American Suzuki Plans to Milk the US Market With an Extra $50M in Inventory

The US automotive market is a strange and mysterious beast that continues to give many manufacturers eight-figure headaches. With an economy constantly on the verge of recession, you would intuitively assume that manufacturers would be taking a hit across the board, but the market grew by 14% this year. Unfortunately, not everybody found the foothold they needed to stay in the game.

We looked at how Mitsubishi’s strategy to stay in the game is shaping up the other day. Today is another day with another story of a struggling second-tier car maker from Japan.

The latest casualty of the fickle US market is American Suzuki Motor Corporation. Just four weeks ago they borrowed $45,000,000 from Suzuki Motor Corporation not to continue business, but to cease it without legal consequences from dealers. ASMC offered this lump sum to its 246 dealers across the country in order for them to voluntarily conclude franchise agreements.

Strangely enough, yesterday American Suzuki put out a press release stating that they intend to use Debtor-in-Possession (DIP) financing to buy MORE inventory. They plan to acquire $50 million worth of additional inventory from their parent company in order to take advantage of their retreat from the US market. All told they are borrowing $100 million… $50 million for ~2,500 units of inventory and $50 million to cover operational costs.

Initial estimates after ASMC announced their bankruptcy in the first week of November put the entirety of their inventory off shelves by the end of January. Apparently scarcity plus bargain-bin incentives are an intensely motivating pair of factors for the remaining Suzuki fans in the US, because after that announcement they went on to sell 2200+ units in that month. That’s 22% more than they sold at the same time last year.

After such a good month of business, objectively it makes sense to try and milk the market for all it’s worth, but it does seem a little bit risky. Especially so when you consider that one of the primary incentives for the last few thousand Suzuki buyers is 0% financing for up to 72 months. I’m no market-analyst or corporate insider, but that seems like exactly the type of incentive that would attract the suboptimal buyers that got ASMC into trouble in the first place.

It’s worth noting that according to yesterday’s press release, “As of November 30 2012, automotive dealers representing all of the top 50 … of ASMC’s continental U.S. automobile sales have agreed to transition to parts and services operations.” So, it’s clear that they’re cooperating with the dealers, which can only be a good thing. If American Suzuki dealers feel that demand is still high enough for extra money to be made, then more power to them.

Even though you won’t be able to buy a new Suzuki car in the US, ASMC still intends to stay here for the long haul, albeit with a different focus. Yesterday’s press release reaffirms what we’d heard when ASMC first announced bankruptcy, “that it plans to realign its business to focus on the long-term growth of its Motorcycles/ATV and Marine divisions”.

For any Suzuki fans out there, you’re time is running out. After spring of 2013 (if not earlier) it will become much more difficult to acquire a Suzuki in the US, but as of now you can still be one of the last 2,500 Suzuki buyers in the country!

Source: Autoblog