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Sales of Subaru's Forester have been on a remarkable tear in 2014. What's driving the surge? Source: Subaru.

Subaru is a niche automaker; its sales volumes in the U.S. are a fraction of those posted by giants like Toyota or Honda -- to say nothing of Ford or General Motors.

But lately, Subaru's sales have been growing rapidly -- so much so that the company said this week that it's on course for a record year.

A boost in sales for a relatively small player
Subaru's U.S. office said this past week that it has revised its full-year sales forecast to 500,000 vehicles, an increase of 40,000 from its earlier guidance. 

That would mean a 17% year-over-year sales increase for the brand. As of right now, that seems conservative: Through August, Subaru's U.S. sales are up 18.6%, well ahead of the overall market's 5.1% gain.

Subaru arguably invented the idea of the crossover -- industry slang for a vehicle that combines SUV-like all-wheel-drive capabilities with carlike construction and handling -- with its original Outback. And the latest Outback, introduced earlier this year, has improved on the original formula without dramatically changing it. Sales of the new model were up over 12% last month.

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The new-for-2015 Subaru Outback is hitting its sales stride. Sales rose 12% in August. Source: Subaru.

Meanwhile, the somewhat-more-SUV-like Forester has seen huge sales gains since the newest version was introduced last year. Consumer Reports gave it a glowing review, and buyers have been plentiful: U.S. sales of the Forester -- which was already one of Subaru's best-sellers -- are up almost 43% this year. 

And the small XV Crosstrek SUV -- based on Subaru's compact Impreza -- has also seen a big rush of interest. Its sales are up almost 41% this year. 

So, what is driving Subaru's big 2014 sales surge?

Subaru is hitting the sweet spot of the market
Subaru is in the happy situation of having the right products at exactly the right time.

America's car-buying preferences change over time. A decade ago, big truck-based SUVs were hot -- and then gas prices rose, and buyers started favoring compact and midsize cars instead.

Recently, buyers have started heading back toward SUVs, but not the big ones. Instead, they're favoring compact and midsize SUVs, especially crossovers like the Forester and Outback. Today's compact and midsize crossovers are much more fuel-efficient than the big truck-based SUVs of old, while offering more car-like handling and amenities -- with more room than comparable cars.

Analysts at TrueCar say that through the first eight months of 2014, the small and midsize utility market segments have gained 1.8 percentage points of market share in the U.S., while their sedan counterparts have lost 1.4 percentage points. That's a big shift. 

TrueCar also pointed out in a report this week that utilities have higher average transaction prices than cars -- $5,378 higher for a small utility versus a small car -- but only cost $1,000 to $1,500 more to produce. That means big profits for their makers -- including Subaru's corporate parent.

A relatively small automaker that generates good profits
Subaru is a wholly owned subsidiary of Japan's Fuji Heavy Industries (NASDAQOTH:FUJHY), a relatively small company that has long taken a conservative approach to managing its automaker.

It's a Japan-based automaker that sells around the world, but its focus has long been in the U.S. The chart below shows Subaru's sales by region in the quarter ended June 30. As you can see, the U.S. is far and away the company's biggest market.

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Source: Subaru.

Part of Subaru's success is simply that it has stuck by what it does best. Subaru doesn't try to capture every buyer. It hasn't pushed into luxury cars, it hasn't tried to take on Detroit with pickup trucks, it doesn't make an SUV for every purpose.

Instead, it sticks to a few market niches that it knows well, and focuses on offering good value for money -- while refining its products to keep them competitive over time.

That has paid off in more ways than one: Subaru's reliability ratings are regularly near the top of the industry's -- and its owner-satisfaction ratings are also high.

Meanwhile, profits have been strong. Subaru's net income in the quarter ended June 30 was 52.5 billion yen (about $488 million), up 7.8%. Subaru's global net sales were 593.4 billion yen, and operating income was 78.7 billion yen. 

Subaru's 13.2% operating profit margin is extremely strong for a mass-market carmaker -- compare to Ford's 11.6% margin in North America last quarter. 

There's no doubt that favorable dollar-to-yen exchange rates have helped boost Subaru's bottom line, just as they've helped Toyota and the other Japan-based automakers. 

But having good products in the hottest segments of the market has helped much more.

John Rosevear owns shares of Ford and General Motors. The Motley Fool recommends Ford, General Motors, and Tesla Motors. The Motley Fool owns shares of Ford and Tesla 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.