Suzuki Leaves U.S. Auto Market; Focuses on Asian Markets

After 27 years in the United States, Japan’s Suzuki Motor Corp. will stop selling its current lineup of four models here and concentrate on other parts of its global business, particularly business in India and Southeast Asia. The company, which is a major mini car maker in Japan, will continue to market motorcycles, all-terrain vehicles and marine engines in the United States, according to a company statement.

Recently, Suzuki’s U.S. distributor filed for Chapter 11 bankruptcy protection in California. Declining sales, a small, aging product lineup, and the strength of the yen were listed as reasons for the Japanese automaker’s decision to exit this market. Separately, Suzuki has stated that it will continue to sell vehicles in Canada, where it once operated a joint venture production plant with General Motors.

In regard to dwindling sales in this market, Suzuki, with a lineup of four models in the U.S. market, sold only 21,172 units through the first 10 months of 2012, which was 5% fewer than last year. Sales have been sliding during the past few years. In fact, Suzuki had its best sales year in the United States five years ago when it sold 102,000 vehicles. Since the company still has 220 U.S. car dealerships, it plans to work out an agreement with dealers to continue to serve current Suzuki vehicle owners with parts and service. All warranties will be honored, according to a company statement.

Suzuki to Focus On Stronger Asian markets

The Japanese automaker may be leaving the U.S. auto market, but plans to bolster its business in other parts of the world—especially in the growth markets of India and Southeast Asia. Currently, Suzuki has a 3% share of global auto sales—the same as in 2011, according to analysis from our strategic partner LMC Automotive.

Region 2011 2012
Global 3.0% 3.0%
Japan 13.4% 12.3%
India 33.8% 33.5%
ASEAN 3.2% 3.7%

 Source: LMC Automotive

Its Maruti Suzuki India unit is a market leader in that country, and deliveries accounted for nearly 40% of the company’s total 2.49 million unit sales in its last fiscal year. This year, Suzuki’s market share in India—though still the largest—is 33.5%, down slightly from 33.8% a year ago. Continue reading ›

Lincoln in China: Observations from our China Expert

Editor’s Note: Last week, while in China for a plant groundbreaking, Ford Motor Co. President and CEO Alan Mulally announced future plans to launch the Lincoln luxury brand in China. The first Lincoln models to be sold will be built in North America and distributed through an independent dealer network. Jim Farley, group vice president, Global Marketing Sales and Service, said in a statement that Lincoln will be differentiated in China with more individualized and personally tailored products.

Our Asia expert, Tim Dunne, offers a few observations and insight about Ford’s plans:

It’s About Vision and Commitment

Tim Dunne

Is it too late for Ford in China? Were Honda and Toyota too late to the American market when they started building cars in the United States in the 1980s? Was Hyundai too late when they started building cars in the U.S. in the 2000s? Their results provide the answers: Today, Japanese- and Korean-made vehicles account for roughly half of all sales in the U.S. market. Anything is possible with vision and commitment.

That said, the Ford brand does have its work cut out for it in the world’s most competitive auto market, which plays host to some 95 brands in the passenger-vehicle segment. The Ford brand currently holds a 2.5% share of the world’s largest market and ranks 13th overall in brand sales, trailing most of its major global competitor brands such as Volkswagen, Toyota, Nissan, Hyundai, Chevrolet and Honda. Ford’s total brand sales in China in 2011 were 323,000 units, and 2012 sales are on pace to reach 350,000. By comparison, the Ford brand sold 2.06 million vehicles in the United States in 2011, or six times as many vehicles as it sold in China last year. Continue reading ›

Ford Aims Big with New Thailand Plant

Two years ago, Ford jumpstarted its Southeast Asia sales with the introduction of the Fiesta sedan and hatchback models. The introduction in the second half of 2010 expanded Ford’s annual sales in the region by 81%, up from just 39,000 units in 2010 to 71,000 units in 2011.

Importantly, the Fiesta launch also signaled Ford’s renewed focus to be a prominent manufacturer in a growing region of 500 million people, now more integrated since the ASEAN Free Trade Area (AFTA) became fully functional in January 2010. And the region is moving toward further integration by 2015 under the ASEAN Economic Community (AEC) agreement.*

No doubt China will remain at the core of Ford’s Asia Pacific and Africa operations. However, other emerging markets in Asia, including India and the Asean, are gaining resonance. Continue reading ›

How Subaru Lost its Joint Venture in China

Marvin Zhu

A year ago, Fuji Heavy Industries, as well as several other global carmakers, chose not to locally produce vehicles in China. Fuji Heavy was said to be seeking a local partner to establish a joint venture. According to rumor, Great Wall, well known for its SUVs, was one possible candidate, as Subaru’s most popular model in China is also an SUV—the Forester.

Beijing Auto (BAIC) was also closely linked because the company needed to expand its product portfolio to compete against other state‐owned giants, such as SAIC, FAW and Dongfeng. In addition, some smaller players—such as Huatai,Youngman and several others— were also mentioned.

However, it was eventually revealed that Chery was the last remaining company in the running to partner with Subaru. A JV would use Chery’s new plant in Dalian to make the first model, which was likely to be the Forester. Chery could learn a lot from Subaru’s engine technology, and might even develop a new brand based on the new technology.

Unfortunately, according to a recent announcement from Fuji, the company has dropped plans to manufacture vehicles in China, after failing to secure the Chinese government’s approval for a joint venture. Since then, Fuji Heavy cut its global sales targets and instead decided to increase its manufacturing capacity in the United States and in Japan. Continue reading ›

Some Dynamics of How Dealer-Automaker Relationships Work in India

Mohit Arora

A strong relationship between automakers and their dealers is the core for success of any car brand in any market. A car model may receive rave reviews, have a good track record and advanced technology, but without an invested dealer to represent the brand well, the brand’s model will not flourish.

The joint venture between Tata and Fiat in India is one interesting example. While Tata Motors was experiencing strong growth in fiscal year 2011, Fiat was experiencing a double-digit decline in sales. In widely published interviews, Fiat officials said they felt that there was no real attempt at the dealerships to promote the Italian brand and therefore decided to end their venture of selling Fiat models at Tata dealerships.

While we don’t intend to assign blame of the breakup for the joint venture, and while it remains to be seen whether the dissolution of the partnership is a good long-term move for Fiat and Tata, the example does provide an important illustration about why automakers need to have strong alliances with their dealer networks. Continue reading ›

OEMs in India Plan to Invest in Popular Diesel Powertrains

 

Ammar Master

Vehicle makers have revived their plans to invest in diesel engine manufacturing facilities in India after the Indian government decided not to implement any additional tax on diesel-powered vehicles in the Union Budget 2012‐13 that was announced earlier this year. The decision to further invest in manufacturing is being driven by the strong demand for diesel-powered vehicles, which account for nearly half of all passenger vehicles sold in India, suggests Ammar Master, senior analyst, LMC Automotive*. Excerpts from a recent perspective in partnership with J.D. Power Asia Pacific on diesels in India:

“The main reason behind the strong demand for diesel-powered vehicles is the cheaper price of diesel at the pumps. In fact, the price gap between diesel and gasoline (petrol) has widened by as much as 40% since the government deregulated gasoline in June 2010.

As a result, the unexpected surge in demand for diesel vehicles caught India’s largest vehicle maker Maruti Suzuki off guard and the company lost sales. Continue reading ›

China’s Government Purchase Rules: A Sweet Deal for Domestics?

Jenny Gu

Earlier this year, China’s Ministry of Industry and Information Technology (MIIT) released its list of approved vehicles for government purchase. The list caused quite a stir because all 412 models included are from China’s domestic brands. International media have been critical of the list, and some have even said it violated WTO principles. Jenny Gu, senior analyst with LMC Automotive,* which has a strategic alliance with J.D. Power, points out that the policy is in line with public opinion in China, and does not violate WTO principles.

A few excerpts from Ms. Gu’s perspective in a recent issue of China Automotive Monthly—Market Trends about the reality and ramifications of the new policy are highlighted:

“This policy is in line with public opinion, whereby government purchases require greater scrutiny and more cost controls. After all, it seems unreasonable to use taxpayers’ money to buy luxury cars for a small group of public officials. However, to become a supplier of official vehicles in China, a company does not need to be a Chinese brand, but the three conditions are difficult for foreign brands to meet:

• Vehicles sold for official purposes, such as tax collection or criminal investigation, must have an engine size of 1.8 liters or below.

• These vehicles must cost no more than 180,000 yuan (US $28,571).

• The manufacturer must have spent no less than 3% of their core revenue on research and development in China in the past two years.

“The first two conditions block luxury brands such as Audi and BMW, which typically have large engine-displacement, expensive vehicles. However, it is the third condition that all foreign brands struggle to meet. Continue reading ›

Luxury Brand Competition gets Tougher in China’s Auto Market

Tim Dunne

Luxury brand automakers and dealers operating in China—who discovered their own metaphorical gold mine in the country’s automotive market these past few years—may be starting to find mining their mother lode has become more difficult.

According to LMC Automotive*, sales of luxury vehicles in China have, on a percentage basis, grown faster than the total market in China during the past few years, with 2011’s luxury-vehicle sales totaling nearly 600,000 vehicles, up 30% compared to a year earlier (and much higher than the total industry growth rate of 10% in 2011). A booming economy, rapid individual wealth creation, and a relative dearth of luxury-vehicle inventory from which to choose have created an enviable vehicle seller’s market in China. Dealer gross profit margins on a single vehicle frequently range from US$10,000-US$30,000, according to J.D. Power research. Continue reading ›

A Long Runway for Growth in China and Some Notable Trends

Geoff Broderick

In the coming scramble to win sales in the Tier 2-4 markets and earn profits in China, there is the temptation for OEMs to invest heavily in production, which can result in overcapacity. Discipline must be maintained in China or history will repeat itself—as illustrated by the imbalance of supply and demand in the U.S. market during the past decade. There is likely still more consolidation to come in the global auto market, but there is room for the smart players with solid business and product plans.

In the past five years, the combined vehicle sales market share of the emerging countries—including China and India—grew from less than 20% of the world’s total, to more than 50%. Among all emerging markets, China has one of the longest runways for continued growth based on its low penetration rate (vehicles per 1,000 people), in addition to a growing per capita income and rising disposable income. There also is a real opportunity for a steep takeoff, especially in China’s Tier 2 and 3 urban markets.

China Remains a Pillar in the Global Auto Industry

By 2018, China, the United States, India, Brazil and Russia will be the world’s five largest auto markets in terms of light-vehicle sales, with China as the far-and-away frontrunner at almost double the sales of the United States (30-35 million units vs. 17 million units). Japan, followed by Germany, the UK, Italy and France will round out the 10 largest markets, according to J.D. Power and LMC Automotive Forecasting.*

With closely aligned global supply and demand coupled with improved macroeconomic conditions—albeit slower for Europe—and significant new product introductions and an improvement in available credit—at least in the U.S. market—global sales, led by China (32.9 million unit sales), will boom by 2018 to slightly less than 114 million units.Although China will continue to see an increase in discretionary income, as well as much sales growth fueled from a further penetration of financing and the introduction of leasing, there will likely be intense competition to gain share in Tier 2 and Tier 3 markets. Continue reading ›

Will a Factory Alliance Help Peugeot and GM in Europe?

David Sargent

In late February, Automotive News and wire services reported that a possible alliance between General Motors and PSA Peugeot Citroen* was in the works. It would feature a broadening factory alliance. In another recent report, Peugeot, which is Europe’s second-largest automaker after the Volkswagen Group, also announced plans for a stock rights offer of 1 billion euro ($1.34 billion) to raise cash to offset a significant increase in its debt. GM will likely buy shares equal to a 7% stake in Peugeot when stock is offered, Reuters reports. Like Peugeot, GM is looking for ways to turn around its unprofitable Opel Division in Germany.

Sharing Vehicle Development, Platforms and Parts Will Lower Costs

Is an alliance between PSA Peugeot and GM a good idea? The concept of sharing vehicle development, platforms and parts is, in principle, a good one. Both automakers have very similar lineups and so there is considerable room for sharing costs across multiple vehicle lines. The key concern would be if the co-developed models become so similar that they simply cannibalize sales from each other and/or either automaker’s products lose their “identity.” Continue reading ›