Subaru Bucks Recession as Americans Discover Their Inner Tweed
While much of the U.S. auto business is just beginning to emerge from retrenchment mode, sales at Subaru of Glendale are climbing every month -- and owner Sam Ershadi is even considering expanding his California dealership.
“Our customers were not affected by the recession,” he said. “They have a better financial situation.”
By courting financially solid buyers with a taste for the quirky, Subaru of America sped through a dismal 2009, logging record sales and market share along the way, executives at the company said. Last year Subaru became the 11th most popular U.S. auto brand, up from No. 19 just a year earlier, Bloomberg Businessweek reports in its May 24 issue.
Record sales in cities like Los Angeles, Atlanta, Dallas, and Orlando, Florida, helped make Subaru the fastest-growing mass-market car brand in the U.S. for the past two years. It’s the growth leader again so far in 2010 -- up 41 percent through April, according to Autodata Corp. in Woodcliff Lake, New Jersey. Subaru’s unit sales now exceed those of such better- known brands as BMW, Lexus, Mazda, Volkswagen, and Volvo, the data show.
Subaru, the auto unit of Tokyo’s Fuji Heavy Industries Ltd., has long been popular with a core of professorial drivers in tweed in the Northeast and flannel-clad outdoor enthusiasts in the Northwest. Lately, however, the carmaker has been moving beyond the snowy, soggy, and mountainous regions that are its stronghold, Subaru sales results show.
“People have been finding out about them outside of New England,” said Rebecca Lindland, an analyst at IHS Global Insight in Lexington, Massachusetts. “They are quietly successful, and their buyers appreciate that. They haven’t abandoned their core.”
Subaru’s secret may be that it understands the customers who drive its cars and has gotten smarter and more aggressive about reaching out to new ones who would feel at home as part of that clan, she said.
The company, based in Cherry Hill, New Jersey, has the type of customer base that’s particularly attractive to carmakers, said Alexander Edwards, president of market researcher Strategic Vision. The average household income of a Subaru owner is $88,000, the same as Honda Motor and $10,000 more than Toyota, Edwards said. Plus, Subaru buyers are three years younger than the industry average and a quarter more likely to have a college degree, he said.
They are a thrifty lot, traditionally buying less car than they can afford, Edwards said. Some 36 percent pay cash. Subaru has played to that frugal bent by cutting roughly $1,200 from the $26,342 average price of its cars in 2007, according to data compiled by Edmunds.com in Santa Monica, California.
Those cuts haven’t killed profit margins because the lower prices allowed Subaru to reduce sales incentives and rebates on its cars substantially, said Thomas Doll, chief operating officer. Currently, the company gives about $1,333 per vehicle in incentives -- the lowest level of any major car brand, he said. That’s almost half the $2,310 in incentives Toyota gives its buyers.
Much of the automaker’s marketing focuses on cementing its connection to customers. Subaru’s research shows them to be an eco-friendly bunch who value the freedom to go where they want, when they want, he said.
Unlike luxury car buyers, Subaru-ers are “customers who are not buying things, but experiences,” said Chief Marketing Officer Tim Mahoney.
That meshes with Subaru’s all-four-wheel-drive lineup, showcased by TV ads that star one of its cars caked with road grit, being applauded by spectators on a suburban Main Street. The tagline: love.
“In their marketing, they’ve been focusing on what creates love between the owner and the automobile,” said Edwards. “The ‘share the love’ campaign has been effective. They play up fun, the adventure you can have in a Subaru.”
Last year the company sold a record 216,652 cars in the U.S., including the Legacy sedan and the Forester and Outback sport-utility vehicles.
It’s upping production 40 percent this year at its Indiana plant, which also builds cars for Toyota Motor Corp., Fuji’s largest shareholder. The plant is located in an official wildlife preserve with no waste sent to landfills, in keeping with Subaru’s support for causes such as the American Canoe Association and the Leave No Trace Center for Outdoor Ethics.
‘Poor Man’s Audi’
Such brand-building moves help Subaru win new customers on the cheap. It spends about $154 million a year on U.S. advertising -- $100 million less than the Volkswagen AG’s namesake brand, a fifth of what Hyundai Motor Co. spends, and a fraction of the $2.2 billion plunked down by General Motors Co., the industry spending leader, according to Kantar Media in New York.
“They’re kind of the poor man’s Audi,” said James Bell, executive market analyst for Kelley Blue Book in Irvine, Calif.
To keep growing, Subaru would benefit from adding a compact-class car and hybrid to its U.S. line, said Bell. Subaru and Toyota have said they’re working together to develop a small, sporty car that both will sell. Fuji Heavy President Ikuo Mori has said the company’s first hybrid will arrive in 2012.
One thing won’t change: Subaru’s emphasis on the relatively upscale buyer who values freedom and frugality, Mahoney said. Subaru managers said they estimate that’s a market of up to 60 million buyers -- far larger than the niches of academics and tree-huggers it’s long been associated with, Strategic Vision’s Edwards said.
“They are basically adding people who are Subaru buyers in their hearts, but don’t know it,” said Edwards.
By Subaru’s math, with 2.4 million Subarus now on the road, that leaves 57.6 million customers to go.