Subaru builds on loyal customer base

When Russell Levine’s lease on his 2006 Subaru Forester was coming to an end, his car hunt was quick.

Levine picked out another Forester SUV, his fourth.

Levine, 48, of Huntington Woods, Mich., was not tempted to try another brand.

“The data speaks for itself. It’s highly rated by independent agencies. The mileage is good,” said Levine, an information technology architect who recently started commuting to a new job at General Electric‘s technology center.

Subaru’s message of high safety ratings, fuel economy and resale value is resonating with more drivers, especially highly educated ones that automakers like to capture.

Last year, Subaru’s sales rose 15.4% even as U.S. auto industry sales fell 21%, the best performance of any automaker. That helped the Japanese automaker’s U.S. market share grow from 1.4% to 2.1%. That 50% market-share gain is a huge jump for a niche automotive brand.

Subaru is seen as a quirky company that appeals as much to drivers who need their cars to haul skis as it does to engineers and professors looking for a practical vehicle.

“We always like to refer to ourselves as the best-kept secret in the auto industry,” said Tom Doll, chief operating officer of Subaru of America.

James Bell, Kelley Blue Book executive market analyst, calls Subaru one of the most well-placed companies in the industry. “They seem to be limber enough and flexible enough to find a way to make themselves successful no matter what the rest of the market tends to do.”

Model updates, reviews boost sales

Falling auto sales and the credit crisis that pushed Chrysler andGeneral Motors into bankruptcy reorganization didn’t touch Subaru.

“The stars kind of aligned for us,” said Tom Doll, COO of Subaru of America.

Since mid-2008 — as U.S. auto sales started to dive — Subaru has updated its lineup. It also has received high safety ratings and praise from magazines such as Consumer Reports andMotor Trend.

Subaru’s sales really took off last year with the government’s cash-for-clunkers program. The automaker’s U.S. sales growth went from 6% before the program to 15% by the end of 2009.

Subaru’s momentum, however, didn’t stop last year. The company’s sales are up 33% through February. Doll said he expects sales to be higher in 2010 and that Subaru will hang onto a 2%-plus market share in the U.S.

George Glassman, owner of Glassman Subaru in Southfield, Mich., said he has seen former Jeep, Saab, Lexusand BMW owners switch to Subarus.

“Subaru today appeals to everyone, whereas years ago it really did have a limited audience,” Glassman said.

Subaru can peg some of its sales success on having the right vehicles at the right time. The company’s Outback, Forester and Tribeca fit into the crossover market, which grew from just 3.4% of U.S. auto sales in 2000 to 20.3% in 2009, according to J.D. Power and Associates.

Jeff Schuster, executive director of forecasting at J.D. Power, warns, however, that Subaru will have to work to protect its sales in the market.

“Competitive pressures are only going to intensify,” Schuster cautioned, noting that growth in the crossover market is expected to flatten.

But so far, Subaru has developed a loyal following.

With low inventories — fewer than 10 days for the Legacy and Outback — Subaru has kept incentives low and residual values high.

In fact, Subaru boasts that it has some of the highest resale values in the industry. Those high resale values allowed Subaru to maintain its attractive leasing programs even in the credit crisis.

Moderate lease payments have helped Subaru grow its customer base, said Felipe Mendiola, a partner at Hodges Subaru. Mendiola has seen more young couples come into his dealership in Ferndale, Mich., compared with what he described as his primary demographic of people over age 40 five years ago.

Cultivating niche identity

To meet rising demand, Subaru this year plans to hire 200 to 400 employees at its plant in Lafayette, Ind., where the Legacy, Outback and Tribeca are built.

Subaru, whose parent company Fuji Heavy Industries is partially owned by Toyota, also builds Camrys there.

Subaru’s Indiana plant is an example of how the company has tried to distinguish itself as a niche brand.

Workers noticed eagles, foxes, deer and blue heron on the 800 acres around the plant. They contacted the National Wildlife Federation, which designated the plant’s backyard a wildlife habitat.

That’s not surprising from a company that is known for sponsoring garden and flower shows as much as it is for backing a road rally team.

“We know where our customers are and how to speak to them,” Subaru spokeswoman Heather Ward said.

Subaru also knows its customers do research. According to J.D. Power, 68% of Subaru drivers have at least a four-year college degree, compared with 55% of other new-car buyers. Subaru customers, Doll said, are “happy with who they are. They could afford to buy anything. But they prefer to buy a Subaru.”