Is Subaru's Success Just a Coincidence?

American buyers are falling in love with Subaru cars. Subaru is the automotive division of Fuji Heavy Industries (NASDAQOTH: FUJHY  ) and Japan's smallest automaker. The company just posted 45% sales growth last month and is showing no signs of slowing. How is it that such a small carmaker is stirring up such a big storm in the U.S.? What is so special about Subaru cars? More importantly, will this winning streak last? Let us see if we can find answers to these questions.

Outback 2.5i Premium: Courtesy of Subaru

Stirring up a passion
To say that the Forester is the best crossover, Outback the best wagon, and Impreza the best sedan in the market is probably an overstatement. But, to its credit, Subaru with its limited resources has created world-class vehicles, which have put it among the ranks of the best carmakers in the country.

According to ratings by Kelley Blue Book, we find that the Subaru Outback and Forester have received expert ratings that are not too far off from that received by its competitors, Ford (NYSE: F  ) and Toyota (NYSE: TM  ) . Meanwhile, in terms of consumer ratings, Subaru is trailing Toyota, but not by much, and is already ahead of Ford.

Ratings by Kelley Blue Book

These ratings leave no doubt that Subaru's cars are good, but are they special? To qualify as being special, making good cars alone is not enough; the company has to do something novel that would create a passion and a sense of longing among its buyers. This is exactly what Subaru did by falling back on something that it does best – building all-wheel-drive, or AWD, vehicles. Subaru loaded all its vehicles with AWD and marketed itself as the ultimate car for anything adventurous, daring, and sporty.

True, Ford Escape has superb styling, luxurious interiors, and a more powerful engine, and the redesigned Toyota RAV4 has unbeatable reliability. But, for all the enthusiastic campers and trekkers and hikers, Subaru provides unmatched performance on precarious mountain lanes and dirt roads. The AWD also means extra safety, and also makes it a great vehicle to have when driveways are white and roads salty. This is what makes it special.

According to research firm J.D. Power and Associates, 84% of Subaru buyers buy the vehicle because of AWD, while for other brands only 20% of buyers site AWD as the basis for their purchase decisions.

Clever strategies
Having struck a chord with its U.S. buyers, Subaru has taken some measured steps to fortify its position as a mainstream American carmaker. It has made its cars bigger, roomier, more fuel efficient, and essentially more American, with each passing generation.

Subaru has backed this up with a competitive pricing strategy. It had once made the mistake of putting premium price tags on its vehicles as fair value for its AWD technology. The result was a slide in sales in the 1990s and early 2000s, which almost threatened to put it out of business. But, this taught the company a lesson that it would not forget in a hurry. The launch of the 2009 Forester indicated a clear shift in strategy when its base price was reduced by $1,200. Currently, Subaru's cars are all competitively priced.

Data courtesy: Kelley Blue Book

Subaru has paired these strategies with offbeat marketing promoting a quirky lifestyle with an ample dose of physical activity and fun.

A snapshot from Subaru's dynamic brochure: Courtesy of Subaru

Constant innovation
In terms of advanced technological features like the new driver assist systems, Subaru is trying to keep pace with its bigger peers like Ford and Toyota, which offer loads of such features in their vehicles. Among Ford Escape's popular features are "active park assist" to help with parallel parking, and BLIS with Cross-Traffic Alert to warn the driver whenever a vehicle is detected in the blind spot zone. RAV 4 also offers park assist, parking sensors, sonar parking, blind spot monitor, and other hi-tech driver assist features.

Not to be outdone, Subaru has introduced a new driver assist system called EyeSight, which functions like an extra pair of eyes. It scans roads and gives a warning about any potential hazard. The system includes features like pre-collision braking system, lane sway and departure warning, adaptive cruise control, and other features.

Photo: Courtesy of Subaru

Other than EyeSight, recent technological milestones include a new horizontally opposed engine, a new CVT, and a new direct-injection turbo engine. Management's inclination to invest in constant technology upgrade is of huge importance. Without this, Subaru cars had no chance of competing with bigger car makers and their popular models.

Final take for investors
It all boils down to the fact that the popularity of Subaru cars is not a lucky coincidence. It is the final outcome of a clear and well thought out management strategy. Subaru is weaving a dream for its buyers and producing cars that match up to those expectations, all at prices that do not make buyers wince. The popularity of the Foresters, Imprezas, Outbacks, and BRZs are on the rise. And this is not just in the Snowbelt, which has been the company's stronghold for years, but across other parts of the country, too. Subaru can only accelerate from this point.

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Read/Post Comments (19) | Recommend This Article (8)

Comments from our Foolish Readers

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  • Report this Comment On October 05, 2013, at 5:30 PM, turbobeast wrote:

    I have been lover of Subaru for over 25 years great wonderful cars cant not say anything bad I have had one in family for 23 years just changed motor at 345 thou cause of rod knock and now runs better then new mmm thanks Subaru

  • Report this Comment On October 05, 2013, at 5:30 PM, Rotomoley wrote:

    This article doesn't mention the exceptional engineering in all Subarus as exhibited by horizontally opposed cylinders (less vibration, lower center of gravity) and exceptional attention to all vehicle components like the precise way everything fits together, the extreme durability and longevity, and wonderful reliability. It's hard to find a mechanic that is not impressed with a Subaru. Basically, Mercedes level engineering at a Toyota price (Toyotas are fine too just less so in these respects).

  • Report this Comment On October 05, 2013, at 5:45 PM, centralmusic wrote:

    I own Subaru for last 20 years.Greastest car made.I do wish they come out with a Hybrid!

  • Report this Comment On October 05, 2013, at 6:19 PM, BlueRidgeHiker wrote:

    I was a Subaru driver for almost 20 years (same GL sedan). I LOVED that car! I wanted to buy another one, but the gas mileage isn't that great. I ended up buying a VW TDI diesel. PLEASE, Subaru, bring the Boxer diesel to the U.S.!

  • Report this Comment On October 05, 2013, at 7:05 PM, enginooity wrote:

    Subarus are great, look at the first Escape--it was so obviously a copy of the Forrester, but the AWD was optional. The same size, but with less horsepower and more weight. When Ford added the V6, it had 19 more horses and weighed nearly 500 more pounds. Ford also tried out a car called the Freesomething that was an awful lot like the outback, sizewise.

    I'll bet my 01 Forrester is still going ten years from now.

  • Report this Comment On October 05, 2013, at 8:29 PM, chokeoats wrote:

    We have a 2011 Subaru outback that is extremely hard to handle in any wind. any wind over 20MPH, park it. Our neighbors have a 2013 Subaru forester. pulling out of their driveway their steering conked out. It took two weeks to get the parts to fix the problem.

    I guess Subaru is alright if you're going down the street to the market, provided the wind isn't blowing, and you don't have to turn much...

  • Report this Comment On October 05, 2013, at 9:01 PM, hchia28 wrote:

    I would like to have a Subaru Foster but with my crappy paycheck I can't afford one

  • Report this Comment On October 05, 2013, at 9:56 PM, abx029 wrote:

    I own a 2010 Subaru Outback premium with the 6-speed manual trans. I love it I have never owned another vehicle that I have had more confidence in. I get around 30 mpg hwy 25 city. I've pulled a uhaul trailer from NC to CA and back with ease and it never missed a beat. Since purchasing this vehicle I have decided that I will probly own a Subaru for the rest of my life. I never understood why " Subaru people" would always say If you buy one, you'll never get anything else. Then i purchased one. With great reliability, excellent customer service, and vehicles that are bulletproof I see why subaru is rising in the us market.

  • Report this Comment On October 05, 2013, at 10:37 PM, rak1588 wrote:

    new technology is the horizontally opposed engine? No, Subaru has been using that for a long time. The BRZ compared with the Mustang? Are you f***** kidding me? The Mustang is a bigger car and its s***, has horrible plasticy interior, and is a boat to drive! The BRZ is fun to drive and it has standard HIDs and Nav! My love affair with Subaru started with the 2011 Legacy and I just traded for the XV and love it! I will not dive anything for a daily drive then a Subaru. I have driven many different cars, almost any regular car you see in America I have driven including Mercedes and Porsche. Nothing drives like a Subaru!

  • Report this Comment On October 05, 2013, at 10:48 PM, DesertHippie wrote:

    Bought my first Subaru in 1983 and I'd still be driving it if the salt from icy roads hadn't rusted the frame away. Been driving one all this time, and you just cannot find a more reliable car. I think it has something to do with the Boxter engine that was originally used in small planes. Those engines simply do not fail without warning. If you listen to your car and don't ignore little things that just don't seem right, it will never strand you.

    I had an issue with my '83 Brat, not knowing that the radiator was out of water due to a leak. It over heated so badly the engine seized up. I left it at a gas station overnight to cool off. The station owner offered to have it towed away, as it would surely never run again. The look on his face as I poured water into the next morning and started it up was priceless. I waved as I drove my dead car away and continued to drive it for another 10 years.

    I will stay with Subaru as long as I own a car. That's never going to change.

  • Report this Comment On October 05, 2013, at 11:03 PM, CrazyDocAl wrote:

    Really? You talk about Americans and Subarus but then you use a picture of a Subaru with the steering wheel on the right side?

    I had a Subaru, great AWD system but the quality wasn't as good as other Japanese mfgs. I sold my 2010 Impreza after no longer wanting to deal with the too had shifting, the rattles in the doors, the cheesy plastic interior, and the seats being too low to the ground (I'm 6' and had the drivers seat as high as it would go, my 5'6" GF needed a pillow to see).

    The engine that Subaru loves to tout vibrated. You didn't notice it if you didn't touch the stick shift lever. Then there was the hill start assist feature, absolute junk. It wouldn't let you sift into gear when it was active. So you had to wait at every light with the car in 1st and the clutch in. If you forgot then you would have to wait until it released to shift into gear (drivers behind you loved that).

    I was never going to own the car for too long since Subarus rust much quicker than other makes up here in the north. But after 3 years I replaced it with a 13 Rav4. Much better built vehicle. The e-diff for the awd system has worked great.

  • Report this Comment On October 05, 2013, at 11:24 PM, beardman48 wrote:

    Have owned a Subaru since 1969 have owned six total i tried other makes Ford, Chevy, Dodge and Toyota, Toyota has a great product but Subaru beats them all.

  • Report this Comment On October 05, 2013, at 11:48 PM, dogtweeter wrote:

    The secret is the load mass/HP, ...simple as that.

    They reduced the mass by channeling the ironwork, ...using as much aluminum and plastic as possible, ...and wrapping a very thin skin. They could make it better by going to the internal washing machine type crimped sheet metal like the TT made in Hungary, ...that would make the shoe stiffer.

    It's a scary ride for those used to american iron.

  • Report this Comment On October 06, 2013, at 12:09 AM, Srbiu wrote:

    hang on...the Hybrid is on the way ! I actually work at a Subaru Factory and I can say...They put safety first and for most in their design. Nice looking, dependable cars and only better things on the horizon !

  • Report this Comment On October 06, 2013, at 2:16 AM, Riskysam wrote:

    Subaru's are just the ugliest cars out there. I wouldn't drive one even if it were gifted to me.

  • Report this Comment On October 06, 2013, at 5:01 AM, Gaxejones wrote:

    What the article fails to mention is that in Nov 2006 Toyota bought 16.5 % of FHI the parent company of Subaru and both companies said that they would develop cars jointly. The fact that a a few years later Subaru is making a comeback is no coincidence, it's pure Toyota gold. If you yoke yourself to the world's most financially successful car manufacturer that is just what happens, you also become successful.

  • Report this Comment On October 06, 2013, at 12:12 PM, iefbr14 wrote:

    AWD has been the hallmark of Subaru since the late 1970s, which made it a popular car with skiers and people in snowy climates. My problem with the brand is has become tainted (for me) with liberal politics. It's the most popular brand for gays and lesbians, for example. And Subarus are so noted for being covered with bumper stickers for liberal causes that the company itself did a parody ad of this phenomenon. So, as an Evangelical conservative, I won't buy this car because the brand tells people I'm someone who I'm not, and I endorse things I really oppose. From an investment standpoint, this would normally be a big "who cares," but there are a lot more conservatives in the USA than liberals, and about as many people identifying as "very conservative" as identify as liberal or very liberal combined. This would seem like a major impairment to further brand growth.

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

    Have a 2013 Outback. Very poor mileage. Less than 4000 miles. Subaru in denial. Was told by one dealer it will improve at 7500 miles and another at 12000 miles. Careful driver-try to get the most mileage but only get 14-16 in the city,17-18 overall unless 70 % is hwy then I got 22.

  • Report this Comment On April 17, 2014, at 11:42 AM, bw wrote:

    @iefbr14... lol.. you are buying cars for the wrong reasons.. if all Americans think like you the country won't go nowhere.. tragic indeed.

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