Mazda Roars Back Into The Race

Hot new models and lower costs put the carmaker on the road to recovery

Just a few years ago, Mazda Motor Corp. was a sad saga of an icon that had fallen from grace. Once at the forefront of innovation, with its Wankel rotary engine and cutting-edge designs, Mazda made the near-fatal mistake of trying to compete model-for-model with its giant rivals, Toyota Motor Corp. (TM ) and Honda Motor Co. (HMC ) -- expanding too far, too fast, not realizing that it wasn't big enough to take them on globally. As a result, Mazda's fun-to-drive image faded, sales nose-dived, and the company ran up billions of dollars in debt. "We forgot who we were," says Stephen T. Odell, a Ford Motor Co. (F ) manager who was seconded to the Japanese auto maker after Ford rescued it from the scrap heap in 1996. Even then, Mazda barely survived a spectacular loss of $1.25 billion in 2001.

Now, Mazda is roaring back from the brink and is out to reclaim its former glory. Under the management of Ford and the Mazda veterans it tapped to rise through the ranks at its seven-kilometer-long plant in Hiroshima, Mazda has gone from loss to profit, the popularity of its well-designed cars is growing fast, and last year it sold just over 1 million vehicles. The company was saved by drastic cost-cutting and aggressive sales of one award-winning new model after another.

The company has been particularly successful in Europe, where Mazda locked in dealers, got the product mix just right, expanded its market share -- and gained a $140 million windfall from currency swings, mainly the 9% appreciation of the euro against the yen last year. Europe now delivers 18% of the company's total revenue. "Europeans always had a soft spot for Mazda," says Odell, a senior executive vice-president.

GLITTERING PRIZES

Mazda's immediate priority is to reclaim market share in the U.S. One recent mistake: Last year execs underestimated demand for the six-cylinder version of the Mazda6 sedan. At the same time, the company had to pay rebates averaging $2,200 per car to reduce inventories of the four-cylinder model, which it had expected to make up 70% of U.S. sales. Analysts also expect Mazda to roll out more SUVs and minivans in the U.S. -- the company won't disclose its plans just yet -- in a move that could put it on a collision course again with its Japanese rivals, not to mention Detroit. Mazda hopes to set its new models apart by making them "fun to drive," says Hisakazu Imaki, who became president and CEO of Mazda last August. "I won't compromise an inch on that."

Even if it stumbles in America, the company has lots to celebrate. The Mazda6 has won 140 industry prizes since its launch in 2002, while enthusiasts greeted the rotary-powered, low-slung RX-8 sports coupe as a return to form. Overall Mazda sales rose 9% worldwide, to $27.6 billion, during the year ended Mar. 31. Net income in the same period rose 41%, to $320.7 million. "The aggressive launch of several new products is making a big difference for Mazda's bottom line," says Kunihiko Shiohara, an analyst at Goldman, Sachs & Co. (GS ) in Tokyo.

Now the carmaker is revving up for its toughest challenge -- its home market, where it has a tiny share of just 4.7%. In June, it plans to launch the Verisa, a new compact based on the Mazda2 platform, but with high-end extras such as locks that use cards instead of keys, and a stereo that stores 20 gigabytes of music. "We're a recovering brand," says Odell, "but at least now we've got the cars out there that people want to buy." Clearly, Mazda is a company that's steering in the right direction.

By Ian Rowley in Hiroshima

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