A tale of two markets

A case study for failing in China?

Sales meetings at Suzuki’s headquarters in Japan deliver a contrasting tale. From India, the news is terrific: Suzuki is selling one in every two new cars in the market, with plans to launch 30 new models. But move onto China and the story is far from stellar. Indeed, the future there is one in which it will sell hardly any cars at all.

In April the Economic Times reported that Maruti Suzuki had captured half of the market for Indian passenger vehicles in the prior 12 months. That extraordinary statistic was a first, as was the sale of more than 1.5 million vehicles.

But the news in China’s much larger car market could hardly be more different. After years of struggle, Suzuki threw in the towel there last week and exited the last of its joint ventures. It was paid a symbolic Rmb1 ($0.14) for its 50% stake in Chang’an Suzuki.

WiC is torn on which well-worn metaphor fits best with Suzuki’s experience. ‘Car crash’ is tempting but ‘death by a thousand cuts’ might be more convincing, given the drawn-out nature of the firm’s failure.

So what happened? In part it’s a story of consumer tastes. In India, Maruti Suzuki has built its success on sales of smaller, cheaper brands, or ‘minicars’. In China Suzuki started small as well but consumers now want bigger cars, with sales growing fastest for larger sedans and sport utility vehicles.

Sales of small cars plunged to 6.7% in 2017 from 35% of the total in 2003, according to Cui Dongshu, secretary general of the China Passenger Car Association.

“Approximately 25 years ago, we launched the Alto in China, and since then we have made efforts in cultivating the Chinese market,” company chairman Osamu Suzuki explained in a company statement. “However, due partly to the shifting of the Chinese market to larger vehicles, we have decided to transfer all equity to Chang’an Automobile.”

We first chronicled some of Suzuki’s other troubles five years ago, with open warfare between its two joint venture partners: Chang’an and Changhe.

Both JVs dated back to the 1990s, but rivalry over the launch of new models soured relations between the pair. Competition between dealership networks also took a toll on sales, although Suzuki had hoped that a merger between the parent firms of the warring parties would fix its China strategy. However, Changhe’s management didn’t relish the idea of junior status and in 2013 thousands of its workers took to the streets, where they clashed with police.

The local government then came to its aid, helping to rebuff Chang’an’s takeover efforts.

Changhe Suzuki’s car sales had already plummeted from a high of 200,000 in 2010 and the row plunged it deeper into losses. In June it was dissolved, with Suzuki surrendering its stake. Changhe is no longer allowed to sell Suzuki-badged cars.

Suzuki then signed another deal this month to offload its ownership interest in Chang’an Suzuki. The JV lost Rmb84 million in 2017, according to business magazine Caijing, and a mere 13,000 cars were sold in the first quarter of this year (down 56% on the same period in 2017).

Japanese media says Suzuki won’t disappear completely from Chinese showrooms as the agreement grants Chang’an a transition period in which it can sell cars with the Suzuki trademark. Still, it ends a long association with a market in which Japanese peers Nissan, Honda and Toyota have prospered. According to China Automotive News, Suzuki’s three rivals respectively sold 1.5 million, 1.4 million and 1.3 million cars to Chinese drivers in 2017.

The departure means that Suzuki has exited both of the world’s top two car markets, having given up on the US in 2012.

Now the bet on India is even bigger – and Suzuki Maruti bosses say they will be learning from their experience in China by adding sedans and SUVs to their stable of smaller vehicles.

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