Suzuki sales end sharp skid, but big questions remain
Age: 38 Dealer since: 1996 Dealership: Advantage Suzuki, Albany, N.Y. Average monthly sales in 2011: 80 new, 70 used Quote: "Unfortunately, a lot of dealers don't stock and promote the Kizashi to the level that they need to, and obviously there's no concerted national media presence because of the sparse dealer network in parts of the country."
After seeing sales fall more than 75 percent from 2007 to 2010, American Suzuki Motor Corp. rebounded last year with an 11 percent sales increase.
James Morrell, chairman of the Suzuki Dealer Advisory Board and owner of a Suzuki dealership in Albany, N.Y., says dealer profits are up and the brand has replaced poor performing dealers with people who are focused on the Suzuki brand.
But Suzuki faces the significant challenges of a strong yen and uncertain prospects for new products.
Staff Reporter Ryan Beene spoke with Morrell about Suzuki's performance in 2011 and the brand's outlook for 2012.
How was 2011 for Suzuki dealers?
Overall, it was a big improvement over 2010 with total retail sales up in the neighborhood of more than 20 percent.
What are the biggest issues dealers face this year?
Product availability in order to keep up the rapid pace of growth.
Suzuki was less affected, at least initially, than Honda and Toyota by supply disruptions after the March earthquake. Have dealers been affected by supply issues?
We were affected about three months after the major manufacturers because of the amount of Suzuki stock on the ground, in port and on ships that was headed to the U.S. The effects ended up being magnified for Suzuki dealers because the rapid sales growth seemed to coincide with the inventory shortage at exactly the same time.
From August through December, the ports have been 100 percent empty. So that means every vehicle Suzuki has imported into the United States has been distributed to dealers through the allocation.
At my store, we ran into a situation where we ran out, 100 percent, of certain models. In both August and September we didn't have a single SX4 crossover all-wheel drive on the ground because we sold them so quickly. We were selling them off the trucks as the trucks came in and dropped them off.
What has the factory said about product availability or U.S.-bound production going forward?
As far as I'm aware, they've reallocated all of their fleet sales to dealers so that dealers could have cars on the ground. That was step one.
Step two was the supply to the United States has since returned to normal after the shortages that we've had. However, since it has returned to normal there has still been zero cars left in the port after any allocation.
This year their forecast is to grow by another 10,000 units so hopefully we'll see that accommodation of supply come into the United States.
Have the curtailed fleet sales and tight supplies improved profits on new- car sales?
I haven't seen those numbers in a while, but as far as I was aware, more than 80 percent, if not 90 percent, of Suzuki dealers were profitable through July of 2011. It's a substantial increase in profitability.
What kind of margins are you seeing, and are they healthy enough to sustain Suzuki dealers?
I can't speak for all dealers, but I can certainly speak for the dealers that are more engaged in the Suzuki brand that sell 20 to 30 new vehicles per month.
The margins are certainly healthy enough to realize substantial profitability. Particularly the high demand for the product relative to the supply has allowed us to sell the vehicles at higher transaction prices, just like all the other imports have been able to.
Suzuki made major management changes last year. How have the changes affected dealers?
The vast majority of the U.S. dealers were very familiar with Koichi Suzuki, and he knew pretty much every dealer and was a presence via phone, e-mail or personal visits to almost every Suzuki dealer in the United States for quite a period of time. That type of presence, dealer involvement and dealer knowledge can't be replaced overnight.
They brought Seiichi Maruyama in from Suzuki of Canada, and Seiichi has been out there making dealer visits and making himself available while he becomes familiar with the U.S. operations. As he becomes more familiar, I'm sure more dealers will become familiar with him.
Traditionally the Suzuki dealers have dealt very closely with their regional management staffs. They have stayed in place, and we have those same relationships. The only thing that Suzuki has done at a dealer level is they have added additional service and parts personnel to work with dealers.
We've actually seen an increase in field personnel on the local level, which has certainly been an improvement.
On a dealership level, outside of the personal relationships you had with Koichi Suzuki, not much has changed.
What's behind the increase in service and parts field staff?
Suzuki has had a big focus on service and parts and increasing dealership profitability in service and parts. They have also introduced a lot of new metrics to track customer retention in service.
They heavily watch two metrics. First, Suzuki offers every customer a free first oil change, which also resets all the fluids and takes place 60 days after the customer takes delivery of the car. Their target for that is 85 percent of customers returning for that.
The second metric they're watching very closely is two- and three-year service retention.
Their feeling was they wanted to do what they could to support continued dealer profitability and not have dealer profitability not be overwhelmingly dependent on new-vehicle sales, in case there is a dip in the economy.
It's a big change for Suzuki -- heavy, heavy emphasis on retaining customers.
Has it had an effect? Have dealers bought into it?
Any time a manufacturer puts out a program and puts a lot of emphasis behind it and constantly monitors it, it helps. I mean, we always have dealers that don't buy in, but the vast majority of Suzuki dealers that are stand-alone have bought in and it's started to work. With the huge increase in the number of Suzuki dealers that are profitable, something's working.
Suzuki's product lineup has been essentially untouched, except for a few trim and packaging changes, for a few years. Are Suzuki vehicles fresh enough to compete, considering all the new entries in the compact and subcompact segments?
That's both the good and the bad thing about Suzuki. A lot of customers are not aware of what we offer and are always pleasantly surprised when they find out. Suzuki is primarily an engineering-based company and they've made substantial improvements underneath the hoods and in the cars -- upgraded interiors, improved fit an finish, the new CVT transmission, going from five-speed transmissions to six-speed transmissions. Every year they've come out with something new. Unfortunately that hasn't been incorporated with new sheet metal, but our cars, engineeringwise are continuously keeping up with the market and getting better and better each year. I mean, the cars have fuel economy increases every year. They just don't tell anybody.
The Kizashi has gotten good reviews but has been a sales disappointment. What's holding it back?
Everyone has a tendency to underestimate the difficulty of making an entrance into a segment where you've had zero presence. That's what Suzuki did with the Kizashi. The mid-sized segment is by far the most competitive segment in the U.S. market. Despite the Consumer's Digest Best Buy, despite the good write-ups and high ratings in Consumer Reports, despite winning the APEAL award with J.D. Power and despite being the No. 1 car in owner satisfaction in the mid-sized class two years running with AutoPacific, it still hasn't entered onto the shopping list of many consumers. That's primarily due to the dealers' marketing and embrace of the vehicle. It isn't a car that's going to sell itself. Consumers have to be aware of it.
Traditionally, Suzuki has been known as an SUV and small-car manufacturer in the mind of most consumers, and those consumers are surprised to find that Suzuki has a mid-sized car, especially a car as good as the Kizashi. Once consumers become aware of the Kizashi, it does very well. About half of my sales are Kizashi sales. I'll do anywhere from 30 to 40 Kizashis per month, and that just keeps growing.
But the difference is people see them on the road in our market, they know people that have them and we have very educated customers who read the reviews in Consumer Reports and come in because of that. It's kind of how Subaru emerged in the Northeast in the 1980s -- we see those same customers coming in and buying the Kizashi now.
Unfortunately, a lot of dealers don't stock and promote the Kizashi to the level that they need to, and obviously there's no concerted national media presence because of the sparse dealer network in parts of the country.
What Suzuki has actually done is they try to work with the regions and designate certain markets every quarter to get dealers to come together and designate them as core markets and bring in additional advertising support for those markets.
The Kizashi is the newest Suzuki. You'd think they'd be excited about it. Why aren't dealers stocking more of them?
A lot of people go with what's the easiest thing to do. If you stock an SX4 crossover with all-wheel drive, it's an automatic sale. Dealers look sometimes for the easier mechanism.
I don't think it's any different for a Honda dealer that has a choice of stocking a Civic or a Ridgeline. They'd stock all Civics as opposed to any Ridgelines at all.
Suzuki has trimmed its dealer body through buyouts in the last few years. What about now? Are there too many Suzuki dealers?
It's the right size right now. It's just about getting everybody to do their levels of volume.
They continue to add points if dealers terminate. They approve buy-sells. They continue to focus on having dealers who are actually focused on the Suzuki brand, as opposed to a megadealer that might just be collecting franchises, hoping that the franchise will become really hot in a few years, but in the meantime stuffs it in a corner somewhere.
Does Suzuki have enough dealers in the right markets?
They do, but there are always opportunities. Suzuki has an outstanding awd reputation but they don't have the same level of sales in the Northwest that a company like Subaru enjoys, so there are certainly opportunities for dealers to grow in those areas.
In the meantime Suzuki has had good success in secondary mid-sized markets, outside of the top 10 metros. It's just going to be a challenge for Suzuki to break into those top metro markets with the volume dealers. Those are expensive media markets for dealers to advertise and promote the Suzuki brand, so that's just something that's going to need to happen over time.
Suzuki is probably the most vulnerable brand to the strong yen, considering its size in the United States and the fact that it sells only Japan-made vehicles here. What effects have dealers seen from pressures of the strong yen?
I've been pleasantly surprised in the ability of Suzuki to almost completely metamorph themselves to be able to accommodate a very difficult yen exchange rate environment. I'm sure that probably is some factor in the shortage of product coming into the country because it's more profitable for them to sell those cars elsewhere.
But every word we've had from Suzuki management has been "we're going to take costs out on our side and we don't want the dealers to feel them at all." They've kept true to their word. The rebates, incentives, co-op marketing funds, everything they've made available to dealers prior to now, they haven't changed. Despite having significant head count reductions at the corporate level, where they have people that are doing two or three jobs where they used to do one, they've really, really made a lot of sacrifices to try to keep everything the same for dealers and for consumers, which I give them a lot of credit for.
We've had a couple of price increases, along the way but they haven't been outrageous. The nimbleness and the ability to change on a dime that Suzuki exhibits, in my mind, is unfathomable for any other manufacturer.
What does the factory need to do to help you sell more vehicles?
I'm always thankful that the factory has continued to keep all their programs to support dealers even though they've been constrained on a national level.
I'd also certainly welcome an introduction of a vehicle like the Suzuki Wagon R.
Have they talked about bringing that to the United States? They've brought it to some regional events.
That seems like a trial balloon to see what the response was. The event I saw, there was a tremendous response and a lot of fascination with the car. Suzuki is extremely tight-lipped about any future product with their dealers. So I couldn't begin to do anything more than guess what their future intentions are. But when they make a decision, they move very, very quickly with little forewarning.