Harvey Lamm, who co-founded Subaru of America with Malcolm Bricklin in 1968, stuck around after Bricklin departed in 1972, running the company until 1990 when Japanese parent Fuji Heavy Industries bought out its U.S. distributor.
On the strength of Subaru of America's lasting success, Lamm could be called one of the most successful auto company entrepreneurs of all time. One of the most influential, too — industrywide.
Looking back, Lamm, 82, said he's most proud of three areas in which he said Subaru was an industry leader:
1. Customer satisfaction backed by a generous warranty.
2. Taking a lead in all-wheel-drive cars, when awd was rare and hard to use.
3. Pioneering the multipurpose product category, which evolved into today's crossovers.
Special Correspondent Jim Henry interviewed Lamm by phone in December.
Q: Subaru of America says U.S. sales took off in the last decade because the company finally started making vehicles big enough for U.S. tastes. Was that a problem in the early days?
A: I don't agree entirely. I'll tell you what I really believe the grounds for success for Subaru were. And incidentally, nothing that was done was done only by me. There were a lot of people involved, an entire team. I don't want to be blowing my own horn here.
There were three principal things I think built the foundation for the company. These three things not only built Subaru, but also I think made a significant contribution to the industry and changed the industry materially, and the first one was customer satisfaction.
What do you mean by customer satisfaction, specifically?
When we first started in business and brought in the cars in 1969, the typical factory warranty for domestic cars was 3,000 miles and three months. You got a better warranty for a refrigerator at that time! Not only that, when you got the three-month, 3,000-mile warranty, in most cases you never got the service. Because the manufacturers were really not encouraging getting the reimbursement for the work. That is, the manufacturers made it so the dealers were incentivized not to do anything for the customer. The manufacturers knew that if the dealers applied for reimbursement, it was going to cost them money.
If that was the standard, what was Subaru's warranty?
We started from day one at six months, 6,000 miles. And we led the way, just about all the way up to five years, 50,000 miles. Only Chrysler beat us to 5/50. We were at 3/30 when they went to 5/50, and we joined them.
Not only were we the first ones with a decent new-car warranty, we were the first manufacturer with a branded service contract offered at the dealership, a Subaru extended warranty up to 100,000 miles.
Did it work? A lot of other brands have touted longer warranties, haven't they?
J.D. Power announced in 1972 that Subaru was second only to Mercedes-Benz in customer satisfaction. That started the whole measurement of J.D. Power and the entire industry focus on customer satisfaction. Up to that point it was, "Let the customer beware." The factory attitude was, "You don't like your car? Sell it, and buy a different one." Let's face it. You had three brands to choose from, basically. The only import of any size back then was VW. Toyota and Nissan — Datsun, then — were pretty much California-only products.
Did someone else administer the warranties, or did Subaru of America do it in-house?
We ran the company autonomously until they [Fuji] bought the company in '90. The reason we were able to bring that warranty was because the manufacturer didn't pay for the warranty. FHI gave us a token warranty allotment of $6 per car! We set up the warranty thing, and we set it up differently from the factory. Fuji didn't want to take the risk of this litigious society, I guess. They wanted to have a fixed amount of liability. So we took the idea. We decided we could be as liberal as we wanted to be, to satisfy the customer. Every year that went by, we would always look back in our historical cost of warranty. … We did it all within the company. We didn't insure it.
So customer satisfaction was No. 1. What was the second thing?
The second thing was four-wheel drive, later all-wheel drive. I worked for four years to try to get the Japanese to put in four-wheel drive. It was the first installation of a four-wheel-drive system in a passenger vehicle. It was better than any existing four-wheel-drive vehicle in the marketplace. It operated in a way that made it street-practical. You didn't have to get out and turn the hubs to put it in four-wheel drive. Initially, you used a shift to put it in four-wheel drive, then you pressed a button, then full-time all-wheel drive, then controlled with computers and things like that.
All-wheel drive today is fundamental to Subaru's business. That is what we built the whole business on. It was initially sold for snow, and it sold mostly in the snow belt, because when it was built it was because of a safety and a traction factor. That vehicle would never have come to market without me.
The first version was for forest rangers in Japan, wasn't it?
They [Fuji] were originally building this car for the forestry commission in Japan. They wanted to sell it in Japan at 200 to 400 per month. The reason they were selling so few was that they never intended to produce the vehicle to sell at any volume, or to build it at a volume that made it practical.
Finally, they agreed: "If we do not have to make any safety or emission changes for the vehicle to go to the U.S. — this is the only way we will agree to produce this car." After three-plus years of fighting me, they did this to get me off their back.
What about U.S. safety and emissions regulations?
So then I went to Washington, to the EPA and to NHTSA. To get approval to bring it in for one year without any changes, the basis of that agreement was to take advantage of the rules that applied to a lot of limited-production vehicles like Lamborghinis, Maseratis — any limited producer.
They [limited-volume producers] were mostly luxury cars, but they [regulators] said OK. I said, "Give me a 10,000-vehicle allowance, to bring it in for one year, and I want an exemption for safety and emissions." They [regulators] agreed, but stipulated that at the end of 10,000 units, "If you don't meet the regulations, you can't bring them in any more."
I told Fuji that I was ordering 10,000 units, with no further commitment. I told them, "You [Fuji] will determine whether you want to meet the regulations, once you've seen them on sale." We oversold the vehicle in the first year. Fuji then met all the regulations.
So that's the third thing, the crossover category?
We brought the vehicle in under a multipurpose classification. The multipurpose classification was later called a light-truck segment. There was no light-truck segment then. There was a pickup truck segment, and that was it.
Today, everybody who sells every brand is able to meet the regulations because they are more lenient — there are less restrictions on safety and emissions than passenger cars. In order to qualify for that [multipurpose segment] … it had to have an all-wheel-drive system, and it had to have a certain amount of ground clearance. That's why to this day all these crossovers, all these SUVs, they all have high elevation, and they all have all-wheel drive.
That's not to say there were never any problems, right?
The only exception was the market swing because of the parity between the dollar and the yen. The subcompact market collapsed. You had to sell a bigger vehicle to maintain the brand. Subaru had one problem: They didn't have a compact. It took them four years to build a compact [the Subaru Legacy, starting in 1989]. We — and Fuji — carried the market for four years. Subaru [of America] lost hundreds of millions of dollars. Fuji lost as much or more. The dealers also contributed.
But again, customer satisfaction was No. 1?
That's why we were able to start with a manufacturer with no recognition in the marketplace. No other brand survived in the marketplace like Subaru — nobody. Through recessions, through energy crises, through market swings, it had the most stable position in the marketplace.