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Business Driver: Who’s too small to survive?

Published April 11, 2013

Suzuki’s a goner.

Following the Japanese automaker’s bankruptcy bid for its American unit in late 2012, Suzuki Canada Inc. announced its plans last month to withdraw its passenger vehicles from our shores by 2014.

Suzuki had long been on media death watch, particularly in the U.S. Its departure was pretty certain, considering the company had been steadily losing sales from the 2007 peak of about 100,000 in the U.S. Over here, Suzuki went as high as 15,000 in car sales in 1989 and last hit the five-digit mark in 2009. Last year was its worst ever, as it sold just 25,357 cars in the U.S. and about 5,458 units in Canada, and had the tiniest market share in each of these regions.

In Canada, Suzuki’s withdrawal from its Cami Ingersoll production plant joint venture with General Motors in 2009 was another early warning sign. Combined with a lacklustre lineup and near-zero brand power, a surprise revival wasn’t going to happen.

Ever since Suzuki’s announced demise — and in some cases, even before that — experts have been speculating on a similar fate for at least two other automakers: Volvo and Mitsubishi.

The flashing red lights are there.

On the sales front, both companies have been on a steep downward slope, particularly Volvo.

The Chinese-owned Swedish automaker moved just about 68,000 units in the U.S. last year, less than half of its new-millennium high of 139,000 vehicles. Volvo’s 2012 Canadian sales were only slight better than Suzuki’s, at about 5,578 units.

Volvo has also racked up some heavy North American losses in recent quarters, which probably prompted the recent dismissal of CEO Stefan Jacoby. Moreover, the company’s new owner, Chinese automaker Geely, is steering Volvo towards Asian markets where it wants to go head-to-head with other European automakers.

Volvo has announced plans to open new plants in China and would like to see about 30-40 per cent of its global sales come from that market. If the Asia plan succeeds and sales fall any further in North America, Geely might be tempted to scrap the brand entirely in our region.

Mitsubishi’s decline in the U.S. has been far more dramatic, plunging from about 345,000 in 2002 to 57,800 units in 2012. Demand is so low that the Japanese marque is now shipping half the vehicles produced in its Illinois plant to Russia, South America and the Middle East — a product-flow reversal from a foreign, high-cost base to low-cost countries, something almost unheard of in these days of competitive manufacturing. The company also shut down its Dutch plant last year to combat low sales and boost global profitability.

In Canada, however, Mitsubishi continues to beat all odds, holding steady at the 18,000-20,000 mark for the last five years. But automakers prefer to strategize by regions and current Canadian figures may not be incentive enough to continue with sales and production in North America.

Sales aside, Mitsubishi has been largely hurt by its tiny and unimpressive product lineup, lacking the ability to compete in the critical mid-size segments.

Despite the dire stats, I am not yet convinced that these automakers will give up on North America anytime soon.

Both Volvo and Mitsubishi retain strong brand images. The former is known as a safety leader while the latter’s sporty lineage is hard to shake off, even if Consumer Reports reviews tell you otherwise. With strong marketing, improved products and effective dealership management, it’s easier to revive a brand that has a historical hook, something that a brand like Suzuki clearly lacked. In this case, the American Mitsubishi team could learn a thing or two from its Canadian cousins.

Of course, attractive cars that remind consumers about the concept behind their brands will be key to any potential turnaround. A forthcoming reboot of the Outlander and the Mirage minicar could be a good start, but may not be enough for Mitsubishi’s recently stated goal of reaching 100,000 units in 2014.

Volvo is also expected to radically overhaul its offerings, thanks to its gradual shift to a modular architecture. Even if the new models deliver the goods, the automaker’s North American leaders will still need a more aggressive regional strategy.

In the end, the bottom line is a great leveller and will ultimately determine the fate of Volvo and Mitsubishi. Both companies may prove too small to survive further revenue bleed and all the negativity from industry watchers won’t help their cause either.

But I think both these automakers have strong engineering DNAs to revive their products and put up a spirited fight. All they need now is a battle cry.

Kumar Saha is a Toronto-based automotive analyst with the global research firm Frost & Sullivan

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