Subaru, the automotive unit of Japanese conglomerate Fuji Heavy Industries Ltd. (NASDAQOTH:FUJHY), has updated its sales forecast for the U.S., the company's largest market. The upbeat forecast reflects the company's growing hold in the country. Though Subaru has a very small share of the market compared to biggies Toyota and Honda, it is outperforming the U.S. auto industry in a big way. Let's get the lowdown on Subaru's sales and goals, and find out what's fueling its tremendous growth.
Growing brand value in the U.S.
Subaru has been in the U.S. for more than four decades now, but its share in the market remained very low for years, hovering at just around 1% the of total U.S. market. But in the past five years, Subaru's share has improved to 3% thanks to its efforts at building cars in accordance with Americans' tastes and winning a loyal customer base.
Subaru has won over customers by improving the quality and safety features of its cars and improving its services. The company has overhauled its product development keeping in mind the Americans' likes and dislikes. Over the past few years, Subaru's cars have become wider, longer and roomier. Not only that, the company has improved its marketing activities to get more local dealers on board, and has become far more serious about improving customer service.
Subaru currently holds the ninth position in terms of sales through August this year. Big brands like Volkswagen, Mazda, Lincoln, Porsche, Lexus, Buick, and Cadillac trail far behind Subaru. And this is despite the company's lean portfolio of just eight models -- Legacy, Outback, Impreza, Subaru XV, WRX, WRX STI, Forester, and Subaru BRZ.
The chart below shows that through the past decade, Subaru has outperformed the overall industry. In fact, when the industry was reeling under the effects of recession, Subaru's sales were improving. In 2011, Subaru's growth was hurt as the Japan earthquake and tsunami hit supply.
Subaru expects to sell more cars in the U.S. in 2014
Driven by surging demand, the company now expects to sell 500,000 cars in 2014 -- 40,000 units higher than the prior expectation. The annual projection reflects a 17.7% increase over last year's sales of 424,683 units and marks 10 years of climbing sales, if you exclude the sudden drop in 2007. This is a significant achievement for Subaru, reflecting the carmaker's resilience to the severe impact of the recession.
Subaru has often exceeded its sales expectations, but selling 500,000 vehicles in a year will mark a significant milestone. Last year, Yasuyuki Yoshinaga, president of Fuji Heavy Industries, said Subaru's annual sales could reach 500,000 units by 2020. This year's forecast shows that the company is far ahead of its long-term target.
Target looks quite achievable
Experts believe that the half-million mark is possible if the monthly average of selling 42,000 cars (January to August) can be maintained for the rest of the year. In 2014, through September, Subaru has sold 375,485 cars, which is an increase of nearly 20% compared to the year-ago period, leaving the market and rivals way behind. In the same period, Toyota and Honda gave grown 5.7% and 0.14%, respectively, which is a far cry from Subaru's growth. But we also have to keep in mind that established players like Toyota and Honda have deeply penetrated the market, and thus even moderate growth rates are seen to be healthy.
Subaru's sales are driven by the surging demand for the redesigned Subaru Forester, Legacy, and Outback. Subaru is also witnessing higher sales of its popular crossover XV Crosstrek, which is the only Subaru car to have a hybrid version.
Forester has seen sales rise at 28% in the first nine months of the year, and the fully redesigned Outback and Legacy models have set sales records in August. The key factors behind the skyrocketing sales could be the cars' better looks, high fuel efficiency and improved safety features.
The one thing that could prevent Subaru from attaining this goal is supply shortages. But the company is proactively handling the situation: It plans to invest $400 million at its lone U.S. facility in Indiana by 2016, to boost the plant's annual capacity by 100,000 units. It currently produces 200,000 cars at the factory. Subaru imports roughly half of its cars from Japan, but things could change once the Indiana facility ramps up. The company is also planning to shift the production of Forester and Impreza models to the U.S. very soon.
Subaru has witnessed slow but steady growth in the U.S. It has continually tailored its offerings to buyers' preferences, which boosted customer satisfaction. The increasing loyal base has helped the company outperform its own expectations. And it's just the beginning of reaching newer milestones. As Fool senior auto analyst John Rosevear puts it, Subaru's got the right products in the right segments of the market at the right time.
ICRA Online and Eshna Basu have no position in any stocks mentioned. The Motley Fool recommends and 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.