By Takaya Yamaguchi and Chang-Ran Kim
TOKYO, March 19 (Reuters) - Struggling Japanese truck maker Isuzu Motors Ltd said on Wednesday that China holds the key to the company's revival as it works to shave its massive debt load by 20 percent in the next two years.
Like all of Japan's four major truck makers, Isuzu, owned 12 percent by U.S. car giant General Motors Corp , has been hurt by a sharp drop in domestic demand since the nation's economic bubble burst about a decade ago.
Its group interest-bearing debt is projected at a daunting 560 billion yen ($4.7 billion) by the end of this month -- roughly half of its expected revenue.
But Chief Financial Officer Shigeki Toma said that through increased revenues and asset sales, Isuzu should be able to meet its targets for cutting the debt to 450 billion yen by March 2005.
"Including part of the Kawasaki plant that we intend to sell, we have about 100 billion yen worth of assets that can be sold," Toma, a former managing executive officer at creditor Mizuho Corporate Bank, said in an interview.
Isuzu has already sold part of its plant in Kawasaki, just outside of Tokyo, and has said it would soon try sell the rest to raise cash.
But energising sales is the key to long-term growth and Toma said Isuzu was minimising risks at its loss-making North American operations while pushing forward in the promising Asian market, with an emphasis on China.
"We'll expand in China with a full product line-up," Toma said, noting that truck demand in the country was now about 10 times that of Japan's.
"Our chance of succeeding in China is very big."
Isuzu already builds buses and small- to medium-sized trucks in China, and is set to begin building 5,000 large trucks a year from 2004 through a planned joint venture with GM and Shanghai Automotive Co Ltd . Toma said he expects government approval for the venture by this summer.
He added that investment for the new venture would "not be large", especially since it would be using an existing plant. He declined to give any details.
In North America, Isuzu will expand its successful diesel engine business while shrinking its exposure to sport utility vehicles (SUVs), where competition has heated up through the use of heavy incentives, Toma said.
Isuzu is known for its strength in diesel engine technology, seen as a key reason that GM agreed last year to provide it with over 60 billion yen as part of a bailout package. GM now owns a majority stake in Isuzu's diesel operations in the United States and Poland.
In anticipation of stronger demand, the U.S. engine company has raised output capacity to 150,000 units for this year from 130,000 last year, Toma said.
Analysts and investors, however, remain unconvinced of Isuzu's recovery prospects.
Although Isuzu's shares are off last year's low of 31 yen -- they finished Wednesday trade up 1.79 percent at 57 yen -- the shares are still considered below investment grade. Debt issued by Isuzu is also rated as "junk" status.
Isuzu's shares have been helped recently by an uptick in domestic truck demand sparked partly by the introduction of stricter emissions regulations that take effect in October.
But industry insiders expect the rise to last two years at most.
"Right now, domestic demand is good, but it's only a temporary phenomenon. That's why it's crucial that we succeed elsewhere in Asia," Toma said. ($1=118.58 yen)