Detroit Auto Show: Subaru VP Tom Doll on U.S. Sales Gains With Lower Incentives

Subaru was the biggest-selling brand to manage a year-over-year sales gain in the U.S. market in 2008. U.S. sales were 187,699, up 0.3 percent, or about 600 units. Subaru Executive Vice President Tom Doll said Subaru managed this feat without having to resort to extraordinary discounts. That's partly because Subaru cut prices and added standard features a few years ago.

That combination increased used-car values for used Subarus. In turn, higher used-car values made it possible for Subaru to offer attractive lease prices, while some competitors cut back on leasing. Subaru is also on a streak of new-model introductions, starting with the entry-level Impreza model for the 2008 model year, and the Forester car-based SUV for the 2009 model year. Redesigns are due around the end of 2009, for the Legacy and Outback models, for the 2010 model year. I had the opportunity to sit down with Doll at the Detroit auto show yesterday. The following are edited excerpts:

BNET: Congratulations on your 2008 sales. I don't get to see your balance sheet, but I bet it cost you more incentive money than you would have liked. Tom Doll: We haven't done it with incentives. About three years ago, we did a price repositioning for the 2006 models. We took about $1,200 off the cars and about $600 per car off the Forrester. We introduced the new Impreza at $16,995, and the new Forrester last year at $19,995. I n addition, we contented the vehicles pretty well. With good content and all-wheel drive, that represents a good value.

BNET: Are you still doing leasing? TD: All those actions allowed us to reposition leasing. We also have had a great relationship for about six or seven years with Chase Auto Finance (Chase Manhattan Bank) -- they are still very strong, and they have had access to credit all along. That has allowed us to consistently offer a very competitive lease.

BNET: Your sales finished the year barely ahead of 2007, but you were ahead by a lot more earlier in the year, weren't you? TD: If the market was still 16 million (total U.S. auto sales), like it was in 2007 and the first half of 2008, we're confident we would have set a sales record in 2008. If you look at our sales last year through August, we were up about 16 percent, and we clearly would have been over 200,000 last year.

BNET: Is anybody making money? TD: We also have the (dollar-yen) exchange rate to contend with, like all the Japanese manufacturers. With the (production) capacity that's out there, you've got to get the U.S. industry back to 14 million units a year (versus 13.2 million in 2008). If it continues averaging (a seasonally adjusted annual sales rate of) 10.4 million, 10.8 million, like it's done the last couple of months, it's difficult for anybody to turn a profit.

BNET: Are you spending less marketing money, net-net? Is it a smaller pie, or the same size pie, just cut different ways? TD: Effectively, fortunately, we have been able to lower our incentive costs. We don't disclose our incentive costs -- nobody does -- but we are among the lowest in terms of incentive costs throughout the industry.

BNET: Subaru has been trying for years to expand its geographic footprint, basically from markets where it's likely to snow, where the brand is strong, to markets where it's not likely to snow. How's that going? TD: We have been investing in places like Southern California and Texas. Our Southern California district has been doing very, very well. Western markets were up probably 15 to 20 percent in 2008. The Gulf States were up probably 5 or 6 percent.

BNET: Are you adding a lot of dealers, or just a few here and there? TD: With our present sales success, we're getting inquiries from dealers now. We don't intend to add, really, to our number of dealers. Today we have about 600. But right now, we're an attractive brand to dealers. If you're a dealer you can buy a Subaru franchise fairly inexpensively, unless you're in Philadelphia, or Denver, or New England, one of those markets where Subaru is a mainstream brand. In the other markets, you can get in for a fairly reasonable investment.

BNET: What's the unique selling proposition for the redesigned Legacy (which was on display in concept-car form at the Detroit show)? Does it have some unique gimmick? TD: It's larger. It has a more significant (styling) presence than sedans we currently offer. It's much more competitive in terms of size, power and fuel economy.

BNET: How about diesels or hybrids? TD: Fuji (Fuji Heavy Industries, Subaru's parent company) has a diesel in Europe -- Fuji is developing it, but there's no definite indication if, or when, it will come to the United States. Fuji and Toyota also made a joint announcement last month of an electric vehicle that they are developing jointly. I don't know when they're going to introduce it, either in the Japanese market or the U.S. market.