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Automobiles

Mazda seeks $2.8bn from Japanese banks

Coronavirus further weakens automaker's sales as cash flow turns negative

Japanese banks are expected to acquiesce to Mazda's request for financing.   © Reuters

TOKYO/HIROSHIMA -- Mazda Motor has requested 300 billion yen ($2.8 billion) in financing from Japan's three megabanks and other institutions as it braces for further fallout from the coronavirus pandemic, and part of the loan has already been provided, Nikkei learned on Saturday.

The outbreak has caused demand to plunge, triggering shutdowns of the carmaker's plants in Japan and North America.

The carmaker was already struggling with weak sales before the pandemic, and its cash flow has turned negative. It plans to use the financing to build up its cash reserves.

It has requested loans from the megabanks -- MUFG Bank, Sumitomo Mitsui Banking and Mizuho Bank -- as well as from the government-owned Development Bank of Japan and Sumitomo Mitsui Trust Bank.

The banks are expected to provide the financing.

As of December, Mazda had nearly 500 billion yen in cash and around 63 billion yen in securities. The automaker has also secured a credit line of around 200 billion yen from Sumitomo Mitsui Banking and other financial institutions.

However, its free cash flow for the April to December 2019 period was a negative 130 billion yen. The new financing would help the automaker prepare for a drawn-out pandemic.

The pandemic has greatly impacted Mazda. Its unit sales in February dropped 14% from the same month last year, then March followed with a 33% tumble. Most of the automaker's main plants in Japan and abroad have been suspended since the end of that month.

The company's sales outlook for Japan and North America had been dire before the pandemic. Mazda in February downgraded expected sales for the fiscal year ended in March to 1.5 million vehicles, a 60,000-unit plunge from the previous fiscal year. It had initially expected to sell 1.55 million vehicles.

In November, Mazda revised its operating profit outlook to 60 billion yen, down 27% from the previous year; it had previously planned to post a 110 billion yen operating profit.

Last year, the automaker stumbled when it tried to implement a new pricing strategy. It launched two new models in 2019 but attached high sticker prices that alienated customers. This resulted in decreased sales in North America, which accounts for nearly 30% of Mazda's unit sales.

The carmaker also tried to limit dealer incentives, which are often used to offer showroom discounts, as a means to build its brand value. But this tactic also backfired, leading to lackluster sales around the globe.

Mazda has been in and out of financial difficulty for decades now. In the late 1990s, after recording net losses for five consecutive years, it was brought under the wing of U.S. automaker Ford Motor. The arrangement helped the Japanese company get back on its feet as it launched a series of successful models, including the CX-5 SUV.

But Mazda never made it big, and in 2017 Toyota Motor took a 5.1% stake.

Mazda is not the only automaker to be waylaid by the virus. Toyota has requested a credit line of 1 trillion yen from banks, and Nissan Motor is seeking 500 billion yen in financing. In the U.S., General Motors has drawn $16 billion from its credit lines, and Ford has secured $15.4 billion.

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