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Suzuki builds new Japan plant for making small cars

Suzuki Motor Corp., Japan's largest minicar maker, will spend 60 billion yen ($520 million) to build its first domestic factory since 1992 to meet growing demand for small cars as fuel prices rise. The plant in Shizuoka prefecture will have the capacity to produce 240,000 vehicles a year, the company said in a release yesterday, where it also raised it sales forecast for the current fiscal year 7% to 3 trillion yen. Suzuki will increase output in Hungary, India and Pakistan. Suzuki is investing as demand for small cars rises amid higher fuel costs. The car market in Japan is in its longest slump since 1999, as consumers shun large vehicles and turn to minicars. The Hamamatsu, Japan-based carmaker is betting compacts such as the Swift and SX4 models will win customers both at home and in its growing markets of India and Europe. „If we stop expanding, we'll lose,” to competitors, Chairman Osamu Suzuki said at a press conference in Tokyo. „Putting the new factory in Japan will make it easier to ensure quality.” The company plans to spend 1 trillion yen to expand output and improve facilities globally in the five years ending March 2010. The carmaker allocated a record 260 billion yen for capital investment this business year. The new factory will hire 2,000 people.
„Suzuki is coming up with solutions for meeting its growth targets,” said Yasuaki Iwamoto, an analyst at Okasan Securities Co. in Tokyo, who has a „neutral plus” rating on the stock. „That's very positive.” Suzuki's expansion in Japan follows Honda Motor Co., the third-largest carmaker in the country. Honda in May, said it would build its first new domestic auto assembly plant since 1964 to meet growing demand overseas. The Honda factory will be able to make 200,000 vehicles a year and will employ 2,200 people. India is Suzuki's largest overseas market. It plans to expand its production capacity in the country by 52% to build 960,000 vehicles in the year ending March 2010. Its new factory in India is scheduled to open later this year and Suzuki plans to add new lines over the next four years. Suzuki owns 54% of Maruti Udyog Ltd., India's largest carmaker.

To meet demand in Europe, Suzuki will enlarge its factory in Hungary to make 300,000 vehicles a year by 2008 from 200,000 this year. In Pakistan, Suzuki's annual output capacity will rise 55% to 170,000 vehicles. The maker of the Wagon R minicar will be able to make 3 million cars in the year ending March 2010. Suzuki had an earlier goal of 2.7 million vehicles. The company will limit the number of vehicles it builds for other automakers to 10% of the total production, Suzuki said. It makes minicars for Nissan Motor Co. and Mazda Motor Corp. in Japan. Suzuki also builds vehicles for Fiat SpA, General Motors Corp.'s Opel brand and Fuji Heavy Industries Ltd. in Europe and Mitsubishi Motors Corp. in Indonesia. With the new sales outlook, net income for the current year may total 72 billion yen, which accounts for 2.4% of the company's sales of 3 trillion yen, according to Bloomberg calculations. Operating profit may reach 123 billion yen, 4.1% to the sales.
The company aims to keep its operating margin at 4.1% and profit margin at 2.4% from the previous year. The company had its highest profit in 13 quarters in the three months ended June 30 on demand for cars such as the Swift. Fuel prices have been rising in Japan, benefiting makers of small cars including Suzuki and Daihatsu Motor Co. Global sales of Suzuki vehicles in the Q1 jumped 8.4% to 533,000 units from a year earlier. The company sold 166,000 units in Japan, a 1.6% increase. Overseas vehicle sales rose 12% to 367,000 units. (Bloomberg)