Number one: Safety, which ranks right up there with reliability for cars, said Thomas Doll, president of Subaru of America, sitting in Subaru’s cooperate office in Cherry Hill during our Executive Q&A interview.
But then, “for the younger buyer the Apple CarPlay and the Android Auto are very popular,” Doll said.
“They hook their phones up. They have all their music and everything on the phone and through the phone there’s a device that allows you to access the head unit with your own music. So, you can listen to your own songs instead of the radio. Satellite radio is popular with the older generation. They like to listen to Howard Stern, Seventies on Seven, Eight on Eighties, or whatever they are. They like to listen to the news like CNN, Fox News, the news channels that are on the upper end of the dial.”
What about cup holders? You’ve got to have a space for that latte.
Oh yeah, they’re important. We have 19 in the three-row SUV coming up. That’s the Ascent, which we’ll be launching in May or June. It’s going to be the largest Subaru we’ve ever had.
You said in our interview that car sales are down this year and you aren’t sure why.
The average age of a car is over 11 years, 11.2 years. So, it’s really interesting in the car market today, because you’ve got the older vehicles, like you were mentioning with vehicles that you drive. You’ve got a lot of the newer vehicles that are out there. So, there’s this great mass of cars. Cars just last longer. Our job is to try to turn that fleet over faster. If we could turn the fleet over faster, obviously, we’d sell more cars.
Right. So, how do you deal with that?
You have to adjust production. Fortunately, for us, we’ve been able to keep our demand. We’re still growing. We’re gaining market share. Our sales are increasing. While the market was down, we were up 6 percent, 7 percent through the first six or seven [months] of the year. We’re hopeful, obviously, that continues through the second half of the year. But, this year we’re going to be up, probably, maybe 6 to 8 percent, or something like that, in our total volume. But, not like past years where we were up 25 percent, 26 percent.
Wow, that was a lot of growth.
Oh, yeah. Over the last eight years, we’ve grown at a compound annual growth rate of 16.6 percent per year. There was one year where we had the earthquake and tsunami, where we couldn’t get cars out of Japan, because of the Fukushima plant that went up, and lack of power and plant went out for a while. It turned out that the reason it went down was there was this one little factory that was very close to the Fukushima plant that produced this little chip that goes in our engine control modules. They had to figure out a way to get that plant up and running. Essentially, what they did is they rebuilt [that part] down in one of the south islands of Japan.
Wow, it’s incredible that one little part could hold up production for the whole automobile. I guess they won’t make that mistake again of not having more than one place to make each part of the whole car. Right? But then again, this was a supplier and I understand you encourage your suppliers to make sure they have multiple sources for their components as well.
Especially after that!
After the recession, there was lot of pent-up demand for vehicles, probably accounting for some of that growth. Now some years have passed. Do you think that everyone who wanted a car was able to buy one?
That’s really hard to say. I think if you ask a lot of people, they want a new car. Now, the question becomes whether they can afford the car. Because, with all of the requirements from a regulatory standpoint that we have to achieve — fuel economy, crash-test safety — the prices of the vehicles have gone up pretty significantly. So, that, in and of itself, eliminates some portion of the market that, otherwise, we might have. To answer your question, all the people that have a car, and had wanted a car, probably did satisfy the demand. Could there be more demand? Sure, because you’ve got this millennial generation that’s coming up that’s just now starting to buy cars.
Are they? You keep hearing that millennials love public transportation and services like Uber or Lyft and that they really don’t want to own cars.
That’s not true. I think it’s kind of blown out of proportion because when the kids come out of school these days they have a lot of college debt. They can’t really afford to buy a new car. When I graduated from school, I think I had $2,000 worth of debt. I started [earning] $12,400 a year. So, my income level compared to my debt, was like 6 times. Now these kids come out and they’ve got $100,000, $80,000 of debt and they’re maybe starting for $40,000, $50,000.
Given that, how can you even save for a car, let alone a house?
That’s the point. So, their purchase of a vehicle is delayed. It’s not that they’re not buying. It’s just that it’s been delayed, or unless their parents buy them a car. They get married, or have a child or something and the parents want them driving around in a safe vehicle.
Or, the parents give them an older vehicle and they buy the new car.
That happens a lot with us. Our customers tend to hand the car down to family members or others in the family. That’s why we’re so different in many respects from the average car company that’s out there, because we don’t have a lot of vehicles in the used-car market, because our customers tend to hold the cars for so long, and they stay in the family. So, our residual values and our resales values are quite high, compared to other manufacturers in the marketplace.
Sounds like your success is your biggest challenge.
There’s an old saying in the car business. In fact, I think, Mr. Toyota way back when, came up with it. The best used cars make the best new cars. The reason for that is if the used-car value is high, the customer has equity in that vehicle that they can use upon trade-in for their next car. That keeps their payments affordable. It keeps the customer being able to move up in trim level and get the latest and greatest in terms of technology.