Subaru of America began 2020 with a U.S. sales goal of 725,000 vehicles and a fresh lineup led by the redesigned 2020 Outback.
After posting volume increases in January and February, Subaru was on track for its 12th consecutive year of record sales.
But in March, the impact of states’ shelter-in-place orders stemming from the COVID-19 pandemic was quickly felt by Subaru’s retailers across the U.S.
Sales dropped 47 percent in both March and April. May showed improvement as sales were down just 19 percent to 51,988 vehicles.
CEO Tom Doll, one of the architects behind Subaru’s success and rapid growth in the U.S. market, acknowledges that the streak of yearly sales records will end in 2020, but he remains optimistic.
“We’ll start a new streak next year,” Doll said.
For Doll, navigating Subaru through the pandemic is just the latest challenge he’s faced during his tenure with the automaker, which dates back to 1982.
Doll, 65, spoke with Staff Reporter Jack Walsworth this month. Here are edited excerpts.
Q: You’ve seen a lot in your career at Subaru, and you’ve gone through crises before. How has your experience helped during this pandemic?
A: This has been quite an interesting challenge. I’ve gone through many recessions, starting with the 1987 recession that led to our tough situation in the 1989 through 1993 period of time. I’ve been through the dot-com boom and the recession that happened right after that. Then 9/11 and the financial crisis in 2008 and 2009. And the 2011 earthquake and tsunami which affected the Japanese production of cars.
This situation is really the most challenging of all of them. Because at least in the previous downturns or recessions, you had a functioning economy that was going on. And here, the economy was purposely shut down and it was purposely shut down very quickly. There really wasn’t a whole lot of time to adjust to what was happening.
If you’re going into a recession and you see one coming, you can begin to prepare for it by conserving cash resources, figuring out what you’re going to do with your employment levels and things like that. But in this particular one, it just came upon us so quickly that there really wasn’t much time to adjust.
It’s something that I’ve never been through before, and I hope I never go through it again, but it’s been a very interesting time. The past has helped us a little bit because in some of the past recessions, we weren’t quite as strong from a business perspective or from a franchise perspective. But now we’re a lot stronger. During these very good years we’ve had, particularly in the last five or six years, we were able to fortify our balance sheet in such a way that we can withstand this type of a situation.
If this happened 10 or 15 years ago, I’m not sure it would be the same. We would have survived it. But we wouldn’t have survived it with the fundamentals coming out of it that we will this time.
In 2017, you said 40 percent of employees at Subaru of America weren’t there five years before and hadn’t seen a cycle, just upward movement. As the pandemic unfolded, how did those employees adjust? Have Subaru veterans been offering perspectives?
Even though we have a lot of people that have been here for five years or eight years or less and haven’t experienced a downturn, we also have a lot of very tenured people here. That creates a balance that can help those folks that are going through this the first time to have a better understanding of how to react to it, not to panic or not do things that could potentially jeopardize the longer-term future of our company.
We’ve got good, young, talented and energetic people. We’ve got a very seasoned staff that have been through many situations, maybe not as many as I’ve been through, but they’ve been through a lot and certainly know how to conduct themselves when this type of a situation occurs. We’ve gone through it very well.
As we get into the summer months, what will recovery look like at Subaru in terms of sales?
I don’t want to give it the Tom Doll kiss of death, but so far June is starting out fairly strong. It’s actually going better than we thought. We were thinking that the inventory levels that we had, beginning in mid-March, would be OK as we got through the summer months. But as it turned out, March was better than we thought. April was better than what we had initially thought. We sold about 8,000 more vehicles in April than we thought we were going to do. We sold a bunch more cars than we thought we were going to sell in May.
Our inventories are coming down pretty significantly at the retail level. Our factories are back up and running, but it’s going to take a little bit of time to resupply the retailers.
What are Subaru’s inventory levels at now?
Our inventories are under 60 days in total. We have some car lines that are lower than that. Outback is probably the lowest.
Around mid-August, you’ll begin to see our inventory levels start to get refilled. But we don’t want to have them refilled too much. We like the idea of keeping our days’ supply fairly tight.
Supplies are going to be tight. It’s always been that way, and it seems like in the summer we always hit the tight spot in the inventory. Then it recovers a little bit as we get into the fall and winter months. We’ve always been in a very good inventory position which allows us to stay away from incentives that other manufacturers may have to use to stimulate demand on their side.
Subaru had a lot of momentum going into 2020, and the first two months were strong. How do you recapture that momentum?
There’s been a pretty big shock to the system here and the demand curve is shifted down. Everybody thought this year was going to be 16.8 million, 17 million vehicle sales again. And its shifted down to anywhere from 13 to 14 million vehicles for the entire market. That’s a pretty significant drop.
In terms of recovering the momentum, we’re not going to recover back to the 725,000 sales target. It’s just not possible in this existing market that we’re going to get to that level of sales. We’re going to try to get as many sales as we possibly can. Our current target is somewhere [around] 575,000 vehicles. That’s where we’re thinking we’re going to be this year.
Our goal is to maintain our share of the market, whatever the market is. We think that would be a successful year for us coming out of the pandemic. If the economy improves at a greater extent and then business improves, we want to capture that amount of share and potentially gain some additional share, if that’s possible.
What kind of government stimulus would Subaru like to see? Something like a Cash for Clunkers-type program?
I would say whatever’s best for the overall economy. Help the car industry, but also help the overall economy.
The last time they did Cash for Clunkers around the financial crisis, they didn’t really do it until about a year afterwards because it became apparent that the auto industry needed a little bit of a push and the economy needed a little bit of a push.
As more states open up and the various state economies come back, I think it’d be appropriate to look at how they come back and how the economy in general is being impacted. And then make a determination at that point whether or not that type of a program should be reintroduced to help the economy and to help the industry in general. But I think we’re probably in favor of really helping the overall economy get back, because that’ll help everything: It’ll help used cars, new cars and other industries besides just autos.
Subaru began offering 0 percent financing on certain vehicles in April and extended it through June. Do you see that continuing?
We typically don’t telegraph our programs as they go out into future months. We announce them at a month at a time. We’ll evaluate as we get closer to the end of June for what we’re going to do in July.
Has the 0 percent offer been effective?
It’s been effective for us because we don’t offer it that often. It’s very rare that we would go to 0 percent for 63 months. You might see us offer 0 percent for 36 months or 48 months from time to time at the end of a model year on clearance or something, but not 0 for 63 months. We haven’t done 0 for 63 in a long, long time.
The Forester had its best May ever for sales. Why did it do so well?
Forester is in a very strong segment and it’s a terrific car. I think people are just now discovering what a great car it is and the value it represents in the marketplace. That was one of the car lines that had a nice supply of availability that we could sell from. We hope that’s the new normal for Forester.