Mazda: Ford Won't Sell the Family Jewel

Ford's alliance partner is coming off record profits and has mapped out a new growth plan through 2011 to help it catch Japanese rivals

by Ian Rowley

• View Slide Show

When Ford (F) CEO Alan Mulally made his first visit to Mazda's (MZDAF) Hiroshima headquarters in late February, he made it clear the troubled U.S. automaker had no intention of selling off its 33.9% equity stake regardless of the cash pressures bearing down on the company. Indeed, though Ford has sold off its Aston Martin luxury brand, and may be looking at Jaguar to raise cash, Mazda is probably untouchable given its critical importance to the company's global strategy (see BusinessWeek.com, 3/13/07, "After Aston, Could Jaguar Be Next?").

In fact, Mazda is one of the more remarkable comeback stories in the global auto industry. Back in 2001, it posted a $1.25 billion loss, and it looked as if the alliance formed five years earlier with Ford wasn't long for this world. Today, Mazda is a profit machine, and on Mar. 22 it outlined a new growth plan that, if anything—some critics say—is far too mild, given the inherent strengths of the revived carmaker.

The new plan is ineloquently dubbed Mazda Advancement. It aims to raise global retail sales to about 1.6 million through March, 2011, compared with an expected 1.3 million for the current financial year. For the same time period, the company also intends to raise operating profits to around $1.7 billion and increase its operating margin above 6%

New Plant in Nanjing

Mazda CEO Hisakazu Imaki says he will also look to deepen synergies with Ford, which already shares three of Mazda's four production platforms, and strengthen its brand. "We understand the challenges ahead and are addressing them," says Imaki.

To meet those targets, Mazda is opening a new plant in Nanjing, China, later this year and will raise production in Japan by almost 100,000 units by March, 2008. Over the next four years, research and development expenditure will rise by 30% and capital investment by 50%, compared with the last four years.

Mazda also hopes to raise its profile and profits by building up its enviro-friendly credentials. This includes working more closely with Ford to develop hybrid technology, the development of diesel engines for the U.S. and Japanese markets by the start of the next decade, and further research into hydrogen fuel cars.

"Not Outstanding, But Realistic"

However, Mazda has postponed a decision on whether to construct new capacity in Thailand and North America and instead intends to monitor sales trends before making additional investment.

Tatsuo Yoshida, an analyst at UBS in Tokyo, told clients that while the postponement may not please everyone, it was a smart move. "Mazda needs to make realistic production and shipment plans," Yoshida wrote in a research note. "Market expectations should be set at a reasonable level." He added that the plan was "not outstanding, but realistic."

Of course, one reason for the lukewarm response is that Mazda stretched and delivered stunning numbers during the current "Momentum" business plan. This financial year, Mazda is set to post record operating profits of $1.36 billion, a rise of 29% and well ahead of the $854 million it targeted by the end of its current four-year business plan.

The Old-Fashioned Way

Its stock price, at $5.50, has increased almost fivefold from 2001. And having fought hard to reduce debt and straighten out its balance sheet, new designs such as the CX-7 and CX-9 crossover SUVs are winning plaudits (see BusinessWeek.com, 5/9/06, "Mazda Crosses Over to U.S. Opportunity").

That, say analysts, has been more than enough to make up for slightly weaker than hoped for unit sales, which are likely to be 6% short of target when the current plan ends this month. "The current midterm plan can generally be viewed as a success," notes Kurt Sanger, an analyst at Macquarie Securities in Tokyo.