Subaru's Jeff Walters: Lean inventory levels finally improving

Jeff Walters has officially been in Subaru's top U.S. role only since April 1 when Tom Doll stepped down as CEO, but Walters' three decades of experience with the Japanese brand made it easier to move up.

Walters, 56, previously Subaru of America's senior vice president of sales, had come up through the brand's regional field team, holding a variety of roles with increasing responsibilities, and had also been a brand strategy manager in what is the company's largest single global market. Not only does his experience make him a steady hand at the helm as president and COO, but he is a known quantity to Subaru's network of 639 retailers across North America.

Walters spoke last month with Staff Reporter Larry P. Vellequette. Here are edited excerpts.

Q: You've been in your new role for about two months. What are your first impressions?

A: Well, I've been with Subaru of America for 31 years. So I got plenty of experience and most of what I've done has been growing up in this business on the sales side. So any questions you have about that area will give me warm fuzzy feelings; I feel pretty good about those. But there is a lot of new in my life, and that's been good. I'm really fortunate that I'm part of a really good team here at Subaru of America.

All the people that head up the various departments around here are pretty capable, and they've been very helpful to get me up to speed. I'm also obviously pretty fortunate that Tom [Doll] is still around. We've been fortunate because we have something that maybe a lot of other companies wouldn't have during a transition like this; that Tom has been here and I can chat him up almost every morning and talk to him a little bit about what my day is going to be like, and he'll say, 'Here, keep this in mind. This is what happened last time.' So that part's all been good.

That is unusual, certainly. How long will Doll be around in his consulting/advisory role?

Tom will be on a gradual transition where he'll be here four days a week, then that will become three days a week, then two days a week. He's going to be a part of our national business conference in July, and we're all excited to hear him give one more sermon to everybody at SoA and to our retailer network, so that should be a lot of fun.

Has Tom figured out what he's going to do with all his new free time?

He's going to do a bit of traveling. He's going to Europe in the fall to trace his father's adventure from when he landed in Normandy during D-Day through the rest of World War II. They're going to trace his path. He's got some pictures from his dad and they're going to try and replicate those pictures. He's also starting to jot down some memoirs, and he's interested in potentially teaching.

Back to you: Has there been a portion of this new role that's been surprising to you, or a little more challenging, outside the world of sales?

It's only been two months, so I can't say I've experienced anything like that yet. The challenging part comes when something unexpected happens. But as you know, we've got a plan, and we work that plan, and I'm fortunate enough to work with some very good people. The challenge comes when you have to break away from your plan, and so far this year, we've been in pretty good shape.

The industry is performing well — I'd say a little bit better than expectations. The forecasts were right about 15 million [U.S. light-vehicle sales this year], and I'd say that the industry is holding at least at that, if not a little bit better. Our production is improving. For the first time in a few years, [Subaru's Japanese corporate parent] is coming back to us and actually adding units back into our plan, and that hasn't happened for quite a while, so that's been really good for us. The back half of the business, parts and service, has been pretty solid for us. Maintenance has been recovering; customer pay is good, and our recall business as a part of our total parts sales has been coming down pretty significantly. So all the big things so far this year, the important things, have been pretty good for us.

Are you seeing anything on the horizon that gives you pause, internally or externally?

Externally, you still have to wonder what the economy will be like. Will we come in for a soft landing? What will interest rates be like? How will we address that? As things return to a more normal level — a more pre-COVID level — where the cost of funds was so low, and now you're having to work with customers who might be looking at interest rates that are much higher than when they bought their last vehicle, or they're looking at lease payments that have jumped up quite a bit from the lease that they're coming out of. These are all certainly potential concerns, and hopefully, we'll be able to work our way through all that. But I feel pretty good about it. I think our foundation is pretty good.

When you look at the components it takes to be able to succeed in this business — great products, good branding, the right support programs, and a reinvested and motivated retailer network — I feel really good about all those things. And what we've been talking about for the last couple of years is just the opportunity to get back on offense.

We've just been treading water over the last couple years, but we think we have the wherewithal, given that foundation that, if we can get the cars, when you think about how good our lineup is right now, launching the Crosstrek and the Impreza, and what we think we'll have coming out over the next few years, I think we could really do some things.

Speaking of ongoing challenges, it must feel pretty strange for you to have Subaru inventory levels reach into the double digits.

You're right. At this point last year, we'd wrap up a month and have 5,000 or 6,000 cars on the ground across our 639 retailers — less than 10 cars each, on average. Right now, we're wrapping up the month with 20,000 to 23,000 cars. It's still only an average of 35 cars per store, but it sure feels like a lot more. It's still incredibly lean, though. The retailers are doing a great job, being very efficient with the inventory and the car lines, which are all still moving along very well for us.

After the last two extremely profitable years, do you think dealers will have a hard time adjusting to traditional profit expectations?

That's a good question. They've done very well, and I'm happy to see it. A retailer that's making a good return on their Subaru store, they're motivated and excited to continue investing in our brand. We do like it when our retailers can make money, but I think for the foreseeable future, their outlook is still really good, because it's going to take quite a period of time for inventory levels to really get back up to where they were pre-COVID. While the new-car grosses have come down, they're still really good, and because of what's transpired over the last few years, the used-car business is going to be good for years to come. You're not going to have that supply coming back into the market, so that part will be really good, at least for Subaru specifically.

On the parts and service side, because of the success we've had over the last 10-15 years, we've grown our units in operation, and so that part of the business is going to really carry well for our stores, specifically, because the way we come to market. Over the last 15 years, we've been able to triple our business and hardly change our retailer network. We wanted to focus on the retailers we had that brought us to the party, and have them keep investing, to be able to service [vehicles] . I'm optimistic they're gonna be in great shape.

What differences will retailers see and notice as Subaru of America transitions from Tom Doll to you?

I hope in terms of how we do business or come to market they're not really going to notice anything new. Tom and I are pretty different people. He's a little bit more willing to do things like sing and dance, literally. That maybe isn't in my wheelhouse. But the important things — about how we do business and how we want to partner with our retailers — I am totally bought into that, and that part won't change.

How do you think Subaru retailers are positioned both now and over the next few years, especially as it comes to electric vehicles?

I would say that our product lineup, with the announcement that [incoming Subaru CEO Atsushi] Osaki-san made about [three] future [EVs] joining the Solterra in our lineup in 2025 and 2026, has never been more full or robust in the history of the company. We are going to be busy launching a lot of new car lines. You've got to have product, you've got to have new product, and you've got to have great product to succeed in this business, and we think we're going to have that in spades over the next three years.

Were your retailers ready for the Solterra, and will they be ready for this expansion of Subaru EVs?

They'll be ready. We had a modest and slower launch for the Solterra, but that's been OK for us. We put that car out there with fairly modest expectations, but at the same time, we also launched it nationally, in part because this was an exercise we wanted to undertake with that car line to learn how to sell electric vehicles. When you don't have that knowledge and you're starting from a fresh sheet of paper, there is a lot to learn, because as we get closer to the 2025-26 calendar years, the expectations are going to ramp up quickly.