Why Did Subaru Redesign Its Outback Wagon?

Subaru’s star performer Outback has just arrived in the U.S. in its new avatar and received rave reviews. The company’s future sales depend heavily on the success of this car…

Jul 21, 2014 at 12:24PM

Subaru, the automotive manufacturing unit of Fuji Heavy Industries (NASDAQOTH:FUJHY), launched the world's first sport-utility wagon way back in 1995. That model, branded as the "Legacy Outback," prophesied the "crossover" concept, offering both SUV and compact car-like styling cues. After nearly two decades, the Outback is as popular as ever. Out of every four Subaru's sold in the U.S., one is an Outback. Kelley Blue Book calls it "one of the tent poles of the company's lineup in the U.S." As the iconic model enters its fifth generation, let's find out if it can captivate U.S. buyers like its predecessors.

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The Subaru 2015 Outback, Source: Subaru

Secret to success
Subaru owes a lot of its success in America to the ever-popular Outback wagon, which has held its ground amid growing popularity of SUVs. In 2013, the Outback accounted for over 26% of Subaru's total U.S. sales. Buyers have loved its practical design, big cabin space, and of course, Subaru's signature all-wheel drive.

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Source: goodcarbadcar.net

In 2013, J.D. Power did a study that showed that Subaru vehicles had a high "off-road" usage compared with their peers. In other words, the company's vehicles spend the maximum time on rough terrain, snow, and muddy paths. Around 29.5% of Subaru vehicles sold in the U.S. have off-road usage, which only trails Jeep's 31% and Ram's 30.2%. What's more interesting is that among all Subaru vehicles, Outbacks are most frequently used off the road. The study found that nearly 34.7% Outbacks find off-road usage.

In the recent past, when bigger companies like Toyota and Volkswagen struggled to sell their wagons, Outback avoided a sales drop. Toyota Venza sales were down 16.8% in 2013, Volkswagen Jetta was down 3.89%, but Outback managed a marginal 0.4% increase. Given the Outback's importance in Subaru's U.S. sales, however, it's imperative for Subaru to infuse more life into Outback's sales. This set the stage for the arrival of the newly designed fifth-generation Outback.

Make way for the new Outback
The 2015 Subaru Outback promises its fans more "Enjoyment and Peace of Mind." As always, the company is targeting the intrepid clan looking for an all-purpose vehicle with better styling, fuel efficiency, heightened safety, and a reasonable price. According to Kelley Blue Book, "This new fifth-generation 2015 Subaru Outback is about the same size, offers the same engines, but is reengineered in multiple ways to make it even more capable and comfortable, on and off road."

Better looking: Subaru has not changed the appearance radically from the predecessor, but there's more legroom and more cargo space in the rear. While bumper-to-bumper length has shrunk, the wheelbase has grown, enlarging the interior space and putting this version on par with other midsized crossovers. The overall look is sleeker with shaped headlights, crisp swage lines, and handsome hexagonal grille.

Safety features: It's equipped with blind spot detection, as well as other attractions such as the Eyesight package that improves viewing angle by 40% and provides pre-collision braking assistance. It also features pre-collision throttle management, lane departure, adaptive cruise control, and front seat cushion airbags to protect occupants from frontal collision. The advanced X-mode system protects from skidding on slippery surfaces and reinforces the all-wheel-drive vehicle.

Fuel efficient: This quieter power train comes with better power and performance attributes, like the continuously variable transmission that offers around 10% additional fuel efficiency compared to the 2014 edition. Fuel efficiency should see an overall increase of around three mpg  on city roads with this newer version.

Price tag: The price of vehicles manufactured at the Indiana plant will be about $24,895  for the base model, comparable with Toyota Venza's just under $29,000 and Volkswagen Jetta Sportswagen's $21,600.

Beginning of a new era
Around the middle of 2011, Subaru's management propounded a "Motion-V" plan hoping to attain global sales of 850,000 units by 2016. The plan specified reaching sales of 380,000 units in the U.S. The Japanese automaker captured the market pulse in U.S. sooner than expected, however, and achieved the target by fiscal 2014, selling 442,000 units -- two years ahead of schedule. Subaru's amplified growth also helped reach 825,000 units globally by fiscal year 2014. 

Management has framed "Prominence 2020" this year, targeting 1.1 million vehicles on road by that year. In line with this goal, Subaru is looking ahead to enhance its lineup in the U.S. as well as launch better products. Though it still hasn't revealed its entire plan of action, the refreshed 2015 Outback could mark the beginning of this new era.

Foolish last word
With every new launch, Subaru is securing its foothold in the U.S. The company does not want to "mess with success," however, and this is why it refreshed the Outback. The SUV's improved styling and overall efficiency could play a big role in attaining the big targets that Subaru has set for itself.

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ICRA Online and Eshna Basu have no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

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