Editor's note: An earlier version of this story incorrectly referred to Buick as being part of Fiat Chrysler.
(Bloomberg Business) -- The tornado tore through Lafayette, Ind., at 3 p.m. on Nov. 17, 2013, a Sunday.
Most of the 4,000 workers at the local Subaru factory -- the only such facility outside Japan -- were between shifts when the twister slammed into the building at almost 140 miles per hour. It tore off a section of roof, flung a three-ton air-conditioning unit like an empty beer can, and toppled a concrete wall onto the assembly line.
“Monday was a day off. Tuesday morning, we were open at 6 a.m.” says Tom Easterday, the executive vice president who runs the factory.
The roof was a patchwork of temporary panels, the floor was covered in a few inches of rainwater, and the plant was cold. But shutting down production wasn’t an option. Subaru had enough inventory in the U.S. to last about 11 days, an impossibly slim buffer in an industry famous for revving supply far beyond demand. The 2014 Outback that wound up under the concrete wall was driven off the line, retouched, and sold.
Tornadoes have kept their distance from Subaru’s Indiana factory in the months since, but the pressure to churn out more vehicles has only increased. Since 2011, Subaru’s global sales have surged 45 percent to 913,100 vehicles, a pace bested only by a few burgeoning Chinese brands and Fiat Chrysler which has been intent on making Jeep a popular choice in Europe and Asia. In the U.S., Tesla is the only car company that has increased sales as quickly in that period.
And Subaru has done all this while cranking out the best profit margin in the industry.
The company, however, couldn’t be less suited to handle a sales surge. Last year, Toyota, the world’s largest automaker, sold a car about every three seconds, while it took 35 seconds for a Subaru to leave the lot. Almost any car company one can name is far bigger than little Fuji Heavy Industries, Subaru’s parent.
Being small, though, is the reason Subaru has become such a big deal. With manufacturing capacity maxed out, it now has to decide what kind of company it wants to be.
‘Getting the tar kicked out of us’
Tom Doll is an unlikely chief executive for a car company.
For one, he’s an accountant by training, not a salesman or marketer. Crumpled into a Marriott easy chair down the road from the Indiana plant, he’s soft-spoken with a trim build that suggests a diet comprised of more sushi than steak. The 61-year-old is also the closest thing one will find to a company man in today’s car business. He’s been with Subaru since 1982 and has never worked for a competitor, though he did once consider switching careers to teach math and economics to high school kids.
Doll was there for the dark days of the late 1980s, when Subaru lost almost half its U.S. sales volume. And he remembers the greased lightning that was the Outback launch in 1995, which helped the company recover all that ground.
By 2005, however, most of Subaru’s competitors were selling something similar in terms of shape and capabilities, and the little Japanese giant killer was once again losing ground. The brand wasn’t moving the needle beyond its base of crunchy, fairly liberal consumers on the coasts, and the company’s global sales fell 3 percent, to 569,000 vehicles.
Doll, then COO of Subaru in North America, pitched a bold plan to the top executives in Tokyo: Stop crowing about horsepower and prices and start talking about the love customers have for their cars. Don’t stop there, Doll suggested. Talk about the love customers have for their cars, their kids, their dogs, their kayaks, and their communities.
“We were getting the tar kicked out of us,” Doll says. “I realized we couldn’t compete with these bigger companies at their game. We had to come at it in a completely different way.”
Doll was given the green light, as well as the top job at Subaru’s branch in North America, its largest market. “They gave me three years,” he says. “If I wasn’t successful, I would have been gone. And, of course, I didn’t know we were going to have a financial crisis.”
In late 2006, Doll hired a new creative agency, Minneapolis-based Carmichael Lynch, a unit of Interpublic Group. The first change was simple: The tag line -- “It’s what makes a Subaru, a Subaru” -- was prefaced by “Love.” A slate of emotionally charged ads followed. Kids and dogs were everywhere.
The only features the company lingered on were safety-related. Instead of buying a Super Bowl slot, the company sponsored Animal Planet’s Puppy Bowl. “Before 2008, you kind of knew about Subaru or you didn’t,” says marketing chief Alan Bethke. “That all changed with the ‘Love’ campaign.”
Meanwhile, Doll drew up a program to make dealerships a more pleasant experience. In 2007, Subaru cut prices across the board in the U.S., mostly to short-circuit the long rounds of negotiation that tend to poison any kind of brand loyalty.
The company also set up a robust philanthropy program, tying transactions at dealerships to donations to local charities. Suddenly, a Subaru dealership became a place where one could buy Girl Scout cookies or adopt a puppy rather than wrestle over the cost of floor mats and financing rates.
“In our industry, you can’t go wrong with kids and dogs,” says John Krafcik, former CEO of Hyundai North America and now president of TrueCar, an online car-shopping platform. “Subaru gets this better than anyone else.”
Doll and his team also started stretching the brand beyond its traditional strongholds in the Northeast and Northwest. It shopped for dealers in the Sun Belt, promising its all-wheel-drive lineup offered safer driving on dry, sunny roads, not just wet, snowy ones.
“In a lot of ways, we were nation-building,” Doll says. “The whole hearts-and-minds thing.”
Feeling the love
The streets around Powerhorn Park in southern Minneapolis have long crawled with Volvos -- the safe, sturdy, pragmatic car for drivers who didn’t want European luxury or mass-market machines from Michigan. Shari Albers and her late husband had five Volvos over the years. “We’re straight-down-the-middle-of- the-road people,” she says. “Nothing flashy.”
But when she went shopping in May 2013, Volvos were far more expensive than she’d expected. Albers, 65, wasn’t keen on SUVs either, nor the machines coming out of Detroit and Germany. Saab, another favorite of middle-class Minnesotans, was long gone, its plants grinding to a halt in 2011 after a protracted bankruptcy.
“I noticed people drive old Subarus, just like they drive old Volvos,” Albers says. “That made an impression on me.”
She made three trips to the dealer and liked the place more and more each time. When she finally bought her Forester, she didn’t dicker on price. Within weeks, a rash of neighbors followed suit. The Volvo block began turning Japanese. Doll’s goofy love campaign was working.
These days, almost two-thirds of Subaru buyers, like Albers, have never owned one before. In the past five years, the share of Subarus sold in the U.S. jumped from 54 percent to 73 percent. The company also got a little lucky in that period. Its marquee model, the Outback, was perfectly positioned to capitalize on the craze for so-called crossover vehicles that are smaller than traditional SUVs, yet bigger and burlier than sedans.
The segment was crowded, but Subaru had a head start. And while the marketing team was fine-tuning their emotional commercials, Subaru’s engineers started ramping up the brand’s crossover credentials. With an overhaul in 2008, the Forester essentially became a taller version of the Outback, more akin to a traditional SUV. The XV Crosstrek, which went on sale in late 2012, lured Outback fans who wanted a hybrid.
Robert Alvine, president of two Connecticut dealerships selling Kia, Subaru, and Volvo vehicles, says most of his business of late has been customers trading in a range of foreign cars for an Outback or one of its siblings. “I firmly believe none of the other companies would have the patience to do what they’ve done,” he says. “It’s a cultural thing.”
