Subaru Returns to Its Roots To Reverse US Market Slide

Company lost many customers to the hot new jeep market

SUBARU has more than just its legacy riding on the success of its new compact car.

Once one of the more successful of Japan's second-tier of automotive imports, Subaru has been struggling to reverse a seven-year slide. The car it is counting on is the Legacy. Originally introduced in 1989, the Legacy was designed to transform Subaru from a small, niche marketer into a mainstream automaker, competing against such vehicles as the Honda Accord and Toyota Camry. With the introduction of this all-new update, Subaru is rethinking its strategy and returning to its roots.

``We thought we could go into the mainstream, but the market proved us wrong,'' said Iga Shigeru, Subaru's manager of overseas marketing, during a recent preview of the 1995 Subaru Legacy in Vermont.

New England stronghold

The location was appropriate. New England is one of the few real strongholds for Subaru of America (SoA), the United States subsidiary of Fuji Heavy Industries, which markets its products under the Subaru badge. The winters here are long and the roads are narrow and twisty - ideal conditions for Subaru's road-holding, four-wheel-drive technology. The carmaker's theme, ``Inexpensive and Built to Stay That Way,'' also appeals to frugal New Englanders.

So while Subaru never challenged major Japanese brands such as Honda or Toyota, it was able to post steady gains year after year. In 1986, sales hit a peak of 183,242, and Subaru officials confidently predicted that they would soon top the 200,000 mark. Instead, the company fell into a seven-year slide, with sales dipping below the 100,000 mark in 1992.

Ironically, the slump came as Subaru added more new products than ever, including the Legacy and the SVX, a $30,000 sports coupe. ``They spent ... a lot of money designing cars that never made money on their investment,'' says Maryann Keller, author and auto analyst with Furman Selz of New York.

The biggest mistake, analysts and company officials now agree, is that Subaru simply forgot its roots. It de-emphasized four-wheel drive and began to focus on more expensive products. The plunge in the dollar made matters worse, forcing prices out of the range of many of Subaru's most loyal customers.

``We didn't have the money to put the message out, to differentiate ourselves ... from the bigger brands,'' acknowledges George Muller, who recently took over as SoA's president.

Things got so bad that many people began to question Subaru's long-term viability. Indeed, in Japan, financial problems forced Fuji to turn to its affiliate, Nissan, for financial help. And in both the US and Japan, the company ran through a succession of top executives. Whether Mr. Muller can last here will likely depend on the reception given the new Legacy.

The '95 Legacy comes in two body styles, a sedan and a wagon. They are a bit bigger and roomier than the old models and they have slightly more horsepower. The Legacy now comes with dual airbags and offers optional antilock brakes.

But significantly, Subaru is putting the accent back on four-wheel drive, hoping to once again find a niche in the colder, more rugged regions of the country. ``All things being equal, people will go with the safer bets, Toyota and Honda, so it's incumbent upon us not to be like the other Japanese brands,'' Muller explains. ``We have to focus on a segment we're very good at.''

Sadly for Subaru, the company did not expand into the one niche that would have made the most sense: sport-utility vehicles. These Jeep-like vehicles make up the hottest segment in today's new-car market and have stolen away many of Subaru's past customers. Subaru officials admit that their delay was a mistake and say they are concerned that at this point, Subaru simply cannot crack the increasingly crowded sport-utility market even if it were to try.

Looking for a new niche

The automaker is looking for an alternative market niche that it can call its own. The Legacy Outback gives a hint of what is to come. It is a slightly modified version of the Legacy wagon, using decals and minor suspension changes to give it a more rugged look. A later version will be even more Jeep-like, Muller suggests.

Actually, Subaru is not unique in its bid to develop a segment somewhere between station wagons and sport-utility vehicles. Mercedes Benz recently announced plans to build a similar product, which it is calling an All-Activity Vehicle.

Will Subaru's differentiation strategy succeed? ``Maybe they won't find a market of 200,000,'' Ms. Keller says, ``but if they can make money selling 125,000 vehicles, why not?''