Tight Tether for Mazda

HIROSHIMA - To the surprise of many inside and outside Japan, Mazda Motor Corp. is struggling with management problems.

The easy start and seemingly smooth ride since Ford Motor Co.'s May 1996 acquisition of a controlling 33.4% stake in the Japanese auto company was shaken in December by the sudden resignation of Mazda President Jim Miller, just two years into his five-year posting, and the appointment of 38-year-old "whiz kid" Mark Fields as his successor.

Officially, Mr. Miller left for health reasons. Unofficially, he had upset Mazda's union, suppliers and, more importantly, the Sumitomo Bank, the automaker's second-largest shareholder. His marching orders, coming direct from Dearborn, have exposed internal divisions over the future direction of Mazda and questionable management practices - this time by Ford.

Those include Ford's involvement in Mazda's new Tribute small sport/utility vehicle (SUV) on sale this autumn. Insiders claim Mazda could have launched the Tribute - engineered mainly in Hiroshima - as early as 1998, but was forced to delay production to give Ford time to tool up for its own version, the Escape.

Analysts now question the wisdom of that decision, pointing out that a new Toyota RAV4 and Honda CR-V are coming. "The segment has become very competitive," says Howard Smith of ING Baring Securities (Japan). "Had the launch been two years, even one year earlier, it would have helped.

"The Tribute is basically the Escape," Mr. Smith adds. "They are the same car." Unstated, is that "they" will be perceived more as a Ford - not a Mazda - in the eyes of many consumers. (see p.70)

Ironically, Mazda had a compact SUV ready to go in 1996, but that was killed - with good cause - by Ford's management team in Hiroshima because Mazda was hemorrhaging at the time. Critics argue that delaying the Tribute's launch is more difficult to justify.

Last year, Mazda engineers were forced to swallow another bitter pill when ordered to use Ford's Duratec V-6 for the revamped MPV minivan. Although adequate, the engine pales in performance compared to the Honda Odyssey and Toyota Sienna V-6s.

Ford also is pressuring Mazda to switch to global - i.e. Ford - suppliers to lower costs. Mazda's Japanese management is wary of this approach, because the Japanese market is driven more by technology and perceived quality than cost.

The appointment of Mark Fields, a virtual unknown in the Ford organization, brings to the surface another problem - perceived fairness. The mid-December announcement was received by Mazda's Japanese staff with stoicism. But regardless of Mr. Fields' talents, which appear to be many, the message from Dearborn was painfully clear - none of Mazda's senior Japanese executives are qualified to serve as president, and Ford doesn't think Mazda needs a seasoned executive to run operations.

More problematic are the policy implications of a revolving-door approach to management, which is destabilizing Mazda as it attempts to stake out an identity in Ford's global empire.

Henry Wallace's sudden departure in November 1997, coming just 17 months into his presidency, created a vacuum that was filled quickly by Mr. Miller, a smooth-talking 25-year Ford veteran who arrived in Hiroshima via Europe, New Zealand and South Africa.

But with Mr. Miller's short two-year stint and the recent shuffling of product development chief Martin Leach to Ford of Europe after just three years in Hiroshima, critics both inside and outside now question whether Ford is looking out for Mazda or just Ford.

One longtime observer warns: "Mazda's now headed down the slippery slope toward mediocrity, somewhere between Hyundai and Honda or Fiat and Volkswagen. The company is being starved. If Ford doesn't let up and stop pressuring Mazda to compete on price, rather than on value, it (Mazda) will become as moribund as Chevrolet."

Of the original Ford team that arrived in 1994, none are left. The last to go, Chief Financial Officer Gary Hexter, resigned in late May. Some thought he should have replaced Mr. Miller. But analysts noted that Mr. Hexter's strength was cash-flow management and finance - not product. And product is what Mazda needs today.

"There is nothing in the pipeline," warns Koji Endo of Schroder Securities (Japan) Ltd. "Besides the Tribute and the Titan truck, there is nothing on tap. The outlook is not very good."

Against this backdrop, Ford has been good medicine for Mazda. The arrival of Messrs. Wallace and Hexter in early 1994 has helped resurrect Mazda. Global production is climbing, and Mazda has gained a couple of market share points in Japan. Only a sharp rise of the yen kept Mazda from registering record operating and pre-tax profits this year.

"Without Ford's commitment," says Merrill Lynch Japan analyst Takaki Nakanishi, "Mazda wouldn't find itself in its current situation - with a chance to make a profit this year. It is because of Ford that Mazda has hope. On balance, I think they're headed in the right direction."