The 98 Pound Sumo StarEdith Updike
It's the Mighty Mouse. Its unobtrusive Tokyo office is tucked into a narrow eight-story building in Shimbashi, a gritty, unfashionable neighborhood. But tiny Suzuki Motor Corp., best known for its motorcycles, may just be the leanest, meanest car company in Japan. While operating profit margins at Japanese carmakers are razor thin at best, Suzuki is at the front of the pack with 2.9% for the fiscal year ended Mar. 31.
Suzuki makes an age-old point: Bigger isn't always better. With annual sales of $12 billion, Suzuki is one-eighth the size of industry titan Toyota Motor Corp. and only Japan's seventh-largest auto maker. But its relatively small size and dependence on low-margin, small vehicles (under 660cc) forced it to hold costs down long before Japan's economic bubble burst. And when it came time to go overseas, Suzuki burrowed into smaller economies that such heavyweights as Toyota and Nissan Motor Co. couldn't be bothered with. The company is a minipowerhouse in emerging markets from Budapest to Beijing.
PLENTY OF BOUNCE. Now, Suzuki is about to face some tough challenges. Export sales, like those of other Japanese companies, are being hurt by the high yen. Beyond that, rivals are hunting for growth in formerly disdained niches in the Japanese market where Suzuki once cruised freely. Mitsubishi Motors Corp. recently launched the Pajero Mini, a sporty four-wheel-drive off-roader that competes with Suzuki's Jimny. Toyota's new RAV4 sport utility vehicle attacks Suzuki's Escudo. Equally troubling, both Japanese and South Korean auto makers are mounting major challenges to Suzuki in emerging markets. "Everybody's trying to eat Suzuki's meals," says one auto expert.
But Suzuki has plenty of bounce. One thing the company really knows how to do is save money. Its average monthly wage of $3,535 is 20% less than Toyota's. Unlike other auto makers, Suzuki's managers don't ride first-class on the bullet train. At factories, air conditioning is kept to a minimum. Suzuki also leads the pack in chassis and parts sharing. As a result, it was able to launch production of its highly popular Wagon R for a mere $35 million, or roughly one-tenth the average cost of a model change in Japan, according to Lehman Brothers Inc. auto analyst Koji Endo.
Much of the credit for the lean style goes to President Osamu Suzuki, who practices a corporate version of tough love. At least once a year he tours production centers pointing out excess manpower here, mechanical inefficiencies there, and giving praise where praise is due. He's also hard on suppliers, pressuring them to merge. "We need economies of scale," Suzuki says. "If they say, `We don't want to merge,' I say, `Then quit."'
The company avoided the overcapacity problems that are plaguing competitors, partly through what Suzuki terms dumb luck. In the late 1980s, "we just didn't have any money, so we expanded production by increasing efficiency," he says. Suzuki is now running at about 95% of capacity domestically, compared with about 65% industrywide.
When it comes to setting up plants abroad, Suzuki beats its rivals: 50% of production is overseas, 73% of that is in cheap-labor markets in Asia. "We'll never be No.1 in Japan, but in other countries we can all begin equally," says Suzuki. Early entry in China, Hungary, and India has given it brand recognition, and it makes just the kind of high-mileage, low-maintenance, inexpensive cars consumers in struggling economies want. For example, the subcompact Maruti 800 it makes in India starts at $5,410.
When India went looking for a partner to help set up its auto industry in 1982, Suzuki seemed an unlikely choice, but the big makers weren't interested. Recalls Suzuki: "I told them we didn't have any money but we'd give them all the technology they needed." Soon after, Suzuki's most profitable partnership, a 50-50 joint venture with Maruti Udyog Ltd., was born. That can-do attitude won the company friends all over Asia.
CUT COSTS. Suzuki is responding to the threats from competitors and the high yen. A year ago, the company speeded up the remodeling of its Escudo to get it launched four days ahead of Toyota's RAV4. Suzuki has earmarked $1.75 billion to set up 100 new dealerships and beef up personnel in Japan. That should offset the damage from a new law that will require urban buyers of minicars to have a parking space before the car can be registered. True to form, Osamu Suzuki also expects to cut costs even more, by at least $81 million this year.
Despite his best efforts, earnings will be down in 1995, which promises to be rough for all of Japan's carmakers. Yet the company is still expected to outperform its industry. This mouse will continue to make the elephants jump.