Mazda Motor Corporation

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Mazda Motor Corporation

3-1
Fucho-cho Shinichi
Aki-gun
Hiroshima 735
Japan
(082) 282-1111
Fax: (082) 287-5237
Web site: http://www.mazda.com

Public Company
Incorporated: 1920 as Toyo Cork Kogyo Company
Employees: 26,000
Sales :¥1.84 trillion (1996)
Stock Exchanges: Tokyo Osaka Nagoya
SICs: 3711 Motor Vehicles and Car Bodies

Mazda Motor Corporation is one of Japan’s largest manufacturers of automobiles. As a leader in the small car market, Mazda chose not to follow the example of its chief competitors Honda, Toyota, and Nissan in marketing larger luxury automobiles; rather, the company has achieved its greatest sales from smaller sports cars, particularly a model known in the United States as the Miata. Despite the commercial success of the Miata, however, the company experienced disappointing sales elsewhere in its product line in the early 1990s, a fact that some critics attributed to dull, uninspired product designs. Moreover, an uncertain Asian economy in the late 1990s presented challenges for the Japanese automaker.

Early History

Mazda was organized by Jugiro Matsuda in 1920 as the Toyo Cork Kogyo, or East Sea Cork Manufacturing Company. The small enterprise, located in Hiroshima in southern Japan, was initially involved in the manufacture of cork products. In the mid-1920s, however, it expanded its product line to include several machined products. Reflecting this diversification, Matsuda dropped the word Cork from its name in 1927, and in 1929 the company began production of machine tools. Matsuda believed that the enterprise could only remain successful if it had a truly unique product. To this end, Toyo Kogyo began design work on an unusual three-wheeled truck that proved commercially successful after its introduction in 1931.

The company was also an early supplier of products to a family of closely-linked firms operating under the Sumitomo industrial conglomerate, with whom Toyo Kogyo maintained a close relationship. In 1935 the company began turning out rock drills and gauge blocks, which were of particular interest to Sumitomo, then one of Japan’s largest mining concerns. The company supplied Sumitomo—and other companies involved in the exploitation of resources in Taiwan, Korea, and later Manchuria—with machine tools.

After the seizure of Japanese government by right-wing militarists in the mid-1930s, Toyo Kogyo was drawn into military production. The company produced a variety of products for the Japanese Army, including automotive parts and machinery. The company’s management was placed under government authority after the United States declared war on Japan in 1941. Although an important and capable supplier, Toyo Kogyo was not considered a target for strategic bombing. Its operations remained intact until the last days of the war, although they were somewhat limited by the increasing lack of access to raw materials.

Recovery after World War II

On August 9, 1945 the entire city of Hiroshima was destroyed by an American atomic bomb. Toyo Kogyo was Hiroshima’s largest employer, and while the factory was located far enough from the city center to avoid serious damage, many of Toyo Kogyo’s employees were not. Soldiers who had worked for Toyo Kogyo before the war returned to Hiroshima skeptical as to whether the city and its businesses could be rebuilt. Nevertheless, by December 1945 Toyo Kogyo was back in business, again turning out the three-wheeled trucks that were the core of its business. With a large commercial operation back in business, and a thriving local economy, Hiroshima was quickly rebuilt. Many workers felt a personal debt to Toyo Kogyo for its role in reviving the war-torn city.

During this time, Jugiro Matsuda retired, designating his son, Tsuneji, as his successor. Tsuneji Matsuda proved to be an extremely capable manager, exemplifying many of the qualities that would come to define the company as a whole: patience, diligence, and dedication to quality and efficiency. Early in his tenure, Tsuneji Matsuda became interested in the manufacture of automobiles, which he saw as essential to modern life in Japan. Indeed, with personal incomes increasing in Japan, automobile production had the potential to generate tremendous profit and lift the company to even greater heights.

In 1954, Toyo Kogyo established a technological agreement with Acme Resin that enabled the company to begin using a new shell molding method. After several years of development, Toyo Kogyo established plans for its first mass-produced automobile, the two-door “Mazda” R360 coupe. Matsuda reportedly chose the car’s name for its association with Auda Mazda, the ancient Japanese god of light, as well as for its similarity to the name Matsuda. The R360 made Toyo Kogyo a competitor in the growing consumer automobile market. However, while the company had introduced a viable product, the Mazda lacked one thing: it was not unique.

Production of the Wankel Engine in the 1960s

Matsuda had long known of a virtually abandoned engine technology developed in Germany by the inventor Felix Wankel. Wankel’s pistonless engine worked on a revolutionary principle in which a single triangular rotor circulated around a large combustion chamber with a gear at its axis. The rotor, moving orbitally around the gear, compressed air and fuel on one side, where a spark plug ignited the mixture. This drove the rotor around the axial gear, expelling exhaust fumes while setting up the next face of the rotor for another combustion. As the rotor wound its way around the combustion chamber, the gear at its axis was forced to spin. This gear was attached to a clutch and transmission, and from there to a drive shaft. The Wankel engine offered more than mere novelty; by eliminating the in-out-in-out motion of pistons, the Wankel would operate more smoothly and with better performance than a conventional engine.

While successful in a laboratory, the Wankel engine was overlooked by engine makers because no one believed that it could be accurately machined in mass production. Matsuda, however, had great faith in his company’s machining techniques, and his engineers assured him that such an engine could be built on a massive scale. Matsuda reached an agreement with NSU/Wankel, the German firm that held a patent for the Wankel Engine, and in 1961 he won an exclusive agreement to develop the engine. Design work commenced, but it took several years to develop a suitable model.

In the meantime, Toyo Kogyo introduced a four-door automobile, the Carol 600, in 1962, and the following year the company’s one millionth vehicle rolled off its assembly line. In 1965, Toyo Kogyo produced another new model, the Mazda 800/1000, and completed work on a proving ground at Miyoshi. Also that year, the company established a diesel engine technology agreement with Perkins Services. Branching into the market for light duty trucks, Toyo Kogyo introduced the Mazda Proceed B-series compact pickup truck.

In 1966 the company completed construction of a new passenger car plant at Hiroshima. The following year, this plant began manufacturing the Mazda Cosmo Sports 11 OS automobile, the first Toyo Kogyo vehicle to be powered by a Wankel rotary engine. This model placed Toyo Kogyo in a truly unique position in the market. The rotary-powered engine gave the company an exclusive product that was smooth riding, quiet, and fast. Nothing produced by Toyo Kogyo’s competitors, industry giants Nissan and Toyota, could match it.

Expanding the Product Line and Refining the Wankel Engine

Other introductions to the company’s automobile line during this time included the Mazda 1000/1200; the rotary-powered R100 Mazda Familia Coupe; the RX-2 Capella; the RX-3 Savanna; and the RX-4 Luce. In 1972, Toyo Kogyo completed manufacture of its five millionth vehicle, nearly one million of which had been exported. As worldwide sales increased, Toyo Kogyo set up sales organizations in the United States, Canada, Belgium, West Germany, Australia, and Malaysia.

In 1972 Henry Ford flew to Hiroshima to negotiate a license that would allow the Ford Motor Company to begin building rotary engines. Sure that Toyo Kogyo was onto something unique and profitable, however, Matsuda flatly refused to share the Wankel technology. Subsequently, Matsuda launched a bold worldwide marketing campaign in which the rotary engine was touted as the answer to high fuel prices. Consumers showed strong interest in the Mazda product line. To finance an expansion of production capacity, Toyo Kogyo made a huge public equity offering.

The OPEC oil embargo sent a Shockwave through the world economy in 1973. With petroleum prices skyrocketing, consumer demand for energy efficient automobiles increased dramatically. The Mazda’s highly efficient rotary engine seemed the perfect alternative to conventional piston-engined automobiles.

Company Perspectives:

While the quality and value of our vehicles speak for themselves, a closer look at Mazda as a corporation reveals our global commitment to serving as responsible corporate citizens. In 1992, we adopted the “Mazda Global Environmental Charter.” Since that time we ’ve pioneered research into vehicles using alternative fuel sources like compressed natural gas, hydrogen and electricity, while eliminating the production ofCFCs and the use of asbestos in our cars. We’ve also created new methods for labeling and recycling plastic composites used in auto manufacture. To know Mazda is to know our continuing tradition of creating distinctive vehicles for discerning drivers. A tradition that promises to fuel your passion for the road well into the future.

However, emissions from the rotary engine exceeded clean air standards in California, the company’s largest export market. Adjustments made to clean up the engine came at the expense of fuel economy, which fell to ten miles per gallon. Furthermore, the rotary model was prone to breakdown. Production continued while Toyo Kogyo technicians launched an emergency re-engineering of the Wankel design.

By 1974, amid increasing pressure from the OPEC embargo, Toyo Kogyo managed to stretch the Mazda’s mileage rating to 16 miles per gallon, and then 20. But by this time, Honda, Ford, General Motors and Curtiss-Wright had begun development of stratified charge engines that promised greater efficiency than conventional and rotary engines. Moreover, Nissan and Toyota began an all-out war for market leadership in Japan, squeezing out smaller competitors such as Toyo Kogyo and Suzuki.

As consumer interest in the rotary waned, Toyo Kogyo began searching for ways to keep its factories operating nearer capacity. Matsuda negotiated a deal with Ford in which Toyo Kogyo would manufacture Ford’s Festiva model at its facilities. Strapped for cash, Toyo Kogyo finally agreed to license its rotary technology, to Suzuki, which used the engine for a new motorcycle.

When the oil embargo was lifted, oil prices and consumer interest in fuel-efficient engines declined rapidly. Improvements in the rotary design were finally perfected, giving Toyo Kogyo the efficient, environmentally friendly engine it needed—about two years too late. While U.S. fuel economy regulations kept Toyo Kogyo in the American market, the company had lost two years in fixing the rotary engine, during which time Honda, Ford, and GM had developed their own improved engines, leaving Toyo Kogyo in the middle of a crowded pack.

With nothing other than the rotary engine to distinguish its product line, Toyo Kogyo was forced to quickly develop new models and concentrate on product quality as a competitive factor. The Mazda Familia and Capella 626 were introduced in 1977, followed by the Savanna RX-7 in 1978. By this time Toyo Kogyo had turned out more than ten million vehicles, one million of which were rotary-powered.

Amidst the company’s efforts to recover from the debacles of the 1970s, Tsuneji Matsuda retired, leaving his son Kohei Matsuda in charge. The younger Matsuda initially made great progress in shoring up the company’s balance sheet. However, in the opinion of the Sumitomo interests, which owned most of Toyo Kogyo’s shares and bankrolled its earlier failures, the turnaround wasn’t good enough. Sumitomo Bank officers felt that Kohei Matsuda was not adequately preparing the company for the future, and they disagreed strongly with his plans for restructuring the company, which included a wider product line and greater autonomy from Sumitomo management. Eventually, Matsuda was forced to resign his presidency to Yoshiki Yamasaki, a director favored by Sumitomo. The abdication formally ended the Matsuda dynasty at Toyo Kogyo.

The company enjoyed a jump in sales in 1979, when the Iranian Revolution caused a brief oil crisis. Also helping boost sales was the fact that Toyo Kogyo and other Japanese manufacturers had become known in the United States for the high quality of their products; American cars, by contrast, had become known as poorly designed, carelessly built, and overpriced.

Growing Affiliation with Ford in the 1980s

In 1979 Ford Motor Company began negotiations to acquire a large stake in Toyo Kogyo, hoping to merge it with its own Japanese subsidiary, Ford Industries. The $135 million deal, completed in November, left Ford with a 24.5 percent share of Toyo Kogyo. The merger paved the way for several new joint ventures between Ford and Toyo Kogyo, in which the Japanese company built small cars and trucks under the Ford nameplate and distributed Ford products in Japan.

In 1980, shedding the last of its failures with the rotary engine, Toyo Kogyo settled a class action suit charging design flaws with early models. Also that year, the Mazda FWD Familia was named car of the year in Japan. Unable to match Nissan and Toyota’s large sales staffs, Toyo Kogyo established a string of showrooms across Japan under the name Autorama. Also that year, as it exported its five millionth vehicle, the company set up sales organizations in the United States and Europe. In 1982, Toyo Kogyo established another production plant at Hofu, and in 1983 turned out its 15 millionth vehicle. The following year, Toyo Kogyo formally changed its name to Mazda Motors, reflecting the tremendous popularity of its main product line.

Mazda introduced several new automobiles in 1985,1986, and 1987, including the new versions of the Mazda RX-7 and 626. By 1987 the company had produced 20 million vehicles. Mazda also entered into several joint ventures, including one with Ford and Matsushita for the production of air conditioning systems. Under a second partnership, Mazda manufactured microcars for Suzuki, and under a third, it imported Citroen cars to Japan.

Mazda Motors continued to be led by a committee of Sumitomo bankers, who received input from Ford and Kia Motors, which acquired an eight percent interest in the company in 1983. In 1987, however, Norimasa Furuta, a former official of the Ministry of International Trade and Industry, assumed the presidency of the company.

Under Furuta, Mazda sharpened its focus, developing several new vehicles for specific markets. The Persona and Proceed were developed specifically for the Japanese market, joining the company’s mainstay, the 323 Sedan. The MPV minivan, initially intended for sale only in the United States, was later introduced in Japan. Of the company’s new vehicles, the MX-5 Miata was undoubtedly the most successful. A small sports car reminiscent of the MGB and Triumph Spitfire, the Miata was marketed in the United States, where it found an appreciative market particularly among young, affluent males. In designing the Miata, Mazda engineers borrowed liberally from the British Lotus and Elan, which they admitted disassembling for reference. Miata sales were brisk and did much to revive the reputation of Mazda in the United States.

While Nissan, Toyota, and Honda created luxury car divisions to compete with American Buicks, Lincolns, and Cadillacs, Mazda continued to specialize in smaller cars and trucks. With Ford as its largest shareholder, Mazda found its marketing niche operating informally as a small car subsidiary of Ford. Mazda established an American production facility in the Detroit suburb of Flat Rock, Michigan, employing American union labor. The company also established a massive sales and research organization in the United States, employing thousands of Americans.

Nevertheless, 80 percent of the vehicles Mazda sold in foreign markets were produced in Japan, saddling the company with extra transportation costs and subjecting it to foreign import restrictions, particularly in Europe. In addition, Mazda maintained five separate dealerships in Japan for Mazda, Ford, and Citroén.

Yoshihiro Wada succeeded Furuta as president of Mazda in 1990. Furuta was given a ceremonial position on the board, joining chairman Kenichi Yamamoto, who had headed Toyo Kogyo’s rotary development during the 1960s. As it entered the 1990s, Mazda occupied a unique niche in the market, producing a relatively narrow line of midsize cars and small trucks.

Falling Production in the 1990s

The Miata’s successful introduction in 1989 led Mazda to introduce five new vehicles in the United States, including the 626, in the hopes of becoming a full-line car maker. With at least three-quarters of its parts manufactured in the United States, the 626 was the first Japanese vehicle to be classified as a U.S. car under federal law. Despite these advances, Mazda’s U.S. market share remained low, at between 2.2 percent and 2.6 percent from 1988 to 1993. In 1992 Mazda sold a 50 percent interest in its Flat Rock, Michigan, facility to Ford. The next year, the company laid off 25 percent of its U.S. headquarters work force, bringing Mazda’s America headquarters staff to 400.

The company was not faring any better domestically. Between 1990 and 1996 Mazda’s market share had dropped from 7.6 percent to 4.1 percent. Actual vehicles made and sold had declined also, from a peak of 1.4 million manufactured and 600,000 sold in Japan to 800,000 manufactured and 400,000 sold in 1996. Such a decline meant massive overcapacity in Mazda factories. Still, Mazda refused to combat the shrinkage by laying off employees; instead it used several piecemeal approaches that were only somewhat effective in cutting costs. First, it stopped replacing retirees to reduce head count, then it decreased bonuses and stopped production at its Hofu and Hiroshima factories for a few days each month. According to The Economist in 1996, Mazda had lost its unique edge, which it had hoped to recover with the Miata: “Most of Mazda’s output is dull, fairly mainstream and fairly expensive. There is a market for boring, reliable cars, but customers tend to prefer those produced by bigger names, such as Toyota. Mazda’s one hope of outsmarting bigger car makers is to be nimbler than they are, guessing trends ahead of time.”

Sumitomo Bank had its own idea of how to bolster the company. In 1996, it again exerted its power over Mazda by setting up a cash infusion and, in effect, a takeover by Ford. By putting up $481 million in cash, Ford brought its investment to 33.4 percent of the company, the legal line in Japan for a controlling interest. Soon thereafter, Henry D. G. Wallace, a former Ford executive, became president of Mazda Motor Corp., the first non-Japanese to head a Japanese corporation.

For approximately 20 percent below the market price for Mazda shares, Ford vastly increased its access to Japanese and other southeast Asian markets. It also hoped to integrate Mazda into its global reorganization, Ford 2000, intending to use Mazda’s small-car and engineering expertise to benefit other Ford operations and, at the same time, to create economies of scale for Mazda. However, Ford’s small-car operations in Europe threatened to make Mazda production redundant.

Mazda made some headway in 1997. Sales of its new Demio model proved strong in Japan, and operating profits rose to ¥7.1 billion (US$56 million) in the first half of the year, compared to a ¥12.7 billion operating loss for the same period in 1996. At the end of 1997, Wallace retired from the presidency and was replaced by another former Ford executive, James Miller.

Still, economic turmoil in Southeast Asia in 1997 and 1998 threatened the tenuous turnaround at Mazda. The company had been expanding its operations in southeast Asia in the mid-1990s, hoping to reduce the negative effect of the rising yen on its car prices. In 1993 Mazda had opened another production company in the Philippines, and two years later it began a joint venture with Ford called the Auto Alliance Co. Established in Thailand, the venture aimed to begin production of pickup trucks in 1998. However, plummeting demand in the region and unstable currencies added to Mazda’s struggles in the late 1990s.

Principal Subsidiaries

Mazda Motor Manufacturing (USA) Corp.; Mazda Motors (Deutschland) GmbH.; Mazda Canada, Inc.; Eunos, Inc.; Autozam, Inc.; Mazda Australia Pty. Ltd.; Mazda (North America), Inc.; Mazda Chuhan Co., Ltd.; Kurashiki Kako Company, Ltd.; Mazda Credit Corp.; Mazda Logistic Service Company, Ltd.; Toyo Advanced Technologies Co., Ltd.; Mazda Motor of America, Inc.