Tuesday, July 17, 2012
Mazda Hopes to Rev Up Exports
HIROSHIMA, Japan—Mazda Motor Corp. is charting a radical course for a Japanese auto maker: betting heavily on exporting, even as the strong yen makes it much harder to do so profitably.
While Japan's biggest car companies are accelerating production offshore, the country's No. 5 brand recently began production here of its first small sport-utility vehicle, declaring that 90% of output would be aimed for export.
The CX-5 is selling well enough in the U.S., Europe and Asia that the company will ramp up production, boosting annual output to 240,000 units by March from the 160,000 planned when the model went on sale in February. Overall, Mazda has forecast a profit of ¥10 billion, or about $127 million, for the fiscal year that ends next March. That would be a turnaround from four consecutive years of red ink totaling ¥245.7 billion. Mazda was the only Japanese auto maker to lose money in the fiscal year that ended in March.
Mazda executives say they can make a profit on CX-5 sales to the U.S. even if the dollar weakens to ¥77 from its current level of about ¥78.80. In contrast, Nissan Motor Co. Chief Executive Carlos Ghosn has said his company will have no choice but to shift production overseas with the dollar at ¥79. Honda Motor Co. 7267.TO -0.80% has said it would keep moving production abroad unless the dollar climbs back to at least ¥100.
The key to Mazda's gamble: Skyactiv Technology, a series of engines, transmissions and chassis that the company markets as long on fuel economy, short on weight and less expensive to make than previous components. Skyactiv—the name is meant to conjure a commitment to "driving pleasure" and environmental and safety performance—is at the heart of a streamlined, cost-stripped manufacturing system aimed at assembling all new models on the same production lines, regardless of size, shape and market segment.Sharing the technology provides economies of scale. Japanese rivals long have built different vehicles on the same production line, generally sharing a platform, for example, for sedans. Mazda says it can tweak what are essentially the same Skyactiv parts to fit different models across market segments —sedans, compacts or SUVs.
"Japan will remain an export base for Mazda," Kiyoshi Ozaki, Mazda's chief financial officer, told reporters after a recent tour of the factory here.
Analysts say the export-heavy strategy risks putting Mazda ever further behind its rivals. A strong yen makes it harder for Japanese exports to compete on price overseas and decreases the value of earnings made abroad when they are brought back home.
As long as Mazda remains heavily dependent on exports from Japan, its "profit level will remain low," warns Koji Endo, an analyst at Tokyo-based Advanced Research Japan. "As long as they are left behind in profitability, the company will lag behind in competition because of less [research and development] spending and cash flow."
The CX-5 is just the most extreme illustration of Mazda's decision to zig when other Japanese companies are zagging. Five years ago the dollar bought ¥114, meaning the Japanese currency has appreciated more than 40% in that time. That has made it significantly harder for companies like Mazda to export profitably without finding significant new efficiencies or raising prices sharply.
That challenge is particularly hard for Mazda, which makes 70% of its vehicles in Japan and exports 80% of them. Japan's top auto maker by sales, Toyota Motor Corp. makes just 40% of its vehicles at home and exports only about half of those. While Mazda's production plans were set before the yen began its steep climb, the auto maker believes production efficiencies can offset the currency's appreciation.
At the 40-year-old Ujina plant No. 2 here near—Mazda's first to build vehicles fully equipped with Skyactiv Technology under its new manufacturing strategy—the blue body-assembly line bustles with workers installing instrument panels, bumpers and other parts for the CX-5.
"Production lines will look much more different when we get more new models" built under the new methods, says Masamichi Kogai, a Mazda senior managing executive officer. The company currently makes three types of engines on the plant's single line, for example. That will become more efficient when more new Skyactiv-series engines roll out over the next few years, sharing common bolts and bolting methods.
Mazda's focus on domestic production is driven in part by loyalty—some analysts say a stubborn one—to its home economy. Mazda's headquarters is in nearby Fuchu, and the company dominates manufacturing in the area.
The auto industry accounts for more than 20% of the goods manufactured in western Japan's Hiroshima prefecture. Mazda's founding family controls the city's perennially struggling professional baseball team, the Hiroshima Carp, who play at Mazda Zoom Zoom Stadium, which draws its name from a company advertising tag line.
Mazda is hedging its bets to blunt the yen's threat, looking for ways to expand overseas production. The company is building a factory in Mexico to begin operations by March 2014 and plans to start production in Russia this autumn.
But for now, the mainstay of Mazda's planning is at home, spurring an intense focus on finding efficiencies to offset the pinch of an ever-stronger yen.
The CX-5, the first of eight new models to be fully built with Skyactiv Technology, went into full-scale production late last year. The model went on sale in Japan in February and now is being rolled out overseas.
And while U.S. sales of the new CX-5 are still well below those of its competitors, Mazda has been able to compete on price with its rivals. Honda's CR-V, which since May has been built only in the U.S. and Mexico, sells for $22,495. The made-in-Japan CX-5 sells for as low as $20,695.