Can Subaru's Dream Run Continue in the U.S.?

Subaru, the automotive division of Fuji Heavy Industries (NASDAQOTH: FUJHY  ) , is on an exceptional growth trajectory in the U.S. Its strategies to date have paid off handsomely, winning the loyalty of U.S. buyers. The company generates more than half its sales from the U.S., and is relying on the country for the fulfillment of its goal to exceed annual sales of 1.1 million units worldwide by 2020. Is it on track to fulfill its ambitions? Can it keep up the momentum in the U.S.? Let's have a closer look.


2015 Subaru Outback, Source: Subaru

Creating a strong foothold
Subaru's U.S. sales and marketing subsidiary was formed way back in 1969 but even a decade back, the company was struggling to lift sales in the country. But this changed soon after the launch of the redesigned Outback wagon in 2008.

Subaru's U.S. growth momentum from fiscal years 2009-2014 has been astounding, with incremental sales of around 135% within the past six years. Quite interestingly, Subaru currently sells just nine models in the U.S., but it's been riding high on the SUV and crossover wave.

Crossovers have become a favorite of Americans -- in 2013, SUV and crossover sales were up 11.6% in the country, exceeding the overall auto market improvement of 7.5% year over year. Subaru's crossovers posted exceptional sales growth in the U.S. in the same year. Sales of the Forester and Crosstek (launched in 2012) models respectively grew a whopping 62% and 627%. Subaru has constantly improved on features of its existing models to win over U.S. customers, but has done it with very economical price tags. AutoGuide.com's recent report on crossovers says that the "Subaru Forester compact SUV is one of the most affordable, safest vehicles available in today's market with an MSRP of $22,820." The Toyota Highlander with features similar to the Forester has a price of $30,075.

Management on mission
Subaru's management had initially pushed its Motion-V program, hoping to achieve global sales of 850,000 units by fiscal year 2016. But because of the incredible growth in the U.S., the target was achieved almost two years before schedule in fiscal year 2014. Bolstered by the feat, the company has framed the "Prominence 2020", which highlights the corporate vision for 2020.

To meet the goals set under this plan, president and CEO of Fuji Heavy Industries Yasuyuki Yoshinaga stated that the company would focus on two aspects -- "enhancing the Subaru brand" and "building a strong business structure". Major focus would be on North America, where 600, 000 sales units are projected by 2020.

The journey has begun
Launching new models and redesigning the existing ones is how Subaru plans to enhance the brand's appeal. It's redesigned fifth-generation Outback came out in the beginning of July, and the 2015 Forester was launched in May. Other models like the Imprezza and the WRX would be rolled out in refreshed 2015 versions by the end of summer this year. Forester, one of the most popular Subaru offerings, has posted sales rise of 46.6% in the year through June.

Subaru plans to debut a seven-seat SUV as the languishing Tribeca model's production has been stopped from January. The mid-size three-row SUV would be launched possibly between 2016 and 2020. Subaru is also pushing for local production of the SUV instead of exporting it from Japan, though facility details have yet not been disclosed.

More capacity would be available at the company's only U.S. plant in Indiana by the end of 2016, when Subaru's contract with Toyota for the production of Camry at the plant would come to an end, freeing production capacity of around 100,000 units. The company plans to manufacture the Impreza in the plant besides continuing with the production of the Outback and Legacy range. Local production may help the company make its models more affordable and competitive, and boost sales further.

By 2020, Subaru also aims to overhaul its power trains to include lean combustion cycle in order to meet strict U.S. emission norms. The company wants to achieve thermal efficiency rates above 40% in its engines, which would be more than the efficiency rate of Toyota Prius' engine. It is slated to introduce its first plug-in hybrid by 2018 in the U.S., showcasing similar technology like Toyota.

In order to reduce U.S. production costs by 20%, Subaru is looking to adopt a standardized platform for manufacturing components across models.

Final thoughts
Subaru has weathered difficult times to survive and expand in the U.S. auto market. The company has achieved past targets ahead of time and set new goals. Its performance so far has been more than promising, and Subaru is taking steps reach new heights. The company is quite clear about where it sees itself in the U.S. market amid other auto majors -- Subaru is out to create a niche.

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  • Report this Comment On July 28, 2014, at 1:41 PM, Vitabrits wrote:

    Subarus were always the "unofficial car of New England" after the Volvo station wagon got ruined by Ford. They're affordable, safe, fuel efficient and handle well in snow.

  • Report this Comment On July 28, 2014, at 4:48 PM, NoVaEarly wrote:

    They are also the unofficial car of many parts of Virginia. Go to any type of community event around VMI or the horse farms part of Lexington and every other vehicle will be a Subaru. Many with a well behaved dog and coexist bumper sticker.

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