Whatever happened to those cars and SUVs Suzuki (NASDAQOTH:SZKMF) used to sell in the U.S.?
Suzuki is mostly known for motorcycles in the U.S. nowadays, but the company is Japan's fourth-largest automaker. In some parts of the world -- India, for one -- Suzuki's cars and SUVs have substantial market share.
But Suzuki gave up on selling cars in the United States in 2012, after the complete failure of models such as the XL7 SUV -- a vehicle that almost had potential to succeed here. What went wrong?
The Suzuki XL7 was a decent SUV, but it wasn't a standout
In a way, the story of the XL7 sums up Suzuki's failings in the U.S. pretty well.
The XL7 was a seven-passenger crossover SUV introduced in 2007 as a replacement for the XL-7. The earlier, hyphenated XL-7 was a great idea when it was launched in the late 1990s -- a seven-passenger SUV that was smaller and lighter than the big truck-based SUVs that were popular at the time -- but in reality, that third row was too cramped to be useful. Sales were poor.
Suzuki went back to the drawing board for the next model, leaning heavily on then-partner General Motors (NYSE:GM), which owned about 20% of Suzuki until 2006. Suzuki and GM set up a joint venture, a Canadian factory that was to make the all-new XL7 on the same assembly line as GM's midsize crossovers, the Chevrolet Equinox, Saturn Vue, and Pontiac Torrent. The XL7 shared many underpinnings with the GM models, and it used a GM-designed engine made by Suzuki in Japan; it also had an optional third row of seats, something the General Motors vehicles didn't.
Critics didn't hate it -- Edmunds cited its "good reflexes" and "carlike ride" -- but it wasn't as refined as rivals including Toyota's Highlander. It didn't stand out in a category in which Suzuki's bigger Japanese competitors had stepped up with strong, distinctive entries.
That was really the problem. A brand with a tiny presence, as Suzuki's cars had in the U.S. at the time, must make a big splash to get buyers' attention. The XL7 didn't do that. Like Suzuki's other U.S. models, the XL7 was an also-ran.
Toyota was selling over 100,000 Highlanders a year during that period, but Suzuki sold just 22,761 XL7s in 2007 and another 22,548 in 2008. The automaker pulled the plug on production in May 2009.
Why Suzuki and its XL7 failed in the U.S.
Suzuki's major failing across the board in the U.S. was that its products weren't distinctive enough to give the brand the traction it needed to establish a sustainable presence.
Part of the problem was a sharp decline in support from GM. General Motors had been a key partner for Suzuki since the 1980s, but it was in deep financial trouble by the time the XL7 was being designed.
The U.S. automaker sold most of its stake in Suzuki for $2 billion in 2006, just one of a series of cash-raising moves it made during that period as then-CEO Rick Wagoner tried desperately to keep GM afloat while he pushed a long-overdue restructuring.
General Motors bought out Suzuki's stake in the Canadian joint-venture factory a few months after XL7 production ceased. That was another sign that the end was near: Suzuki folded its U.S. operation in 2012 after it sold just 26,619 vehicles total here in 2011.
The upshot: Without standout products, Suzuki had no chance
Here's the lesson: It's hard to establish a new brand in the global auto business. It's even harder if your products aren't a striking alternative to those of the dominant mainstream players, because consumers won't have a reason to check you out -- if they even notice you at all.
Think about Tesla Motors. Tesla has grabbed a foothold with a radical (and good) product, along with a charismatic CEO who has made clear why his product is a compelling offering. What was Suzuki's compelling story? We never heard it.
Subaru might have been a model for Suzuki to follow. It's a small company with limited resources, but it has created a dominant (and very profitable) presence in a profitable niche of the U.S. market -- because its products are distinctive, different, and good.
Suzuki's products weren't bad. But they weren't distinctive and compelling for more than a tiny number of buyers, and failure was the eventual result.
John Rosevear owns shares of General Motors. The Motley Fool recommends General Motors and Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.