Subaru Pulls Into The Image Shop

"Inexpensive. And built to stay that way." For years, that slogan summed up the appeal of a Subaru. As the U. S. marketing arm of Japanese auto maker Fuji Heavy Industries Ltd., Subaru of America Inc. prospered by selling four-wheel-drive compacts such as the GL for a modest $6,500. But when the yen started to soar against the dollar during the mid-1980s, a Subaru was no longer such a bargain. Market share slipped. And Subaru responded by offering rebates of up to $2,000 per vehicle--a move that resulted in a loss of $130 million from 1987 to 1989. Suddenly, it seemed, Subaru wasn't built to stay.

But now, thanks to the clubby ways of Japanese corporations, Subaru is in the shop for a big repair job. Realizing that its pipeline into the U. S. was in danger of being choked off, Fuji last August shelled out $66 million to acquire from the public the 50.4% of Subaru that it didn't already own. Another corporate sugar daddy, Nissan Motor Co., has also offered to help bail out Fuji and Subaru. Why Nissan? It's one of Fuji's largest shareholders and a fellow member of the Industrial Bank of Japan Ltd. keiretsu, a gaggle of companies bound together by interlocking shareholdings.

Together, Fuji and Nissan are laboring to recast Subaru's image. In June, Fuji fired Levine, Huntley, Subaru's ad agency of 15 years, and awarded its $70 million account to Wieden & Kennedy Inc., a Portland (Ore.) shop that has won critical praise for its hip Nike ads. To shore up the company's relations with consumers, Fuji is sending Subaru's 700-plus dealers and some 2,000 employees through special seminars on customer service. And back in Japan, Fuji is gaining plenty of manufacturing knowhow from Nissan: Both are studying ways to save money through joint production, research, and transportation projects.

SPACE-AGE DESIGN. Subaru has already managed to halt its three-year market-share slide. During the first half of 1991, Subaru's piece of the U. S. passenger car market edged up to 1.3%, from 1.2% at the end of 1990. That's still well off the 1.7% share it posted in 1987, but gaining new customers during a recession was no cakewalk. Subaru also hopes that its image will get a boost this fall with the roll-out of the SVX, a $25,000 sports coupe with a powerful six-cylinder engine and a distinctive space-age window design. Says Takeshi Higurashi, a Fuji managing director who assumed the title of chairman and chief executive officer at Subaru of America in July: "Top Fuji management is very active in the American business."

Fuji management also has plenty of troubles to worry about back home in Japan. Its high production costs and reliance on low-margin minicars such as the Justy--also sold in the U. S.--have hurt the auto maker. Fuji's market share in Japan slipped from 5.5% in 1985 to 4.3% in 1990. In its fiscal year that ended Mar. 31, Fuji lost $472.3 million on an unconsolidated basis.

Nissan, which holds a 4.2% stake in Fuji, has clearly been worried by its slide. Last summer, Nissan installed Isamu Kawai, who had turned around his company's money-losing truck business, as Fuji's president. Back in the mid-1970s, Nissan helped launch Fuji's move into larger autos, and their ties have since grown. Fuji recently agreed to assemble Nissan's Pulsar model at its plant just north of Tokyo, where it has plenty of excess capacity.

In return, Fuji will pick up some cash and manufacturing expertise from Nissan. The two are also studying ways to obtain manufacturing efficiencies by designing parts that can be used interchangeably in Nissan and Fuji models. And to save money, Nissan ships will soon transport Fuji cars to Europe.

All of this helps. But Fuji's real aim is to turbocharge Subaru's sales in the U. S., its largest export market. When Subaru enjoyed a big pricing edge, it simply sold anything Fuji sent over. Those days are long gone. Although it was among the first to come out with four-wheel-drive passenger cars during the mid-1970s, that market is now jam-packed with rivals.

REBATE WITHDRAWAL. Nowadays, Fuji executives are making their presence felt at Subaru--and how. Subaru recently laid off 110 employees, or about 11% of the U. S. work force, saving about $20 million a year. The survivors now attend seminars by car consultant J. D. Power & Associates Inc. on the importance of customer service. Subaru once ranked No. 2 in J. D. Power's consumer satisfaction survey; it's now No. 11. Says Higurashi: "It's important for us to regain a reputation for consumer satisfaction."

Subaru wants to regain its identity as a purveyor of durable, practical cars, too. Wieden & Kennedy is preparing an ad campaign that will position Subaru's Legacy and Loyale models as practical alternatives for individuals who don't follow the herd--though it's unclear how the SVX coupe, priced at $25,000, will fit into that strategy.

Fuji also hopes to reduce its addiction to rebates. Instead of offering cash, Subaru has thrown in options such as air-conditioning at no charge--a move that has doubled the sales of its Loyale subcompact model this year. But Subaru still discounts a fair bit. And its core Legacy model now faces stiff competition from the Toyota Camry, among others. Says George E. Borst, vice-president for strategic and product planning at Toyota Motor Sales USA Inc.: "Subaru's got a tough road ahead. Their buyer has a lot more options available with four-wheel-drive vehicles."

True enough. But things may be looking up. Subaru executives are predicting an 11% jump in sales this year. And given the fraternal world of Japanese carmaking, it's unlikely the safety net will be yanked out from underneath Subaru and Fuji anytime soon.


Parent Fuji Heavy Industries, asserting greater control, brought in its own executive, Takeshi Higurashi, as Subaru's new chief. To slash overhead, company has eliminated 11% of its U.S. work force


Recently awarded its $70 million account to Wieden & Kennedy, a hot Portland ad agency. The aim: Create a new image for Subaru's cars so they stand out from the pack of rival Asian nameplates


Subaru's SVX coupe due out this fall will add some sizzle to the carmaker's lineup of four-wheel-drive compacts. Expected to sell for about $25,000, the SVX features a powerful six-cylinder engine


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