Subaru Is Breeding a New Winner

Subaru, the automotive division of Fuji Heavy Industries (NASDAQOTH: FUJHY  ) , has become the 12th largest auto brand in the U.S after its bumper August sales month. Through August, sales are up 29% and its growth rate is trailing only that of Cadillac and Jaguar. Subaru's success is owed to the popularity of its Foresters, Imprezas, and BRZs which are seeing exploding sales. However, there is one car in the company's stable that is often overlooked but has the potential to be a complete game changer. I am talking about Legacy, Subaru's boring midsize car, which can rock the auto world in the times to come.

2013 Legacy: Courtesy of Subaru

A class apart
To say that Legacy is a unique midsize sedan may seem like an exaggeration. The segment is dominated by the likes of the Toyota (NYSE: TM  ) Camry, whose monthly sales compare with the sales of all Subaru vehicles put together, or the Honda (NYSE: HMC  ) Accord, which keeps breathing down Camry's neck. So what is so special about the Legacy? The answer is that it is the only midsize sedan to run on flat "boxer" engines.

The biggest benefit of boxer engines is that it lowers the car's centre of gravity. This means that Legacy has less chances of an turning over, is more agile and less prone to collision, has reduced tire wear, and generally performs better. The second benefit is that it doesn't need bulky balance enhancing solutions that are required to counter heavy vibrations inherent with conventional engines. This offers significant engineering advantages. Other than Subaru, Porsche is the only other car maker in the world to offer flat engines.

Legacy is the only midsize sedan that offers all wheel drive as a standard feature. This scores a huge point in areas that receive snowfall or where roads are rugged. In other parts of the country this can be taken as an added safety and performance feature. The Legacy is practical and allows complete driving ease. The number of official complaints lodged against it is lesser than even Camry and Accord, which are considered the gold standard in reliability. And, of course it comes with spacious if not stylish interiors and hordes of other standard features.

Data courtesy of carcomplaints.com

The trade off
Legacy's biggest plus point has also been its worst bottleneck. On account of its boxer engine and all wheel drive, the mileage that it offers cannot compete with most of its peers. With its 3.6-liter six cylinder motor, Legacy offers only 25 mmiles per gallon on the highway where most competitors with V6 engines offer much more. The V6 Camry offers 30 mpg on the highway while V6 Accord sedan offers an even better 34 mpg.  

Mileage is better on Legacy models with the 2.5-liter flat four engine at around 24 mpg in the city and 32 mpg on the highway. But, both the Camry and Accord that run on four-cylinder engines beat this hands down. The 2014 Toyota Camry offers 35 mpg on the highway and 25 mpg in the city and 2014 Accord sedan offers 36 mpg and 27 mpg, respectively.The Legacy lags not just Camry and Accord, but most of the popular midsize sedans on this parameter.

For an average buyer, fuel economy is often the most deciding factor, and this has muted Legacy's demand somewhat. It is true that sales have grown after the post-recession slump in 2009 and the growth rates have been significantly more than the industry leaders, Camry and Accord, clocked, but there is no doubt that Legacy's performance has remained sub-par.

Data courtesy of goodcarbadcar.net

Huge potential
The Legacy is of immense value because it operates in the midsize sedan market where the opportunity is 3.5 million units and the Legacy has approximately 1.35% of that. If Subaru can engineer a Legacy which overcomes its shortcoming regarding fuel efficiency, it can give its competitors a run for their money. The main difficulty in this regard is that if we leave out Porsche on account of its being a niche player, Subaru is the only company that is working with flat engines. So, it has only its own engineering efforts to fall back on, it cannot leverage any breakthroughs made by any other manufacturer.

But, this challenge is also its biggest advantage, because if it does manage to reach its goal there would be no looking back for it. And, the company might be heading that way. Recently, automotive.com has reported that Subaru has been testing its 2015 Legacy with premium competitors, the Audi allroad quattro and the Infiniti G37x. According to this source, the 2015 Legacy will be a completely new car and fuel efficiency is going to be significantly enhanced.

Now, the Legacy sedan has an extremely attractive price – according to Kelley Blue Book, the 2014 Legacy with six-speed manual transmission is available for just over $21,000 and the automatic is available for just over $22,000. Ford Fusion, the only other car to offer all wheel drive, albeit as a premium feature, comes for nothing less than $33,000.

If Subaru can maintain even a decent price differential for its 2015 model, we can have a real winner. While Toyota and Honda are likely to remain segment leaders in the foreseeable future, they are bound to feel the heat from the quirky Legacy – that in itself is no small achievement.

Final call
Subaru is harbouring dreams of making it big in the U.S. with the smallest product range. It has less than 10 vehicles with which it is aiming to fulfil its aspirations. So, it is important that each of its vehicles emerge as superstars in their own right. The Legacy sedan definitely has the potential to fit this description. If Subaru can really come out with a more fuel efficient, stylish, and relatively inexpensive model together with its standard boxer engine and all wheel drive features, we can have a car like never seen before.

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Read/Post Comments (10) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 02, 2013, at 1:50 PM, Only1DrQuinn wrote:

    The one other drawback, all Subaru's use Premium gas, expensive gas and bad gas mileage keeps me away.

  • Report this Comment On October 02, 2013, at 2:28 PM, LRover1 wrote:

    @Only1DrQuinn Not all Subaru's require premium gas, only the models with turbochargers.

  • Report this Comment On October 02, 2013, at 3:52 PM, Soakee wrote:

    Where else can you get AWD with a 6-speed? Audi? Porsche? BMW? No thanks, maintenence on those is too expensive.

  • Report this Comment On October 02, 2013, at 4:24 PM, NoVaEarly wrote:

    The CVT reduces the towing capacity more than I would like and it could use more power, but my Crosstrek has averaged 30+ mpg in mixed driving over the last year. Not bad for an AWD and it does not require premium fuel. Ask someone who actually owns a Camry or Accord if their vehicles meet the EPA estimates. I routinely exceed the EPA highway estimate of 33. Try doing that in most other makes. Their numbers are pure fiction. And if the AWD helps you avoid a single accident it has more than paid for the added fuel consumed, not to mention that they have some of the best safety rating of any vehicles on the market now. Subaru is the new Volvo when it comes to safety.

  • Report this Comment On October 02, 2013, at 9:46 PM, AcuraT wrote:

    Love how this story says if Subaru can compete in fuel economy and offer luxury, it would be special. The problem is, with standard all wheel drive, that fuel economy equivalent of a Camry or an Accord is not going to happen. They can get close (like they do now) but that is it. Even then, no one is writing home about the 2.5L 4 cylinders' acceleration.

  • Report this Comment On October 02, 2013, at 10:07 PM, herky46q wrote:

    This article needs a copy editor.

  • Report this Comment On October 03, 2013, at 1:14 AM, PrinterTech wrote:

    Much of this isn't quiet accurate as well as some comments... I have 2011 Legacy 3.6R It will give about 29mpg on the highway driving with family of 3 and AC on easy, more than 30mpg if driven near 60mph. City driving in Brooklyn, NY I get 12-13 mpg, I am jealous of a Hummer owners because their cars are more fuel efficient. Gas isn't a problem - it consumes 2-3 quarts of oil between changes and dealer feeds me with BS that it is normal - when I was 17 I had my first car which was same age as I was after my father and rebuilt the engine it did not need the single drop - we're talking about car that was made in 1976 and had 150k miles. I like it a lot better than previously leased Accord especially 4 wheel drive but workmanship of the Subaru leaves a lot to desire. in 3 years I did not visit Honda Service Dept a single time and I am a frequent flyer at Subaru - it is little things - suspension banging noise that dealer ignores to fix, oil consumption, speaker covers popping up, etc. It will be Infiniti G37X next time, hence, my neighbor just got one for $320 and my Legacy is $395/mo! As for inaccurate comments - only turbocharged engines require Premium gas.

  • Report this Comment On October 03, 2013, at 9:21 AM, broknrekord3 wrote:

    Legacys are nice cars, but really the big seller for Subaru has been always will be the Impreza. And now with 36 mpg and AWD, it's amazing they any are still on the lot.

  • Report this Comment On October 03, 2013, at 11:05 AM, patricksrandall wrote:

    awd drive is the no 1 benefit for the legacy. no other midside sedans have it (unless you want to pay for the fusion titanitum or premium brands). most midsize budget sedan buyers could care less about the boxer engines. i have a 2011 2.5 cvt and the gas mileage is great - everyone going for awd understands the 1-2 mpg awd tradeoff. the real downfall of the legacy is the workmanship - tons of road and wind noise, technology feature are outdated compared to altima (the best car in this class imo) and accord. so the tradeoff isnt mpg, its how many creature comforts do you want to give up to get the awd?

  • Report this Comment On October 06, 2013, at 12:22 PM, pinkfire53 wrote:

    The Legacy does have its issues, including cloth upholstery on the low-end models that is not very durable. This would be easy to fix. Another item to be aware of is that most Subaru sedans come with Japanese-sourced tires that have low tread life and very poor traction in winter conditions. This is not a problem if winter tires are used, but many Subaru owners would probably prefer a safer tire for winter use, and do not want to buy winter tires.

    Yokohama, one of Subaru's suppliers, now makes a highly-rated all-season tire in the US, the Avid Ascend. Treadwear is rated excellent at 740, and traction is good in all seasons, according to owner surveys on tirerack.com. Instead of supplying a tire like this, Subaru typically fits OEM tires from Yokohama or Bridgestone with treadwear ratings of just 340, and very poor winter traction test results. If Subaru keeps this up, some unknowing owner will get killed thinking that AWD is all they need for safe winter motoring.

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