Mazda moves into the smart lane with Toyota tech tie-up

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(Asia Today Saturday 5 November 2016)

Mazda moves into the smart lane with Toyota tech tie-up

Chief executive Masamichi Kogai is credited with steering Mazda away from overambitious sales targets. Photo: Reuters

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Published: 4:00 AM, November 5, 2016

TOKYO — When Mazda chief executive Masamichi Kogai appeared last year together with Akio Toyoda, his Toyota counterpart, the technology tie-up they announced seemed to offer the answer to how Japan’s fifth-largest carmaker would survive in the new era of electrification and self-driving vehicles.

Mazda sells 1.5 million vehicles a year but is overshadowed both in size and innovation by Toyota, which in 2015 was the world’s largest carmaker, shifting more than 10 million units, and also a pioneer of both hybrid and fuel-cell technology.

Though the alliance is not backed by capital ties, industry watchers see it as a gateway for the sports-carmaker to join the sprawling Toyota family, which includes Daihatsu, Hino and Subaru-maker Fuji Heavy Industries. This month, Suzuki said it may also explore a similar technology partnership with Toyota.

“It’s give and take. We won’t be swallowed up,” says the 62-year-old Mr Kogai, speaking at the company’s headquarters in Hiroshima. The building survived the United States atomic bombing of 1945 because it was shielded by a mountain. The surrounding area was destroyed.

“If we can make good cars through an all-Japan cooperation, why not join hands?” he says.

In fact, Mr Toyoda himself has conceded Toyota has much to learn from its nimbler rival in terms of slick vehicle design and fuel-saving engines. The Mazda MX-5, a two-seater roadster, was voted both “world car of the year” and “world car design of the year” this year — a rare double accolade.

But Mazda, with its dogged focus on petrol and diesel engines, is an outlier at a time when carmakers are racing to build a better hybrid or electric vehicle to comply with environmental regulations. “We are not Toyota, Nissan or Volkswagen, who need to cover everything,” Mr Kogai explains.

Mazda has learnt hard lessons about overextending itself. In its 96-year history, the company has faced financial troubles thrice, each time after an expansion drive. It bounced back from its first crisis in 1979 — when sales of its rotary engine-powered vehicles collapsed in the wake of the oil shock. It did so with help from Ford, which went on to acquire a third of the Japanese company in 1996 when Mazda was once again facing difficulties.

Mr Kogai, a former engineer who has spent four decades at the carmaker, can still recall a letter from a US consumer in the late 1990s lashing out at Mazda for losing focus. That missive, sent to executives, was a wake-up call.

“We realised that the more we increased vehicle models, car sales dropped and our brand weakened,” Mr Kogai says.

In response, Mazda, guided by Ford, rebooted by specialising in sports cars with a fun-to-drive, Zoom-Zoom slogan (replaced last year with the less jazzy Driving Matters). In later years, Mazda outsourced production of compact cars to Suzuki and, more recently, pick-up trucks to Isuzu, letting it focus on its core business.

The chief executive took up his role in 2013, just as Mazda had returned to profitability after racking up net losses of almost ¥250 billion (S$3.34 billion) in the four years following the global financial crisis. During its third crisis, Ford itself was battling for its survival, and the 36-year alliance with the US carmaker came to an end last year with the sale of its remaining 2 per cent stake.

The steady confidence Mr Kogai possesses today follows an extensive overhaul in which he was heavily involved. This started in 2006, when the Japanese carmaker took a gamble on perfecting its engine and transmission technology. Rivals marched in the opposite direction, developing cars powered by hydrogen and electricity.

“We built the optimum engine that could be fitted into all types of vehicles,” Mr Kogai said. “In the past … it was good for one model, but not for the other.”

The new lightweight engine is part of a collection of fuel-efficient technologies that Mazda calls SkyActiv. With these technologies, Mazda has improved average fuel economy for its cars by about 26 per cent from 2008 levels, and met emissions regulations without turning to electric vehicles or hybrids.

The look of Mazda cars also changed: All designs are now based on traditional Japanese art and aesthetics.

Mr Kogai, known among employees for his down-to-earth manner, is credited with steering Mazda away from overambitious sales targets, but its turnaround could once again be jeopardised by the yen’s stubborn rise.

Mazda’s decision to partner with Toyota will be watched closely by other smaller carmakers. With advances in self-driving technology, the automotive industry is wrestling to block incursions by Google, Apple and other technology rivals. A company the size of Mazda, with a market value of US$9.5 billion (S$13 billion) and annual revenue of US$33 billion, cannot compete alone in artificial intelligence and other new technologies.

Driverless vehicles will threaten the core of what Mazda believes makes its cars attractive. “Our cars are human-centric so people will be driving them,” Mr Kogai says.

“Driving can lift (the) spirits, relieve stress and stimulate the brain … That’s the kind of car that makes sense for Mazda to make, and that’s our role,” he adds with a laugh. “It’s not that we’re a company that hates autonomous driving.”

Toyota already supplies Mazda with hybrid drivetrain technology, but Mr Kogai dismisses speculation it will turn to its partner to develop a hydrogen-powered fuel-cell vehicle. “It’s really not that easy to get access to,” he says.

Both companies have been cagey on what the tie-up entails, with Mr Kogai only revealing a “very long-term” alliance, saying that a joint product is unlikely to be rolled out in the next two years.

Even in the new era, Mr Kogai is convinced Mazda’s engineers will prove its cars are still relevant: “This isn’t the end,” he says. FINANCIAL TIMES