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.
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.
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.
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.
Subaru has paired these strategies with offbeat marketing promoting a quirky lifestyle with an ample dose of physical activity and fun.
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.
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.
Gaurav Basu has no position in any stocks mentioned. The Motley Fool recommends Ford. The Motley Fool owns shares of Ford. 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.