Subaru: Japan's Hottest Car Company

As rivals watch their U.S. sales slide, Fuji Heavy Industries' Subaru is heading for a record year

By Ian Rowley

Over the years, Subaru, the automotive unit of Japan's Fuji Heavy Industries, has carved out an image as a carmaker that goes its own way. While larger Japanese rivals have won plaudits for building reliable but sometimes dull cars, Subaru has specialized in making sporty all-wheel-drive cars and SUVs powered by turbocharged boxer engines.

In 2009, Subaru is standing out from the crowd for another reason: Unlike most other automakers, it's enjoying hot sales. Through the end of October, Subaru sold 176,000 cars in the U.S., a rise of 13% on a year earlier. That's all the more impressive given the slump of the wider market, which is down 25%. What's more, among automakers that have sold more than 20,000 vehicles, only Korea's Hyundai and its subsidiary Kia—both benefiting from the weak Korean currency—have expanded sales at faster clips. "You might be surprised to see such drastic improvement in results," Ikuo Mori, Fuji Heavy's president said at press conference on Nov. 2. "We've got some good cars."

For the timing being, expect Subaru's hot streak to continue. Mori has increased Subaru's annual sales forecast by 37,000, to 548,000 vehicles, and now expects to record sales of 204,000 in the U.S. Like all Japanese exporters, Subaru is still hampered by the strong yen, but the company at least expects a small operating profit for the six months through March 2010. It previously projected a $390 million loss.

New Legacy and Outback models

What explains Subaru's performance? It helps that it has replaced most of its lineup. It launched new versions of its Legacy sedan and Outback SUV this year; last year it launched a new version of its Forester SUV; and in 2007 it brought out the latest version of the Impreza compact. As a niche player with around 2% market share, Subaru may also be benefiting the practical appeal of its midsize Legacy and crossover SUVs, which inspire strong customers' loyalty. "Consumers are rushing to practical and useful cars. That's what Subaru is producing," says Mitsuru Kurokawa, senior market analyst at IHS Global Insight in Tokyo.

Fuji Heavy executives, though, can claim some smart moves. Masatsugu Nagato, the executive in charge of overseas operations, points to factors that are spurring growth. Under Mori, he says, the company is making cars in tune with international customers and especially those in North America, which account for about 45% of unit sales. Until recently, analysts say, Subaru often developed with Japanese customers in mind or tended to produce cars that engineers thought would sell. "We have to make cars which customers want and, from our point of view, the U.S. remains the most promising market," says Nagato.

These days the company is certainly listening. For instance, during the redesign of the new, fifth-generation Legacy sedan, Subaru conducted online surveys and interviewed customers and owners of other brand cars. The upshot? The company made a more luxurious model that's taller, longer, and wider; its extended wheelbase helps provide an extra four inches of rear-seat legroom. Reviews have been positive, with Consumer Reports rating the new Legacy "excellent."

It is a similar tale with the recently introduced Forester and Outback models, which are larger than predecessors and, like the Legacy, winning plaudits. In 2008, Motor Trend magazine made the Forester its SUV of the year.

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