A Leader in Asia
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Suzuki may only sell 25,000 cars and 50,000 motorcycles a year in the U.S., but around the world it sells more than 5.6 million vehicles. They’ve never been a big player in the U.S. for a variety of reasons, most notably that they shipped OEM versions of other people’s cars here. In recent years, however, that has changed with them importing their very well received SX/4 sub-compact and Kizachi mid-sized sedan to the states with some success. Be that as it may Suzuki’s U.S. business is not important to their bottom line, representing just 3.8% of 2011 sales.
Where Suzuki leads is in Asia, specifically in India. India alone accounts for 46% of total car sales as 1.133 million. In Japan Suzuki ranks fourth out of 12 manufacturers.
Total auto sales were up 19% year over year worldwide in spite of falling unit sales in Europe (-14%), Japan (-5%) and the U.S. (-14%). This is because they were up 30% in India, 51% in the ASEAN-5 (Thailand, Malaysia, Vietnam, Indonesia, Philippines) countries, 11% in China and 33% in Pakistan.
Suzuki’s production, like Toyota (NYSE: TM), is being carried out more and more locally. Since 2007, Sukuzi has raised the percentage of their auto production carried on outside of Japan from 50% to 65%. The same is true for motorcycles but the numbers are far starker. In 2011, 93% of motorcycles and ATV’s were not produced domestically, up from 80% in 2006. The big difference, however, is that total automobile production has increased by 19% while motorcycle units produced have dropped by 14%. With cars accounting for 87% of top line revenue, the loss in motorcycle sales does not represent any real warning flags.
That said, however, specific markets for 2 wheeled vehicles are doing very well for Suzuki. Vietnam saw sales double in 2011 to 60,000, a far cry from the 2.2 million that Honda (NYSE: HMC) sold, certainly, but growth is growth. With their current plant in Long Binh, domestic production can serve 33% more customers before looking at importing vehicles. Scooters make up 70% of Suzuki’s Vietnamese sales. They are building a second auto factory with a capacity of 10,000 vehicles per year to serve the region, bringing their capacity in Vietnam to 45,000 annually.
In Thailand, Suzuki has upped their 2012 production estimates from 80,000 to 120,000 vehicles having invested Bt8.7 billion ($276 million) in a major production facility in Rayong capable of eventually producing 100,000 cars per year. The sub-compact Swift has just been introduced there with initial sales estimates of 10,000 cars. Thailand is quickly becoming the center of ASEAN automobile production with a number of manufacturers looking to take a piece from Toyota’s dominance in this up and coming market.
What is worrisome for Suzuki is what looks like a plateau in Indian sales. Through May total sales from their Indian division, Maruti Suzuki are off 4.3% from 2011. This is indicative of the economic slowdown that is underway in India as they are dealing with rising energy costs and a falling currency. The Rupee is off 20% since February. The recent decision by the RBI to not drop interest rates and attempt to tame inflation has been met with howls of rage and the effects are seen in the sales figures for market leader Suzuki. One bright spot is the introduction of the diesel-powered Ertiga which has seen sales rise nearly 1,000% over 2011.
The issue is, however, that diesel fuel is heavily subsidized in India. Suzuki has announced plans to merge their two Indian subsidiaries, Maruti and Suzuki Powertrain, into one unit to lower the cost of production of a wider range of diesel vehicles. Subsidized prices like those in India cannot last and the price of diesel fuel will either have to rise or taxes put on the sale of diesel cars (currently under discussion) to curb demand created by the subsidy in the first place.
2011 saw top line revenue contract by nearly 5% and they were one of the first automakers in Japan to recover their operations after Fukishima. In spite of that, operational efficiencies increased their EPS by 28% and operating income by nearly 56% over 2010. Sales are still 25% lower than their 2008 peak but Suzuki is positioning itself very well around the Pacific region to take advantage of the rapidly rising demand for transportation.
For the brave U.S. investors the FirstTrust NASDAQ Global Auto ETF (NASDAQ: CARZ) carries nearly 4% exposure to Suzuki; by far the highest exposure to them in any ETF. A better bet may be a general play on Japan as the banker for the Pacific region as the U.S. and Europe continue to struggle. The MAXIS Nikkei 225 ETF (NYSEMKT: NKY) will track the Nikkei and looks to have made a bottom recently.
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