Yesterday Japan's Suzuki Motor Corp said it will pull the plug on its unprofitable automobile business in the United States after nearly three decades, hurt by a strong yen and a limited choice of vehicles that failed to excite consumers.
Suzuki said on Tuesday it would use a Chapter 11 bankruptcy filing by its U.S. subsidiary in federal court in California to shut down the auto business and to focus instead on sales of motorcycles, All-Terrain Vehicles (ATV) and boats.
The bankruptcy could allow Japan's No.4 automaker to step away from its contractual responsibilities to the more than 200 dealers who maintain franchises, much as General Motors and Chrysler were able to drop dealerships in their 2009 bankruptcies.
Suzuki models did not catch on in the United States, and the company suffered from a lack of investment in new vehicles. It also struggled from the strong yen that makes it more expensive to export products. It sold 21,188 vehicles in the United States through October this year, a 5 percent drop from the previous year at a time when the overall market was up by 14 percent. That made the brand the second worst-selling mainstream brand, behind the Smart micro-car.
American Suzuki Motor Corp, the sole distributor of Suzuki vehicles in the continental United States, will file for bankruptcy with $346 million in debt, of which $173 million is owed to Suzuki group companies, the company said. The Japanese parent company plans to buy the motorcycle, ATV and outboard engine operations out of bankruptcy and shift its auto business to service existing vehicles on the road. The new U.S. operating unit plans to keep the American Suzuki name, it said.
From a Suzuki press release -
Notice Regarding Filing for Chapter 11 Reorganization by American Suzuki Motor Corporation, our Subsidiary in the United States
American Suzuki Motor Corporation (“ASMC”), a subsidiary of Suzuki Motor Corporation (“SMC”) which distributes automobiles, motorcycles, ATVs, marine products and related parts/accessories in the United States (excluding Hawaii), resolved during its Board of Directors meeting on November 5, to commence a reorganization proceeding under Chapter 11 of the U.S. Bankruptcy Code, in connection with winding down of its U.S. automobile marketing business and the concentration on its motorcycle, ATV and marine products businesses. As a result, SMC’s distribution of its automobiles in the continental United States will be discontinued.
1. The reason for ASMC’s winding down its automobile marketing business and concentration on motorcycle, ATV and marine
When considering its long-term business plan, ASMC recognized that it will be unable to maintain profitability with respect to its automobile marketing business, taking into account various factors such as economic conditions including the currency exchange rate, market trends, the models of Suzuki automobiles sold in the U.S., ASMC’s projected sales volume and the stringent U.S. environmental and safety regulations. However, ASMC also recognized a possibility that its motorcycle, ATV, marine products businesses could remain profitable and experience increases in sales. Thus, ASMC decided to wind down its unprofitable automobile marketing business and redirect all of its operating resources to its motorcycle, ATV and marine products businesses, to expand these businesses and improve profitability efficiently in all sectors where the prospects for profit are good.
2. The reason for ASMC’s filing for Chapter 11 reorganization
As a way to reorganize the company, wind down its automobile marketing business and concentrate on its motorcycle, ATV and marine products businesses, ASMC has determined to file the Chapter 11. This decision is intended to achieve the following:
(1) to facilitate a smooth transition of the current U.S. automobile dealer sales network into a network of authorized service and parts dealers to allow the company to fully honor all warranties and make service and parts available to customers nationwide as in the past after winding down its automobile marketing business;
(2) to facilitate a mutually beneficial solutions in connection with compensation to be paid to automobile dealers by ASMC in accordance with the stipulated terms and conditions, as they restructure their operations and, for most of the dealers, as they convert to exclusively service and parts operations;
(3) to effectively manage any possible costly and time-consuming legal disputes; and
(4) to realign ASMC as soon as possible in an orderly and fair manner to focus on maintaining and enhancing its motorcycles, ATV and marine businesses