Subaru Is Way Too Reliant On U.S. Market, Needs A New Market, Chooses Sweet Land Of Liberty
“Washington is not a place to live in. The rents are high, the food is bad, the dust is disgusting and the morals are deplorable. Go South, young man, go South and grow up with the country.” —Not Horace Greeley
Subaru generates 60 percent of its global sales in the United States. For a Japanese brand that still relies on imports for half of its volume in its largest market, Subaru knows that 60-percent reliance on America is way too high.
Subaru needs strength in other markets. Subaru needs to diversify its portfolio. Subaru needs another America.
Unfortunately for Subaru, history suggests the brand won’t quickly find strength in other markets. History suggests Subaru’s attempts to diversify its portfolio won’t succeed.
Fortunately for Subaru, however, there is more America.
“It’s true we want to increase sales in other countries, but in terms of the place with the best chance to increase sales, it has to be America’s Sun Belt,” Yasuyuki Yoshinaga, CEO at Subaru’s Fuji Heavy Industries parent company, told Bloomberg.
In other words, Subaru wants to add some New Orleans to its order of New Hampshire; Burlington with a side of Birmingham; Kennebunkport supplemented with a dose of Port St. Lucie.
When it comes to offshore alternatives, Subaru is shorthanded.
In Europe’s two biggest markets, Germany and the United Kingdom, Subaru’s market share currently stands at 0.2 percent and 0.1 percent, respectively, hardly the strong foundations on which significant growth can be formulated.
Subaru owns just 0.2 percent of the Chinese market and has no presence in India.
As a result, Subaru’s eyes are drawn back to the United States, where Subaru has garnered record annual sales in eight consecutive years, a streak which began during the depths of the recession. Subaru has more than doubled its U.S. volume since 2011 and essentially tripled its U.S. volume since 2009.
Subaru, therefore, fears no downturn in the U.S. market, widely expected to be a modest one if it turns out the industry peaked in 2017. Subaru has proven its ability in the past to overcome poor U.S. economic conditions. With improved availability, Subaru believes it could do so again. But the brand’s U.S. horizons must be expanded, as Yoshinaga told Bloomberg, “There’s no other way for us” besides U.S. concentration.
There are certainly states open for business if Subaru can find a way to convert its rugged, all-wheel-drive appeal in the northeast, northwest, and mountain states to a message that appeals to buyers who don’t encounter snow, ice, and slush.
Subaru will want to play up its reliability, safety, and resale reputations where AWD is a less meaningful feature. On Consumer Reports’ 2017 list of the best brands, Subaru ranked fifth overall and first among mainstream auto brands. At the Insurance Institute for Highway Safety, the Crosstrek and WRX are Top Safety Picks; the Impreza, Forester, Legacy, and Outback earn Top Safety Pick+ ratings. In ALG’s residual value awards, Subaru leads all mainstream brands, with the Impreza, Legacy, WRX, Crosstrek, Forester, and Outback all winning their respective categories.
If Subaru wants to sell more cars, however, the automaker must continue to battle a good problem: poor supply. Heading into February, Subaru had only 36 days of U.S. inventory — 60 days would be more appropriate. This low level of supply and high level of demand has allowed Subaru to keep incentives low and profit margins high. According to ALG, Subaru’s incentive spending in February averaged just $896 per vehicle in an industry that spent $3,443 per vehicle. That equals a modest 3-percent discount on Subaru vehicles when the industry offers 10-percent discounts. Bloomberg says Subaru’ 2016 Q4 profit margin, at 11.6 percent, was industry-leading.
Through the first two months of 2017, as U.S. auto sales fell 1.5 percent compared with the same period one year earlier, Subaru volume jumped 7.5 percent. Rapid Outback growth, significant Impreza improvements, and Forester and Crosstrek increases have all played a role.
Timothy Cain is the founder of GoodCarBadCar.net, which obsesses over the free and frequent publication of U.S. and Canadian auto sales figures. Follow on Twitter @goodcarbadcar and on Facebook.
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