Mazda's Makeover

Will the new cars do the trick?

In late 2000, Hirotaka Kanazawa, the top engineer at Mazda Corp.'s Frankfurt R&D center, got some bad news. There was a problem with the suspension of the Mazda 6, the long-awaited successor to the 626 family sedan. With the final design due in three months, the veteran engineer was being asked to rush back to headquarters in Hiroshima to find a way to stiffen the car's ride.

Kanazawa moved back to Japan and fixed the problem. His 11th-hour emergency surgery could be crucial to the 6's reception--not to mention Mazda's corporate makeover. After all, Japan's fifth-largest carmaker badly needs a hit. Kanazawa, who now compares the Mazda 6's handling favorably with that of "German premium brands," believes the car could be the crowd-pleaser Mazda has been waiting for.

If Kanazawa is right, it will be a trophy on the shelf for President Mark Fields, who has been running Mazda since 1999, when controlling shareholder Ford Motor Co. ordered him to carry out a larger restructuring mission. On the other hand, if the 6 flops, it'll be someone else's problem--namely, Lewis Booth's. In June, the 24-year Ford veteran takes over from Fields, who was named head of Ford's luxury division on Apr. 19. "A huge amount is riding on all our new products," Booth told BusinessWeek in his first interview since being tapped to run Mazda.

Job One for Booth is to move a lot of 6 sedans. The car, which debuts May 20 in Japan as the Atenza and in the U.S. later this year, is the first major Mazda product in 19 months. It will set the pace for 36 new or revamped vehicles over the next two years. Booth & Co. are counting on the 6 to maintain Mazda's recent earnings' momentum after a decade of skidding in and out of the red. On May 15, Mazda expects to report net profits of $65 million on sales of $16.1 billion for the fiscal year ended Mar. 31, after a record $1.2 billion loss in the previous year.

The latest shakeup at the top--Booth is the fourth Ford exec to head Mazda in six years--comes at a delicate moment. Ford once saw Mazda as a key part of its strategy: a gateway to the Asian market. Today, Ford's Asia push is on hold while the auto maker fixes its operations at home. Hence, Ford badly needs Mazda to pull its weight. Yet there's a lot that could still go wrong. Yes, Fields slashed capacity 25% by closing a plant in Japan, trimmed 1,800 jobs, and squeezed suppliers. And it is true that Mazda achieved savings by sharing some parts with Ford. But a cheap yen is largely responsible for the recent return to profitability, accounting for $250 million in extra operating earnings last year. And while Mazda hopes to mitigate the impact of foreign-exchange swings by moving production of 100,000 cars a year to a Ford plant in Spain by late 2003, Mazda has promised its union not to shift any more domestic capacity overseas.

Moreover, while Mazda plans to accelerate its cost-cutting regime, such penny-pinching can backfire. Since the company introduced an early-retirement program last year, it has lost some top talent. Rival auto makers even set up temporary offices in Hiroshima to lure away its best and brightest. One prominent defector was former design department chief Norihiko Kawaoka, who went to work at Suzuki Motor Corp. "Cost-cutting has got Mazda to the starting line," says Takaki Nakanishi, an analyst at Merrill Lynch & Co. in Tokyo. "But it still hasn't proved it can make a decent profit selling competitive cars."

What Mazda needs most are models that drivers actually want to buy. Last year, Mazda vehicles accounted for just 4.6% of Japan's market, down sharply from a peak of 7.7% in 1990. In the U.S., Mazda's share is mired at 1.6%. That has everything to do with Mazda's reputation as a one-car brand. Outside of the spunky MX-5 Miata roadster, the company's lineup is widely considered passe. "The product line is just too old," says Kurt Sanger, an industry analyst in the Tokyo office of ING Baring Securities. "The brand has been on vacation."

Part of the problem is that Mazda lacks sufficient cash reserves to develop new models itself. As a result, the company has been forced to use platforms co-developed with Ford. The Mazda 6, for instance, uses the same chassis as the next-generation Ford Mondeo, while the new Demio subcompact shares major body infrastructure with the upcoming Ford Fiesta. That cost-saving strategy isn't risk-free. Case in point: The Tribute sport-utility vehicle, the first platform-sharing vehicle, failed to catch on in Japan after its debut in 2000. Mazda blames the rough fit and finish of the interior, which aped that of the Ford Escape, a vehicle designed for less finicky buyers. "We didn't understand customers' sensitivity," says Fumiaki Inami, Mazda's chief of product development. In Japan, the Tribute has cleared its 1,500-unit monthly sales target just once since being launched.

To prevent more miscues, Ford and Mazda design teams now work independently instead of side by side, as was the case for the Tribute/Escape. Also, Mazda is paying much more attention to details. Knobs on the 6's futuristic metallic console get bigger the farther they are away from the driver so they are easier to grab. Gaps between the exterior body panels have been narrowed to give the 6 a more upscale and aerodynamic look. And in keeping with a new 2.3-liter 150-horsepower engine (or optional 3-liter, 219-hp version) the designers tried to convey a sense of speed. "One of our design motifs was the long-nosed bullet train," says Iwao Koizumi, the Mazda 6's chief designer. "We wanted the car to look like it was moving even at a standstill."

While auto magazines are talking up the 6, Mazda faces a tough race. With competition heating up in the shrinking Japanese and crowded U.S. markets, the sedan, which starts at about $20,000, will go head to head with some of the most popular cars on the road: the Toyota Camry, Honda Accord, and Nissan Altima. In Japan and Europe, the Demio subcompact will square off against the likes of the Toyota Vitz (relabeled the Yaris in Europe), Nissan's March (Eurodrivers call it the Micra), and the Renault Twingo. Other new Mazda models due in the coming months include a replacement for the compact Protege sedan and the rotary engine-powered RX-8, a four-door successor to the RX-7 sports car.

Much depends on a solid performance by such core models as the 6. Mazda is already playing catch-up to its Japanese rivals and other carmakers, and it must win back former devotees and attract new ones. Otherwise, Mazda may slip back into the red and become little more than a training camp for ambitious Ford executives.

By Chester Dawson in Hiroshima

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