NEWS ANALYSIS : Ford Gains Foothold in Once-Impenetrable Market
Ford Motor Co.’s plan to boost its stake in troubled Mazda Motor Corp. and assume management control of Japan’s fifth-largest auto maker will give Ford a historic foothold in Japan’s once nearly impenetrable market--and a springboard to reach Asia’s other lucrative markets.
The historic deal--which some analysts regard as virtually the first American takeover of a major Japanese company--could also signal more such U.S.-Japan corporate alliances and takeovers as more and more foreign capital flows into Japan. And the deal comes as President Clinton is preparing to meet with Japanese Prime Minister Ryutaro Hashimoto to toast progress in reducing the imbalance in U.S.-Japan auto trade.
“This is major,” said Bob Neff, executive director of the American Chamber of Commerce in Japan. “For a Japanese company to be acquired by a foreign company is basically unheard-of. It shows that it’s not necessarily impossible for a foreign company to take a big stake in a Japanese company.”
“This is good news for Mazda and good news for the Ford-in-Asia strategy,” said Chikao Masuzawa, an auto analyst for Salomon Bros. in Tokyo. “Ford can . . . go into Asia with less investment.”
Ford announced Friday that it would increase its stake in Mazda to 33.4% with a $480-million investment. Ford expects government approvals of the deal from the United States, Japan and Europe by the end of June.
Analysts call the agreement a wise strategic move for Ford as it positions itself to penetrate the still-largely untapped Southeast Asian auto market. Ford just entered a joint venture to produce pickup trucks in Thailand with Mazda in February, but has a market share of less than 1% in the region. Mazda has only slightly more, at 3%, but it has the sales channels and small-car production expertise considered a prerequisite for success in Southeast Asia.
“They are very nimble. They can develop products very quickly,” Ford Executive Vice President W. Wayne Booker, speaking at a news conference in Dearborn, Mich., said of the Japanese auto maker. “They have a great know-how of what Asian buyers want.”
Ford has held a 24.4% stake in Mazda since 1979, and it has seven members on Mazda’s 39-member board. Yet Ford found it was still barred from critical company decisions and vital strategic and product information at the Japanese company.
“There were certain areas of information we were not allowed for competitive reasons,” Booker said. “With this move . . . we should be able to exchange information completely.”
However, tension was apparent at a Friday news conference in Mazda’s home base of Hiroshima. Ford executive Henry D.G. Wallace, who will take over as Mazda president, spoke in a subdued way while outgoing Mazda President Yoshihiro Wada, who moves to the largely ceremonial post of chairman, sat by looking sullen.
The agreement comes days before Clinton will visit Japan for a meeting with Hashimoto, and hours before the White House released a report on U.S. progress in the Japanese auto market since last year’s contentious auto talks. The report showed that since August, car and car parts shipments to Japan have risen more than 35%, to a total of $3.8 billion.
Japanese Trade Minister Shumpei Tsukahara said Friday that the Ford-Mazda agreement cannot be tied to last June’s U.S.-Japan auto agreement.
But Salomon Bros.’ Masuzawa said the Ministry of Trade and Industry, or MITI, “will be thrilled to hear about this. Now MITI can say there are no trade barriers in the auto industry. This shows they are cooperating.”
Ford’s new role at Mazda is rich in irony. Not so long ago, American car companies were groveling for information, know-how and capital from Japan’s seemingly invincible auto industry. Now, a reinvigorated U.S. auto company is coming to the rescue of a faltering Japanese one.
“In 1989-90, Japan took its management power overseas,” Stanford University researcher Kazuhide Uekusa said on Japan’s NHK television. “Now we are having the reverse phenomenon, with capital coming in from overseas.”
The announcement that a foreigner will assume control of a Japanese company in the auto industry, a symbol of nationalist sentiment in any industrial nation, was stunning.
And J.P. Morgan analyst Jesper Koll said this development is only the “tip of the iceberg.” In an era of weak balance sheets, he predicted, more and more foreign capital will begin to flow into Japan, from the auto industry to the pharmaceutical and chemical industries. Companies will begin to realize that foreign participation has a lot to offer.
“Corporate Japan is in need of capital,” Koll said. “Gaining a foothold and owning a part of Japan Inc. points to a further opening of the Japanese boardroom.”
Mazda, once renowned for its technically superb cars and innovative manufacturing process, has lost huge sums in recent years, sparking rumors last summer that it would have to merge with another company or be purchased to survive.
As Toyota Co., Honda Motor Co. and Nissan Motor Co. moved production overseas in aggressive restructuring strategies designed to protect them against a volatile, ever-stronger yen and Japan’s high labor costs, Mazda foundered. Mazda has cut 4,000 workers from its 30,000-person work force, but it has been reluctant to tamper further with its permanent employment system.
Ford and Mazda have worked closely together since 1969, when they and Nissan formed a joint venture to manufacture automatic transmissions.
For most of this period, information has flowed from Mazda to Ford. Mazda taught Ford how to make compact cars and manage production systems.
But in recent years the information flow has reversed. Many analysts say Ford has in effect been making the difficult management decisions for several years now. They say the latest development reflects Ford’s growing frustration over Mazda’s foot dragging on restructuring.
Television commentators and analysts alike called the deal a turning point for the auto industry.
“In the past there have been lots of cases where our auto industries were fighting against each other,” said one newscaster. “But now we’ve entered an era where cooperation is a matter of survival.”
