FEATURE-Cost-savvy Suzuki Motor spins gold from small cars
7/24/2002 9:16:22 PM
By Edwina Gibbs
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HAMAMATSU, Japan, July 25 (Reuters) - In the lobby of Suzuki Motor Corp's (JP:7269) headquarters in the industrial town of Hamamatsu, central Japan, there is no receptionist, just a phone to call the department you have come to visit.
It's an arrangement increasingly seen at small firms in Tokyo, but not what the visitor might expect at a global company that is also Japan's top minivehicle maker with nearly two trillion yen ($17.23 billion) in annual revenue.
But the no-frills style is typical of Suzuki, which has made trimming costs an art form with an approach that has achieved an enviable record on earnings and made its name in world markets.
In recent months it has taken majority control of India's biggest car company, Maruti Udyog Ltd, after the Indian government allowed it to be privatised. It also bought a 14.9 percent stake in South Korea's failed Daewoo Motors.
"We want to get as big as we can get," says the jovial bushy-eyebrowed Chief Executive and Chairman Osamu Suzuki, 72, who has led and indelibly imprinted his personality on the automaker for the past 24 years.
Suzuki, which is 20 percent owned by U.S. auto giant General Motors Corp (GM) and is Japan's fourth-largest automaker in terms of market capitalisation, is also no slouch at home.
It dominates the market for Japan's minicars -- inexpensive, boxy, practical vehicles with an engine displacement of only 660cc, around half that of a large motorbike.
On the back of tax breaks, minivehicles have become the second car for many families and now account for one-third of Japan's new vehicles sales.
COST-CUTTER EXTRAORDINARY
Suzuki has also benefited from a growing business in making cars for other brands, supplying minicars to Mazda Motor Corp (JP:7261) , small cars to GM and Subaru-maker Fuji Heavy Industries (JP:7270) , and recently minivehicles to Nissan Motor Co (JP:7201) .
Indeed, Nissan's recent foray into the minivehicle market has exceed expectations, with its Moco model selling some 5,000 units a month against an initial estimate of 3,000 -- a success that has Suzuki's main factory now running at full capacity.
And while small cars have historically meant small operating margins, analysts also note the company has not fallen into the red since Osamu Suzuki hopped into the driver's seat, even as it expanded overseas.
That's something that cannot be said of rivals Mazda, Nissan and Mitsubishi Motors Corp (JP:7211) .
"They have a very efficient cost base and a tremendous ability to produce small cars at a profit even when volumes are small," said auto analyst Stephen Usher at JP Morgan.
"Suzuki should keep on doing what it has been doing."
And that means more cost cuts to stay competitive.
The automaker, known for its use of migrant workers mainly from Brazil at its domestic factories, has cut overall costs by a quarter in the past two years, largely through job reductions and reducing what it pays for parts.
It aims to slash costs by another 30 percent over the next three years and boost its operating profit margin to 5.5 percent, against 3.5 percent in the business year that ended in March.
It's a goal it is likely to meet, say analysts, citing its track record in lifting the operating margin of its motorbike division to 8.3 percent from 2.7 percent in the last three years.
OSAMU SUZUKI REIGNS
Despite its small size within the auto industry, Suzuki's comparative lack of rivals -- in the minivehicle segment and in underdeveloped markets such as India and Eastern Europe, means it is seen as relatively secure from competition.
The ability to build inexpensive cars at low cost and turn a credible profit is something others have only managed to do in the last few years, as the subcompact segment continues to grow.
And despite the popularity of subcompacts, industry executives have found that minivehicle buyers, attached to the long-term tax break benefits, are rarely wooed by subcompacts.
Analysts say Osamu Suzuki's political savvy as well as the popularity of the segment itself will ensure that the tax breaks on which it depends will remain for a long time to come.
For some analysts, the biggest risk is perhaps the firm's dependence on Osamu Suzuki, who like the two previous company leaders married into the family to take the Suzuki name.
"It's a company where Chairman Suzuki is everything," said Nomura Securities analyst Seiji Sugiura.
Suzuki insists he will not retire, although in 2001 he gave up the title of president, appointing Masao Toda to the post.
While Toda, who is so softly spoken as to be barely audible, is admired for his engineering prowess there are doubts he could easily fill Osamu Suzuki's shoes -- doubts that have grown after he relinquished his title of chief operating officer for six months last year due to illness.
But for now, the name of the game is still saving money, says Osamu Suzuki, who after a tour of the automaker's newest factory joked with reporters that he could have done better on costs.
"We had a budget of 15 billion yen for the plant and we managed to get it done for 10 billion yen, which justs goes to show that I set the budget too high." |
