HIROSHIMA – Confident and focused as he strode to center stage, Mark Fields made one of the most important presentations in his still-young career back in November 2000.

Taking his cues from a teleprompter, the articulate executive, a natural public speaker, spent the next two hours outlining to a packed room of reporters and analysts the main points of Mazda’s “Millennium” restructuring plan.

The scene, which took place at a leading Tokyo convention center, was vaguely reminiscent of the Nissan (Motor Co. Ltd.) Revival Plan announcement the previous autumn but with little of the electricity in the room and a noticeably smaller crowd.

Still, it was a significant moment for Mazda, the culmination of nearly seven years of preparation and hard work including one false start.

Key financial objectives of the plan included a 3% return on sales, 6% return on assets and 50% net debt-to-equity ratio. All were achieved two years ahead of schedule, as Mazda set – and met – numerical targets to cut another 1,800 jobs, already down 6,000 from peak levels; reduce subsidiary companies by 50% to fewer than 100; slash procurement and related costs 25%, resulting in more than $1 billion in estimated savings; and continue to restructure and shrink its dealer body, weeding out or merging inefficient operations.

Fields also announced Mazda would introduce 36 new models, more than half overseas derivatives, on four new platforms. Not mentioned was that Mazda’s existing lineup, including traditional mainstays such as the Capella and Familia (sold overseas as the 626 and Protege), would be phased out of production.

And though not yet ready to make a formal announcement, the auto maker would move shortly after to quit the luxury segment, dropping the Millenia sedan from its lineup and, with the RX-8 on the way 18 months later, retire the storied RX-7.

The lineup overhaul began with the May 2002 launch of the Atenza (Mazda6 outside Japan), followed by the Demio (Mazda2) in August 2002, the RX-8 in April 2003, the Axela (Mazda3) in October 2003, and the MX-5 (formerly the Miata and sold in Japan as the Roadster) in August 2005.

From the Atenza/Mazda6 platform, controlling stakeholder Ford Motor Co. developed a series of models, including the Fusion sedan and upcoming Edge cross/utility vehicle, both for the U.S. market, and the Galaxy, Focus, C-Max and soon-to-be-introduced new Mondeo for Europe.

From the Mazda6 and Mazda5 platforms, Mazda created the CX-7 CUV, which is scheduled to hit North American showrooms this month. The CX-9, a larger CUV built on a modified and stretched version of the Mazda6/Atenza platform is due out early next year.

Meanwhile, Mazda used the Mazda2/Demio platform to develop the compact Verisa wagon, taking a super-quick 12 months to complete, and the Mazda 3/Axela platform to spawn the Mazda5, which sells in Japan as the Premacy.

From the new sports-car platform came the MX-5. And while nothing has been decided yet, there is considerable speculation a future RX-8 or even fourth-generation RX-7 also could emerge from this platform.

Seita Kanai, program manager for the Mazda6/Atenza, says the company brought together some 25 brand attributes ranging from steering and handling to braking and NVH (noise, vibration and harshness) to develop the Mazda6 that has served as the basis for so many products at Mazda and Ford.

Management also delayed the launch of the vehicle nearly a year to “get it just right,” as Fields said at the time.

“Before developing our ‘Zoom-Zoom’ brand strategy, we lacked consistency,” Kanai says. “With every model since the Mazda6, we have applied these attributes which, taken as a whole, focus on vehicle dynamics.”

Kanai, who joins Mazda’s board of directors in June, would not name the auto maker’s chief benchmark from a performance and handling standpoint. Others in the auto maker’s research group are less reticent: it’s BMW AG. And they apparently have a timetable to catch their rival.

Meanwhile, the Millennium plan more clearly defined Mazda's future working relationship with Ford in such areas as platform-sharing, powertrain development and parts procurement. Joint initiatives included:

Most major targets were met. And those that were not – such as the goal of reclaiming lost share in the Japanese market – were conscious decisions by management. Mazda now can operate profitably at ¥95:$1 and at domestic production volumes of 700,000 units, 20% below last year’s total, and has decided not to drop prices for the sake of boosting sales volumes.

  • 1Production of a new, largely Mazda-developed 4-cyl. engine series to be produced at four manufacturing sites around the world, including Hiroshima. At capacity, the companies can produce more than 2 million units annually. Displacements range from 1.7L to 2.3L for the engines that are used in the Mazda3, MX-5, Mazda5, Mazda6, Tribute and B-Series pickup. A 2.3L direct-injection turbo version is installed in the Mazdaspeed6 and CX-7. Ford employs a 2.3L version of the 4-cyl. family in its Ford Focus, Escape, Ranger and Fusion and Mercury Milan and Mariner.
  • A coordinated launch of several new models at the auto makers’ joint venture assembly plants in Flat Rock, MI, and Rayong province, Thailand.
  • Establishment of a European production base at Ford’s Valencia, Spain, plant in early 2003. First off the line was the Demio, sold in Europe as the Mazda2.

In fact, Gideon Wolthers, who formally will step down as chief financial officer at Mazda’s June shareholders meeting, has been insistent since arriving in Japan five years ago, adhering to the policy of predecessors Gary Hextar and current Ford controller for North America Robert Shanks, that the focus remain on “improving product mix and reducing marketing incentives.”

Leaving one major outstanding issue for management to address: Mazda is still too dependent on Japanese production.

Efforts to piggyback on Ford operations in Europe and North America have not solved the problem, as Mazda still exports 70% of cars built in Japan. That is a significantly larger percentage than Toyota Motor Corp., Nissan and Honda Motor Co. Ltd., all of which have expanded their overseas production bases during the past 10 years.

In 2005, for example, Ford’s Valencia plant turned out just 36,000 cars for the auto maker, less than 15% of European sales. Similarly, only one out of four cars built at Mazda’s joint venture with Ford in Flat Rock (just 71,450 units last year), are Mazdas. Tribute sales in the U.S. and Canada, all coming from Ford’s Kansas City plant, fell to a 5-year low of 42,000 last year.

The net result: less than 40% of Mazda sales in North America are built there.

Takaki Nakanishi, an auto analyst at JP Morgan Securities Asia in Tokyo, warns exchange rates “could be a drag on profitability again.”

“Frankly, Mazda has been lucky,” he says. “If the yen had risen to ¥100:$1 levels (slightly higher than in fiscal 2000 when the auto maker reported a ¥14.9 billion [$133.9 million] operating loss), last year’s profit would have been halved.”

Thus, Mazda finds itself in a quandary. The company needs to build up its overseas manufacturing base, particularly in North America where the Mazda3, its best-selling model, must compete with the U.S.-built – and exchange-rate immune – Toyota Corolla and Honda Civic.

Analysts fear Mazda might be forced to compromise again on its product needs as Ford attempts to resolve new issues involving its own global strategy – specifically, how to mitigate the effect of closing 14 North American plants and laying off as many as 30,000 employees over the next six years.

From Ford’s perspective, it might make sense if Mazda could build the Mazda3 at one of the U.S. or Canadian plants targeted for closure. After all, Mazda is on track to import and sell more than 100,000 units this year, generally the threshold needed to approve a major investment in a new assembly plant or line.

But from Mazda’s perspective, the last thing it needs is to try to manage a second line where United Auto Workers work rules are in effect and where it must deal with legacy costs and other factors its Japanese rivals – Toyota, Honda and Nissan, in particular – have been able to avoid.

The perception in Japan, rightly or wrongly, is that Mazda’s unionized Flat Rock JV has put the company at a competitive disadvantage. This issue is considered especially problematic on the quality front, where Mazda consistently ranks near the bottom in JD Power & Associates’ Initial Quality Study.

Mazda confirms it has looked at the potential for building the Mazda3 in North America but won’t comment on where, when, how or if.

Kanai, ever the realist, says Mazda is “not big enough” to have a truly global operation.

“Sometimes we must make accommodations,” he says.

At times that means compromises made at the behest of Ford.

“Unfortunately, Mazda can’t say no to Ford and occasionally has to do things that are contradictory to its best business interests,” says JP Morgan’s Nakanishi.

Meanwhile, Mazda, partly because of the Ford relationship, is handicapped in introducing many of the industry’s latest technologies – including continuously variable transmissions, hybrids, electronic torque-management systems and safety systems.

In most instances, it must subordinate its own marketing strategy to Ford’s. And with the exception of hybrids, Ford trails Mazda’s leading Japanese competitors.

Ron Leicht, who’s been away from Mazda for nearly seven years, dismisses such concerns, however.

“What Mazda does best is the total package,” he says. “Fact is, they don’t necessarily do any one thing best – highest performance engines, most modern transmissions, whatever. But when they put the package together, the sum of the parts exceeds the whole and results in a car that feels just right.”

Developing cars that feel just right currently is the job of Akira Marumoto, executive officer-product planning and program management.

Marumoto, the youngest executive to rise through the auto maker’s 4,000-strong R&D organization, is focused on expanding the flexibility of Mazda’s four platforms in hopes of tailoring products for each major region where Mazda sells cars.

By next spring, Marumoto’s group will have completed a 3-year program to bring 16 new models to market in North America, Europe and Asia, including Japan.

Likely to be included in this first follow-up to the Millennium plan (a second 3-year business plan called “Mazda Momentum”) will be a new B platform, as Mazda expands its development role within the Ford group including Volvo Car.

With Mazda delivering two key platforms (B and CD), plus the platform for the Tribute/Escape, Ford is looking for a substantial payback, as these segments currently account for about 1 million units in annual sales.

With the current volume expectations for the new B platform in Asia, that number easily could go higher.

Mazda’s immediate focus “is on enhancing quality and performance attributes – specifically, on improving chassis and powertrain performance in line with new, more stringent emission and safety standards in major world markets,” Marumoto says. “Shortening development time is not a priority.”

With the Verisa launch in June 2004, Mazda succeeded in shortening development time to a super-quick 12 months. And thanks to a nearly $500 million investment in 3-dimensional computer-aided design and simulated manufacturing systems over the past decade, the auto maker now is believed to be able to develop a derivative model – from styling approval to production – in 10 months or less. That matches the fastest levels in Japan.

When the original Ford team arrived in early 1994, there was not even a structure in place for team members to communicate with their Japanese counterparts.

“The first step put in place was a communication structure so that documents could be translated,” recalls Ross Witschonke, part of the Ford contingent sent to rescue Mazda more than a decade ago. “We then had to build a foundation of trust so that we might work together and help grow the business. This all took place before Mark (Fields), Phil (Martens), Martin (Leach) and Lewis (Booth) arrived.”

Fields and Lewis ultimately took their turns running Mazda, and Martens and Leach headed up product development at different times.

“We changed our corporate culture by putting greater emphasis on such things as cash-flow management and efficiency,” current President and CEO Hisakazu Imaki says. “In effect, we found a way for East to meet West.

“As long as we stick with our brand, which is fun-to-drive cars, I believe our future is bright. But we must stay nimble and lean – which means we must continue to pursue synergies with Ford.”

An unintended consequence is what one Tokyo analyst calls the “Mazda School.”

Henry D.G. Wallace, leader of that 1994 Ford management team and one of the earliest graduates of the Mazda School, rose to group vice president and CFO at Ford before retiring four years ago.

Three of Ford’s most senior executives today – Fields, Booth and Shanks – all saw their careers take off after spending several years in Hiroshima. Fields and Booth are both executive vice presidents. Shanks, one rank below, reports directly to Fields, president-The Americas.

Time will tell whether lessons learned in helping Mazda restructure its business will help Ford discover its own way forward.