lifestyle auto car

Name the mass-market vehicle brand with the largest decline in U.S. sales this year.

It has to be one of the Detroit 3 brands, right?

Wrong. The worst performer on a percentage basis was Suzuki, down 60.2 percent in the first half of 2009. In June, sales plummeted 78.0 percent compared with the same month last year.

Why would an Asian brand that builds small, fuel-efficient vehicles — the recipe for Detroit's rebirth as envisioned in Washington — be at the bottom of the heap?

Blame it on a shrunken product lineup, skimpy marketing and an ineffective captive finance company, which have made Suzuki all but invisible among the Asian players.

Suzuki is the latest second-tier Japanese brand to hit the skids in the United States, and some analysts wonder whether it is the next one headed for oblivion in this market.

"Suzuki had momentum, but they lost it," says a Northeastern dealer who declined to be named.

The company has failed to transfer the strength of its brand in other types of vehicles to its cars and crossovers.

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

The decline has been rapid. In 2006, American Suzuki finally achieved a decade-long quest to sell 100,000 vehicles, a level it maintained the following year. But this year Suzuki will be lucky to crack 40,000.

In a May 25 conference call with Suzuki's national and regional sales managers, 17 Florida dealers admitted that combined they had sold just nine vehicles that month.

The slide already has had an impact on the dealership count, which has skidded from 460 stores in July 2008 to about 380 today.

A Suzuki official says two-thirds of Suzuki dealers are in the black. But Mark Johnson, a dealership buy-sell consultant in Seattle, says that recent buy-sell transfers of Suzuki stores usually have blue-sky amounts from "zero to the low five figures," meaning dealers don't see much value in the franchise. Blue sky measures a dealership's intangible assets, such as goodwill.

Suzuki's slide
Why the brand's sales have plunged since 2007
• Daewoo-built models were eliminated.
• XL-7 production was halted.
• Fleet business declined.
• Number of dealerships fell.

Slashing product

Suzuki has drastically pared its vehicle lineup. The Reno, Forenza and Verona — volume cars of marginal quality built by GM Daewoo Auto & Technology — were deleted at the end of the 2008 model year. Sales of the Suzuki-built SX4 have replaced Reno sales somewhat, but Suzuki dealers are still waiting for the production version of the Kizashi 3 mid-sized sedan concept due later this year.


Also production of Suzuki's XL-7 mid-sized SUV has ended at CAMI, a Canadian joint venture with General Motors. Suzuki wasn't selling enough XL-7s to keep capacity high enough. So rather than eke out more units at a loss, production was halted last fall.

Those inventories have mostly run out since production ended, and there is no time frame for XL-7 production to resume — or for a replacement vehicle. A crossover based on the Kizashi platform has been rumored.

That leaves the SX4 compact sedan and hatchback and the Grand Vitara crossover as Suzuki's main vehicles. But retail sales of those vehicles have tanked.

Suzuki also has cut its reliance on fleet sales. By this time last year, Suzuki had sold 17,000 vehicles to fleets, nearly one-third of all sales. This year, just 4,000 fleet units have been sold, says Gene Brown, American Suzuki's vice president of marketing,

Technically, Suzuki's sales decline this year is surpassed by Scion's 60.4 percent drop. But Scion is a niche brand aimed specifically at Gen Y buyers who could have problems getting credit in this economy.

"We have to think holistically," Brown says. "We have made huge quality leaps. We have hit a rough patch, but there is every reason dealers can be profitable."

'Own worst enemy'

So should Suzuki dealers be poised for a rebound, or is the franchise beginning an irreversible downward spiral?

Consultant Johnson is pessimistic about the brand's future.

"I see things getting worse for them," he says. "People pick up Suzuki to get a shingle, to get some service business. But banks look at Suzuki so poorly that they won't floorplan them. Suzuki is half out of this market."

Johnson says Suzuki management "is its own worst enemy."

For instance, he says, when several Suzuki dealers in Florida folded recently, the company did not split the orphaned new-vehicle inventory among other Suzuki dealers. Instead, the vehicles were dumped into a general local auction. A Nissan dealer snapped them up and sold them as zero-mile used cars for thousands less than sticker — undercutting Suzuki's own dealers.

Dealers also are unhappy that an incentive for sales personnel paid by Suzuki has recently been lowered from $300 to $100 per unit sold. That is just one sign of Suzuki's waning marketing support.

"They stopped advertising and promotions of any consequence," says the dealer from the Northeast. "They are off network TV, and their cable advertising is seven to 10 days max. The finance company is useless. They used to buy low. Now they don't buy anybody."

Suzuki's Brown says funds for sales incentives were diverted to finance a "free gas for summer" promotion on the SX4 lineup, which last year gave Suzuki its best results of the year. He admits that Suzuki's inability to provide floorplan assistance to dealers has hurt. But he adds that banks are more effective lenders than Suzuki could be. And he says that American Suzuki Financial Services' approval rates are up.

New life?

Brown says that the Kizashi sedan coming this fall will give new life to the brand and that dealers who persevere will be rewarded with a sales turnaround. And many of Suzuki's fallen dealers had dualed with a domestic franchise that went out of business first, he says.

The unnamed Northeastern dealer is unimpressed: "If Suzuki is saving money for the Kizashi launch, what are we supposed to do until October? When new cars come out, that's all they advertise. They let the other ones coast. They never market other models at the same time."

Not all Suzuki dealers are in trouble. Corpus Christi dealer Faith has put Suzuki's Equator pickup — a rebadged Nissan Frontier — to good use in truck country. He is selling about 11 new Suzukis a month, which is enough for him to get by. But even Faith has concerns.

"Suzuki has never had dependable financing or capital funding," he says. "The manufacturer is guessing our orders rather than dealers telling the regional reps what we need."

Faith wants Suzuki to spend more on its umbrella message about other Suzuki-badged products, including motorcycles.

"In Europe, people see Suzuki on the level with Toyota and Honda, but not here," he says.

Brown says Suzuki will incorporate more of its global product message in its marketing. The company recently built a database that cross-references owners of multiple Suzuki products.

Improved quality

Suzuki also has a quality story to tell. Ending sales of the defect-plagued Daewoo-built vehicles prompted an instant leap in Suzuki's quality scores. The automaker jumped from 32nd place to ninth place in the 2009 J.D. Power Initial Quality Study, scoring better than Infiniti, BMW and Acura.

With the Daewoo-built cars gone, Suzuki also has seen the industry's most-improved residual values in the past year, according to Automotive Lease Guide.

But James Clark, Automotive Lease Guide's general manager, cautions that the improvement was relative. Previously, Suzuki's 36-month residuals had been languishing in the 30 percent range, at the bottom of the industry.

"It's an improvement from a low point, but you have to put it in context," Clark says. "Small-car residuals in general have moved upward since the gas spike last summer, so Suzuki benefits from that as well."