How Subaru Is Riding the New SUV Boom

SUVs and "crossovers" are white-hot, and that is making Subaru dealers very happy.

Jul 20, 2014 at 1:25PM


Vehicles that blend the attributes of cars and old-school SUVs have been big sellers in 2014. Sales of Subaru's latest Forester are up over 46%. Source: Subaru

What's up in the U.S. auto market? I'll tell you what's up: SUVs and crossovers.

"Crossover" is the industry term for an SUV-like vehicle that is based on a car's architecture, rather than a truck's.

Truck-based SUVs like General Motors' (NYSE:GM) Chevy Tahoe used to be the norm. But now, most SUVs are car-based. 

The difference? Today's crossovers -- and most of today's SUVs -- get much better fuel economy and are more comfortable to drive than the SUVs of old. 

They've both been very popular as of late: While U.S. new vehicle sales were up 11% in May -- a jump that surprised analysts -- sales of premium crossovers were up 27%, according to Automotive News, while sales of SUVs rose 26%. And sales of compact crossovers were up 18%.

That trend has been great news for one of the pioneers of the crossover category: Subaru.

A huge jump in sales for Subaru's new Forester
How good has it been for Subaru? Very good indeed: Through the first half of 2014, Subaru's U.S. sales are up 16.3% over a (very good) first-half 2013 result. 

Leading the way is one of Subaru's mainstays, the Forester. New last year, the latest Forester has been a solid hit for Subaru. Sales were up over 46% in the first half of 2014. 

Reviews of the new Forester have been strong. While the 2014 Forester doesn't look all that different from the model it replaced, Subaru's careful, incremental improvements yielded a vehicle that has pleased critics as well as Subaru fans. Consumer Reports gave it 88 points out of 100, its highest rating for a small SUV, and Motor Trend named it SUV of the Year for 2014.

Subaru has also done well this year with its small crossover, the XV Crosstrek. Sales of the XV Crosstrek rose over 34% in the first half of 2014.  

But sales of Subaru's iconic midsize crossover, the Outback, have lagged. What's up with that?

Outback sales have been slow, but that may be about to change
Outback sales are up just 2.4% this year, but the story's not a bad one. An all-new 2015 Outback has just begun rolling out. Subaru's dealers have been selling off the last stocks of the outgoing 2014 model.


The all-new 2015 Subaru Outback is just starting to arrive at U.S. dealers. Here with the new Outback are Subaru's U.S. chief Tom Doll and his boss, Fuji Heavy CEO Yasuyuki Yoshinaga, at the new model's unveiling in New York in April. Source: Subaru

My colleague Rex Moore and I were at the unveiling of the all-new 2015 Outback in New York back in April. We heard Yasuyuki Yoshinaga, CEO of Subaru parent Fuji Heavy Industry (NASDAQOTH:FUJHY), and Subaru's U.S. chief, Tom Doll, explain how important the U.S. market is to Subaru, and how important the Outback is to the company.

The new Outback follows the pattern set by the Forester's overhaul last year: It doesn't look a lot different, but on closer examination a lot of incremental changes make for a substantially improved vehicle. Early reviews have noted that the new model is quieter and more solid-feeling than the outgoing Outback, while still being remarkably capable off-road.

The upshot: The new Outback should boost Subaru's U.S. sales further
The appeal of the Outback is easy to see. Most crossovers tend to have the higher seating positions of SUVs, but the Outback looks and drives more like a station wagon that just happens to have an off-road-capable suspension -- which is what it is. 

At the Outback's reveal in New York, Subaru pitched the it as the vehicle that can take you down rough wooded trails by day, and out on the town at night. 

That's always been a compelling formula for good sales, particularly in parts of the U.S. where snow is an annual concern. As U.S. Subaru dealers get more of the new Outbacks in their inventories, Subaru's sales could well make another nice move up in the second half of 2014.

Warren Buffett's worst automotive nightmare (Hint: It's not Tesla Motors!)
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John Rosevear owns shares of General Motors. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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