Business Maverick

Business Maverick

Mazda needs $1.1 billion to invest in hybrid cars

Mazda needs $1.1 billion to invest in hybrid cars

Japan’s No 4 car manufacturer is about to embark on a new strategy that would see it close the gap on its rivals in energy efficiency as well as reducing its ties with Ford to one of pure investment-level relationship.

As a maker of cars running purely on fossil-fuels (petrol and diesel) and even rarely used Wankel rotary power units, Mazda largely ignored the way of hybrid and electric cars. And it was not without a good reason: since 2002, Mazda’s controlling shareholder was Ford, then second-biggest carmaker in the world (right behind General Motors – remember them?) who already invested huge resources in breaking into the hybrid market, and was less than a heartbeat away once the technology was commercially ready.

But the global downturn exposed the car industry’s gaping weaknesses worldwide, and nowhere more so than in the US.  So in 2008 suddenly cash-strapped Ford, in a move approaching desperation, sold 20% of its 33.4% shareholding for a fire-sale price of $538 million. The move was not good for either Mazda OR Ford. (Their R&D departments alone were saving hundreds of millions of dollars.) But one of the biggest victims of the development was Mazda; it was automatically starved of Ford’s research into energy-efficient systems. And as the  hybrids, led by the Toyota Prius, managed to pass the novelty stage and cross into the mainstream, Mazda found itself dangerously exposed. As a result it is now forced to do the development itself. And that costs money.

So Mazda is now in the market for $1.1 billion. It expects to further lower Ford’s voting stake to 11% and spend most of the money to raise its cars’ fuel economy by 30% by 2015 mainly by improving its internal combustion engines and then gradually adding hybrid systems to meet new stricter regulations. The good news for Mazda is that the investing activity in Japan is surging and that, unlike any other big local manufacturers, Mazda will not lose any serious money this year. The bad news may come in the years to come. It is almost impossible to predict the market dynamics in the next decade as well as what new technologies will emerge; that could possibly obliterate anything that is on the market right now. Pundits predict Mazda will have no problems raising the cash it needs. But it is obvious right now, albeit with the precious benefit of a hindsight, that Ford should have stayed with its Japanese match. Given time, some marriages really do work.

Read more: The Globe and Mail, The Wall Street Journal Asia

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