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Mazda Motor's Booth needs to boost demand for Mazda6

Monday, May 12, 2003

By Lindsay Whipp / Bloomberg News

TOKYO -- Mazda Motor Corp. President Lewis Booth's goal of increasing U.S. sales by 8.4 percent this year may be hard to achieve unless he can spur sales of the Mazda6 the automaker released in December, some investors said.

Mazda, which today said profit for its fiscal year tripled to 24 billion yen ($205 million), will temporarily halt production at the U.S. plant it jointly owns with largest shareholder Ford Motor Co. to reduce inventories of the model. Some investors said the company misjudged the U.S. market by releasing a 2.3-liter version as well as a more powerful 3-liter model.

Mazda, a third-owned by Ford Motor Co., needs the new sedan to be a success in the U.S., the world's biggest auto market, to continue its recovery from a record loss two years ago. Japan's fifth-biggest automaker faces competition from rivals like Nissan Motor Co., which will introduce its Maxima sedan this year.

"Mazda should know the U.S. market by now and they can't afford to slip up like that," said Akihide Kinugawa, who helps manage the equivalent of $166 million at T&D Asset Management Co., including Mazda shares.

Sales fell 6.7 percent in the U.S. this year, leaving it with inventories to last 117 days at the beginning of May, compared with an industry average of 60 days, increasing costs for the company. The company said today it wants to reduce inventories to 80 days or less, without giving a timetable.

Disappointing Sales

Booth, who joined Mazda in June last year, is counting on demand for the Mazda6 and the RX-8 sports car being released later this year to drive sales in the U.S. and help deliver the 24 percent gain in profit the company is forecasting. Mazda cut its workforce by a fifth and reduced capacity in Japan to become more efficient, after recording a 155 billion yen loss in 2001.

Booth said in an interview last month Mazda6 sales disappointed because leasing prices for the 2.3-liter version were more than for Toyota Motor Corp.'s Camry. The company also released the new model into a market where incentives were peaking.

Mazda's group net income doubled to 18.5 billion yen in the six months to March 31, on sales of 1.21 trillion yen. Sales for the full year rose 13 percent to 2.36 trillion yen. Profit rose for the year as the automaker made gains from cost cuts, a weaker yen against the euro and the introduction of the Atenza/Mazda6 in Japan and Europe.

The company's shares, which have slumped 40 percent in the past year, closed up 3.6 percent at 229 yen in Tokyo. Mazda's 1.9 percent bonds due March 2005 rose 0.072 points to 100.361 per 100 yen face amount to yield 1.695 percent. The yield has fallen about 1.2 percentage points since January.

Shrinking Market

Mazda relies on the U.S. market, which may shrink this year to about 16 million units from 16.8 million in 2002, for more than a third of its sales. It has a 1.4 percent market share in the U.S. giving it less leverage in the market to lower incentives, which reduce profitability.

"The overall (U.S.) market isn't looking too good at the moment and so raising sales in that market will be difficult," said Norihito Kanai, who helps manage the equivalent of $2.5 billion at Meiji Dresdner Asset Management Co. "The company's brand power is still weak and Nissan's releasing all those models this year."

Mazda said last week it plans to keep incentives below the $2,000 per vehicle average of 2002 because of its new model releases this year. The company's average incentive level was $1,800 in March.

Reducing Debt

New models are important for the maker of Miata sports cars after the carmaker went more than 2 years without any releases in the U.S., hurting its brand, while it reorganized its finances and reduced debt to return to profit.

Mazda has net debt, or gross debt minus cash, of 404 billion yen, and reduced borrowings by nearly two-thirds the past seven years. The company plans to cut its net debt to 50 percent of shareholders' equity by March 2005 from 208 percent.

"Whilst remaining acutely aware of the need to pay down our debt, our number one priority is to have great products," Booth said in an interview. "We have to keep a competitive product line to generate the revenue to help us pay down debt."

Mazda said in April it may sell bonds or borrow from banks to help fund research and development.

The maker of MPV minivans plans to increase research and development spending 3.6 percent to 91 billion yen this year. Mazda targets spending between 4 percent and 4.5 percent of sales on research, Booth said last month. In the year just ended research spending was 3.7 percent of revenue, which was 2.36 trillion yen in the year just ended.

Sharing Platforms

Working more closely with its biggest shareholder Ford will help lower costs, industry watchers said. Mazda has said it will share about 70 percent of its platforms by volume with Ford and its group companies by March 2005.

"The worst place to be in an industry is when you don't have economies of scale but you're competing in a mass market," said Graeme Maxton, managing director at auto con******t Autopolis.

Ford and Mazda share car platforms on the Escape/Tribute sport-utility vehicles and the Fiesta/Demio compacts. Ford plans to use Mazda6 technology on a new family of Futura sedans. The company's revamped Familia will also share as much as 50 percent of parts with Ford and Volvo models, which may be used on as many as 1 million vehicles globally.

"I'm being pretty ruthless about looking for investment efficiencies," Mazda's Booth said. "It's about huge attention to detail, how many common parts you can use, are we reusing our facilities and equipment."

For now investors are focusing on how fast Mazda can reduce its inventories in the U.S. to match the success of the car in Europe where the model helped the company increase sales 11 percent in 2002. Mazda has reduced U.S. inventories from 125 days in April to 117 days.

"This is the point investors will be watching," Kinugawa said. "It's a shame, as it's eating into the success they're showing in Europe."

My first car was a 67 Mustang Coupe, 2nd one was a 67 Cougar XR-7, 3rd one was a 66 Mustang Coupe. Why did I get rid of these cars for ? I know why, because I'm stupid, stupid, stupid.

My next Ford.....
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