Standard & Poor’s today affirmed its rating based on public information, or ‘pi’ rating, on Suzuki Motor Corp at single-‘Api’.
The affirmation follows the September 14 announcement by General Motors Corp. (A/Stable/A-1) of a plan to increase its stake in Suzuki from the current 10% to 20% by early 2001 and to strengthen cooperation between the two companies in the small car segment.
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The rating affirmation takes account of the potential improvement in Suzuki’s market position in the global small car sector as a result of reinforced cooperation with General Motors, as well as an improvement in Suzuki’s capital structure following the approximately US$600 million capital injection by General Motors. Notwithstanding these positive factors, lack of diversity in Suzuki’s product portfolio and intensifying competition in the global small car segment limit the company’s rating to the single-‘A’ category.
As part of the new agreement, General Motors Chairman John Smith will become a nonstanding director of Suzuki, and the first member of General Motors to hold a seat on Suzuki’s board. Suzuki will continue to play a key role in developing the alliance’s small cars. Production of the YGM-1 model, a jointly developed small car aimed at Asian markets, will begin at its Kosai plant in Japan in September 2001.
The cash injection by General Motors, scheduled to take place in January 2001, will assist the development of derivative models of YGM-1, as well as other new joint projects. Suzuki and General Motors will also implement an employee exchange programme to allow the effective execution of various joint projects. The closer business alliance is expected to help Suzuki to further improve its already competitive cost position by creating economies of scale, as well as enabling both companies to share the costs of developing new models and expand their sales networks. Suzuki will also benefit from further improvement in its already sound capital structure, with total debt to capital estimated to fall below 25% after the capital injection by General Motors.
Nonetheless, Suzuki’s market position in the global auto industry is limited by its concentration on the small car segment, which is facing intensifying competition. This segment is especially attractive to leading global automakers in view of heightened concerns over environmental issues and relatively favourable long-term growth prospects in emerging markets, Standard & Poor’s said.
