Subaru dealers are facing a new set of questions after the automaker reported another decline in gross profit and margin in its August 5 earnings report. Rising material costs, tariff exposure and heavy reliance on vehicles built outside the U.S. are squeezing a brand that spent more than a decade as one of the hottest franchises in the import segment. Joining us on today’s episode of Inside M&A for a closer look at where Subaru dealerships stand are Brian Gordon, President of Dave Cantin Group (DCG), and David McComb, Director of Dealer Engagement at DCG.
The Dave Cantin Group has completed 17 Subaru dealership transactions in recent years, providing the firm with a close view of how those pressures are reshaping valuations and M&A activity across the network.
What’s slowing Subaru
The automaker sold roughly 700,000 vehicles in 2019, but that figure has since slipped to about 650,000. Over the same period, Kia and Hyundai each grew sales by 30% to 40%, closing the gap with a brand that once ranked just behind Toyota and Honda among import dealers’ most sought-after franchises.
"The spoiler alert is this is a great brand that's going through some real growing pains," – Brian Gordon
Gordon explains that the change is driven by both pricing and product. Kia and Hyundai now market themselves as budget-friendly options, prompting dealers to notice that customers previously leaning toward Subaru now prefer more affordable imports. The pressure is intensified by the product pipeline, as the automaker has few new models planned until 2030, aside from refreshes, though it did reveal a new performance division.
“Today on the earnings call, they did announce that they’re going to start a unit dedicated to sports cars, to performance cars, and take that out of sort of a niche thing that they do and really try to go mainstream. So I think that’s one thing that dealers take away as a bright spot,” Gordon said.
Subaru’s tariff problem runs deep
Subaru’s exposure to tariffs runs deeper than most import brands. According to the duo, roughly 70% of Subaru’s global sales happen in the United States, but only 40% of the vehicles sold here are built domestically. Gordon said that combination makes the automaker more dependent on the U.S. market than any other import. Additionally, that dependency limits how quickly the automaker can adjust. Therefore, the automaker is working to streamline production and restructure its supply chain, but those changes take years to execute rather than months. Dealers shouldn’t expect the pressure to ease in the next 12 to 24 months, Gordon said.
With more than 25% of Subaru dealerships operating without another store from the same group nearby, McComb said, that’s called being “on an island.” Although that isolation mattered less a decade ago, before Subaru competed directly with Hyundai and Kia, today, that local density and scale carry more weight, and an isolated Subaru store can struggle against larger, better-positioned groups nearby.
Further, Subaru’s upcoming image-upgrade program adds to that pressure. Gordon said the renovation could cost six to ten million dollars per store, a steep investment for a dealer already questioning long-term growth in an isolated location. With that cost layered on, dealers in that position are either expanding around the isolated store or selling it while valuations are strong.
Why selling makes sense for some Subaru stores
"I think what we're beginning to see is those Subaru dealers that have those points on an island, they're making the decision that now is probably the time either to buy more stores around it or to divest that store, because valuations are still great." – David McComb
While some dealers are choosing to grow by adding stores to build the local scale that isolated locations lack, others are deciding to sell some or all of their Subaru holdings while valuations remain strong, rather than wait out a recovery that could take years.
Gordon said conversations with DCG don’t require a dealer to commit to anything. The firm’s role is informational, helping dealers understand their store’s value, the competitive landscape around them, and the options available before making a decision.
That approach applies broadly across the Subaru network right now, Gordon said, but it carries particular weight for dealers already questioning whether an isolated store can compete long-term.
“If you’re a Subaru dealer, especially one that’s operating an outlier, this is a pretty good time to consider M&A,” Gordon said.
