January 27, 2016 6:54 am JST
US automakers

Ford says long goodbye to Japan, ditching Mazda for China

TAKASHI SUGIMOTO, Nikkei staff writer

TOKYO -- Having to choose between Japan and China, Ford Motor picked the latter in hopes of resolving its excessive dependence on the U.S. market.

     The American automaker said it will withdraw from the Japanese market by the end of 2016, concluding a decades-long journey shared in part with local automaker Mazda Motor.

     Ford CEO Mark Fields said last year in Detroit that though relations with Mazda had not ended, they were very different from when he was in Hiroshima, adding that no new collaborations were on the table. Fields was once president of the Hiroshima-based carmaker, leading efforts to rebuild it after Japan's economic bubble burst.

Nearly a century-long history

Ford entered the Japanese market in the 1920s, before other automakers. The war disrupted its expansion efforts in Japan, but the company returned to the market when Japan's economic growth became notable in the 1960s.

     At that time, Ford trailed rivals such as General Motors and Chrysler. But Chairman Henry Ford II had a secret strategy to partner with Mazda, then a newer automaker. The partnership begun in 1970 reached a milestone when Ford took a 25% stake in Mazda in 1979. Since then, the duo has run a "three-legged race" together.

     But the relationship's dynamics changed drastically when Mazda fell into a crisis in the 1990s. Mazda had expanded its domestic sales network to five channels in the late 1980s, when Japan was in the peak of its bubble economy. One channel was Autorama, a dealership chain that sold Ford vehicles. When the economic bubble burst, the expansion came back to bite Mazda.

     Mazda's main lender, Sumitomo Bank -- one of the predecessors of Sumitomo Mitsui Banking Corp. -- had asked Toyota Motor for help in rebuilding Mazda, but Toyota declined. Mazda had only Ford to lean on. In 1996, Ford raised its stake in Mazda to 33.4% and sent corporate official Henry Wallace to head the Japanese company as president.

     Mazda's five-channel sales network came under the scalpel. Mazda no longer was able to sell Ford vehicles, leading to a sharp decline in Ford's Japanese sales. Fields led efforts then to overhaul Mazda's sales operations.

     With instability in the financial system chilling Japanese demand, Ford's view of Japan started shifting from a market to a technical center. Focusing on Mazda's strength in compact vehicles, Ford adopted Mazda's engine and platform designs to its vehicles worldwide. This strategy worked, giving their alliance a reputation as a successful international automaker partnership.

Turning point for Ford

The tide shifted when Ford stumbled following the financial crisis that erupted in September 2008 back home. The company suffered from its excessive reliance on the U.S. market. In order to avoid its own collapse, Ford had to let go of cherished Mazda shares, reducing its stake to 13%.

     Intensive economic stimulus by the Obama administration helped the American economy recover quicker than expected, reviving Ford as well. But Ford has yet to transform its U.S.-dependent earnings structure -- the tendency has even strengthened.

     In the January-September period of last year, Ford's pretax profit excluding financial operations totaled $5.64 billion. North America generated $6.6 billion in profit, while Europe and South America bled red ink and the Asia-Pacific market contributed a minimal profit.

     But North America is not rock solid. The local auto market could be hurt by the U.S. Federal Reserve ending its near-zero interest rate policy late last year, as a majority of Americans use loans to finance vehicle purchases.

     Ford's mainstay large pickup trucks, which have been a cash cow, also face headwinds now. Having been slow to begin developing hybrid technologies, the automaker likely will have to use a lot of expensive lightweight materials like aluminum to meet tightening U.S. environmental regulations, which would squeeze profit margins.

     Having learned from the past, Ford management has been bypassing plant construction in North America to spend money instead on emerging markets. The company needs to ease dependence on North America while the region is faring well, or it could fall into crisis again when the U.S. economy stalls.

China over Mazda

Ford listened when China's government told the company in May 2010 that it needs to quit being a key shareholder in Mazda to obtain approval to build Chinese production facilities -- due to a regulation limiting production by foreign companies. One month later, Ford decided to unload more Mazda shares and lowered its stake to just 3.5%. Without hesitation, Ford gave up its status as Mazda's leading shareholder, a position it held since its investment in 1979. This ended Japan's role as a technical center for Ford.

     Japan probably will be a "rival" for Ford in the future. During negotiations for the Trans-Pacific Partnership trade agreement reached last year, Ford Chairman William Ford repeatedly attacked Japan's closed auto market, going as far as demanding that Japanese minivehicle specifications be jettisoned.

     Such a backdrop makes Ford's departure from Japan ominous, with the possibility of igniting fresh trade friction between the two countries.

Mazda Motor Corp.

Japan

Market(Ticker): TKS(7261)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 8,150.45M
Shares: 599.87M

Toyota Motor Corp.

Japan

Market(Ticker): TKS(7203)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 171,937M
Shares: 3,263M

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