Are Subarus the best cars money can buy?

So Subaru will have to find new ways to differentiate itself, which shouldn't be much of a stretch. Since its founding, it has always gone its own way. Its headquarters are in a New Jersey suburb, several thousand miles away from its Japanese competitors in Southern California. While former sales managers and marketing experts sit atop most import car companies, Subaru's highest American executive is an accountant who started at the company as an assistant treasurer. And Subaru's product history is studded with oddities like the BRAT, a mini-pickup with rear-facing jump seats bolted to the rear bed to circumvent a tariff known as the chicken tax; the Justy, which Top Gear said "manages the impressive feat of being as boring as its name promises"; and the Baja, a station wagon, built with an open cargo bed in place of a rear compartment, which one reviewer compared to a platypus.

Instead, it made two important decisions that continue to resonate today. It decided to equip all the vehicles it sold in America with all-wheel drive. It also created a high-trim version of its Legacy station wagon with SUV design cues, named it the Outback, and hired Paul Hogan of Crocodile Dundee fame as its spokesperson. Billed as "the world's first sport-utility wagon," the Outback was slow to catch on, but its sales have grown fourfold since 1996. It has gradually morphed from a station wagon into a true crossover -- high roof, raised suspension, beefy bumpers -- but remains Subaru's biggest seller.

Subaru was becoming known as a quirky, likable product with a workaday attitude. But awareness and sales slipped throughout the 1990s and early 2000s, in part because Fuji had decided that Subaru's AWD technology deserved a premium price. Even though the Subaru brand was soundly locked in the Japanese mid-tier along with Mazda and Mitsubishi, Fuji felt that since its car was technically equivalent to an Audi, it should sell for a similar price. It took some convincing by American executives, but in 2007 the pricing was gradually readjusted, smoothing transactions on the sales floor and improving resale values. When the 2009 Forester was introduced, for instance, the base price was cut by $1,200.

Sales responded to the change almost immediately, and by 2010 Subaru had passed 260,000 vehicles a year. The repricing was a victory for executive vice president Tom Doll, a 30-year Subaru vet and its top American executive, who had long argued for the change. Methodical and even-keeled, Doll joined Subaru after five years at the old Big Eight accounting firm of Arthur Young, and rose steadily through the company in treasury operations, strategic planning, and finance. Doll knows Subaru so thoroughly that he now serves as both chief operating officer and chief financial officer -- an unusual doubling of responsibilities for an executive in an $8 billion company. He runs it by the book. "We like to play it straight," he says. "We don't goof around."

Under Doll, Subaru is executing a strategy of controlled expansion designed to boost unit sales and build profit margins. It has created an Outback-like version of the Impreza called the XV Crosstrek that it will sell for a premium price after raising the suspension and adding new bumpers and plastic body cladding. And it is giving its performance models, now known as the Impreza WRX and Impreza WRXSTI, standalone identities by dropping the Impreza name. The move should boost brand recognition in places like Southern California, where these high-horsepower cars with bulging hood scoops and flared stabilizer wings are Subaru's highest-profile vehicles, and also make it easier to justify the $8,000 price bump over the standard Impreza model.

Asked what's missing from his model lineup, Doll says a seven-passenger vehicle. In a rare misfire, Subaru put on sale the B9 Tribeca, a midsize crossover, in 2005. Aside from its unfortunate name, the Tribeca introduced what was intended to be a new design language with a rounded body and odd triangular grille. The B9 part of the name was dropped, and the ungainly design got a quick face-lift, but the Tribeca has never caught on. Doll blames its failure partly on the seven-passenger designation; the two seats in the third row aren't big enough to fit adults comfortably.

Doll is trying to expand Subaru's geographic base. He aims to generate 20% of sales in Sun Belt states in the next two years, up from 9% two years ago and 15% now. He has been scooping up former Saturn dealers, adding eight in the Carolinas and Florida. Subaru is shooting for a nationwide network of 630 dealers by 2015, compared with 620 today.

Subaru is slowly building its manufacturing capability in the U.S. At the Lafayette plant, it is investing $75 million in a 52,000-square-foot addition to the body-assembly section this summer. That will increase the plant's capacity to 180,000 vehicles a year, vs. 156,000 now.

With Subaru on a path to reach its U.S. sales goal of 320,000 units for 2012, Doll has mapped out a strategy that he expects will lead to sales of 350,000 units by 2016 while maintaining a market share of at least 2%. He's not changing his philosophy: The inventory of cars will remain tight. Subaru is currently running with a 45-day supply, compared with the 65 days that are considered optimal in the auto industry, and Doll plans to keep it that way. "Inventory is the kiss of death and the root of all evil," he says, only half-jokingly.

His expansion plans are getting a boost from Fuji, which is crashing a program to modernize its technology with the aim of boosting fleet-wide fuel efficiency by 30% by 2015. It has introduced a third-generation boxer engine (Subaru's first entirely new engine in 20 years), and is developing hybrid powertrains and fuel-thrifty continuously variable transmissions (CVTs).

The success of the BRZ underlines one question mark about the future of Subaru that could be both an asset and a liability: its ties with Toyota. Besides designing the sports car and sharing space in the Indiana plant, Toyota owns 16.5% of Fuji Heavy, having doubled its stake in 2008. Further cooperation could give Subaru access to technology and speed its expansion into global markets. The risk, of course, is that the giant company would squeeze the individuality out of the smaller one. The partnership will be successful only if Toyota remembers what makes a Subaru a Subaru. It is a lesson that has taken Subaru a long time to learn and one that it has no intention of forgetting now.


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