Subaru is basically the little car company that could. It’s managed to maintain popularity among its loyalists and even pick up enough new customers to post impressive sales numbers over the past few years.
And, according to Bloomberg’s Kyle Stock, it’s generating industry beating profits:
Last year, Subaru made a profit of nine cents on every dollar of sales, some $US2.4 billion in net income. That’s nine cents free and clear — after all of the workers had been paid and the fancy crash-avoidance technology had been tested and the checks had gone out to charities. No other automaker hit that threshold — not Toyota (8 per cent), not BMW (7.2 per cent), and certainly not Ford (2.2 per cent).
Stock’s story is all about how Subaru is at a crossroads: Stay small — or commit now to getting bigger? In the auto industry, that means a massive outlay of money, to develop new models and build factories.
When you get right down to it, the car business is tough. You have to burn through massive amounts of capital all the time in order to build a large number of complex, expensive machines, all so you can have the privilege of maintaining that scale to book what on paper look like modest profits.
The question for Subaru is actually quite stark. Should the company convert those profits into additional manufacturing capacity, building into obvious demand? Or it should manage its business in a kind of profitable steady state and try to head off any loss of customers in the future?
It’s a unique problem to have. In a sense, Subaru is a mass-marker carmaker that looks more like a producer of niche sports cars: it generates tasty profits and has a fanatically loyal customer base. OK, sure, those customers like to go canoeing or hiking more than they dream of turning hot laps on a racetrack. But the niche players also face Subaru’s challenge: Get bigger and potentially screw up what made them great — or keep on keepin’ on.
There’s another automaker that’s facing something similar to Subaru right now: Ferrari.
True, Subaru builds 400,000 cars a year to Ferrari’s 7,000. But just as Subaru, according to Stock, could raise production by 300,000 more cars annually, so Ferrari is assumed to be under pressure in coming years to raise its output to 10,000.
Building 3,000 more Ferraris each year will change the Italian carmaker decisively; currently, exclusivity is the key to what makes it, well … Ferrari. More Subarus won’t undermine Subaru’s “Subaru-ness.” But it will leave Subaru in a pickle if the economy turns south.
We’ll have to wait to see how Subaru decides to play its hand.
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