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Subaru Canada president and CEO Katsuhiro Yokoyama with the Subaru Outback after was named AJAC's 2010 Canadian Utility Vehicle of The Year. (AJAC)
Subaru Canada president and CEO Katsuhiro Yokoyama with the Subaru Outback after was named AJAC's 2010 Canadian Utility Vehicle of The Year. (AJAC)

Brand Strategy

Subaru getting the respect it deserves Add to ...

Last fall at the Tokyo Motor Show, Subaru showed a concept car that hints at the hybrid powertrain coming to a future model, perhaps as early as 2011 or 2012.

Hybrids? Subaru? Isn't Subaru the automotive equivalent of Birkenstock shoes - with buyers who love backpacks and mountain bikes more than their cars?

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Perhaps, but after last year's record sales, it seems that gasoline-electric hybrids are the next logical step in filling out Subaru's lineup.

The car division of Fuji Heavy Industries is not telling - yet - exactly when the hybrid will go on sale in Canada, but we know this: Subaru needs a hybrid to help meet tougher Canadian and U.S. fuel economy and emissions rules that begin in the 2016 model year.

Reports also suggest Subaru will first put the hybrid powertrain in a small vehicle, perhaps the next-generation Impreza. Look for answers in the spring at the New York auto show.

We know this: Subaru's Tokyo concept was an AWD hybrid touring car with two motors, one for each axle and it loosely resembled the Outback wagon. The gas engine featured a new 2.0-litre, turbocharged, direct-injection engine and stop-start technology to shut down the engine when the vehicle stops.

Subaru, of course, has been developing a hybrid drivetrain based on technology from Toyota, owner of 16.5 per cent of Fuji Heavy. The Toyota connection gives Subaru access to technology that it could not otherwise afford. Subaru is just too small to have the full resources needed to branch out into alternative powertrains.

Small, but growing. And growing fast. In fact, Subaru sales continue to defy gravity in 2010, even as the brand comes off a record-breaking 2009. Sales last year in Canada exceeded 20,000 for the first time - up 15.8 per cent to 23.034.

Then in January of this year, Subaru's sales jumped a whopping 45.8 per cent. Subaru is rolling and even better things are expected for the rest of this year.

Why? The new Legacy and Outback only contributed about a half year of sales in 2009, so this year the company will likely set another all-time sales record. That's the plan in the short term, at least.

But car companies need to plan for five years down the road, even as they sell today's models. That's where Subaru faces its biggest challenge. When it comes to so-called "green" technology, the brand trails rivals from Toyota to Honda, from Ford to General Motors, Nissan and car makers from Europe, too.

All these competitors have already jumped on the hybrid bandwagon, rolling out fuel-efficient alternative powertrains, compact cars, lightweight designs and electric cars of all shapes and varieties.

Subaru, meanwhile, has rebuilt itself using AWD technology as the foundation of its brand. It's a great technology for winter warriors and performance enthusiasts, but AWD adds weight and that comes with a fuel economy penalty.

So the alliance with Toyota is critical. It gives Subaru access to green-car technology - the sort of alternative drivetrain stuff Subaru needs to stay in the race over the long term. Company officials concede that long-range emissions regulations make it tough for Subaru to achieve fleet-wide fuel economy targets with the brand's current gasoline engines.

"We need a hybrid system," Ikuo Mori, the Fuji president, told trade journal Automotive News late last year. "Our task is how to integrate green-car technology with distinctive Subaru performance."

The upcoming hybrid will likely be timed with a full model change that allows Subaru to integrate the technology into a new platform. Which, of course, makes the upcoming announcements in New York so intriguing.

Subaru is a company with a plan for today and, apparently, tomorrow. So far, the current blueprint seems to be working, based on the sales results. Therefore, what comes next is intriguing.

Right now, what's given Subaru such momentum is the successful launch of the new Legacy/Outback. Add to that the strong sales of its Forester, which was redesigned for the 2009 model year. The Forester is a perfect example of a successful evolutionary redesign of an existing model.

That leaves the Impreza ripe for a major update. Subaru's entry-level vehicle, the brand's smallest and least-expensive model, does not have much of a fuel economy story. The AWD system adds heft and, to the fuel-price conscious shopper surfing the Net, added bulk hurts. A hybrid here makes perfect sense.

Subaru already has another core value covered: safety. All of Subaru's models are Top Safety Picks from the U.S. Insurance Institute for Highway Safety (IIHS). That is, in every respect - side impacts, front crash tests, rear-enders - all Subarus have earned a "Good" rating from the IIHS. For the record, not a single Toyota is a Top Safety Pick.

So perhaps Toyota has something to learn from Subaru. How this alliance plays out is critical to Subaru's future.

Subaru officials argue that staying rock-solid with the brand's core AWD technology, and combining it with long-term dependability and strong safety scores, has been at the heart of the brand's success. Meanwhile, the WRX performance car has added pizzazz to a lineup previously associated with college professors, nurses and accountants.

Which brings us to two critical pieces of the puzzle, the ones Subaru added last year: better-looking designs and price cuts. This move was a long time coming - overdue, in fact. And it required Subaru to concede that its earlier strategy to go up-market was a failure. Once Subaru began cutting pricing and shedding quirky styling in favour of a focused strategy based on safety and the other practical virtues of its five vehicles, sales began to take off.

In a nutshell, Subaru - in the minds of its loyal buyers and company officials - is starting to get the respect it deserves. For 20 years, Subaru was one of the auto industry's best-kept secrets. Now, with a clear and focused market presence based on pretty AWD cars priced at or lower than front-wheel-drive cars from the top Japanese brands, Subaru is getting real traction in the marketplace.

Gone are the days when Subaru tried to compete with European premium brands such as Volvo and Audi - when parent company Fuji even contemplated launching a luxury car. However, positioned as a value brand with safe, stylish, entertaining and, above all, affordable cars, Subaru makes sense. That is certainly what Subaru pushes in its advertising. Subaru has scrapped celebrity pitchmen such as Paul Hogan of Crocodile Dundee fame, and Lance Armstrong, the multi-time winner of the Tour de France bicycle race. Instead, Subaru talks about its safety scores and the soaring residual values.

In fact, the brand won Automotive Lease Guide's "best mainstream brand" award for the 2010 model year, up from fourth in 2009. Thirty-six-month residuals have improved to more than 50 per cent for each model in the lineup, according to ALG.

ALG also gave Subaru individual segment awards to the Impreza in the mid-compact car category, the Legacy in the mid-size car category and the Impreza WRX/STI in the sporty car category.

Matt Traylen, ALG's chief economist, says safety and quality are essential to Subaru's success, but he also cites the redesign of its three core models and restrained incentives for Subaru's jump to the top of the rankings."

Yes, the newest models - the Forester, Outback and Legacy - added more interior space, sophisticated designs and critical touches such as iPod connectors and higher-end electronics. Add in lower pricing and buyers have noticed what's happening at Subaru.

What's left, of course, is the move to more fuel-efficient alternative power trains. Hybrids. Stay tuned for the news from New York.

jcato@globeandmail.com

Follow on Twitter: @catocarguy

 

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