Suzuki quits China market

Suzuki's line-up of mainly smaller cars became less competitive after consumers in China shifted to larger sedans and sport utility vehicles amid rising incomes.
Suzuki's line-up of mainly smaller cars became less competitive after consumers in China shifted to larger sedans and sport utility vehicles amid rising incomes.PHOTO: REUTERS

The exit paves the way for the carmaker to focus on India, a market where it dominates

TOKYO • Suzuki Motor Corp is backing out of China, but investors are backing its move. Share prices of the Japanese carmaker have revved up after it signalled its exit, abandoning a market where it struggled to gain traction.

The U-turn also allows it to focus on its stronghold - India.

The departure highlights the cut-throat nature of the Chinese market, where quick changes in customer tastes can leave carmakers exposed.

Suzuki's line-up of mainly smaller cars became less competitive after consumers in the world's biggest car market shifted purchases to larger sedans and sport utility vehicles (SUVs) amid rising incomes.

Rivals Toyota, Honda and Nissan have also stepped up production in China, shedding light on which Japanese carmakers have won and which have lost in the country.

The Suzuki retreat from China after a quarter of a century follows an exit from the American car market in 2012 after three decades there.

While an admission of defeat, the move paves the way for a sharpened drive to do better in India, a market where Suzuki already dominates.

It aims to roughly triple sales to five million vehicles there annually by 2030.

The exit also allows Suzuki to avoid spending on development of new vehicles to meet China's tightening environmental regulations, analysts at Goldman Sachs Group said in a note.

"We see strategic merit in Suzuki's accelerated moves to narrow its business focus to core areas," they pointed out, reiterating their buy rating on the stock.

The Japanese mini-car specialist announced earlier this week that it was dissolving its last remaining Chinese joint venture, transferring its 50 per cent stake in Changan Suzuki to Chongqing Changan Automobile as soon as legal proceedings are completed.

It cancelled its other Chinese partnership in June.

In a sign of the pressures facing carmakers in China, Changan Suzuki was included in a public list of 30 companies - licensed to manufacture so-called new-energy vehicles (NEVs) - that had not produced any units in the past 12 months or more.

Strict quotas on NEVs - which include pure electric vehicles and plug-in hybrids - come into force in China from next year, towards a goal of having them make up a fifth of new car sales by 2025.

By contrast, although India has set a goal to have more than 30 per cent of vehicles running on electricity by 2030, it does not yet have a policy road map for how to get there.

The country's infrastructure is also far from being ready to support such a fleet.

Whereas its Indian arm Maruti Suzuki has its name on about one of every two cars sold on the subcontinent, Changan Suzuki had seen its market share fall below 0.4 per cent in China last year, according to Bloomberg Intelligence data.

Sales declined 27 per cent last year. Even the introduction of the Vitara and S-Cross SUVs have done little to help.

By contrast, Honda's sales in China climbed 16 per cent last year.

The Suzuki name is not vanishing from China entirely.

Its partner Chongqing Changan Automobile will continue to make and sell vehicles with that brand in the country.

That could make a potential return for the Japanese company easier in the future.

BLOOMBERG, WASHINGTON POST

A version of this article appeared in the print edition of The Straits Times on September 08, 2018, with the headline 'Suzuki quits China market'. Print Edition | Subscribe