Suzuki U.S. Exit to Be Quick Based on Low Inventory

Japanese auto maker Suzuki’s decision to stop selling new cars in the continental U.S. should lead to a quick dissolution of its sales based on low inventory and dwindling deliveries.

Its U.S. sales distributor, American Suzuki, had 5,549 units of inventory as of Oct. 31, WardsAuto data shows. Based on the company’s average monthly sales rate this year of 2,100 units, the subsidiary has enough supply for three more months of operation.

American Suzuki says in a statement that it blames its termination on “low sales volumes, a limited number of models in its lineup, unfavorable foreign-exchange rates,” and costly compliance with U.S. and state regulations.

The subsidiary says it plans to reorganize under the U.S. Chapter 11 bankruptcy law in order to continue selling motorcycles, marine engines and all-terrain vehicles.

American Suzuki in court documents reports assets of $233 million and debt of $346 million, mostly owed to Suzuki companies, including its financing arm.

Suzuki’s decision to abandon car sales in the U.S. comes as little surprise to most industry observers. American Suzuki has been in a slump since the start of the U.S. recession four years ago, primarily due to lack of new product, particularly vehicles in popular segments such as midsize cross/utility vehicles.

The sales unit also has had a high reliance on buyers with subprime credit, who were hit hardest in the economic downtown.

The Japanese brand went from an all-time sales high in the U.S. of 101,884 units in 2007 to 84,865 in 2008, according to WardsAuto data. Deliveries slid to 38,689 in 2009 and 23,994 in 2010, with a slight uptick to 26,619 in 2011. Through October of this year, sales were down 4.7%, compared with year-ago, to 21,188.

American Suzuki officials were optimistic in late 2009 with the launch of the all-new Kizashi midsize sedan, which they hoped would turn the brand’s fortunes around on sales of 12,000 units annually. But the car almost immediately began underperforming, with just 6,138 deliveries in the U.S. in 2010.

Other models in the brand’s slim lineup were faltering as well, but executives remained upbeat when discussing Suzuki’s U.S. future. Then-American Suzuki President Kevin Saito told WardsAuto in a January 2011 interview at the Detroit auto show that the Japanese parent was “very patient” in waiting for the sales arm to turn its business around.

“It is a very good product lineup, quite sporty and very attractive, and our customer profile may change because of that,” he said in the interview. “Because of (our new product lineup), we have to change our business scenario.”

Suzuki U.S. officials publically stated their desire for another powertrain option for the 185-hp, 2.4L 4-cyl. Kizashi, perhapsa V-6 or a hybrid-electric powertrain, as a way to increase sales. But after the breakup with former partner General Motors as part of GM’s 2009 bankruptcy process, such plans were taken off the table.

A linkup with Volkswagen in December 2009, in which the German auto maker took a 19.9% stake in Suzuki, renewed hopes of more engine diversity in the U.S. lineup based on promised access to VW’s hybrid and diesel technology. But the partnership quickly became contentious.

VW insisted the decision-making process with Suzuki wasn’t moving fast enough, and Suzuki was offended by a perception that VW viewed it as easily controllable. The German auto maker eventually sued Suzuki to dissolve the partnership on the basis the latter’s use of Fiat diesel engines breached the pact.

“This partnership did not bring us the benefits we expected but turned out to be a ball and chain for our managerial independence,” Suzuki Chairman Osamu Suzuki complained in September 2011.

The case still is making its way through a U.K. court, and a decision reportedly is not expected until 2013.

American Suzuki says in a statement that“ASMC 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.”

The decision by American Suzuki to halt new-vehicle sales only covers the continental U.S., not Canada or Mexico, says Rachel Rosenblatt, a spokeswoman for the company. Suzuki vehicle sales in Hawaii and Puerto Rico are exempt.

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