Will the RX-8 Put Mazda Back in the Race?

The rotary-engine coupe may rev up the sputtering carmaker

Masao Harada is a busy man these days. As Mazda Motor Corp. plans to boost production at its cavernous Hiroshima plant -- where he's a top manager -- he has his hands full gearing up for the change. But he's not complaining. "It's good to be busy," says a grinning Harada. He knows how it feels to be idle: A 19-year Mazda veteran, Harada lived through the company's near-death experience in the mid-1990s, a calamity that triggered Mazda's takeover in 1996 by Ford (F ) Motor Co., which now owns a controlling 33% stake.

The reason the Hiroshima factory is rocking, though, has little to do with Mazda's taskmasters in Detroit. Instead, it's the RX-8, a supercool, four-seat sports coupe with a compact, lightweight rotary engine. The new car harks back to the 1980s and early 1990s, when Mazda turned out brilliant pieces of engineering and styling such as the fabled Miata two-seat convertible and the RX-7, a rotary-engine-equipped fun car that rivaled the old Nissan 240Z as Japan's best-loved hot rod. The RX-8 is Mazda's bid to get the sizzle back. "It will be a brand icon and a profitable part of our business," says Mazda President Lewis W. Booth, a former chief of Asian operations for Ford who took over Mazda a year ago.

It's too early to say whether the $25,700 RX-8 is a breakthrough car, but it's a gutsy try. Since the car's January launch in Japan, demand for the RX-8 has been so strong that there's a two-month order backlog. In June, automotive writers gave the coupe's rotary the 2003 International Engine of the Year Award -- an honor akin to an Oscar for piston-heads. All the buzz has dealers fired up. "People who never had a sports car are interested in it," says Tokyo Mazda dealer Tomoyoshi Miyakawa.

In early July, the RX-8 will arrive in the crucial North American market. Fortunately for Mazda, the car might just be cool and quirky enough to make a big splash in the U.S. Despite its low-slung, sleek design, it can seat four adults and has enough trunk space to carry two suitcases. At first glance, its most unusual feature is the rear doors, which open front-to-back instead of the standard back-to- front and make it much easier to get in and out of the rear seat. More important in allowing for the car's ample interior space is its revamped engine -- a clarion call to buffs that Mazda won't forsake its tradition as the best-known proponent of rotary technology. The new power plant is 30% lighter and 20% smaller than the one that drove its predecessor, the RX-7. But with 247hp, it has just as much oomph to chew up the road. With its intake and exhaust ports reconfigured to boost combustion efficiency, it uses 20% less fuel than the gas-guzzling RX-7 -- and pollutes less. "We aimed to redefine the whole meaning of a sports car," says Noboru Katabuchi, program manager for the RX-8.

With luck, the RX-8 may also help redefine the industry's perception of Mazda. Lately, the company has been known for making snazzy cars that impress the critics but don't make enough of an impression on consumers to jump off dealer's lots. While the RX-8 was never intended to be a blockbuster -- Mazda expects to move 60,000 of them worldwide in the coming 12 months -- Booth is hoping that the car will woo enough customers into showrooms to create more interest in the brand. In recent years, car-buyers let Mazda "drop off their shopping list," admits Booth.

That's an understatement. Back in 1991, Mazda was Japan's No. 3 carmaker and controlled 2.9% of the U.S. market. But the company soon lost its way. The RX-7 got so big and brawny that it was priced out of the U.S., and it took Mazda six years to upgrade its groundbreaking Demio subcompact, which allowed competitors to steal its early lead in Japan's fastest-growing car-market segment. It slipped to No. 5 in Japan and let its U.S. market share drop to 1.4%.

Now Mazda is staging a remarkable comeback. Under President Mark Fields, installed by Ford in 1999, Mazda closed a plant in Japan, slashing its capacity by 25% and trimming its workforce by 20%, to 19,000. Then Fields shifted some parts-sourcing to low-cost suppliers in Thailand and China. Since posting a loss of $1.3 billion in the fiscal year ended in March, 2001, Mazda has started to regain its profitability. Last year, it generated $391 million in cash flow, enough to whittle down its $3.36 billion in debt. Investors like the story and have boosted Mazda's shares by 35% so far this year.

If Ford plays its cards right, Mazda might also help the U.S. giant fix its own deep problems. Last year, Ford tapped Fields to run its Premier Automotive Group (which includes Jaguar, Volvo, and Aston Martin). Now Ford is counting on Mazda to provide it with cutting-edge engine technology and to share platforms -- groups of vehicles that use the same basic design and have many common parts. Already, the popular Ford Escape and Mazda Tribute small sport-utility vehicles are built from a common chassis. And Ford says the platform for the Mazda6 -- a sporty mid-size sedan introduced last year -- will become the foundation for as many as 10 cars that could eventually sell some 800,000 vehicles a year. Among those models is the Futura sedan, slated to appear in 2005, a key element in Ford's plan to replace the all-important Taurus.

Still, Mazda has a long way to go before it can get back to its glory days of the 1980s. For starters, it still hasn't quite figured out its marketing. Last year, for instance, the company botched the launch of the Mazda6. In Japan (where it's known as the Atenza) and in Europe, the $20,000 car took off nicely and has exceeded sales estimates. But in the U.S., the car never really caught on. It was launched in December -- generally a slow month for car sales -- which Booth concedes was terrible timing. And it faced a wave of fat incentives from Detroit rivals as well as stiff competition from the Toyota (TM ) Camry, Honda Accord, and Nissan Altima.

Worse, Mazda misjudged demand for the more powerful version of the Mazda6. While the company had expected the four-cylinder model to make up about 70% of sales, it turned out that half of the Mazda6's buyers wanted a V6 engine -- and early on, Mazda was unable to deliver them. While the problem has been fixed, the mixup means Mazda will almost certainly miss its sales target of 70,000 Mazda6 units in the U.S. this year. "Growth in Europe and Japan is fine, but that's not" enough to turn the company around, says J.P. Morgan Chase (JPM )& Co. analyst Steve Usher. So Mazda's managers are holding their breath, waiting to see how the RX-8 is received. That will mean everything for this little car company with an instinct for designing cars with killer engines but a mixed record in actually selling them.

By Brian Bremner in Hiroshima, with Kathleen Kerwin in Detroit and Larry Armstrong in Los Angeles

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