Subaru moves into upscale arena with SUV, high prices

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Subaru of America, once advertised as "Inexpensive and built to stay that way," has considered drastic changes including a substantially fatter price tag and even jettisoning its brand name in an effort to move upscale.

The move comes as Subaru's North American unit, which posted an operating loss of roughly $28 million due to U.S. incentives, looks to increase annual U.S. sales to 250,000 units by 2006 vs. 186,5000 in 2003.

According to dealers and executives close to the company, Subaru's Japanese parent has exerted pressure in recent months to move quickly upmarket in 18 months-in time for the arrival of its biggest vehicle ever, a seven-seat, SUV-type wagon.

But U.S. Subaru executives said a shift will be more measured. "It will be a step-by-step evolution of the brand. We'll change the perception of Subaru through innovation and new products coming down the road," said Tom Doll, exec VP-chief financial officer at Subaru. "We're not going to make the same mistake Pacifica did by moving too far too fast," he said, referring to Chrysler Group's flub with its move upmarket when it launched Pacifica last year.

Taking the name Subaru off vehicles was discussed among parent Fuji Heavy Industries in Japan, but Mr. Doll said that name will stay on vehicles in North America. Switching to all alpha-numeric names was also considered, but "more from a global strategy Fuji might be considering," he added. The parent "understood the importance of having the name of the car in the U.S."

Subaru won't reveal pricing of its new seven-seater until closer to its 2005 launch, but Mr. Doll said it would be from $30,000 to $37,000, affordable to current Subaru owners. "We don't consider the move upscale. We consider it premium pricing," he said.

steady climb

In truth, Subaru's prices have been climbing steadily for years. Its six-cylinder L.L. Bean Outback wagon model is now in the low $30,000s and the optional turbo engines added last year pushed its top-of-the-line Forester sport utility to $29,900. But its incentives have also been rising, albeit less aggressively than the competition's. Subaru's incentives jumped from $144 per vehicle in January 2002 to $1,023 last December, but well below December's industry average of $2,455, according to, an independent auto information Web site.

The niche automaker, which rebounded from near death in the past decade by touting its standard all-wheel-drive, also plans to rejigger its U.S. advertising this spring, adding performance, styling and emotional messages, said Rick Crosson, VP-marketing. Interpublic Group of Cos.' Temerlin McClain, Dallas, handles.

The wider message comes as Subaru is challenged by more players stomping on its all-wheel-drive turf, including upscale brands' Infiniti (from Nissan) and Jaguar (from Ford Motor Co.). General Motors Corp.'s Saab enters the premium wagon segment this year with the 9-2X. With standard all-wheel drive, the 9-2X shares much with its cousin, Subaru's Impreza wagon; industry insiders nicknamed it "Saab-aru." GM owns 20% of Fuji.

Auto experts warned that Subaru risks losing its differentiation in the marketplace if it strays too far from its core all-wheel-drive positioning.

"A lot of people would kill to have the differentiation Subaru has established in the marketplace in the last 10 years," said Charlie Hughes, an auto industry veteran who now has his own consultancy Brand Rules. "They need to continue to bang that drum and they need to fight like hell to maintain that clarity of presence."

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