Inside The Mind Of A Subaru Executive

The Little Company That Can

Subaru of America Chief Marketing Executive Tim Mahoney stood in the gallery at Detroit's Cobo Hall on the recent media preview day at the North American International Auto Show while Volkswagen executives introduced their new Passat mid-sized sedan. He smirked, shook his head, and had a satisfied grin on his face.

"I'm glad I'm not them," Mahoney whispered. "Them," are the executives at Volkswagen of America charged with carrying out a plan handed to them by their German parent to grow Volkswagen sales to 800,000 by 2018, up from 256,830 last year. Mahoney is quick to note that even Subaru, with its limited product line of four principal vehicles, outsold VW last year, which had, depending on how you count the company's model lineup, 11 vehicle lines.

Subaru just finished up another satisfying year selling mostly small, all-wheel-drive vehicles, growing sales 22 percent, the third straight year they've grown by double digits. By comparison, the industry grew just 11 percent. And with some big brands like Saturn and Pontiac exiting the market last year, Subaru also cracked the top-ten biggest auto brands in the U.S.

Should A Small Car Company Become a Big One?

Mahoney seems happy with such growth, and, more importantly, parent company Fuji Heavy Industries in Japan, seems content with it. But it begs the question: With just four principal model lines, is Subaru hitting a ceiling in the U.S., or is there still room to run?

"I definitely think we can continue our growth without adding another big model," says Mahoney.

But what he is counting on is that redesign of the Impreza sedan and hatchback due in mid 2011 will attract lots of new buyers just like redesigns of the Forester and Outback crossovers did. Over the last two years, 60 percent of Outback and Forester sales have been "conquest," which means the buyers were driving a rival brand before switching to Subaru.

"With each redesign of an existing model, we are reaching a lot of new buyers," says Mahoney, who returned to Subaru in 2006 where he cut his teeth in the 1990s after spending nine years as head of advertising for Porsche North America.

Parent company Fuji has a reputation for being conservative and risk averse (its cars still sport four-speed automatic transmissions), unlike, say, Volkswagen, which has a stated goal of leading the world in vehicle sales by 2018. A small player in its home market of Japan, the growth in the U.S. is almost more excitement than Fuji executives can stand. "My marching orders are simple," says Mahoney. "Sustainable, profitable growth... no hard sales volume targets."

Outback Is Still Most Popular

Subaru's top seller is the Outback crossover wagon, which sold 93,000 in 2010. The Legacy sedan, built on the same platform, sold 39,000. The Forester crossover, which sold 85,000, and Impreza, which sold 44,000, also share an engineering platform. The fifth wheel, in more ways than one, is the Tribeca SUV, a larger crossover SUV that simply never caught on with Subaru loyalists, who prefer the wagonish Outback and Forester, or anyone else for that matter. Subaru sold a scant 2,500 Tribecas last year.

Overall, Subaru has gone from 187,000 sales in 2007 to 263,820 last year. Where is the growth coming from? Start with the Forester, which was redesigned for the 2009 model year. The small SUV went from a square, utilitarian wagon design that seemed inspired by a grocery cart to a more chiseled, sleek crossover. The Outback redesign for the 2010 model year, also a hit with the public, added four inches of leg room to the backseat, plus an interior cabin design and creature comforts that made the vehicle less quirky and more comfortable.

Besides redesigns that have met with approval from Subaru loyalists, Subaru revamped stickers to lower starting prices and build more features into affordable packages. "Our pricing was not buyer friendly at all," says Mahoney. "And now, we have the best residual values in our segments."

Looking at the way Forester doubled sales in a couple of years, Mahoney thinks the same is possible when the new Impreza comes out mid-year. The WRX and WRX STi performance derivatives will follow. Plus, he says, there is still room to grow Outback and Legacy sales. The one additional product known to be coming later this year or in early 2012 is a sports car Subaru is developing with Toyota. It will be built on a Subaru platform and will have a boxer engine. That car, though, would likely add fewer than 10,000 new sales.

Part of the new Impreza's appeal will be fuel economy. The new car, even with Subaru's standard-all-wheel-drive system, should get 35 mpg on the highway. That's comparable to a Honda Fit. That fuel economy boost is one reason we shouldn't expect a sub-compact from Subaru, one that would compete more directly against cars like Toyota Yaris or Hyundai Accent.

If Mahoney is right about how the current lineup will continue to grow, then Subaru could be adding another 70,000 sales in the next two to three years, or 27 percent above where it is now. But if it wants to maintain its 2.3-percent market share, and projections of 15 million industry sales by 2015 are true, Subaru would have to sell 345,000 vehicles a year by mid-decade. With just four model lines, plus the niche sports car, that does seem reachable.

If there is any lingering question it would be a replacement for the miserable Tribeca, but Mahoney, guarded about future product, seems to indicate that the company is not going in that direction. "When we make mistakes, it usually comes when we stray from what we do best or try to hard to compete too much in the mainstream," he says.

Auto industry analysts say that Subaru is benefitting from baby boomers trading out of big SUVs they bought seven, eight and nine years ago and into smaller utility vehicles, and a relentless brand focus that eventually pays off with sales and customer loyalty. "People who have Subarus or are attracted to check them out for the first time have a very clear idea of what the brand is about and stands for, and that is very valuable," says Charlie Hughes, author of "Branding Iron: Branding Lessons from the Meltdown of the US Auto Industry," and a former auto industry marketer.

Focus On Owner Loyalty

That focus was what Mahoney brought upon his return to Subaru in 2006. For the last four years, Subaru's ad slogan and strategy has been, "Love. It's what makes a Subaru a Subaru." It signaled a shift from a largely rational message scheme touting all-wheel-drive, safety technology and boxer engines to one that talked about those things in an emotional way. "The big insight for us was pretty simple," says Mahoney. "Subaru owners love, really love, their cars, and we thought it better to have deeply committed zealots star in our marketing rather than celebrities."

That was a big change. Subaru had gone through a series of celebrity pitchers along with its revolving ad slogans including Paul Hogan when Subaru launched the Outback in the 1990s, actor Judge Reinhold, tennis great Martina Navratilova and cycling superstar Lance Armstrong.

"We found that people well understood the all-wheel-drive message, but they wanted more to engage with," says Mahoney. Even year-end clearance sales have taken on the love theme. For the last few years, Subaru's campaign has been "Share The Love," in which it donates $500 to one of a handful of charities such as Habitat for Humanity and Meals On Wheels.

Subaru also has a long, impressive list of sponsorships of sporting groups big and small, from The American Canoe Association to National Ski Patrol, prompting executives from Chrysler to recently complain that every time they went looking for an association for Jeep to sponsor they found Subaru was already there.

"We're the little company that could," smiles Mahoney. Make that the little company that can.

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