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Subaru plant ushered in new era

March 16, 2009
Subaru expects its Lafayette assembly plant to produce enough vehicles in 2009 to make one forget the nation is sunk in recession.

The forecast for 165,000 cars and SUVs is 10 percent lower than the 2008 level, but if achieved, it would make 2009 the plant's fourth-highest production year this decade. The plant will continue to employ more than 3,000 people, as it turns out newly remodeled Legacy sedans and Outback wagons, Senior Vice President Tom Easterday said. The workers also produce the popular Toyota Camry under a partnership that started in 2007.

"It's very upbeat," Easterday said of the plant's morale. As the entire automotive industry suffers from tanking sales, he said, "We've certainly gotten wet. We're not drowning."

This September will mark the 20th anniversary of the $550 million plant's launch in Lafayette. Economic development officials often tell the Subaru success story, but the state's role in recruiting the Japanese-owned company was controversial at the time. Former Lt. Gov. John Mutz lost his 1988 run for governor, in part because his opponent, then-Secretary of State Evan Bayh, ran television ads criticizing the $86 million in taxpayer-funded incentives for Subaru.

The generous package included acquiring the land, building the factory, upgrading roads and utilities, job training and aid for the "cultural transition."

Bayh's ads also capitalized on xenophobic sentiment.

"Even though it was a major factor in my losing the election for governor in '88, I still think it was the right thing to do," Mutz said of backing the project.

Mutz now serves on the board of the Indiana Economic Development Corp., which Gov. Mitch Daniels formed from the Department of Commerce to further emphasize the state's interest in attracting new business. The state has wooed two more Japanese car makers since Subaru. Toyota opened its truck plant in Princeton in 1998, and the success story of 2008 was Honda's opening a Civic assembly plant in Greensburg.

Dan Luria, economist with the Michigan Manufacturing Technology Center, has criticized taxpayer-financed deals to lure foreign automakers because they use fewer domestic components than their competitors in Detroit.

Since the 1980s, however, "They've gone from having almost no domestic content to having close to 50 percent," Luria said. At this point, he said the foreign car markers are one bright spot in an otherwise dismal outlook.

"It's a great thing," Luria said. "When the economy recovers, those companies are going to succeed regardless of what happens to the Detroit Three."

Niche automaker

Subaru's sliver-sized share of the U.S. auto market is growing.

The 2009 Forester was a hit, and that helped Subaru eke out a 0.3-percent sales increase last year. From January 2008 to January 2009, Subaru's U.S. market share grew from 1.1 percent to 1.9 percent.

The Forester is made in Japan. Whether production eventually climbs higher in Lafayette will hinge on consumer acceptance of the remodeled Legacy and Outback, as well as on sales of the top-selling Camry.

For now, the plant will keep employment steady despite the decline in production because rolling out new models requires extra hands. Easterday said the company will scale back use of temporary workers as the assembly line becomes more efficient.

Subaru will unveil the new Legacy and Outback in April at the New York International Auto Show.

Usually, a successful model launch means a holiday bonus for Subaru employees, Easterday said. That's in question this year.

"We're hoping the new-model Legacy and Outback achieve the same level of success as the Forester," Easterday said.

The Lafayette plant opened as a joint venture between Subaru's parent company, Fuji Heavy Industries, and Isuzu Motors, another Japanese company. While Subaru's Legacy has been in continuous production, Isuzu's Rodeo SUV manufactured there struggled to gain traction. In 2003, Fuji bought out Isuzu's interest in the Lafayette plant and changed the name of the U.S. subsidiary from Subaru-Isuzu Automotive to Subaru Indiana Automotive. Isuzu production ended in July 2004. The following year, SIA started making Subaru's own SUV, the Tribeca. SIA is Fuji's only North American production facility. "This plant is very important, not only to the state of Indiana, but Subaru," Easterday said.

Much of the activity in recent years stems from the partnership with Toyota, which owns 16.5 percent of Fuji. The 91,668 Camrys SIA cranked out last year accounted for half the plant's total of 183,249 vehicles.

While the 2009 forecast for Camry production is slightly lower at 90,000, Subaru's projections are far more conservative.

The company expects its Tribeca SUV to drop from 18,000 in 2008 to 7,000.

Production of the Legacy and Outback are projected to fall 25 percent, from 73,473 in 2008 to 68,000.

SIA has yet to reach its maximum capacity of 240,000 vehicles. The peak was in 1998 with 216,198 vehicles.

Easterday said that might change if Subaru can hang onto its current market share until the auto industry returns to 2007 volumes.

Subaru has seen its own flops. In 2002, Lafayette started producing a truck-like vehicle called the Baja. The crossover had a small rear compartment, but lacked a truck's towing capacity.

Easterday said Subaru discontinued Baja because it was "ahead of its time." He insisted, "There haven't been any duds."

The Outback, meanwhile, was a surprise hit. In 1994, Subaru designed a version of the Legacy station wagon with fog lamps and raised suspension. Then the company hired Paul Hogan, the Aussie of "Crocodile Dundee" movie fame, for its commercials.

Easterday said, "We expected to build 500 Outbacks a month. We had to build 5,000 a month."

Foreign investment

Much of the foreign investment that began with Subaru doesn't grab headlines.

Indiana is home to 180 foreign-owned auto-parts makers, for example. IEDC has courted hundreds of companies, most of them in manufacturing.

A 2008 report produced by Indiana University for IEDC found that foreign-owned manufacturers employed 92,000 Hoosiers in 2005. That accounted for 15.7 percent of the sector's employment. Only Michigan, Kentucky and Tennessee had higher concentrations of foreign-owned manufacturing jobs at the time.

In the 1980s, Japanese car makers were an obvious target for political leaders trying to overcome the so-called misery index: high unemployment, rampant inflation and rising interest rates.

"We made the decision that U.S. companies weren't going to do it," Mutz said. The Japanese, he said, had the capital and the desire to expand rapidly in the United States.

That factory and a General Motors Corp. truck-assembly plant that opened in Fort Wayne in 1986 were the first new auto plants in Indiana since the 1960s, said Morton Marcus, retired professor of economics at Indiana University.

"They were very important for the state," he said. "We had been losing some very big names."

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