HIROSHIMA – For many in Japan, the summer of 2002 will not be remembered fondly – economic stagnation, near-record unemployment, political gridlock and the worst heat wave in three quarters of a century.
But much ofMotor Corp. President Lewis Booth’s first Japanese summer was spent in the spacious executive suite of the auto maker’s air conditioned headquarters here. His focus was not on big-picture issues such as the country’s dreary economic and political situation, but on details of the next round of new vehicle launches, including the compact Demio wagon that made its home-market debut in August.
Booth, soon 55, also spent considerable time getting to know his new management team, only having arrived in March and assuming CEO duties in June. Although it had been common knowledge he would succeed upward-moving Mark Fields, now president ofMotor Co.’s Premier Automotive Group, Booth’s ascension hadn’t been expected so soon. But a deteriorating business environment at Ford, ’s largest shareholder, dictated the earlier timetable.
What sort of CEO Booth will be and how well he’ll fit into Mazda’s traditional, though changing corporate culture remains to be seen. At first glance, the Liverpool native has a more subdued and understated style than his younger, flashier predecessor, who only grudgingly was given credit for many of the administrative and organizational reforms that led to last year’s larger-than-expected profits: ¥8.8 billion ($73.3 million) net and ¥28.5 billion ($237.5 million) from operations.
Beyond that, there are more similarities than differences. Like Fields (a Harvard MBA), Booth brings strong financial credentials to the job, having qualified as a chartered management accountant after graduating with honors in mechanical engineering from Liverpool University. And both executives are results-oriented. In this case, Booth must complete the job begun by Fields two years ago when the younger American rolled out Mazda’s “Millennium” restructuring plan.
In an exclusive interview with Ward’s, Mazda’s new CEO says his first priority “is to deliver on the Millennium plan. Although we did some difficult things over the past two years, there remains much to do. Mazda is still a recovering company.”
Key elements of the restructuring plan announced in November 2000 and scheduled for completion in spring 2005 (end of fiscal 2004) include:
- Reducing currency exposure by expanding production outside Japan, widely regarded as the biggest failure of the first phase of the -led restructuring that emphasized better financial management. Plans are to scale back domestic capacity by nearly one-fourth to a reported 900,000 units.
- Cutting the net debt-to-equity ratio in half from about 265%, while boosting return on sales to 3% and return on assets to 6%.
- Overhauling the product lineup with the introduction of 15 new and significantly freshened models (16 including the Ford-built Tribute SUV), supported by a 30% increase in product spending during the period.
- Bolstering sales and distribution operations in Europe, North America and Japan.
- Slashing component costs by 15% through joint work with Ford in platform-sharing, procurement and advanced technology development, while aggressively pursuing internal programs to raise productivity and quality.
Booth, who spent most of his career at Ford of Europe in jobs ranging from finance and product development to manufacturing and sales, notes that Mazda continues to make steady progress toward realizing its goals.
With the start of European and American production of the Mazda2 and Mazda6 (sold in Japan as the Demio and Atenza), the auto maker’s overseas production share is projected to rise to 35%, from less than 20% today. The Mazda6 is in production at AutoAlliance International Inc. in Flat Rock, MI. The Mazda2, along with a 5-door version of the 323, will be built at Ford’s Valencia, Spain, plant.
When all new models come on stream, Mazda expects to more than double overseas production to an estimated 275,000 units, including Ford-built Tributes made in Kansas City, MO.
In addition, industry analysts claim that Mazda’s net debt-to-equity ratio is on target to reach 150%, only slightly behind Millennium plan targets. And thanks to positive cash flow since 1994, when the first wave of Ford management support arrived here, analysts say net debt should fall to below ¥360 billion ($3 billion), down 30% from 2000 levels.
They are less confident about the auto maker’s ability to achieve planned returns on sales and assets, currently stuck at 0.4% and 1%, respectively.
“Much will depend on factors largely beyond Mazda’s control such as currency rates, incentive spending in North America and acceptance of the new product lineup,” says Steve Usher of J.P. Morgan Securities Asia.
And on the product front, following the successful launches of the Atenza and Demio in Japan and Mazda6 in Europe, the company is set to introduce the Mazda6 this year in the U.S. and the Mazda2 in Europe early next year.
Then from spring, in a phased launch in Japan, North America and Europe, Mazda will showcase the much-anticipated RX-8. That will be followed by the “C” replacement for the Familia and Protege. All of these actions are to be completed by the end of summer 2003, a total of 15 months from the mid-May launch of the Atenza.
Meanwhile, due to the Atenza’s unexpected popularity and capacity shortages at the Hofu plant where the model is built, management decided to reopen the Ujina No.2 plant in Hiroshima, closed last September (2001) to meet Millennium plan objectives to cut plant capacity in Japan.
|Mazda is counting on RX-8 to boost image with U.S. car buyers|
Booth, who grew up in an auto family, his father the owner of a large U.K. dealership, admits that “response to the Atenza has been a pleasant surprise. My only regret is that some customers have had to wait longer than they had hoped to get their cars.”
Looking at Mazda’s global sales operation, he notes that the company now controls 80% of its European distribution network (double the level of two years ago), which should facilitate “pan-European” marketing and more “hands-on” support to dealers.
In Japan, the auto maker’s dealer base, reorganized in recent years, turned an operating profit in fiscal 2001 despite having no new models.
The next test: the U.S. market, historically one of the best barometers of Mazda business. The auto maker has had a “love-hate” relationship with the American consumer dating back to the early 1970s when it successfully introduced a broad lineup of rotary-powered cars only to see sales and profits crash a few years later in the wake of the Arab oil embargo and pressures to meet federal fuel economy regulations. The marque has had an up-and-down existence ever since.
“Mazda has always had attractive cars and never quite figured out how to sell them, particularly in the U.S.,” says Freedonia Group analyst Lance Ealey, who adds: “Part of the problem has been a lack of commitment by Ford to sell other companies’ products. To ignite Mazda sales in the U.S. market would probably require a sea change in attitudes throughout the Ford organization, extending far into its dealer body.”
Booth remains optimistic, though non-committal when it comes to a timetable for meeting market share targets of 3% in North America, 3% in Western Europe and 7% in Japan on global sales of more than 1.2 million units. In fiscal 2001, Mazda sold 948,000 cars and trucks worldwide including a 28-year low of 288,000 in Japan, where it had a 4.6% share of the market. Penetration in the U.S. was 1.6%, and it was a paltry 0.9% in Europe.
He notes that the “zoom-zoom” advertising campaign is having a positive effect in changing consumer attitudes even in the hypercritical domestic market. “And ‘zoom-zoom’ is not just an external campaign,” says Booth. “It is powerful internally. People feel they can understand it.”
On the cost side, Mazda now hopes to cut its component bill over the 4-year, Millennium period by 30% (from its earlier 15% target) through expanded use of modules and common components with Ford. If realized, this would translate into cumulative savings of nearly ¥300 billion ($2.5 billion) based on estimates made by analysts in November 2000.
“We have no choice,” warns Fumiaki Inami, Mazda managing executive officer in charge of product strategy and cost innovation. “All of our competitors are doing the same thing.”
Beyond Millennium plan targets, Booth declares that Mazda “will not be all things to all men. Nor,” he assures, “will we be ‘badge engineers’ for Ford. Thus, every product Mazda launches must be true to the brand. When you look at it, touch it and drive it, you will know that it’s a Mazda.”
What this means in terms of product strategy is that while there will be a rotary-powered RX-8 next year, it does not follow there will be a derivative of that model, although some in Mazda’s product-planning group clearly have visions of a future rotary lineup. It also does not follow that there will be a remodeled Millenia sedan, at least one built by Mazda. (see related story: Stepping Out: Mazda Marketing Chief Talks About Selling Cars)
Booth warns that it is critical for Mazda to maintain focus and not undertake more than it can do well.
“As for the RX-8,” he says, “we are still in the middle of preparations for Job One and have various signoff tests to complete. It is still premature to talk about the future.” That said, he expects the RX-8 – and U.S.-built Mazda6 – to boost Mazda’s image in the competitive U.S. market.
In the area of financial management, Mazda will continue to focus on cash flow and currency exposure. “Cash flow is critical to work down our debt and restore our debt-equity ratio to desired levels,” says Booth. “And we must continue to lessen our currency exposure to reduce the out-of balance conditions between yen costs and other revenues. The one thing you can’t guarantee is stability in the currency markets.”
And those “out-of-balance conditions” contributed to a ¥14.9 billion ($124 million) operating loss in fiscal 2000. Net loss, due mainly to a special write-off for the company’s pension fund, ballooned to ¥155.2 billion ($1.3 billion). Analysts note that unfavorable dollar and euro rates accounted for more than one-third of the record deficit and, over the 2-year period from April 1999, an estimated ¥132.5 billion ($1.1 billion) in reduced earnings.
Mazda reorganized its management structure in June, substantially shrinking its board of directors and creating a new executive officer structure. Key figures, besides Booth and Mazda Chairman Kazuhide Watanabe, are executive vice president Hisakazu Imaki, whose duties have been expanded to include research and development, manufacturing and quality assurance; and Robert Shanks, senior managing executive officer and chief financial officer. Shanks, who arrived in Japan in 1996, is now the longest-tenured Ford transplant.
The next tier includes Mutsumi Fujiwara (purchasing), Ryoichi Hasegawa (information technology, e-business and legal affairs), Kei Kado (personnel and human resource development), David Thomas (global marketing, sales and customer service) and Takashi Yamanouchi (advanced technology and quality assurance), all senior managing executive officers. Below them are 25 managing executive and executive officers overseeing such operations as cost-planning, corporate benchmarking, design and product development, manufacturing, financial services, domestic sales, and North American and European operations.
And by the end of this year, Mazda will form a management advisory committee consisting of as many as four outside executives from different industries to give the auto maker a bigger-picture look.
Booth, who ran Ford’s South African operation between 1997 and 2000, has made it a priority to groom his successor from within. “I want to make sure that when I move on there is at least one Japanese candidate who can be considered for the job. I am not promising the person will get the job, but my obligation is to prepare someone for the challenge,” he says.
The executive won’t commit as to whether there will be a gradual reduction of Ford manpower in Hiroshima. “I am not dogmatic concerning use of Ford ‛dispatchees.’ At the same time, I believe in developing local talent wherever we work, whether in Japan, Europe or Australia.”
As for Mazda’s future?
“We’ve improved our business structure and started earning money again,” says Booth. “This is the year we said we’re going to grow the business, and we’ve seen some early positive signs. But we still have overhanging debt and have not completed the changeover of our products.
Although we still have much work to do, I know we’re on the right course. And we now have momentum.”