Mazda on Track for Recovery

Newly-developed car Mazda SASSOU

   Mid-sized automaker Mazda Motor Corporation is on the road to recovery, after being plunged briefly into crisis amid weak new-car sales. Having booked its highest-ever operating profit (consolidated basis) in the year ended March 31, 2005, it is now positioned to repeat the feat in the year ending March 31, 2006. However, the dismal earnings performance of its parent company, Ford of the United States, is a major concern. Depending on the progress of restructuring at Ford, Mazda could be forced to radically revise its management strategy.

   According to consolidated financial statements released in early August, Mazda sold 278,000 units worldwide during the first quarter (April-June) of the year ending March 31, 2006. This was an 8% rise year on year, and positions the company firmly for achieving its full-term target of 1.178 million units (up 7%). With quarterly operating income also rising 14% year on year to 22.8 billion yen, growth is robust enough for the company to beat its full-term target of 90.0 billion yen (up 9%).

Mazda 3 Takes the Driving Seat in Recovery

New car model of Mazda Roadster came to Japanese market on Aug. 25. Since its release in one month, the number of orders has exceeded five times of its initial monthly sales target.

   The main engine of recovery for Mazda has been strong exports of the mainstay Mazda 3, known in Japan as the Axela. Sales have grown chiefly in North America, Europe and Australia. Mass production of this one model-over 320,000 units per year-has generated high profitability.
   Under its plan, Mazda is launching 16 new models in major markets in 2005 and 2006. At the end of August, it also embarked on a full remodeling of its mainstay Mazda 5 (Roadstar in Japan). If Mazda meets its schedule for new-model launches, it can expect total worldwide unit sales of 1.25-1.26 million units in the year ending March 31, 2007.

Withdrawal from Technological Development

   The fly in the ointment is the poor performance of Ford, which owns 33.7% of Mazda's outstanding shares, and played the role of white knight in the Mazda rescue drama. Although their mutual dependence has increased with joint development of a new kind of engine and an advanced compact car, Ford could make moves to dissolve the relationship-for example by selling shares it holds in the Japanese company-to get out of a financial crunch. This would hit Mazda hard. Under its recovery program, Mazda abandoned in-house development of environmental and other expensive technologies, entrusting this role to Ford, so that it could concentrate on creating new models.
   Although earnings show growth momentum, Mazda suffered a consolidated loss of 37.8 billion yen at the end of June 2005, and its equity ratio remains in the 15-16% range. Outstanding interest-bearing debt has also risen, to 528.1 billion yen. Over the coming years, Mazda will not have leeway for funding development of environmental and other high-cost technologies.