Subaru's `Spiritual' Message Spurs U.S. Sales as Rivals Discount

(Bloomberg) -- With almost all carmakers heaping on the discounts to keep the U.S. auto market at a plateau, Fuji Heavy Industries Ltd.'s Subaru just notched its 63rd-straight monthly sales gain, with minimal incentives to get customers in the door.

Subaru's unorthodox marketing strategy -- heavy on branding and light on rebates -- has been an absolute hit with American consumers. A television campaign in December, for example, didn't star any cars and instead featured an adopted dog. At a time when its peers flooded the airwaves with cash-back offers to close out the year with a bang, Subaru linked vehicle purchases to charitable donations of its customers' choosing.

“We live in a very secular society, but we're still spiritual people,” Tom Doll, president of Subaru's U.S. unit since 2013, said in an interview. Sounding more like a yogi than a treasurer or accountant -- he's been both for the company -- Doll said Subaru is “trying to reach people at their core and at their spirit.”

Subaru's U.S. sales rose 8.3 percent to 45,500 vehicles in February, padding the market share gains the company has built for five consecutive years. The Outback crossover's 13 percent increase drove last month's growth, though deliveries of the refreshed Impreza compact also advanced, bucking an industry trend of plummeting passenger car sales and swelling inventories.

Defying Odds

“When sales dropped for everybody else during the recession, it was like Subaru didn't even know there was a recession,” said Michelle Krebs, senior analyst with car-shopping website Autotrader.com. “They've defied the odds.”

Doll's marketing strategy may sound lofty, but it's also proved practical. Despite nearly a decade of annual U.S. sales gains, Subaru is still a pipsqueak relative to some of its Japanese peers, with just a 3.5 percent share of the U.S. market in 2016. The 615,132 cars and sport utility vehicles delivered last year still left the company well behind Toyota Motor Corp., which finished with 2.4 million.

While the U.S. is Subaru's largest market, the Tokyo-based company doesn't have the money to get into price wars with larger competitors, and it doesn't want to, Doll said.

“They make enough to sell, year over year, they don't overproduce or mass produce -- that's why the cars hold value,” said Nino Tiburzi, a sales manager at Koeppel Subaru in Long Island City, New York.

Subaru's growth spurt led the company to elbow-out its biggest shareholder from its lone auto assembly plant outside Japan last year. The company stopped making the Camry sedan for Toyota at a factory the two had been sharing in Lafayette, Indiana.

The move freed up capacity for Subaru's own models. It's now making the Legacy, Outback and the new Impreza in Indiana, as well as a three-row SUV to be unveiled at the end of this year for 2018.

Production Plans

Booting Toyota from Indiana will give Subaru enough capacity to achieve its goal of 800,000 to 850,000 annual U.S. sales by as soon as 2020, Doll said. The company plans to reassess production plans once it reaches that point.

Tiburzi said he has no complaints about the cars he sells. The brand's entirely all-wheel-drive lineup scores safety points with consumers and caters to its core audience of outdoor enthusiasts. Consumer Reports on Tuesday named the Forester its top-rated small SUV for a fourth-straight year, beating out the Honda CR-V, Toyota RAV4 and Ford Escape.

The three-row SUV Subaru will introduce later this year is a second attempt by the company to crack the segment after a rare recent flop. The Tribeca model was discontinued at the end of 2014. The new SUV will reflect a bet by the company on millennials wanting to buy larger cars as they start families, Doll said.

Even if consumers want more Subarus, the company's growth plans aren't without risks. President Donald Trump has said he wants to impose a border tax on imported cars, raising the specter of higher auto prices in an already-cooling market.

Import Risk

Since Subaru imports about 57 percent of the vehicles it sells in the U.S. from Japan, the company would need to boost prices by about $3,656 per vehicle to offset a border tax, researcher Baum & Associates LLC said last month.

“It's going to have a significant impact in terms of reduced sales,” said Larry Kull, a Subaru dealer in New Jersey who's lobbying against the border tax as a member of the American International Automobile Dealers Association. “This thing will moderate because it has to.”

Subaru also isn't totally immune to pricing pressure. It's grappling with how much it should follow the industry in spending more on incentives to protect market share.

“We can't out-Toyota Toyota, and we can't out-Honda Honda,” Doll said. “As long as we stay true to who we are, they come to us on our terms.”

--With assistance from Yuki Hagiwara and Jamie Butters

To contact the reporter on this story: Gabrielle Coppola in New York at gcoppola@bloomberg.net.

To contact the editors responsible for this story: Craig Trudell at ctrudell1@bloomberg.net, Anne Riley Moffat