2017 Impreza driving Subaru sales, but quality and profits take hits

If you have yet to see a commercial or a billboard or any sort of ad for the 2017 Subaru Impreza, you’re most likely living in a cave.

Subaru is spending a huge amount to launch the new compact sedan and hatchback. And it’s working. Subaru Canada’s sales are on fire.

Subaru’s Ted Lalka: “Subaru is not where we want it to be.”

Canadians bought 1,159 Impreza sedans and hatchbacks last month, pushing Subaru Canada to its best-ever monthly sales of 5,523. Subaru Canada’s sales are up nearly 10 per cent this year, notes DesRosiers Automotive Consultants. At this rate, Subaru’s Canadian unit in 2017 will surpass last year’s record sales of 50,190.

But spending on the Impreza launch and Subaru’s overall push to grow at a frightening clip are costing the tiny automaker dearly. Indeed, Subaru Corp.’s operating profit slid 27 per cent in the just-ended fiscal year. That ended three straight years of record operating profits.

The irony is that as sales have jumped — the tiny Japanese carmaker exceeded annual sales of 1 million units for the first time – profitability has taken a hit.

Subaru officials have conceded that the perils of rapid expansion have hurt Subaru’s quality – long a point of pride and a key to customer loyalty. Subaru Canada issued 16 safety recalls in 2016. In the latest Consumer Reports Auto Reliability Survey, Subaru dropped to “reliable” from “more reliable.”

Indeed, for the first time since 2010, Subaru has slipped out of CR’s Top 10 brands. Subaru also ranks below average in J.D. Power and Associates’ latest quality studies.

The quality problem has been noticed by CEO Yasuyuki Yoshinaga. He has noted the quality problem and vowed to do better.

2017 Subaru Impreza

In Canada, Subaru’s Ted Lalka says Subaru is tackling quality and growth issues head-on. The vice-president for marketing, product management and customer experience says a key piece in the quality drive in Canada is to ensure dealers have an adequate supply of parts to fill orders. Subaru Canada is also doubling down on training and technical support for its dealers.

Subaru, says Lalka, has not expanded its dealer network in a conscious effort to increase dealer profitability. This should translate into better customer support at the dealer level.

“Rather than add dealers, we’re increasing throughput so dealers can afford to invest in facilities and technology,” says Lalka.

The size of Subaru Canada’s problem is told in two numbers: 4,200 and 50,190.

The latter is how many vehicles Subaru sold in Canada in 2016, the former Subaru Canada’s sales in 1994. In 22 years, it has gone from life support to the automotive equivalent of a deep-breathing triathlete racing in one of the “Ironman” triathlons it has used to bolster its brand image.

At the very centre of Subaru’s turnaround: “Don’t try to imitate someone else,” says Ted Lalka, “We’re not trying to be Honda or Toyota and we never will again,” he adds, referring to a lack of focus of the early 1990s that led to annual sales of 4,200.

“We’re an attitude,” says Lalka. “We’re for people looking for something different.”

Still, Subaru is not shy about its ambition to increase share in the compact car segment with the all-new 2017 Impreza. The company wants to grow the all-wheel-drive Impreza’s share from the current two per cent. The marketing plan calls for an emphasis on design and engineering changes, including the third-generation version of the EyeSight safety system. The base AWD Impreza starts under $20,000.

“This is absolutely the biggest spend on a (launch) campaign we’ve ever had,“ says Lalka

The Canadian media effort includes television, full digital, cinema and print. It’s been developed in Canada with Subaru’s agency of record, Toronto’s Red Urban. The all-Canadian effort is grounded in a new 30-second television spot and four 15-second ones. Tagline: “Never Sit Still.”

“We’re underperforming with two per cent share,” says Lalka. Compact car sales fell seven per cent in 2016, but “a lot of vehicles” are being sold in that segment.

The compact segment (343,817 sold in 2016) is the third-largest in Canada, trailing only compact sport-utility vehicles (406,116 in 2016) and large pickups (344,559). Canadians buy three times as many compact cars as intermediates (118,662 in 2016).

The numbers suggest Subaru has room to grow the Impreza, with 2016 sales barely exceeding 7,400.  Honda sold nearly nine times as many Civics (64,552) and Hyundai and Toyota six times more Elantras and Corollas, respectively (48,875, 45,626). Subaru expects the Elantra sales mix to be two-thirds four-door hatchback, one-third sedan.

The trick is to grow without sacrificing quality and customer service. And that’s the challenge ahead for Subaru in 2017.

“Subaru is not where we want it to be,” says Lalka. “We want people to know where we are today, not where we were 25 years ago.”

 

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‘Alright, alright, alright’: 2017 Lincoln Continental hides its Ford Fusion roots

I run in a crowd of people with birth certificates and bank balances that might suggest an interest in cars offered by the Lincoln Motor Co., Ford’s luxury brand.

Our kids are grown and we have tickets to U2 (with Mumford and Sons), revisiting the original Joshua Tree tour of three decades ago. We ski, golf, travel and dine in circles where BMWs, Mercedes-Benzes and Audis fill the parking lots. There’s the odd Lexus owner, but we make allowances for the quality-obsessed outlier with unusual tastes in design.

“Entrance,” a new TV spot for the “That’s Continental” campaign featuring Matthew McConaughey, was shot on a shimmering glacial plain about 160 miles from Reykjavík, Iceland, with black sand and shallow water offset by a stunning, stark horizon.

We all like Matthew McConaughey, too, spellbound by his scenery-chewing performance in True Detective. Interstellar blew our minds and the Dallas Buyers Club was an acting tour-de-force. The men-in-chaps of Magic Mike made us howl ‘till we cried and even The Lincoln Lawyer was amusing.

And so when McConaughey sold out, turning to flog Lincoln’s cars, well, this actor got a pass from my gang — and even some passing interest in what the heck Lincoln the car brand is up to. I zeroed in on the new Lincoln sedan with a long history. The Continental, after all, was the epitome of cool elegance and presidential power in the 1960s. The Lincoln Continental was left to languish in the 1990s, however, then faded into obscurity and went out of production in 2002.

Rhapsody is the signature Lincoln Black Label theme for the 2017 Lincoln Continental.

The new Continental looks, feels and drives like a luxury car designed and developed by a car company with great expertise in pickup trucks and SUVs (sport-utility vehicles). The braintrust behind this all-wheel-drive sedan ($57,400-$60,900 base pricing) would appear to lack any deep feeling, any rich understanding, any strong affinity for what a modern luxury car should always be. This Lincoln comes across as a paint-by-numbers effort in how to take focus group research and use it to create a competitor to the BMW 5-Series/Audi A6/Mercedes-Benz E-Class.

So yes, the McConaughey ads are delicious. But the truth is, the 2017 Continental rides on a longer, wider, taller version of the CD4 platform that also is the basis for the Ford Fusion and Lincoln MKZ. Yes, the Continental shares its chassis with a popular rental car listing for as little as $23,688.

Ford officials and apologists will say the Continental shares bits and pieces underneath that only a smart engineer or a brilliant mechanic could spot. As justification, they’ll blather on about how Audi turns Volkswagens into sports-luxury cars. They’ll point to the Mercedes’ B-Class and whisper “minivan.” And they’ll sum up BMW by pointing to the 1-Series three-door. So there.

The truth is, Ford has engineered the Continental “up” from a car you can rent from Thrifty for $75 a day. I like the Fusion, but its basics aren’t what you’d expect to find under the skin of a Continental – a least a 2017 Continental that claims to be the spiritual successor to a car that has not only been the stuff of presidents, but also Elvis Presley and Clark Gable.

2017 Lincoln Continental

To be fair, Ford…ah, Lincoln, wisely isn’t claiming a place for the Continental beside the best sporting sedans from Germany. Even the Continental with the available 3.0-litre, twin-turbo V-6 (an extra $3,000 gets you 400 hp/400 lb.-ft. of torque) is more touring car than hero of the Nürburgring.

That V-6 is a fine mill and feels strong enough to challenge the Germans. But the base motor is a 2.7-litre twin turbo that is only slightly more robust than the 2.7-litre V-6 in the Fusion (335 hp/380 lb-ft torque versus 325 hp/350 lb-ft).

What you need to know about this Continental is this: the mesh grille and the refrigerator door handles that blend into the chrome strip running down the beltline are the standout exterior design features in a car with balanced proportions but almost nothing in the way of sheetmetal flourishes.

The car shines inside, though. The rich cabin has firm seats upholstered in soft leather and they come equipped with an available back massager and 30-way adjustments that you can dial up while listening to a sound system with 19 speakers. The overall look is set off by natural-finished wood.

The push-button gear selector, however, reminds me of my dad’s 1962 Rambler station wagon. The electric push-button door opener is one of those things the marketing folks make the engineers do as an “oh, wow” factor for the showroom. This handsome interior can accommodate the biggest adults, I should note.

2017 Lincoln Continental

Ah, but as you approach the Continental at night, puddle lights with the Lincoln logo illuminate the ground below the doors. Sexy and fun and certainly a conversation-starter. Nice touch.

Has Lincoln done enough to justify what can be an $80,000 price tag for the buyer loading up on all the extras? Not among my crowd of Baby Boomers who equate premium with German engineering and would never rent a Fusion.

2017 Lincoln Continental Livery

Price: $57,400. Freight and PDI: $1,900.

Engine: 2.7-litre V-6, twin turbo.

Drive: all-wheel drive.

Transmission: six-speed automatic.

Fuel economy (litres/100 km): 14.3 city/9.7 hwy using premium fuel.

Comparables:  Cadillac CT6, BMW 5-Series, Audi A6, Mercedes-Benz E-Class, Lexus GS, Infiniti Q70, Acura RLX, Volvo S80.

 

 

 

 

 

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Why consumers will grow to love electric vehicles

There are many good reasons to love electric vehicles (EVs), most of them practical and some highly emotional.

The Nssan Leaf is the best-selling pure EV in history. And you can argue it costs $41 to own and operate over 96 months, or eight years.

I love how quick they are. A modest little Chevrolet Bolt — $30,406 will Ontario’s incentives — will do 0-100 km/hour in less than 7.0 seconds. A lightning-fast Tesla Model S in Ludicrous mode — $186,200 — recently cracked 2.3 seconds in a 0-60 MPH test done by Motor Trend. Did I mention EVs are also allowed to use HOV commuter lanes, even if only one person is on board?

That’s the drag strip report. What about ride quality and handling? Well, smart battery spreads out vehicle weight to maximize comfort and responses. Yes, a Model S and a Bolt both are entertaining in corners. True, those batteries add weight, but today’s EVs do not feel lumpy and unbalanced. The extra heft is well and smartly spread out.

The “green” piece also delivers an emotional lift. Nothing comes from an EVs tailpipe and if the source of electricity is clean – hydro-electric, for instance – your conscience is free to delight in the driving.

Sure, in places like Alberta, where nearly half the electricity comes from coal-fired plants, the “green” dividend is not so obvious. But overall, in North America only about a third of the electric grid runs on coal. And despite President Trump’s worst instincts, coal is on its way out as an energy source.

That said, EVs make sense in more practical ways. They typically have 80 per cent fewer parts, reducing manufacturing and maintenance costs. A Tesla Model S has a drivetrain with 11 parts, compared to 1,500 for a conventional gasoline vehicle.

An EV requires minimal maintenance. Critical software updates can be uploaded wirelessly and seamlessly during the night. Sure, you’ll need to rotate the tires every now and then, and some parts will wear out – windshield wipers and such. But EV are low-maintenance vehicles.

EVs are cheap to run, too. A good rule of thumb: the cost to fuel an EV comes in at about one-eighth that of a gasoline car. Charging at a public station is free. The early adopters who buy EVs are wealthy, which means businesses from hotels to big box stores to public markets are putting charging stations in place. Juice up for free, at least for now.

Obviously EVs are unproven in the marketplace, at least in numbers equivalent to vehicles using internal combustion engines (ICE). After all, the world’s roads are filled with nearly one billion vehicles – and some 90 million or more new ICE vehicles are sold annually around the globe. ICE technology is proven and understandable, supported by a well-proven infrastructure of fuel stations and service centres.

But as EV sales ramp up, as battery cars move into the hands of consumers in growing numbers, questions and concerns about their use and viability will be asked and answered. Expect the marketplace place to respond to EVs in a very positive way.

 

 

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Toyota Mirai: the fuel cell dream is alive, despite Trump’s chaos

VANCOUVER, B.C. – I drove Toyota’s best hope and dream for a “green’ transportation future on the very day President Donald Trump signed a U.S. executive order that could prove disastrous for the planet.

Climate change deniers are now in charge in the White House. As a result, Trump has instructed the EPA to kill former President Obama’s signature Clean Power Plan.

I mulled this over as I rolled through Stanley Park behind the wheel of Toyota’s Mirai hydrogen fuel cell car. The irony was not lost on me, nor Dave Nichols, the Toyota Canada director. Nichols was there to explain the Mirai and pitch Toyota’s vision for an automotive future filled with zero-emissions cars.

Nichols argued that the world’s second-largest car company is truly committed to helping societies reduce their greenhouse gas emissions by 90 per cent by 2050. It’s part of Toyota’s long-term “green” plan – what’s called its global Environmental Challenge 2050, he said.

“Yes, of course we’re serious,” he said, adding that the 2020 Tokyo summer Olympics will be a showcase for hydrogen fuel cell technology. Toyota is establishing a hydrogen re-charging network which will allow its fuel cell vehicles to act as the primary form of transportation at the Olympics.

Fuel cells, of course, create electricity through a chemical process that extracts electrons from an on-board hydrogen source, creating electric power that is emissions-free, other than a little warm water coming from the tailpipe. It’s proven technology, though expensive and challenged by the lack of re-fueling infrastructure in any major market in the world.

As Nichols and I discussed the Mirai, the Trump team was ripping apart rules intended to help the United States meet its 2015 Paris pledge: lower emissions by at least 26 percent below 2005 levels by 2025. In doing so, Trump is creating the sort of uncertainty that is anathema to the auto industry.

Car companies like Toyota take four to seven years to develop new models. Once a new vehicle is launched, it remains viable for at least 15 years. Thys, the auto industry plans with 20-year horizons.

Trump’s initiative stirs chaos into the automotive mix, even there is no guarantee Trump’s orders will come into effect. Environmental groups will make court challenges, so while Trump dreams of gutting his predecessor’s climate change initiatives, no one can be sure he’ll be successful. Indeed, Obama’s initiatives were consistent with the 194 countries which signed the Paris accord, so Trump faces global opposition here. Yes, this is a mess.

Back to the Mirai. Toyota has invested billions in hydrogen vehicle development and recently in Davos led a group of 13 global industry leaders to form the Hydrogen Council. Their stated goal is the de-carbonisation of the energy system in response to the Paris Climate Agreement. Other car companies on board: Daimler, BMW, Honda, and Hyundai.

Nichols says Toyota Canada is putting three production Mirai sedans into the hands of people like me as part of an awareness campaign. These production cars are available in Japan, California, and parts of Europe. If you live in Los Angeles, you can drive one for $369 (US) a month, with free fuel for the life of your lease.

The Mirai is quick and comfortable, roomy and pleasant to drive, with a range of approximately 500 kilometres. It can be refueled in five minutes.

Alas, the Powertech Labs Fueling Station in Surrey, British Columbia is the province’s only fast-fill hydrogen station. There are also a handful of small hydrogen stations in Canada –for research and development. But Toyota is working with Shell to build another hydrogen station at Vancouver’s airport, with hopes for more in the future.

The Mirai is a tremendous technological achievement. But it faces infrastructure barriers, not to mention the challenge of a long list of current and future battery electric vehicles. But don’t underestimate Toyota, a big, rich and stubborn car company determined to make fuel cell cars a reality – even if they never go beyond niche products in Tokyo and Los Angeles.

Sure, Toyota faces a big lift in making fuel cells cars an everyday reality. But only a fool would bet against this juggernaut of an automaker.

 

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GM: no love despite making piles of money and very modern vehicles

Yes, it’s easy to mock General Motors – Government Motors – even now, nearly eight years removed from bankruptcy. The stain of failure is hard to clean.

The 2017 Buick Encore.

But isn’t it time to cut GM a little slack? The GM of 2017 is most definitely not the GM of 2009, whose bankruptcy filing reported US$82.29 billion in assets and US$172.81 billion in debt. Ugh. What a tangled mess that GM was. Lousy cars, terrible marketing, pathetic quality, dull styling, no plan for Cadillac, a technology laggard, incompetent management…

This GM, the 2017 version, is hard to ignore for 10 million reasons – the number of GM vehicles sold worldwide last year. Revenue? In 2016, US$166 billion? Profit: US$9.4 billion and a profit margin of 7.5 per cent worldwide. All that while pushing back US$4.9 billion to shareholders through buybacks and dividends.

General Motors president Dan Ammann (center) with Lyft Inc. co-founders John Zimmer (right) and Logan Green (left)

GM remains an easy target for lazy comedy chasing cheap laughs. But there’s nothing funny about GM quality. Consumers Report recommends 12 GM models and Buick is a top-three brand. The Chevrolet Bolt EV is on its way to dealers and profit-spinning new crossovers are coming, among them the Chevrolet Equinox and Traverse and the GMC Terrain. They join the new GMC Acadia, Buick Envision and Cadillac XT5. GM launched 13 new models in 2016. The product plan calls for 18 more this year.

How did investors treat the good news? Shares tanked more than five per cent. Investors don’t like the cyclical nature of auto stocks and border tax concerns are a worry now a protectionist-in-chief Tweets from the White House.

No love for GM yet, even though Cadillac retail sales were up nearly 46 per cent for the year. GM remains tarnished, despite efforts to transform into something much more than a pickup and SUV company:

  • The Maven mobility brand is up and running and growing. Maven is teaching GM how to become a transportation service provider, not just a car company;
  • Maven’s Express Drive program for Lyft drivers has about 5,000 vehicles, with 100 Bolt EVs planned for California;
  • Cruise Automation is GM autonomous driving initiative, now testing more than 40 autonomous Bolt EVs on public roads in three cities;
  • OnStar has nearly 12 million connected vehicles on the road globally.

Chevrolet Malibu: selling well and winning awards.

GM, folks, is a solid company, one with a vision for sustainable growth. There is no “fake news” in the latest results, no “alternative facts.” GM is just a solid business.

Yet GM’s stock is up a measly 6.0 per cent since its post-bankruptcy IPO (initial public offering), while the S&P 500 is up a whopping 95 per cent. If you bought an exchange traded S&P fund, you’ve doubled your money in the time GM delivered chump change. Is there a fix for this?

GM CEO Mary Barra said “yes” while talking to analysts and investors. But that doesn’t mean there’s a quick fix to juice shares.

Instead, she said GM will buckle up and knuckle down. The hard work will produce real results.

2016 Buick Envision Front

“We believe and we’ve got a track record of demonstrating performance and meeting our commitments for three years now. We’re going to continue to do that with our outlook for 2017. We’ve identified how we can continue to make this business better,” she said.

That means focusing on the basics of make good, reliable vehicles that people want while building a future transportation services business. Connectivity is part of that, with OnStar the centerpiece. Electrification, too; the Bolt EV leadings the charge there.

GM also knows that autonomous vehicles – and related services – are in its future, beyond the basic business of building and selling cars, trucks and SUVs.

“And I think we’re well positioned,” said Barra. And that’s what we’re working hard on every day, because I think that will change the dialogue and change the calculus of how this company is valued.”

Perhaps someday.

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