“OOH, OOH SUBARU…THERE’S SO MUCH THAT CAR CAN DO…”

5/31/13

Subaru’s parent, Fuji Heavy Industries, made some relatively big news yesterday when it said that its sales have been so good in this country that, as Fuji CEO Yasuyuki Yoshinaga put it,

“If this situation persists, we’ll face a supply shortage.”

Mr. Yoshinaga may be too late in his prediction.  Inventories of Subaru products as a whole constitute 40 days sales, up from a low of 18 days’ sales at the end of 2011, but a level for which just about any other car company would kill.  “Normal” inventory levels are 60 days in the industry, on average.  Subaru has almost never seen inventory levels that high.

These strained supplies are the result of an amazing record of success, to wit

• April U.S. sales were up 25% year over year.  (Half of Subaru global sales are in the U.S.)
• Year to date U.S. sales for the first four months of 2013 were up 17% year over year.
• Sales have increased for five straight years.
• Operating profits reached record levels in the fiscal year ended 3/31/13 and are projected to set another record this year.  (But see my 5/23/13 post  THE CAR SALES BUBBLE:  “JUST TELL ME WHAT YOU WANT AND THEN SIGN THAT LINE AND I’LL HAVE IT BROUGHT DOWN TO YOU IN A HOUR’S TIME” on the sanguinity of people’s opinions about car sales overall.)
• Fuji’s stock is the best performing Japanese auto company stock.

An anecdotal story might be in order here.  My local Subaru dealer is Gerald in Naperville; Kias are sold out of the same store.  (See my already seminal 5/20/13 post I TEST DROVE A KIA TODAY…).   I talk to a lot of the salespeople there as I walk our dog across their lot and peruse the inventory.  The other night I talked to one of the Kia salespeople who looked ruefully toward the Subaru side of the store and said something to the effect of

Those Subaru guys have it made; their product sells itself and all they have to do is take the orders.

And Kia is no slouch in the sales, or any, department.  But I digress…perhaps.

Fuji’s success is simply a case of defying conventional wisdom by, mirabile dictu, making a great product that people want to buy, pricing the product reasonably, and not getting caught up in megalomania.   It has long been taken as holy writ that car companies have to be big in order to “succeed in the global marketplace” or some other such drivel we hear in management classes and in the financial media, the type of schlock that is accepted without question.  But Subaru is the smallest of the Japanese carmakers.   (See my 5/24/13 post JAPANESE CAR EXPORTS TO JAPAN:   VALUE AND QUALITY TRUMP POLITICS for some background on the outstanding Japanese car industry.) And two other highly profitable global car companies, Honda and BMW, are also relatively small operations.   This notion that size is necessary for prosperity, or even survival, does little but feed the megalomaniacal egos of the people who run major corporations; it doesn’t seem to enhance profitability, at least not in the car business.

And, since I love cars, a note on the product, which may pale in importance compared to the point made in the last paragraph.

I am an inveterate Subaru fan, and not just because of the great commercials they used to have during the football games when so much of my life centered around drinking beer and watching football.  But I have never owned a Subaru.  Why?  Because I have no need for all wheel drive (“Symmetrical all wheel drive (“AWD”)”) is the most salient of  Subaru’s several distinguishing technologies.) and therefore am unwilling to sacrifice the gas mileage necessary to have AWD.   While Subaru has vastly improved the reported gas mileage of its products with its continuously variable transmissions (“CVTs”), I still have what my friends call my manual transmission fetish.  And the gas mileage is much worse in Subaru products with manual transmissions than it is in Subies equipped with CVTs.

The especially hot vehicle for Subaru this year is the new Forester (pictured), a perennial standout in the small SUV category.   This new model is, supposedly, better than ever, with more room, better gas mileage and, according to most people, a better, quieter ride than its wildly successful, but aging, predecessor.  I drove a new Forester and was very disappointed, but only because of one attribute…the steering.  The steering is very loose, akin to that on a 1978 Buick.   And I HATE loose steering and had a hard time seeing past it.   To the extent I could see past the steering, though, the car seemed to be at least as good as anything with which it competes, but remains a non-starter for yours truly.

Further, I, like a lot of people who have admired Subaru through the years, am getting concerned about Subaru’s deliberate drive to move beyond its quirky past and make vehicles more appropriate for America…larger, more gizmoed up, softer, more mainstream.   Subaru has not lost the things that made it Subaru, but many, including yours truly, fear it might. 

However…

Car companies are in the business of selling the most cars, not of making the most cars that appeal to yours truly.   AWD is a great technology, and those who have had it will rarely go back to front or rear wheel drive.   AWD is great in the snow and rain, of course, but can also improve handling in all conditions.   “Symmetrical AWD” is Subaru’s calling card, and the company does AWD better than anyone else, even “premium” car companies that sell cars costing twice or three times as much as what anyone who is not obsessed with image would consider the comparable Subaru.  And most people don’t care about the steering on their small SUVs; they want comfortable, roomy, somewhat fun vehicles that can get the job done, and Subaru obviously delivers with the new Forester.

I’m not recommending Fuji stock; I don’t know enough about the company to do so.  But I am recommending Subaru vehicles.   And maybe one day when they put automatic climate control and satellite radio in a car with a manual transmission, I will fulfill my nearly lifelong wish to own a Subaru.

CHRYSLER’S PROBLEM: IT’S (MOST OF) THE PRODUCT, STUPID!

1/31/13

The Wall Street Journal reported this (i.e., Thursday, 1/31/13, page B6) morning that “Chrysler’s Aging Cars Pose Hurdle.”  It seems that the Fiat miracle is taking more time, money, and effort than expected; while net income is increasing smartly at Chrysler, free cash flow over the next two years is expected to fall by half to $2 billion.  The primary reason for this relentless drain of company cash is the need to refurbish a tired and relatively sorry product line.

None of this comes as a surprise to my regular readers, who recall the following posts on one of this site’s precursors, The Insightful Pontificator:

“THIS ISN’T NEW YORK CITY, OR THE SECOND CITY, OR SIN CITY, AND WE’RE CERTAINLY NO ONE’S EMERALD CITY”, 2/7/11

WALTER P., LEE, AND ME?,  1/10/11

“UH OH, SERGIO…”, 7/3/10

“CAN THEY MAKE IT?  CAN THEY MAKE IT?”,  5/1/09, and

“WE ARE NOT AMUSED”, also of 5/1/09

The main point of those articles is that without good product, you don’t have a good company.   And Chrysler’s product has been wanting for years.   The Journal article has simply confirmed, and events and numbers have borne out, what my readers have known for years now.

Not all the Chrysler product is bad.   Jeep is selling briskly, and the Grand Cherokee is a hot and supposedly stellar product.  But the Grand Cherokee can’t be that good; its updated iteration was to be one of the eight new products Fiat/Chrysler’s CEO, the very capable Sergio Marchionne, wanted to introduce this year before money got too tight.  As I’ve said before, only Wall Street believes that the Jeep line is a great asset, probably because it is one of the few American brands that a Wall Street analyst would consider buying 

The Chrysler 300 is a truly great product, but that might be yours truly’s personal taste, and undying quest to find a product that would replace my long gone but still pined for 1990 Pontiac Bonneville SSE (aka “The Batmobile,” the last car with an automatic transmission that I truly loved), talking.   One of the few American sedans still available with a V8 (One of the others is the Dodge Charger, obviously another Chrysler product..), the Chrysler 300 is distinctive, powerful, safe, relatively fuel efficient, quiet luxurious, fun to drive, and a relative bargain.  And it’s a car that shows one means business.   But even the great Chrysler 300 is in a market segment characterized by (almost) equally great competition.   Still, if I ever get over what my friends and family deride as my manual transmission “fetish,” and start making some real money again, I’ll be driving one of these most testicular of automobiles.  But I digress.

The Ram pickup line also is a more than decent product, but still places third of three in its very competitive and profitable market segment.

Once one gets beyond Jeep, Ram, and the 300, one finds awfully slim pickings at Chrysler…and Mr. Marchionne knows it.   It is his urgent efforts to apply to Chrysler some of the product wizardry Fiat has displayed under his tutelage that are causing financial strain at the third of the Big 3.

One final, and somewhat personal, note:  the first of Mr. Marchionne’s efforts to produce some product fruit from Fiat’s purchase of Chrysler is the Dodge Dart, which seems to have fallen far short of expectations.   This Dart is built on the Alfa Romeo Giulietta platform and is supposed to ride and handle somewhat like an Alfa while providing a level of luxury, and an amount of room, beyond its competitors in the U.S. compact car market.   The car has, to put it only a bit too strongly, bombed, with poor sales and bloated inventories crowding dealer lots.   At first, the Dart’s problems were ascribed to the first few copies’ being available only with manual transmissions.   That problem was solved when Chrysler shipped subsequent, and much larger, batches of cars with slushboxes (i.e., automatic transmissions).  Still the car doesn’t sell.   Why?   Mr. Marchionne opined on Wednesday that there are too many variations and expensive features available of or on the Dart.

Mr. Marchionne is absolutely right.  Yours truly is interested in the Dart for the two reasons it isn’t selling:   It offers a manual transmission combined with some luxury features.  But I have all but given up my admittedly casual search for a Dart because I am confused by the baffling array of model combinations available and find that, when I have figured out what will meet my needs, I can buy a Honda Accord, which is one size larger and is, after all, a Honda, not a Dodge, for the same money.  At anything like the offered side, the otherwise excellent, or at least very good, Dart makes no sense.

However, if I could get a good enough deal on a Dart….

But it is difficult to prosper selling products nearly exclusively to people looking for, and insisting on, a great deal.