Do or Die Time for Mazda?

When Ford Motor Company reduced its stake in Mazda Motor Corporation from 33% to 13% in 2008, the Japanese automaker heralded its new-found independence.

In 1996 Ford took its first equity stake in Mazda and the infusion of cash brought the Japanese automaker back from the brink of bankruptcy.  Twelve years later, it was Ford that teetered on the brink of collapse and the decision to reduce its stake in Mazda was motivated by the American automaker’s need to raise cash and refocus on its core products.

Today Ford has returned to fiscal health and Mazda has seen four straight years of losses. For the fiscal year ending March 31, Mazda has suffered a shortfall of about $1.22 billion. For the second time in about as many years, Mazda has resorted to huge equity sales to raise much-needed cash to help it compete with much larger and technologically-advanced rivals.

Mazda’s CEO Takashi Yamanouchi has outlined an aggressive strategy aimed at returning the struggling company to profitability by next year.

Yamanouchi’s plan includes cost cutting measures designed to reduce the company’s exposure to erratic swings in the yen and boost sales. Over the next four years, the company hopes to increase its global sales by 36 percent to 1.7 million units. The company expects to sell 1.25 million units worldwide during the current fiscal year.

Despite vowing to avoid tie-ups with other automakers following the departure of Ford, Mazda is again courting new partners.

Yamanouchi says, “Mazda is currently undergoing a spectacular structural transformation encompassing r&d, production, sourcing, sales and all other business areas, for the first time in its 90-year history. It’s a must-win situation. That’s how important it is.”

Early last summer Yamanouchi killed production at the AutoAlliance International assembly facilities in Flat Rock, Michigan – a joint venture with Ford Motor Company. The Mazda6 vehicles being made at the plant were losing money. Importing fully assembled Mazda6 models from Japan is expected to save the company 182.3 million annually. There is currently no plan to restart operations at the AutoAlliance International plant although the company has not ruled out the possibility at some future date.

Many analysts fear that Mazda’s current revival plan may be too little, too late. For starters, they say that Mazda is far too dependent on exports. The company currently exports about 80 percent of its passenger cars and light trucks to overseas markets. Toyota Motor Corporation exports about half of its vehicles, and domestic sales account for nearly 70 percent of all sales for Honda Motor Company.

Prior to the financial crisis of 2008, the strong dollar allowed Mazda to prosper from its exports. But the dollar has slumped against the yen for five consecutive years. Late last year, the dollar fell to a record low of 75 yen.

Mazda’s European market share was reduced by 17 percent during the last nine months of last year, yet the company managed to generate an operating profit of $83.3 million. But losses in North America and Japan totaled $659.7 million because of the strengthening yen.

In fact, the company estimates that swings in the value of the yen have been more devastating to the company’s profitability this past year than the combined effects of the March 2011 earthquake and tsunami, the European debt crisis and the Thailand floods.

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