Can Suzuki Survive the Current Economic Downturn?

Despite all the press about domestic automakers’ declining market share, there is one Japanese brand that’s taken an even bigger hit. Over the first half of 2009 Suzuki has seen its sales drop by an astonishing 60.2%. June sales numbers were down 78% compared with the numbers from a year earlier.

This has many industry experts scratching their heads and asking why an automaker that builds small, fuel efficient vehicles (supposedly the holy grail of auto sales) has found itself in such dire straits. After all, aren’t smaller cars with better fuel efficiencies exactly what the federal government has demanded as key parts of their bailouts of Chrysler and GM?

Many industry experts blame Suzuki’s current situation on a limited model lineup, poor marketing and an ineffective in-house financing operation.

Another factor, according to some, is Suzuki’s inability to transfer its brand strength from its other transportation verticals to its automotive division.

Tim Faith, owner of Suzuki Auto Center in south Texas says, "People spend $6,000 on a Suzuki ATV, $12,000 on a Hayabusa (superbike) and $18,000 on a Suzuki outboard, but they question spending $21,000 on an XL-7."

Suzuki’s decline in market share has been precipitous. After a decade of domestic U.S. sales, Suzuki reached its goal of selling 100,000 vehicles in 2006. The following year, they matched that figure, but this year Suzuki is on track to sell a mere 40,000 units nationwide.

In a May conference call with the company’s national and regional sales managers, representatives for 17 Suzuki dealers in Florida reported selling a combined total of only nine vehicles for the month.

Since 2008, Suzuki has shed some 80 dealerships nationwide; down to just 380. Of those dealers, a spokesperson for Suzuki claims two-thirds are operating in the black. However, Mark Johnson, a Seattle-based buy-sell consultant, says that much of the valuation is based on intangible assets called “blue-sky” items and dealers typically don’t see much value in their franchises.

Either as a result of the recent slide in sales, or contributing to it, Suzuki discontinued a number of models at the end of the 2008 model year. The abandoned models include the Reno, Forenza and Verona. Sales of Suzuki’s SX4 have made up for the loss of the Reno, but dealers are still waiting for the automaker to launch a production model of the Kizashi 3 mid-sized sedan which they hope will boost sales. Suzuki has indicated that the vehicle will be in dealer showrooms later this year.

In fall of 2008, Suzuki also halted production of its XL-7, a mid-sized SUV, due to lackluster sales. Now that inventories are low, there is still no word on when production will resume. There have also been rumors of a replacement for the XL-7. If true, the vehicle will be a crossover version based on the Kizashi concept.

Suzuki’s mainstay models, for now, are the Grand Vitara crossover and the SX4 compact sedan and sales of both have taken a dive.

Suzuki has also seen a downturn in fleet sales since last year. By mid-year 2008, the automaker had sold 17,000 fleet vehicles which accounted for nearly one-third of all sales. That number has dropped to a mere 4,000 fleet units sold so far this year according to American Suzuki’s vice president of marketing, Gene Brown.

Despite the gloomy numbers, however, Brown sees reason for optimism. "We have to think holistically," he says. "We have made huge quality leaps. We have hit a rough patch, but there is every reason dealers can be profitable."

One reason for Brown’s optimistic outlook can be found in Suzuki’s overall improved quality. Since ending its manufacturing partnership with Daewoo, the quality and reliability of Suzuki’s products has improved significantly. In 2009 Suzuki moved up from 32nd to 9th place in the J.D. Power and Associates Initial Quality Study. That’s better than Acura, BMW and Infinity.

Brown predicts that the launch of the Kizashi sedan this fall will result in a dramatic turnaround and claims that dealers who persevere through the current downturn will see significantly higher sales volumes.

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