American Suzuki to exit U.S. auto market
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Suzuki plans to transition from new car and light truck sales to exclusively parts and service operations, or, in some cases, a phase out of dealership operations. In a bankruptcy filing, American Suzuki listed 220 U.S. dealers, down from 246 at the start of the year. Photo credit: BLOOMBERG |
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LOS ANGELES -- American Suzuki Motor Corp., rocked by a plunge in volume while the industry has climbed back from recession, is ending U.S. auto sales after nearly 30 years and filed for Chapter 11 bankruptcy protection.
The company, in a statement Monday , said it will maintain its motorcycle and marine engine business units and will continue to honor auto customers' warranties. Japanese parent Suzuki Motor Corp. is not seeking protection from creditors, the company said.
In its filing, American Suzuki said it "has exhausted all available means to reduce the cost of operating the Automotive Division for it to operate profitably."
Among the listed challenges were "unfavorable foreign exchange rates, disproportionally high and increasing costs associated with meeting more stringent state and federal automotive regulatory requirements unique to the continental U.S. market, low sales volumes, a limited number of models in its line-up, and existing and potential litigation costs.''
Suzuki terminated approximately 70 automotive division employees, with severance, on Monday prior to filing for bankruptcy protection. Warranty and parts distribution employees were not affected, according to Freddie Reiss, Suzuki's chief restructuring officer and a senior managing director in the restructuring practice of FTI Consulting Inc.
The automaker joins Daihatsu, Isuzu and Daewoo as smaller Asian brands to drop out of the U.S. market while bigger rivals grew. Suzuki launched sales in the U.S. market in 1985 with the Samurai compact SUV.
As recently as 2003, the company touted a plan to lift U.S. sales above the 200,000 mark. It barely reached half that goal, topping 100,000 in 2006 and 2007.
As industry demand sagged to 27-year lows in 2009, Suzuki volume fell to 38,695.
Last year, Suzuki sold 26,61 cars and light trucks in the United States, and this year's volume through October is off 5 percent from a year earlier.
While Suzuki has slipped, the industry has grown by 10 percent or more each year since 2009, including this year's 14 percent advance through 10 months.
American Suzuki listed assets of $233 million and debt of $346 million as of Sept. 30, according to Chapter 11 documents filed Monday in U.S. Bankruptcy Court in Santa Ana, Calif.
Revenue for fiscal year ending March 31, 2012, was about $1.04 billion, court papers show.
In a separate statement, Suzuki said it will continue to market and sell cars in Canada, where it once operated an assembly plant jointly with General Motors.
Dealer tally
The filing lists 220 U.S. dealers, down from 246 at the start of the year.
The company "intends to work within its current U.S. automotive dealer network to help structure a smooth transition from new automobile sales to exclusively parts and service operations, or, in some instances, an orderly wind-down of dealership operations," Suzuki said in a statement.
Suzuki says it plans to sell its remaining inventory through its dealers.
At the company's current sales rate -- about 2,000 units per month -- Suzuki dealers could cease selling new cars by mid-January.
Dealers had about 5,000 new vehicles in inventory at the time of the bankruptcy filing, and another 1,500 to 1,700 units sitting in ports or en route to the United States that have yet to be allocated to dealers.
Scott Pitman, whose Suzuki of Wichita (Kan.) store is Suzuki's largest U.S. dealership, said he was "in a state of shock" after learning Monday evening of the brand's planned exit.
"I don't have my mind around the whole thing. I've only talked to dealers I haven't talked to the executive team yet, so I don't know all the details," Pitman said. "We love the brand, and we've been big faithful supporters, and we're sad right now."
Pitman, a Suzuki dealer since 2007, said the 940 new Suzuki models he sold through October surpassed his new vehicle sales for all of 2011.
Behind the decline
Among the reasons for Suzuki's collapse after 2007:
• The credit crunch of 2008 blew up the subprime market, the heart of Suzuki's business.
• Poor vehicle quality squelched return business.
• Dubious practices by some stores, such as "no payments for life" promotions, akin to real estate balloon mortgages, led to lawsuits and bad publicity. A suit by a former high-volume dealer alleged that Suzuki pressured him to file phony sales reports to keep a bonus merry-go-round turning.
• In a rush to add dealers, Suzuki added some used-car sellers who wanted the cachet of a new-car franchise to boost used-car sales but didn't work to build the Suzuki brand.
Coping
Suzuki slashed costs to cope with the sales decline. The brand skipped major U.S. auto shows, including the most recent Los Angeles and Detroit venues. Executives responsible for marketing, public relations, product planning and other functions have either left or were let go this year, without being replaced.
Suzuki hasn't run national television ads in the United States since 2009. What little the company has spent has gone toward regional TV spots. Suzuki even briefly ceased promotional efforts on low-cost social media channels, including Twitter and Facebook, earlier this year.
As its lineup aged -- the brand's newest vehicle is the Kizashi mid-sized sport sedan, launched in late 2009 -- the company has steadfastly refused to discuss possible future products publicly or with its dealers.
CEO Osamu Suzuki has been tepid about his company's commitment to the U.S. market, saying he wants to focus more on emerging markets instead.
At an earnings press conference in August, Executive Vice President Toshihiro Suzuki, eldest son of CEO Suzuki, deflected direct questions about a possible withdrawal from the U.S. market.
"We will solemnly work with the current lineup, or by adding minor changes to the current lineup. We will not overstretch ourselves. We won't go so far as to generate a deficit in order to sell" cars, he said, when asked if the company was considering a retreat.
"Our basic stance is to solemnly proceed with a sales system that is appropriate for the sales volume."
Asia Editor Hans Greimel contributed to this report.
You can reach Ryan Beene at rbeene@crain.com. -- Follow Ryan on 
