Subaru's stubborn streak of low U.S. grades

One of the fastest growing automotive brands in the U.S. has a stubborn problem.

Despite its 11 straight years of U.S. sales increases, Subaru is wrestling with low quality scores and product recalls — issues that, if left unchecked, could interrupt its momentum.

Last week, Subaru again ranked in the bottom tier of the closely watched J.D. Power Initial Quality Study, with 113 problems per 100 vehicles in the annual survey.

Improving the public perception of its vehicle quality is at the forefront of the brand's efforts in the U.S., its largest market, and Japan.

"We're not used to the level of recalls that we've had," Subaru of America CEO Tom Doll said in an interview just before the release last week of this year's IQS results. "We're working with Subaru Corp. and they're working with everybody — their suppliers, the engineering staff and so forth.

"They're working very hard to make sure that as we get into the 2020 model years, and also with the launch of the new Legacy and Outback, the quality is top notch."

Doll acknowledged that Subaru has had problems during new-model launches.

"I believe they're making significant progress on addressing a lot of the issues and making sure they don't happen again."

Subaru has scored at or below the industry average in the IQS study every year since 2008. This year's score, while a slight improvement over last year's, was still well below the industry average.

But so far, consumer enthusiasm for the brand remains strong.

Over the past decade, Subaru has morphed from a niche brand of all-wheel-drive vehicles into a serious competitor, climbing in U.S. sales from the No. 20 brand in 2008 to No. 7 in 2018 according to the Automotive News Data Center. The brand has attracted new customers with a widening portfolio and larger crossovers. Last June, Subaru dealers added the Ascent three-row crossover, and a redesigned Forester compact crossover followed in the fall.

Dave Sargent, vice president of global automotive at J.D. Power, said the quality problems that Subaru owners brought up in this year's Initial Quality Study are not fundamental or insurmountable.

"This is not engines and transmissions failing, or anything like that," he told Automotive News last week. "It's more to do with electronic features on the vehicle, the infotainment system and some of the other features sometimes just not working the way consumers are used to."

Subaru's rapid growth is another challenge the brand has to deal with when it comes to IQS, Sargent said. A root problem, he said, is that a lot of new Subaru customers are unfamiliar with their vehicles. IQS focuses on customer satisfaction during the first 90 days of ownership.

"A majority of their customers right now are people who are new to the brand," Sargent said. "That's always a challenge because you're excited moving into a new brand and nothing is quite the way you're used to. And for the first 90 days, it can be a little frustrating. These people still love their Subarus, but they're just finding a few things in which they are like, 'I'd love it slightly more if things were the way I'm used to.'

"Over the longer course, when we look at the longer-term studies, people stay in love with their Subarus despite maybe having a few issues in the first few months of ownership. This is not a life-threatening issue for Subaru, but there are areas they could certainly improve."

Still, Subaru's low scores don't sit well with the CEO.

"We do take the J.D. Power stuff very seriously and we are working with them to identify areas where we can improve and get that information back to Subaru Corp. so they can make the appropriate changes," Doll told Automotive News. "We want to be No.1 in everything."

Sargent said Subaru is headed in the right direction to raise its IQS scores.

"My expectation is that, over the next few years, we'll see them improve in the rankings because they know what they need to do," Sargent said.

In 2018, Subaru marked its 11th consecutive year of sales increases and a decade of sales records. Its U.S. sales have more than tripled from 216,652 in 2009 to 680,135 last year, and its market share has gone from 2.1 percent in 2009 to 3.9 percent in 2018.

Upcoming launches are critically important to the brand, said Stephanie Brinley, IHS Markit's principal automotive analyst.

"The Outback is particularly important because it's one of their best-selling products and has been consistently," Brinley said.

Subaru has sold 76,206 Outbacks through May, leading the brand's U.S. sales this year so far, even in the last model year of the current generation.

Atsushi Osaki, Subaru's chief quality officer, has become an important figure for improving performance. Osaki spends time at Subaru's two assembly plants, in Japan and Indiana. He comes to the U.S. once a quarter, and his trips include one-on-one meetings with Doll, as well as visits to Subaru dealerships to hear from retailers.

"I've been out with him when he's visited some of the retailers," Doll said. "He's under on a lift, he's turning a wrench.

"Mr. Osaki said our goal is to have zero recalls," Doll said. "That's a tough ask, but that's the goal, and I believe they're going to achieve it."

The quality problems have had an impact in the market. Last year, the company had to issue a recall and stop-sale for all U.S. 2018 Outback crossovers and Legacy sedans — involving 228,648 vehicles — because of a software programming error that could cause their low-fuel warning light to fail to illuminate. That followed a separate global recall that involved 140,249 U.S. vehicles to fix faulty valve springs that could cause engines to stall.

This year, Subaru lost nearly 10 days of factory output as it stopped production at its sole assembly plant in Japan to address a problem with electric power-steering units in Foresters and Crosstreks. Subaru said that glitch could dent shipments to the U.S. by as many as 10,000 vehicles, but no vehicles with the problem made it to the U.S.

While Subaru has remained in the bottom half of J.D. Power's Initial Quality Study, there are bright spots elsewhere.

In the annual Kelley Blue Book Brand Image Awards given in February, Subaru was named the Most Trusted Brand for the fifth year in a row. And in the most recent J.D. Power U.S. Vehicle Dependability Study, from February, Subaru's score jumped 31 points to hit the industry average after four years of being below it.

Subaru also has improved in its measurements by Consumer Reports, the influential buying guide that is consulted by many U.S. car shoppers. For three of the past four years, the brand has ranked in the top six on the Annual Auto Reliability Survey released in the fall, reaching No. 4 last year. When the magazine updated those rankings in February, based on the inclusion of newer survey data, Subaru's ranking rose to No. 2.

In the publication's 2019 Brand Report Card ranking also from February, which combines reliability and Consumer Reports testing, Subaru topped the ranking of the most reliable automotive brands.

"Now we've got to defend our title," Doll said. "Now we've got to make sure we stay there.