Japanese conglomerate Fuji Heavy Industries' (NASDAQOTH:FUJHY) Subaru automobile division generated $20.8 billion in sales in the fiscal year ended March 2014 at current exchange rates. Roughly 53% of the deliveries were in the U.S. So, on a conservative basis, we can deduce that the U.S. has evolved into a $10 billion market for the company. The hot-selling brand has made sales records in each of the past five years in the country.
Recently, Consumer Reports' Car-Brand Perception Survey recognized Subaru as the sixth-best brand, the carmaker's first entry into the top 10. That's quite an enviable feat for an automaker that's neither that old nor that big in the industry. What is behind Subaru's phenomenal success? How has it won over Americans' hearts? Let's explore.
Subaru has been strengthening its base in the U.S. with an efficient marketing plan, after-sale services, good customer relationships, and timely model upgrades with advanced features and styling. Some of its most successful strategies have been:
Subaru is probably the only auto manufacturer to offer all-wheel drive in nearly all its base models, except the BRZ, and at pocketbook-friendly prices that give it an edge over the competition. In severe weather and on tough terrain, there's no beating all-wheel drive. Speaking about Subaru's all-wheel drive offerings, Edmunds analyst Jeremy Acevedo noted, "Subaru has carved out a niche with this and has cultivated one of the most loyal bases in the industry." In fact, Japanese rival Honda is trying to take a page out of Subaru's playbook by introducing all-wheel drive as standard for its luxury brand Acura.
Focus on big cars:
Americans drool over SUVs and crossovers, and Subaru has penetrated the segment in a big way through its Forester, Outback, and Crosstrek models.
Safe driving has been, and remains, at the heart of Subaru's core values. Over the past five years, Subaru has won Top Safety Pick awards from the Insurance Institute for Highway Safety (IIHS) for every one of its models. The 2014 Impreza and XV Crosstrek won IIHS Top Safety Pick, while the 2014 Legacy, Outback, and Forester have secured IIHS Top Safety Pick+ status. Its revolutionary pre-crash safety add-on, EyeSight, has also gotten rave reviews from IIHS.
Demand for fuel-efficient cars is rising, and every manufacturer is introducing models that offer higher mileage per gallon. According to the U.S. Environmental Protection Agency, total fleet average fuel economy in 2013 improved 0.5 miles per gallon over the previous year, and Subaru holds the No. 3 position in successfully boosting fuel economy. The company's most fuel-efficient models are the Forester and XV Crosstrek Hybrid.
Falling in love with Subaru
Subaru's hard work and strict adherence to the core values of "adventure, safety, versatility and longevity" have won it brand loyalty and a high conquest rate. Conquest rate shows the growth of new customers who have shifted from another brand. In an IHS Automotive study, Subaru increased its brand loyalty in the first quarter of 2014. In another instance, IHS Automotive in January recognized Subaru as having the "Most Improved Conquest Percent of Registrations."
The best part is that Subaru is receiving these accolades without relying too heavily on incentives. While all Japanese carmakers have the luxury of offering the best possible incentives due to the favorable currency impacts, Subaru has restricted itself to very low ones. Per industry research firm Autodata, Subaru offers the lowest incentive among automakers in the U.S.
The effect is visible on sales numbers
Subaru's performance in the U.S. has been consistently strong, making it the fastest-growing brand. During the last fiscal year, Subaru sold 825,098 cars globally, registering 13.9% growth over the previous year. This was entirely driven by the U.S., which registered a 23.6% year-over-year sales increase to 441,799 units. Subaru has grown sales in the U.S. in every fiscal year since 2009 and nearly doubled its shipment volumes in the last five years.
Earlier this year, Subaru of America President Tom Doll said Subaru's annual U.S sales could reach 500,000 units by 2016. That target actually looks quite conservative -- chances are Subaru could surpass the target by this year-end.
Subaru has figured out the tastes of its American buyers to a T and has devised successful strategies around them. Thanks to its unflinching dedication and uncomplicated approach, the company is on its way to reaching even greater milestones.
ICRA Online and Eshna Basu have no position in any stocks mentioned. The Motley Fool recommends and 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.