Subaru focuses on efficiency amid new headwinds

Subaru of America must improve efficiencies at the factory and its dealerships this year to hit one of its most humble sales goals in a decade, says CEO Tom Doll.

Doll believes the high-flying auto company faces new headwinds in its quest for a sales gain of just 3 percent for 2019, resulting in 700,000 sales for the year.

That would still be another success in Subaru's decadelong run of year-over-year U.S. sales increases. And in a market in which sales are softening and some brands are in retreat, a 3 percent gain might not seem so bad.

But Doll recognizes that the market will pose challenges for Subaru. The company faces capacity strains at its U.S. factory in Lafayette, Ind., and has struggled in recent months to get new inventory from Japan, where the automaker has dealt with quality lapses and production interruptions.

But improving the company's efficiency in orders, production and inventories will at least help Subaru achieve a 3 percent gain, Doll told Automotive News.

"It's going to be interesting how efficient our retailers can be, given the low inventory levels that they have," Doll said in an interview last week. "That's really the key as these inventory levels stay relatively low."

Doll noted that Subaru has around a 20-day supply of the Forester compact crossover, which was redesigned for the 2019 model year, and around a 19-day supply of the Crosstrek subcompact crossover. Both vehicles are built in Japan.

"Some retailers may have vehicles but they're not really the cars that customers want," Doll said. "We have to make sure we do a good job, making sure we're paying attention to which models are selling, which trim levels, option packages, engines, so that we can match up the production with the expected demand.

"That's going to be our biggest challenge as we go through the balance of the year — just making sure we can sustain the efficiency as these inventories stay low," he said.

Subaru unveiled a sixth-generation Outback midsize crossover this month at the New York auto show, which followed the debut of the 2020 Legacy midsize sedan in February at the Chicago Auto Show. Production of both vehicles is expected to begin at the end of July in Indiana, with both going on sale this fall.

In the meantime, Subaru will begin to sell down current-generation inventories of the two nameplates before the redesigns arrive.

"Therefore, we can keep our incentive cost reasonable," Doll said. "It's likely you'll see some declines in Outback compared to the prior year as we go through the summer and balance out."

Doll said Subaru had the same situation last year with the introduction of the redesigned Forester.

"We had lower Forester sales, but when the new one came out it just took off and has done extremely well since then," he said.

"As we manage and balance out, you may see some reduction from last year but the way we look at it, it's really nothing to worry about. It's all part of our plan to introduce the new one effectively."

Subaru's expected growth is taking place in an overall market that was down 3.2 percent in the first quarter. And the automaker continues to battle tight production capacity at its two plants in Japan and Indiana.

In mid-January, Subaru stopped production at its main factory in Japan for more than a week to address a suspected defect in a power-steering part.

In January, Doll told Automotive News, "If we could get more, we could sell more. Our initial sales target was much higher than where we ended up, at 700,000."

Despite the headwinds, Subaru's U.S. sales have been ahead of Doll's forecast, increasing 4.7 percent over first-quarter 2018 to total 156,754 vehicles. But in light of what's ahead, Doll is sticking by his 3 percent prediction for the full year.

He said, "We haven't backed off that."