Suzuki will wind down its automobile business in America, as the Japanese marque refocuses its efforts on its motorcycle and powersports offerings. Suzuki’s subsidiary company in the U.S., American Suzuki Motor Corporation, will file Chapter 11 bankruptcy to facilitate the reorganization. The decision to file Chapter 11 and shutter the car business in the States was made during a November 5 meeting of the board. Suzuki cites exchange rate and market trends as two of the reasons why it will discontinue its auto sales in the U.S. Conversely, Suzuki states that it “recognized a possibility that its motorcycle, ATV, marine products businesses could remain profitable and experience increases in sales.” More analysis as of the Suzuki decision is forthcoming, for now the explanatory press statement is posted below courtesy of Suzuki – Bart Madson
American Suzuki Motor Corporation (“ASMC” or “the Company”), the sole distributor in the continental United States of Suzuki Motor Corporation (“SMC”) automobiles, motorcycles, all-terrain vehicles and marine outboard engines, announced that it plans to realign its business to focus on the long-term growth of its Motorcycles/ATV and Marine divisions. Following a thorough review of its current position and future opportunities in the U.S. automotive market, ASMC will wind down and discontinue new automobile sales in the continental U.S. The Company has determined the best path to achieve this realignment in an efficient and orderly manner is to restructure its operations under chapter 11. The case will be filed in the United States Bankruptcy Court, Central District of California in Santa Ana.
Consistent with ASMC’s long history of standing by its products, owners of Suzuki automobiles will be protected. All warranties will continue to be fully honored and automobile parts and service will be provided to consumers without interruption through ASMC’s parts and service dealer network.
ASMC remains firmly committed to Motorcycles/ATV and Marine products, and these divisions are competitively positioned in their respective markets, allowing for long-term growth as economic conditions improve. The realignment is intended to better position ASMC for long-term success and is a return to the Company’s roots in the U.S. market, which began with motorcycles and has grown to include ATV and marine products. ASMC remains very proud of its high quality, high performance motorcycle, ATV and Marine products. The Company will continue to bring ASMC products to market, including its full lineup of sportbike, cruiser, touring, scooter, dualsport, motocross, off-road motorcycles and KingQuad ATV line, as well as its flagship DF300AP, state-of-the-art DF20A, and DF15A, among other models. Additionally, ASMC is working to further build its market share through continued investment in additional support for dealers through marketing and advertising activities and sales promotion. Suzuki will continue to have a strong presence as a sponsor of teams in supercross, outdoor motocross and road racing.
In evaluating its position in the highly regulated and competitive U.S. automotive industry, ASMC determined that its Automotive division was facing a number of serious challenges. These challenges include low sales volumes, a limited number of models in its line-up, unfavorable foreign exchange rates, the high costs associated with growing and maintaining an automotive distribution system in the continental U.S. and the disproportionally high and increasing costs associated with stringent state and federal regulatory requirements unique to the U.S. market. While the decision to discontinue new automobile sales in the U.S. was difficult to make, today’s actions were inevitable under these circumstances. ASMC is dedicated to honoring its commitments to Automotive customers through and after the wind down of new automobile sales in the continental U.S.
An Orderly Process to Serve Consumers
ASMC intends to work within its current U.S. Automotive dealer network to help structure a smooth transition from new automobile sales to exclusively parts and service operations, or, in some instances, an orderly wind down of dealership operations. ASMC intends to market and sell its remaining U.S. automobile inventory through its Automotive dealer network. Through and after the restructuring, all warranties will be fully honored and automobile parts and services will be provided to consumers through the dealer network. ASMC intends to honor any automobile buyback agreements that are currently in place with financial institutions.
As part of its chapter 11 filings, ASMC will submit a proposed Plan of Reorganization and Disclosure Statement that specifies how the Motorcycle, ATV and Marine divisions will be maintained and enhanced, and how its relationship with Automotive dealers will be largely transitioned to support consumers and dealers through continued parts and service operations. SMC or its nominee intends to purchase ASMC’s Motorcycle, ATV and Marine businesses, as well as the Automotive service operation responsible for parts and warranties, through a new U.S. subsidiary that will retain the ASMC brand name.
ASMC believes it has sufficient cash on hand to operate its businesses during the restructuring. If necessary, ASMC will request permission from the Court to borrow additional funds from SMC needed during the restructuring.
ASMC intends to operate its Motorcycles/ATV and Marine businesses as usual and is dedicated to completing the realignment process as smoothly and efficiently as possible. ASMC will continue to fully stand behind all of its products and honor all warranties from these divisions. ASMC is working with GE Capital’s Retail Finance and Commercial Distribution Finance businesses to continue providing motorcycles and ATV consumer financing programs and motorcycle, ATV and marine dealer inventory financing respectively. The Company expects existing agreements with other dealer and consumer financing providers to continue as well.
ASMC has filed a series of first day motions requesting approval to continue paying employee wages and benefits in the ordinary course, offering dealer incentives and payments under customer warranties. ASMC also expects to pay vendors in the normal course of business for goods and services delivered on or after its November 5, 2012 filing. Payments for goods received before ASMC’s November 5, 2012 filing will be made in accordance with the chapter 11 procedure.
SMC, the 100 percent interest holder in ASMC, is not a debtor in the chapter 11 filing.
ASMC’s legal advisor on the restructuring is Pachulski Stang Ziehl & Jones LLP, and its financial advisor is FTI Consulting, Inc. Nelson Mullins Riley & Scarborough LLP is serving as special counsel on automobile dealer and industry issues. Further, ASMC has proposed the appointment of M. Freddie Reiss, Senior Managing Director at FTI Consulting, as Chief Restructuring Officer, and has also added two independent Board members to assist it through this period.
Additional information regarding ASMC’s business realignment can be found at the Company’s website, www.suzuki.com, or via an information hotline at 1-877-465-4819.
Notice Regarding Filing for Chapter 11 Reorganization by American Suzuki Motor Corporation, our Subsidiary in the United States, in connection with the winding down of its Automobile Marketing Business.
American Suzuki Motor Corporation (“ASMC”), a subsidiary of Suzuki Motor Corporation (“SMC”) which distributes automobiles, motorcycles, ATVs, marine products and related parts/accessories in the United States (excluding Hawaii), resolved, during its Board of Directors meeting held on November 5, 2012 (local time), to commence a reorganization proceeding under Chapter 11 of the U.S. Bankruptcy Code, in connection with winding down of its U.S. automobile marketing business and the concentration on its motorcycle, ATV and marine products businesses. As a result, SMC’s distribution of its automobiles in the continental United States will be discontinued.
1. The reason for ASMC’s winding down of its automobile marketing business and concentration on its motorcycle, ATV and marine products businesses
When considering its long-term business plan, ASMC recognized that it will be unable to maintain profitability with respect to its automobile marketing business, taking into account various factors such as economic conditions including the currency exchange rate, market trends, the models of Suzuki automobiles sold in the U.S. which are primarily small cars, ASMC’s projected sales volume and the stringent U.S. environmental and safety regulations. However, ASMC also recognized a possibility that its motorcycle, ATV, marine products businesses could remain profitable and experience increases in sales. Thus, ASMC decided to wind down its unprofitable automobile marketing business and redirect all of its operating resources to its motorcycle, ATV and marine products businesses, to expand these businesses and improve profitability efficiently in all sectors where the prospects for profit are good.
2. The reason for ASMC’s filing for Chapter 11 reorganization
As a way to reorganize the company, wind down its automobile marketing business and concentrate on its motorcycle, ATV and marine products businesses, ASMC has determined to file the Chapter 11. This decision is intended to achieve the following:
(1) to facilitate a smooth transition of the current U.S. automobile dealer sales network into a network of authorized service and parts dealers to allow the company to fully honor all warranties and make service and parts available to customers nationwide as in the past after winding down its automobile marketing business;
(2) to facilitate a mutually beneficial solutions in connection with compensation to be paid to automobile dealers by ASMC in accordance with the stipulated terms and conditions, as they restructure their operations and, for most of the dealers, as they convert to exclusively service and parts operations;
(3) to effectively manage any possible costly and time-consuming legal disputes; and
(4) to realign ASMC as soon as possible in an orderly and fair manner to focus on maintaining and enhancing its motorcycles, ATV and marine businesses
3. Aggregate amount of debt
346 million U.S. dollars (as of September, 30, 2012) 173 million U.S. dollars of which are owed to Suzuki group companies, including SMC
4. SMC’s investment in ASMC and SMC’s claims against ASMC
The amount of the SMC’s investment in ASMC and SMC’s claims against ASMC as of October 31, 2012 are as follows:
(i) SMC’s investment in ASMC
B/S amount of the investment 0 million yen
Entire amount of the SMC’s investment in ASMC of 12,800 million yen (64.7 million dollar) has already been impaired.
(ii) SMC’s claim against ASMC
Trade receivables 10,700 million yen (134 million U.S. dollar)
Loans 2,500 million yen (32 million U.S. dollar)
SMC posted allowance for doubtful accounts of 9,700 million yen on its claims against ASMC as of September 30, 2012
5. Outlook for the future
ASMC plans to commence a reorganization proceeding under Chapter 11 of the U.S. Bankruptcy Code in the evening of November 5, 2012 (local time).
SMC has an intention to support ASMC in its restructuring to ensure that ASMC can wind down its automobile marketing business smoothly and ASMC can ensure the continued expansion of sales of Suzuki brand motorcycles, ATV and marine products in the United States.
As to the influence on financial performance of SMC, we will closely monitor the progress of ASMC’s reorganization under Chapter 11 of the U.S. Bankruptcy Code from now, and disclose promptly once a matter for which disclosure is required has occurred.
6. Outline of ASMC
Company name: American Suzuki Motor Corporation
Location: Brea, California, the United States
Representative: Takashi Iwatsuki
Business: Marketing of automobiles, motorcycles, ATVs and marine products, and components and supplies relating thereto
Stated Capital: 64,700 (thousands of U.S. dollar)
Number of Employees: 365 (as of September 30, 2012)
Date of Incorporation: August 14, 1963
Major Shareholder and its shareholding percentage: Suzuki Motors Corporation: 100%
Relationship between SMC and ASMC: Capital relationship SMC holds all outstanding shares of ASMC.
Personal relationship: Takashi Iwatsuki, a managing officer of SMC and a director of ASMC
Business relationship: SMC sells automobiles, motorcycles, ATVs and marine products, and components and supplies relating thereto, to ASMC.
Whether it falls under the classification of Related Party: ASMC is considered a Related Party of SMC since it is a consolidated subsidiary of SMC.
Financial performance and financial position for the latest three years (thousands of U.S. dollar):
|Fiscal Period||FY Ended
|Net asset value||-23,140||-102,060||-117,858|
|Gross asset value||324,516||341,861||318,608|
|Net asset per share||-0.4||-1.6||-1.8|
|Net profit per share||2.1||-1.2||-0.2|
|Dividend per share||-||-||-|
Note: SMC paid $201,318 thousands to ASMC in the fiscal year ended in March 2010 in order to maintain compliance with U.S./Japan Advance Pricing Agreement.