It wasn’t long ago that we were all impressed (Imprezed?) at Subaru’s ascent (okay I’m done, I swear) to record sales in the American market. The small Japanese automaker spent a decade going from New England, Colorado and Oregon’s all-wheel-drive golden child to mainstream success story. But these days, things aren’t that simple.
Earlier this week, Subaru announced its first sales decline in 93 months. The nearly 10 percent dip in sales in the brand’s largest market came amid a fairly abysmal September that has many industry watchers wondering whether the days of endless record sales are over. But for Subaru, this represents another kind of hit. It’s already faced declining profits from underperformance in Europe and production issues in Japan.
While sales did drop a bit, demand for the brand’s larger cars like the Forester and Outback remained relatively strong, if not better than last year. The 19-cupholder Ascent, a larger model with higher margins, also remained strong, while the Legacy and smaller models like the BRZ reporting the biggest drops in sales. (As you’re probably aware, the sports car market ain’t great in general these days.)
This news comes after Subaru released a 2019 financial report back in May that was far from stellar. Operating profit dipped nearly 50 percent during that reporting period on the back of poorer sales in Japan and other non-North American markets.
Still, with significant 16 percent and 17.2 percent sales slides in Europe and Japan respectively, the nearly 10-point dip in the brand’s strongest market shows that American demand for crossovers can’t protect Subaru from taking a hard look at its recent performance. At the heart of this trend is the most troubling statistic. Automotive News reported that the company experienced its first quarterly loss since 2010 in the second quarter of this year.
While Subaru does hope that new models like its 2020 Legacy and Outback will help patch up the brand’s performance in the coming months, questions do remain about the company’s ability to maintain what momentum remains in the United States. President Donald Trump and Prime Minister Shinzo Abe of Japan recently negotiated an initial trade deal that managed to avoid auto tariffs, but the uncertainty surrounding the U.S. president’s often erratic trade policy remains a factor could complicate sales of Subaru’s Japan-built models as well as the importation of components from Japan for U.S. production.
Adding to the woes are production and quality issues that have meant setbacks at the firm’s Gunma plant. An issue with electric power steering systems caused changes to the production schedule at the facility, contributing to a drop in production numbers of nearly 6 percent according to its statement back in May.
Additionally, Automotive News also reported that global valve spring recall and a U.S.-specific recall affecting low fuel warning systems added to the challenges Subaru faced this year.
These quality issues are expensive. Subaru spent $2.7 billion on warranty repairs and recalls over a five year period ending this past March, sapping revenue and contributing to the brand’s routine low J.D. Power ranking.
Another more peculiar factor that could contribute to LOWER Subaru sales is the competition between the new Subarus and the used ones. Subarus hold their value extremely well, and buyers seem to think they’re worth spending more on than other used cars. Model year 2016 Outbacks are still changing hands for north of $24,000. If that’s the case, it seems like Subaru buyers are not starved for choice should they look for a bargain and not find enough incentive on the hood of a new car. These cars hold their value for a reason, and it’s likely because they offer what buyers need even when they’re a few years old.
While all of this sounds concerning, it is important to point out that Subaru has recently introduced a number of all-new large models that could re-energize sales in the short term. The Outback, long the darling of families at the north ends of both coasts, is a good new car that continues to offer buyers space and versatility on top of a classic flat-four all-wheel-drive drivetrain. The new Legacy is pretty great too, as long as you get the turbo at least, although sedan sales, in general, are quite dismal.
Abroad, buyers can choose the new Levorg too. The model may have seen a dip in sales this past year, but it’s still a handsome car that offers some WRX performance with a practical wagon body.
Aside from a lineup of new larger cars, Subaru also has some bigger plans up its sleeve for its smaller offerings as well. Working with Toyota, Subaru is reportedly planning a successor to the BRZ that might even pack a few more horsepower under the hood. More important than that, though, is Subaru’s plan for electric cars.
One company that clearly isn’t worried is Toyota. It recently upped its stake in the company to 20 percent, is Subaru’s partner for electric car development. Working together on Toyota’s e-TNGA electric car platform, the two companies will share what they know best. Toyota will bring the battery technology while Subaru will lend its all-wheel-drive expertise.
Together with the economies of scale that Toyota can provide on its own as well as through additional agreements with Suzuki and Daihatsu, this plan puts electric Subarus in our sights. The first product of this plan is likely to be a mid-sized SUV (surprise!) that will be marketed with both Toyota and Subaru badges but ultimately, the platform will be used for both C- and D-segment cars, including both sedans and SUVs.
The assist from Toyota as the market transitions to greater reliance on electric vehicles could prove to be a tremendous boon for Subaru. Subaru remains a smaller player and consolidation of development costs with Toyota certainly paid off to get the brand into other challenging markets, like they did with the BRZ.
As the market as a whole appears to be facing another downturn, Subaru’s relationship with Toyota may be an important brace against catastrophe. Subaru has weathered previous downturns well because it has had a loyal customer base and could differentiate itself from its competitors. Now things are changing, but Subaru seems prepared. As the brand works to find a place for itself once its boxer engine differentiator becomes less and less meaningful in a market filled with EVs, a hand from one of the big boys just might be what makes the difference.