Mazda: A Classic Turnaround Tale
May 29, 2007

By Peter Nunn

To win in the auto business, various paths to glory exist. At the Mazda Motor Corp., they’re doing it the classic, time-honored way: by building sharp-looking vehicles with spirited driving dynamics and a solid image, cars people actually are excited to buy.

Cars like the Mazda 3 and Mazda 6, plus the Mazda 5 minivan and new wave CX-7 and CX-9 crossovers, are increasingly putting Mazda on the map and in American driveways.

Mazda’s lightweight MX-5 Miata two-seater is the world’s best-selling sports car. The radical four-seat, rotary-powered RX-8 remains an innovative and unique contender in the enthusiast sport coupe market.

Mazda’s all-new Mazda 2, its latest entry, had its world premier at the Geneva show in March. The new 2, well packaged and impressively light, already is earning glowing reviews, though it won’t immediately be heading for North America.

Something’s clearly going right for Mazda. What we are seeing is the classic product led recovery.

“Still Just at the Starting Point”

The breakthrough started with the launch of the Mazda 6 in 2002, a stylish, fun-to-drive Honda Accord/Toyota Camry rival that’s proved a winner from Day One. Mazda’s new Zoom Zoom business model has been gathering pace each successive year.

Profits are at record levels. Within the umbrella of Ford Motor Co., Mazda has risen well up the ranks of respectability.

But instead of declaring mission accomplished, Mazda president CEO Hisakazu Imaki remains cautious and refuses to get carried away.

Speaking at a conference in Tokyo outlining Mazda’s new midterm business plan, Imaki, 64, told the press soberly that Mazda “still didn’t have sufficient strength” and that plans for the future would proceed “in a step-by-step manner.”

Instead of rushing ahead, Imaki said, “I would like to achieve steady growth that is appropriate for Mazda.” The company was “still just at the starting point.”

Roller-coaster fortunes

Maybe Imaki is right to err on caution. Mazda is a company with adventurous streaks that has brought crisis on itself more than once in the past and had to be bailed out by the Sumitomo Bank and later, Ford.   

While Mazda is hot right now. Profits in the latest business year soared to a $642 million, coupled with an operating profit of $1.38 billion and global sales of 1.3 million units (all record figures) . Still, in the big picture, Mazda is still a small, potentially vulnerable company, its fortunes inextricably linked in with those of Ford.

At lot has happened at Mazda over the past decade and a bit. It was in April 1996 that Ford increased its shareholding in Mazda from 25% to 33.4%, and Ford’s Henry Wallace was installed as Japan’s first ever foreign-born president and CEO.

Mazda then was struggling and losing money, and Ford set about restructuring the company but this was no slash and burn operation.

Talent imported

Rather, Ford took it slowly and imported some especially gifted people like Martin Leach and Phillip Martens, both of whom have since left Ford, to help revamp Mazda’s R&D and product development.  Moray Callum, now heading Ford's North American car design, also came on board as Mazda's global design chief.

The result is a range of cars, both production and concept that have transformed Mazda. 

Mazda’s own team of motivated engineers and designers also deserve huge credit. Lewis Booth, now heading up Ford of Europe, was Mazda CEO between 2002-03, and is as experienced, worldly-wise industry leader as you’ll find.

Talking about his time in Hiroshima, he recalled  “the skill, the talent, the motivation, the drive of the people at Mazda is just…overwhelming. Just leaves me speechless sometimes. “The combination of Ford pragmatism and marketing savvy, coupled with Mazda’s design and engineering skills are the keys to today’s Mazda’s revival.

Mazda insiders also give a lot of credit to Mark Fields, who became Mazda president in December 1999 at the tender age of 38 and pushed through the cost cutting, three-year Mazda Millennium Plan, starting in November 2000.

Mazda and Ford were then still getting to know and trust each other and the restructuring and huge investment in new models took their toll, prompting Mazda to post a massive $1.3 billion loss for 2000-01. Back then, there was plenty of tension in the air.

Mazda 6: Platform for Success

The turnaround started in 2002 with the Mazda 6, quickly followed by the Mazda 2 (Demio in Japan) subcompact. Two competitive new age cars that looked good, drove well and said something different.

The 6 was especially significant, giving Mazda at least a decent shot at the Camry and Accord in the U.S. Its architecture has also since underpinned a range of Ford models such as the Ford Fusion and Lincoln MKZ.

The Mazda 3, launched in 2003, has proved another winner. It has since given Mazda a pleasant headache. It is now short of production capacity, a complete reversal to times past. In September 2001, Mazda’s domestic U2 plant had to be shut down due to lack of sales. It has since reopened.

Challenges Remain

Problems for Mazda still remain. Most notably, it is much smaller than Toyota, Nissan and Honda, with nothing like the model range, manpower and resources. Or financial safety net.

In the U.S., Mazda would certainly like more exclusive dealerships. Mazda has achieved some breakthrough with its catchy Zoom Zoom ad campaign, building brand awareness in the hugely competitive North American market. Still, having its voice heard against the Toyotas, Nissans, Hondas and even Hyundais of this world is still a major task.

Mazda also lags in terms of local manufacturing in markets where it sells, thus giving it a lot of exposure to exchange rate swings. While the soft yen is doing Mazda (and other Japanese) a big favor right now, Mazda’s American arm still shudders recalling that mid-‘90s period when the Japanese currency surged to 80 yen to the dollar thus crucifying profits.

Not even Toyota, the world’s richest automaker, can live at that rate. For Mazda, it was a nightmare.

New Manufacturing Plant

Mazda’s joint manufacturing with Ford in North America, Thailand, China and Europe has paid dividends, thus helping to even out the currency swings, but still lacks manufacturing capability in markets in which it sells.

President Imaki intimated at the Tokyo press conference that Mazda has the cash and desire to build a new plant, but where?

One obvious candidate would be Europe where Mazda’s local manufacturing (with Ford) is still in low gear. More likely, Mazda would expand its presence in AutoAlliance (Thailand), the manufacturing plant set up with Ford in 1995.

Ultimately, any decision on a new plant will be made with Ford. “The synergy with Ford is our top priority,” said Imaki.

Shifting Dynamics

Imaki’s comment suggests how significantly the dynamic between the two companies has changed over recent years, and for the positive.

Mazda today is increasingly involved in designing engines and platforms at compact and midsize levels for both companies. When its four-year Mazda Momentum business plan kicked off in April 2003, joint programs with Ford were running at 50 percent.  Today, they’re at up to 90 percent.

With Mazda now back and delivering solid profits, a stop at Hiroshima is good for the resumes of rising Ford executives.

Encouraging Numbers

Encouragingly, many key numbers are pointing the right way:

· In the latest business year to March 2007, Mazda sold 1.3 million units, up 2 percent versus the year before. Five years ago, sales slumped to just 948,000 units;

· North American sales were up 8 percent to 380,002 units, marking the best results in 12 years. Europe surged 6.7 percent to 301,167 units, the highest in 15 years. But in a tough, depressed Japanese domestic market, sales dipped 8.6 percent to 260,610 units.

Looking Forward

Looking forward, Mazda has a new business plan -- the Mazda Advancement Plan –- to take the company through to March 2011. The plan has three main targets: 1.6 million units in global retail sales; an operating profit of over 200 billion yen (some $1.7 billion at current rates); and a consolidated return on sales of 6 percent.

Mazda also is anticipating a 30% increase in R&D spending every year for the next four years, with capital expenditure upping 50% at the same time.

The plan sees the next new wave of Mazdas coming on line, starting with this summer’s redesigned Mazda 2 and the next Mazda 6 unveiled at the Tokyo show in October.

Further, Mazda has its next generation of "clean" gasoline and diesel engines coming for 2010 and around that time frame, Mazda will also begin to introduce a new family of lightweight vehicle platforms.

Mazda is still a company that likes doing things differently, so this is the cue for an-all new rotary engine, with more power and less thirst than today’s Renesis unit in the RX-8. While many in the industry wrote it off years ago, Mazda still believes passionately in the power, design and originality of the rotary. “It’s the soul of our company,” says R&D chief Seita Kanai. So there will be much cheering in Hiroshima when this next-generation rotary hits the market sometime around 2010.

A Prius fighter? Again, Mazda goes the alternative, scenic route. Mazda will start leasing a Premacy minivan (Japan’s version of the Mazda 5) with a hydrogen-powered rotary engine, plus Mazda’s own hybrid system, in 2008. A full production model using this innovative powertrain will launch from 2010.

However, Mazda won’t dip down to do a small, low-cost A-sector model for developing markets and to go against cars like the Toyota Aygo in Europe. At the end of the day, its resources only stretch so far.

The past decade has seen Mazda transformed from a feisty but struggling minor player into a respectable and respected mid-size contender with huge potential.

Design and dynamics are at the forefront of this Mazda revolution, a reminder that in the car business, it really is all about product, product and product.

MAZDA'S NUMBERS: (Mazda Group)
Financial Year	Revenues (Turnover)	Operating Profit	Net Income	Unit Sales
1995-96	$17.4 billion	($76.7 million)	($112 million)	912,000
1996-97	$15.3 billion	$2.5 million	($141.5 million)	1,015,000
1997-98	$15.5 billion	$252 million	($51.5 million)	1,015,000
1998-99	$17.0 billion	$517 million	$319 million	1,025,000
1999-00	$20.4 billion	$237 million	$247 million	1,013,000
2000-01	$16.3 billion	($120 million)	($1.3 billion)	964,000
2001-02	$15.7 billion	$214 million	$66 million	948,000
2002-03	$19.7 billion	$421 million	$200 million	1,166,000
2003-04	$27.5 billion	$662 million	$321 million	1,225,000
2004-05	$25.1 billion	$775 million	$428 million	1,104,000
2005-06	$24.8 billion	$1.05 billion	$568 million	1,149,000
2006-07	$28.3 billion	$1.38 billion	$642 million	1,302,000
2007-08*	$28.9 billion	$1.39 billion	$739 million	1,350,000

* projected

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