a '05 FXT for $23K (25K before rebates). I bought a '99 Toyota Solara back then for $25K loaded. Comparison of these 2 vehicles provides a nice contrast in the 2 companies' strengths and why Toyota has translated into more sales:

Subaru Forester:
RIDE: Rugged, firm seats, sportier suspension, much better driving response (compared to Toyota's vague FWD feel).
COMFORT: Smaller interior space, but very functional space and for a driver really just as comfortable. Can carry more cargo but probably squeeze less rear passengers. High seating position gives excellent visibility.
NOISE: Big drop off from Toyota, wind noise, mysterious :mad: RATTLES everywhere that I have to find and try to fix (dunno why they can't put a few extra pounds of sound deadening material like Toyota does). They should take after Toyota's initial approach in creating the quiet ride of Lexus, then using the material in their Toyota badged cars. I don't mind more engine noise because of the turbo, but I don't think it is by design. For $25K, I wanted a quieter cabin.
PERFORMANCE: the Subaru Turbo is a sweet engine, hands down. That 210 HP listed is gotta be way below actual output. Actually FUN to drive even around curves...and you know you can beat that BMW 3 in a straight line

The Toyota is a perfect highway cruising vehicle for commutes, but the driving is NOT INSPIRING.

Hence, there are trade-offs. I gave the Toyota to the wife and I'm not wanting it back anytime soon. If I can cure the Subaru of the noisier ride...who cares about the smaller back seats...I'm not in it! We're taking out first long trip with it next month...can't wait to test out the turbo in altitude. :P

nmdriver · May 2005

As someone who has owned BMWs, Audis and Subarus I believe that Subaru could teach Audi lessons on chassis balance, suspension (ride/handling trade-off) and steering. Subaru's biggest shortcomings have been styling and ho-hum interiors. The 2005 Legacy is a significant step forward in design and a huge step forward in quality.
We currently have 2 2005 turbo-charged Subarus: a Legacy GT Limited (manual) and and Outback XT Limited (Automatic). We have always had an upscale car (BMW, Lexus, Audi) as well and I had intended to purchase another this spring. But I have been disappointed. I have yet to find one which I think is worth the price premium over the Subarus.

The Outback: This was purchased for local use and as a stop-gap replacement for an Audi Allroad. After 14,000 miles my wife and I both agree that is simply a better car to the Allroad. The Audi had fancier materials. The Subaru is just as well built and rides and drives better. Oh yes, the Audi cost 50% more!

The Legacy GT: Here is what I posted on the BMW 3 Series 2006 Forum after test driving a new 330i Sport over a pretty demanding route:
"330i Sport vs. Legacy GT: The Subaru is pretty quiet for an under $30K car, but the BMW is much quieter. BMW engine is creamy smooth, and the 6 speed box is really nice. Logic 7 sound system is a notch better than that on the Subies, but not enough to buy a car for. Properly adjusted, the sport seats might be as comfortable as the Subies, but I would need a lot more hours in them to know for sure. If money were no object, and I were going to drive in fair weather on smooth roads, this is the car I would choose.
However, GT with its big, fat torque curve feels quite a bit quicker in normal driving, and it rides and steers better. More important, on less-than-smooth New Mexico back roads, it just walks away from the Bimmer! Where the 330i bounced and rocked, the Legacy just stayed flat and smooth. And, even in the dry, it always felt more secure. The difference is always there. Sometimes it is pretty significant: a right hand curve over a slight crest of a hill, slippery cattle grate in the middle of the curve just past the crest, down a little, then a left curve. Even though I knew it was coming, it was really dicey in the 330. I never lifted in the Subaru. The more compliant but well-controlled, rally-type suspension and AWD makes for a superb cross-country car. All the electronic nannies are nice, but I think I prefer a beautifully sorted car with predictable, controllable handling.
Other notes: the BMWs have wood trim, but the interiors look pretty sad. The Subarus are better looking and significantly better ergonomically."
Please note: the BMW cost over $40K. The Legacy GT cost less than $30K. The Legacy is also much more fun to drive around town and easier to drive in traffic. I simply have not found a better all purpose, any road, any weather sports sedan for less than $50K.

manamal · May 2005

I recently replayed my '02 Camry of an 'O5 Forester LLBEAN.

Now, I do not have the Turbo engine (wife did not see that as something I needed).

Frankly, I love this car. It is the *Easiest* car I have ever driven. and it handles turns wonderfully. I have done things in the Subie that I could not do in the Camry.

The only downside is there was an annoying dash squeek. But apparently, there was a TSB on it, and it was fixed in less than 1 hour.

Also, gas milage is lower (was getting 24/32 on the Camry, am getting 22/28 in the forester).

But....oh how I love driving the car. The only change I would make would be to add about two inches to the wheel base, and make that into rear seat room. But, hey, I don't care because I do not drive there.

nippononly · May 2005

Existing customers mostly love Subie. I don't think that has ever been the problem for Sube. Crappy dealer service is a separate topic though - this is still the case today, despite Subaru's good fortunes this last decade, and maybe Subaru could make an investment in improving its dealer body, I don't know.

The thing is, as much as existing customers love their cars, there are only around 200K of them per year buying Subarus. Toyota sells twice as many as this of just the Camry, each and every year, just as a point of reference. To judge by its goals and financial report, it need to increase those sales a good 25% or more to get rid of the red ink.

mirth · May 2005

Prices are out of control and until the auto industry realizes this, they're going to continue to see a lot of red.

Well, more likely their customers will see a lot of red. People can't seem to stop buying cars, even if they can't afford them. I think I read that the number of people who are upside-down on their cars has jump from 25% to 40% since 2000.

varmint · May 2005

Did Subaru offer hefty incentives on the last generation of the Outback? I ask because I can't figure why the new one isn't selling better. I'm wondering if the use of incentives convinced Subaru buyers to trade early.

As for the big picture, I think Subaru's market niche is getting squeezed. While the Matrix is not directly comparable to the Outback/Legacy, it does offer a down-sized alternative. Meanwhile, the Freestyle offers an over-sized alternative. And, perhaps the biggest culprit of all, many of the small SUVs (Escape, CR-V, Equinox, etc.) are just as big as the Outback. There's just no room for growth.

That leaves Subaru with only the WRX as their standout vehicle. As amazing as it is, one car cannot carry the whole brand.

nippononly · May 2005

which leads me to the question I have been asking myself, and why I wanted to open this thread: what can Subaru do to expand in a profitable way? It clearly needs to do so.

The Tribeca was inevitable. The only question is why they didn't do this much earlier, like a year after they introduced the last gen Outback. This is ground Subaru used to own: AWD crossovers.

So now what? Do they need an even bigger crossover? If so, they will have to work harder at keeping the price reasonable. Could they use a minivan? That is a fairly stagnant segment that is already pretty much "owned" by two companies - Chrysler and Honda. I think a pick-up is out. :-P

Maybe something sportier? There was that concept roadster whose name I forget for the moment. Did that get the green light? An AWD roadster with serious power is something that could expand the line nicely. But roadsters are never high-volume sellers.

I thinkthe most logical direction for them to go is larger cars. A third model to slot above the Legacy, with perhaps a wagon variant as well. It would go head to head with the 500/Freestyle, but that is certainly not insurmountable competition.

varmint · May 2005

I think they need a more mainstream small car. Without the WRX, the Impreza line is a bust. Always has been. They've never had a small car that grabbed the attention of the mass market. Probably because the AWD system is expensive and small cars have very thin profit margins.

With Scion established, Honda bringing over the Fit, the Chevy Aveo, and others getting into the game, maybe Subaru should look into something for the very bottom of the market. Get in there before the current players are completely entrenched.

Between the Tribeca and Outback, I think Subaru has the Freestyle covered. Making a car version of the Tribeca is an interesting thought, but Subaru's sedans have never sold well.

nippononly · May 2005

you are giving me the chills here: are you suggesting the re-release of the Justy? :-)

Yeah, they could definitely use a more entry-level model, but I don't think they could afford to offer it with AWD and still make a profit. And of course, when there was an Impreza TS that you could get for about $17,5 sticker, no-one bought it. And for good reason - that was a car that felt cheap all over. Subaru assumes that when it puts in AWD, it can take out the equivalent dollar amount of content and refinement. That is a bad assumption - it needs to split the difference. Plus, "adding" AWD should cost Subaru less than other manufacturers, since all it builds is AWD.

The WRX will start to use the 2.5T from the Forester etc this fall, right? That is going to leave a large gulf below it in the line-up - I am assuming its price will rise commensurately. Subaru could do itself a big favor just by increasing the content of the rest of the Imprezas to the level of other $20K cars, without increasing the Impreza prices for the last year of the current gen. As in, take the current RS "sport package" and make it standard, for the base price of the current car. And then maybe even go a little bit further, like adding a standard alarm? Or how about power seats. Or stability control? Standard curtain airbags? Any one would do.

Of course, one other thing to consider is that maybe Subaru doesn't need more/new models right now to increase sales, maybe what it needs is a major investment in marketing or in its dealer body. And a new stylist? The '06 Forester looks really great. The Tribeca.....doesn't.

varmint · May 2005

I would never market such a car with the name Justy, but, yeah, that's the kind of thing I'm suggesting. It would have to be cheap, look funky, and offer AWD as an option, not a standard feature. (Sorry, Subaru, but AWD is just too expensive for the cost sensitive markets.)

I honestly can't put my finger on the problem with the Imprezas. I've got a feeling it's the styling. And while $17,500 is reasonable for a small car with AWD, so many cars undercut that price it's not funny. Keep the Impreza, but make it more like the Jetta. As you suggested, it would need more content. I think it could use a bit more space. Maybe they should just call it the Forester Sedan.

I'm having a hard time pointing to any one thing that is causing Subaru's stagnation. Which suggests to me that it's really a combination of a lot of things. The product lines doesn't need a complete overhaul, it just needs some tweaking. So maybe the next step is better marketing, more dealers, or a corporate shake-up.

bob6779 · May 2005

Maybe the new Subaru Outbacks will eventually continue to catch on. Let's hope that what we seem to think is beauty will be adopted by many more "laggers" once the style grows on them. I honestly think the car is gorgeous and expect others will come around once enough of the vehicles are on the road. Seeing is believing is an old expression.

rsholland · May 2005

You're way off base with your assessment of Subaru just being a 1-trick pony (WRX). The new Legacy has been a huge success, especially the turbo model. SOA and FHI are both extremely happy with the way that car has been received by the public. In addition, the popularity of the Forester continues to climb too.

Bob

davem2001 · May 2005

I don't see where the new Legacy/Outback really looks all that much different than the old one....Very much an "evolutionary" design.....

As long as they don't ruin it with that ugly nose from the Tribeca, they'll be Ok!

nippononly · May 2005

are up about 800 for the first four months of this year, versus the same period last year, which is about a 4.25% increase if they manage to keep it up. Last year was one of the worst years for sales that Subaru has had in some time.

http://www.aicautosite.com/editoria/asmr/svsuv.asp

But another 2400 Forester sales this year clearly is not going to accomplish the large sales increase Subaru claims to need.

The completely revamped Legacy/Outback line is doing better, as one would hope, but is still only set to increase sales by about 9000 this year based on January thru April. They were mostly flat through March, then had a good April, so maybe that was the start of a trend? We will see.

http://www.aicautosite.com/editoria/asmr/svsedan.asp
(Autosite reports the Legacy and Outback sales together)

Together, those two increases will not even account for the amount BELOW forecast that Subaru was last year, let alone bring the increases for '05-'06 that the five-year plan was predicated on.

atlgaxt · May 2005

We love our F XT, which is my wife's car. I need a functional vehicle with more off road capacity. Frankly, I was hoping for a bigger Forester with greater ground clearance and approach and departure angles. The Tribeca is not that car.

My next car will probably be an Xterra. 265 hp, 280 lb ft of torque. A functional, wipe down cargo hold. The beauty of the Xterra and Forester is while the cargo capacities do not seem that huge according to rated size, a squared off cargo area in a smaller vehicle offers more utility than a larger vehicle with an irregular shape (think Murano or Tribeca).

An Off Road 4X4 Xterra with side and curtain bags, stability control and a 6 speed (once this combination is available) will sticker for less than $27k. 5,000 lbs towing. Probably more truck than I need, and ride and handling cannot compare to a Subaru. If Subaru would have built a larger and more functional SUV for the mid twenties, I would buy it in an instant. Now I see speculation that they will turn the Forester into a mini Tribeca, along with the ugly looks, reduced visibility and reduced cargo utility. Yippeee!

While demographic statistics would indicate that my wife and I would be customers for a more upscale brand, we will not be following Subaru upscale, as we hate to spend $30k plus on a car.

Yea I still like our Subaru. But I used to like my Isuzu. Not a good sign.

nippononly · May 2005

"Yea I still like our Subaru. But I used to like my Isuzu. Not a good sign."

You had me actually laughing out loud on that one. Thanks for the chuckle. :-)

And of course, you make a good point - despite being all AWD, Sube doesn't have a single offroad vehicle. In a world where Jeeps are mostly going unibody these days, you would think Subaru could do a pretty good job of building one, if they wanted to. Of course, offroaders are not a good way to increase sales, they cater to a niche market. Toyota is about to get into that game next February with a shortened-wheelbase, two-door 4Runner called the FJ. Should be a blast offroad, but if Toyota and Nissan sell 100K FJs and XTerras next year between them, I will be surprised.

varmint · May 2005

Hi Bob,

I know Subaru's press materials have been very positive on Outback/Legacy sales, but the raw numbers show only an incremental boost. It's also the only car line in the stable with a boost. These brand new sedans and cross-overs are up 3,018 units when compared to the old models. And, at this time last year, the old models were in the "lame duck" months of their run.

Look at the Highlander and Pilot and you'll see gains over 5,000 and 6,000 units. Neither of those cross-overs is brand new or refreshed. And, of course, those numbers don't include sedans.

The Forester is up 400 units on the year. The Baja is down 600. The Impreza is also down slightly.

Perhaps the new turbo models are selling very well... but... perhaps those sales are coming from Subaru's existing customer base.

I really hadn't looked into this subject until Nippon opened this thread. Prior to looking at the links and doing a little digging, I assumed Subaru was having a good year. Subaru is building good cars. I don't dispute that. But people aren't buying them.

veritasusa · May 2005

One thing that could be hurting SOA in some parts of the country is simply that there is no dealer within a reasonable distance from a lot of people.

I live on the East coast of FL about 20 miles South of Daytona Beach. The nearest Subaru dealer is well over 40 miles away from me in a Northern suburb of Orlando. There is another Subaru dealer less than 10 miles South of that one and a third on the South side of Orlando. All are very incovnenient for me to get to as I have to travel quite a ways on two-lane roads that don't really travel any sort of straight line toward my destination - it normally takes almost an hour to get to the nearest one.

When I first moved here in the late 1980s, there was a Subaru dealer just up US 1 from me in New Smyrna Beach, but it folded many years ago. There also used to be one about 40 miles South of me in Cocoa. It was an easy, quick drive as I could just head down I-95 and the dealer was right off an exit.

But now there is no Subaru dealer here on the East coast of FL between Jacksonville and West Palm Beach (I think).

Luckily, there are a couple of local independent garages that have the savvy to handle normal maintenance (oil changes, etc.) for me and the few other Subaru owners I know of around me, but I live in fear of the day when I might have to get my ailing car down to Orlando and leave it overnight or longer. It will then mean renting a car because the dealer doesn't offer loaners and it's too far to impose on a neighbor to drive down, bring me back, and repeat the trip when my car is finally ready - especially with the price of gas around here today!

rsholland · May 2005

Subaru sales: 2005 vs 2004: through April '05

04 05; 03 05; YTD '05; YTD '04
___________________________________________________

Subaru sedans:

Legacy: 8,698; 6,224; 29,129; 26,111

Impreza: 2,841; 2,291; 10,060; 10,146

_________________________________________________

Subaru wagons:

Legacy/Outback: 8,698; 6,224; 29,129; 26,111

Impreza: 2,841; 2,291; 10,060; 10,146

________________________________________________

Subaru Forester: 4,549; 4,476; 19,608; 18,836

_______________________________________________

You can't compare Subaru sales with Honda and Toyota. Those companies are so much larger than Subaru. They will always sell in higher numbers than Subaru. The fact of the matter is that people are buying Subarus. Some models are down a bit, but others are up. The biggest problem with Subaru, as I understand it, is the dollar-to-yen issue, and not the products.

Bob

rsholland · May 2005

http://au.biz.yahoo.com/050512/33/4ctq.html

Some of FHI's other product areas (aircraft, etc.) have also contributed to their current financial condition. Also, Subaru is in the process of developing a number of new cars, and this heavy investment in new product have hurt their profitability. The price of crude oil is another issue hurting profits.

The cars they now have are selling well, or at least reasonably so. Sure, it would be great if all Subaru car lines were selling better, but to suggest that nobody's buying them is a gross over exaggeration and/or simplification of the situation and just not true.

Bob

nippononly · May 2005

First of all, the price of crude oil is something which hurts every carmaker equally.

Second, saying sales have stagnated is in NO WAY the same thing as saying no-one is buying them, so no-one here has said that.

Third, SIA (the Indiana plant that produces Legacys and Outbacks) is on track to lose $204 million this year, up from $70-something million last year. If I had to guess, I would say that is because they had to invest in changes and upgrades last year to produce the new Legacy line, which investment was to be amortized this year by sales increases which have failed to materialize.

Lastly, I can't imagine how the yen-dollar exchange is impacting SIA, which is an American facility on American soil selling cars in the American market to make money for Subaru of America. The money is staying here. So yes, the strong yen/weak dollar would hurt the profits that FHI could draw out of North American car sales, but not the bottom line at the American plant, I wouldn't think.

BTW, I wish I had more information on this, but I suspect that FHI may be on at least the same order of magnitude as Honda in terms of size. FHI produces airplanes and God knows what, after all. Compared to that, Honda produces generators and cute little robots.

rsholland · May 2005

Second, saying sales have stagnated is in NO WAY the same thing as saying no-one is buying them, so no-one here has said that.

From Varmint's post # 44: "But people aren't buying them."

You saw the link I posted: I just repeated what it said. The sales of Legacys are way up over past models. Unfortunatately Subaru groups Legacys with Outbacks, so it's hard to say which are Legacys and which are Outbacks. However, most Legacys are sedans, and those sales are way up since the new turbo Legacy GT debuted.

Bob

nippononly · May 2005

my sincere apologies - I had not noticed varmint's remark there. At the time, I assumed he was using a shorthand for "people are not buying more of the new ones", or perhaps "people are not buying enough of them to get Subaru out of its slump". I ought to be careful with assumptions! :-0

It appears that Legacy does very well outside the U.S., not surprising given that it is a smaller car than the traditional midsizer here, which would do better in global markets. But since the big immediate problem seems to be North American profitability, I am not sure what to make of it. Should they sell a bigger vehicle than Legacy to cater to North Americans only? Toyota does this with Camry for now, and Honda builds an exclusive NA-only Accord. Now that Sube has stretched the Legacy platform to produce the Tribeca, it seems like it wouldn't be that much extra work to use this new modified platform for a larger sedan as well.

Also, I am with varmint in thinking that Subaru's Legacy sales mix is shifting towards turbos from its existing customer base, rather than drawing in new buyers, since the overall sales remain flat. If in fact, Legacy is selling better in the U.S. than the old model did, that is a discouraging sign for Subaru, because it means less people are buying Outbacks, which is kind of the foundation model for SoA's existence.

I noticed that Subaru's NA sales for FISCAL YEAR 2004, ending March, looked better than those for CALENDAR YEAR 2004, ending December, from that article you linked. What I had not noticed is that in the article, Subaru sales of Imprezas to GM to be sold as Saab 9-2s are included, whereas the CY2004 numbers I have are just for Subaru-branded vehicles. I wonder how many the sales to GM were altogether for FY 2004.

rsholland · May 2005

Last month, April '05, was the best sales month SOA ever had; not just his yearbut EVER!

http://www.media.subaru.com./

The new Legacy and Outbacks have been very well received worldwide. I know Australian sales are way up too. From the Aussie Subaru site:

http://www.subaru.com.au/news/?newsid=12229

Note: The Legacy down under is labeled the Liberty.

Frankly I'm a little mystified as to FHI's financial situation. I know they are heavily investing in new product, and I'm sure that's a big contributor.

We all know the Baja bombed on the showroom floor. I still think it's a great concept, but the execution is lackingand maybe market timing too; but that may change somewhat with the high gas prices. These kinds of car-based pickups are popular everywhere but in North America. In Australia these "UTES" have been around for a very long time, and are very established in the marketplace; same with Europe, Africa, Asia, etc.

From everything I've read it seems like a lot of FHI's problems are from other areas of FHI, some faulty market projections, and world economic conditions that are out of their control. The new generation Legacys and Outbacks are not the problem.

Bob

Subaru's fortunes sinking - can they turn it around?

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