Phoenix Bankruptcy Law News

American Suzuki Reaches Settlement With 97 Percent of Dealers

American Suzuki Motor Corp. is one step closer to exiting bankruptcy.

The company won support from 97 percent of its auto dealers to shut down its new car sales in the United States, Bloomberg reports. In exchange for their support, the dealers will be repaid everything they're owed by the company -- a rarity in bankruptcy cases.

The dealerships were asked to cancel their current franchise agreements in exchange for half of what they are owed upfront. The other half will come after the company's assets are liquidated in bankruptcy. In total, the dealerships are owed about $42 million.

American Suzuki filed for Chapter 11 bankruptcy last month after struggling with declining sales in the United States. The debtor company in a Chapter 11 restructures in order to cut costs and repay its creditors. That can involve selling assets, closing branches, merging with another company, laying off workers, or obtaining financing from outside investors.

In most bankruptcy cases, the majority of creditors, depending on their priority, walk away with only a portion of their debts repaid. So how is American Suzuki doing it?

American Suzuki owes its parent company, Japan-based Suzuki Motor Corp., about $152 million. To help guarantee dealers who settled are repaid in full, the parent company agreed to subordinate its debt. Now Suzuki Motor will only begin getting repaid once the dealerships are paid in full.

The settlement should allow American Suzuki to restructure and exit bankruptcy on schedule, according to Bloomberg. Once the bankruptcy is complete, American Suzuki will continue to sell motorcycles, boats, and all-terrain vehicles in the United States.

As for the dealerships, they'll have to convert to service stations. The dealers will sell off their remaining cars, and then continue to provide warranty and repair work to the hundreds of thousands of Suzuki automobile owners in the country.

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