Subaru Steps On the Gas

Judy Gamble and Donald Heck have consumer profiles that could not be any further apart. Gamble, 61, is a marketing manager from Riverside County who’s getting ready to retire and values safety in her car. Heck is a 31-year-old auto technician in Irvine who’s about to get married and has pumped $15,000 into souping up his ride so it goes faster.

But both are Subaru owners. They represent opposite ends of the spectrum of customers the Japanese auto maker--once the well-kept secret darling of sensible college professors and Colorado ski bums--is counting on to continue its recent U.S. growth trend.

Gamble discovered Subaru as a passenger in a friend’s Outback, riding from Arizona to her Norco home. “It was really comfortable and roomy,” she says. “I started asking around, and I never talked to one person who owned one, or who knew someone who owned one, who didn’t like it.”

Now Gamble makes her daily 64-mile commute through winding canyon roads to her job in Brea in her own all-wheel-drive Outback, and says she loves the way it handles curves and deep puddles.

That’s been the reason most people have bought cars made by Subaru, the automobile division of Tokyo-based Fuji Heavy Industries.

Known today for making only cars with permanent all-wheel-drive, Subaru has parlayed that technology into a reputation for sure-footedness and durability and created a market niche in which for years it had no competitors.

But competition is emerging. Volkswagen, General Motors Corp. and Toyota Motor Corp. are fielding passenger cars with all-wheel-drive.

So Subaru--which entered the U.S. market in 1968, peaked in 1986 and then tumbled before recovering with its switch to an entirely all-wheel-drive lineup in 1994--is branching out again with a new line of sporty, performance-oriented compact coupes and wagons.

It is not as far a stretch as some might think. Although its U.S. reputation is somewhat staid, Subaru is known in Asia and Europe for its racing prowess in what may be the roughest, toughest automotive performance contest known: the World Rally circuit. Subaru not only is a perennial top-place finisher, it also won the world championship three years running, from 1995 to 1997.

That heritage already has spawned interest in the growing street performance scene.

Take Heck for instance. A shop foreman at Frank’s Irvine Subaru, he cruises around in his silver 2000 Impreza RS compact to which he’s added a custom turbocharger system that boosts the engine’s stock 165-horsepower output to about 260 horses. He’s also added performance street suspension and racing seats and safety harnesses, among a host of performance and appearance enhancements.

“People in California are tired of the Honda and Acura scene,” says Heck, referring to the brands that dominate the youth market in the Southland. “They say, ‘Do I want one of those or do I want to do something different?’ ”

Subaru of America aims to provide that something different.

Next month it will put on sale the Impreza WRX, an affordable (about $24,000) pocket-rocket with 227 horsepower from a turbo-charged version of Subaru’s signature 4-cylinder “boxer” engine.

Porsche is the only other company to use a boxer engine, designed so the cylinders lie flat on either side of the crankshaft--horizontally opposed--rather than standing upright as in traditional car engines. It makes for a relatively rectangular, box-shaped engine.

“The horizontally opposed engine has always been our strength--it gives a lower center of gravity . . . and great balance, traction and cornering,” says Takao Saito, chief executive of Cherry Hill, N.J.-based Subaru of America.

U.S emissions and safety regulations mean the American-market WRX will be toned down from the 280-horsepower model available in Japan and Europe and which Britain’s Car Magazine says can blast from 0 to 60 mph in less than four seconds. “Around corners, a [Porsche] 911 owner would lose sight of the Subaru’s rear wing after 100 yards, it’s so light-footed,” Car Magazine said, calling the WRX “a car that could make your innards bleed and your earwax evacuate your head.”

Word of mouth among performance enthusiasts has been impressive, says Horacio Antonielli, a general manager at Irvine Subaru. With the first cars still on the boat from Japan, “We have already sold 70 WRXs--our entire initial allocation--and most of our second,” he said. “We’re spending a lot of time trying to find more to keep our customers happy.”

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As part of its new performance orientation, Subaru this year brought back a 6-cylinder version of its boxer for use in some Legacy and Outback models. And for 2002, it is is upping the size of the 4-cylinder engines in the redesigned Impreza line--except the WRX--to 2.5 liters (the turbocharged WRX retains the 2-liter version).

And coming late next year is the ST-X, basically a stretched Outback with a pickup truck bed. About 24,000 a year will be built at the joint Subaru-Isuzu plant in Lafayette, Ind.

Critics have said that Subaru has been slow to bring new products and improvements to the U.S. The company’s pricing also comes under fire: a basic Impreza can be had for well under $20,000, but prices ratchet up to $32,000 for a fully loaded 6-cylinder Outback--steep for a machine that doesn’t try to be a luxury car.

“But that criticism hasn’t translated to [lost] sales,” says H. William Cyphers III, Subaru of America’s vice president for marketing. “People who buy our cars can generally afford more expensive cars, but they want to make a smart choice.”

Indeed, Subaru’s U.S. sales have risen steadily since 1995 and last year were up 6%--the same as Honda. Despite the expected decline in the American new-car market overall this year, Subaru expects to boost sales to an all-time record of 186,000 units, according to Saito. He’s aiming for an annual sales figure of 250,000 by 2005.

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California, where Subarus not so long ago were almost as rare as condors, accounted for 8% of the company’s sales last year. And the vibrant compact performance car market in Southern California is expected to help boost Subaru sales in the state even more this year.

One development that will help Subaru bring more new products to market is the 20% stake in Fuji that GM took in late 1999.

The two car makers are actively considering synergies that could lead to sharing of platforms, components such as the all-wheel-drive system and, ultimately, vehicles, probably in the 2004 time frame, Fuji’s President Takeshi Tanaka said in an interview last month.

Any jointly developed vehicle is likely to be shared with GM’s Chevrolet brand, and Subaru insists that its version will retain Subaru’s unique power train and other technologies.

“What’s most important [to Subaru] is to stick to our core technologies and retain the essence of our brand,” Tanaka said. “GM has a lot of brands, and we’re just one of them, so we want to be very careful about how best we’ll fit in.”

For its part, Subaru hopes to gain access to advanced GM technology--such as fuel cells--and to tap into GM’s volume-based marketing, information technology and sales channels in Eastern Europe, South America and Asia.

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Whatever Subaru does with GM, it will want to proceed carefully, says Wes Brown of the forecasting firm Nextrend in Thousand Oaks.

“It’s going to be tough. Saab has been losing some of its uniqueness as it’s absorbed into GM,” he says. “We’ll have to see how they merge all-wheel-drive into, for example, Chevrolet. You don’t want a lot of Chevys to be having all-wheel because then Subaru loses its identity. A lot of brands have been killed that way, like Oldsmobile.”

California’s strict emissions rules and federal fuel-economy standards are keeping Subaru from bringing in more of its higher-powered vehicles. “The ST-X will be 4-cylinder,” Saito said. “We thought a 6-cylinder would be better but, for example, we’ve already taken 200 to 300 orders for the WRX [and] if we sell too many, then we won’t meet our corporate fuel-economy requirements. It’s complicated.”

Still, Subaru aficionados say they can’t wait for high-performance versions of the Legacy and Forester, which are expected in the coming years.

Meanwhile, enthusiast Heck notes that his fiancee is about to lease her next car. “She’s getting a WRX,” he beams. “In rally blue.”

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Subaru’s Revival

Subaru sales fell drastically in the late 1980s and early ‘90s when the brand tried to be a copycat Japanese import and lost a distinct identity. But since it remade itself into an all-wheel-drive-only auto maker, sales have increased steadily.

1968 360, the first year of U.S. sales

1972 Leone, a four-wheel-drive wagon that helped create a reputation for safety and outdoor competence

1982 Brat, a four-wheel-drive pickup that continued Subaru’s quirky image

1990 Justy, the kind of me-too Japanese car that contributed to Subaru’s U.S. sales slump from 1987 to 1995

2000 Outback, all-wheel-drive wagon that helped restore the company’s sales momentum

The ST-X concept, a show version of the car-pickup hybrid Subaru will introduce next year

2002 WRX, turbocharged sports sedan aimed at the youth and performance markets

The Boxer: Illustration shows unusual horizontal piston layout of Subaru’s 2.5-liter, four-cylinder engine

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Sales (In thousands)

2000: 172,216

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Revenue (In billions)

2000: $3.7 billion

Note: 1999 and 2000 revenue figures rounded off by Subaru

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U.S. market share*

2000: 1.9%

* For passenger cars

Source: Subaru of America