In 1995, Mazda Motor Corp. was in trouble again. Misled by Japan's 'bubble economy,' the company had overextended. It was losing nearly $1 million per day. It had posted seven years of negative cash flow and rising debt.
It was deja vu for Ford Motor Co., which had rescued Mazda from the effects of the 1970s oil shocks with a cash infusion. Now Ford owned a 25 percent equity stake in Mazda; Ford Chairman Alex Trotman sought a solution.
Ostensibly in town for the 1995 Tokyo auto show, Trotman quietly rushed to a private meeting in a hotel suite with Henry Wallace, Ford's top executive at Mazda, and Sotoo Tatsumi, chairman of Sumitomo Bank Ltd., Mazda's lead bank.
Sumitomo, heavily exposed to Mazda's shaky loans, had orchestrated Ford's earlier purchase of a stake in Mazda. But Trotman needed to change the Ford-Mazda relationship. The two companies were supposed to be partners, yet they actually competed against each other.
Two years earlier, Ford had dispatched two executives to Hiroshima to take key management positions. Yet Mazda 'continued to look to its own interests first,' said Paul Drenkow, Ford's director of business and product strategy, who was in the hotel room at the time.
Ford was unable to discuss future product plans or pricing with Mazda, because it held only a minority stake. This was no longer acceptable.
During the two-hour meeting, Trotman explained in broad terms what he needed from Mazda but did not mention the $500 million investment Ford was prepared to make.
Trotman's discussions with Tatsumi were friendly. Ford's chairman already had briefed Ford's board and was prepared to make a decision.
Tatsumi, whose bank controlled Mazda's fate, agreed. Considered Mazda's 'godfather,' Tatsumi could give Trotman the go-ahead to begin formal negotiations. Still, American domination of Mazda carried political risks.
'We were all nervous,' Drenkow said. 'We were establishing a new relationship between America and Japan, and there was a question of whether this would be accepted in Japan.'
Indeed, eight months later, Mazda would be the first Japanese automaker headed by a Westerner, Henry Wallace of Ford.
In the aftermath of the deal, Ford was slow to integrate Mazda, said analyst David Strickler. Mazda sales have declined steadily in both North America and Japan. And poor brand management prevents Mazda from being a successful acquisition, Strickler said.
Still, Mazda now generates modest operating profits, and it is simplifying its once-tangled product lineup. Moreover, Ford's admirers argue that the Ford-Mazda deal has eased Japanese misgivings about foreign takeovers.
The Renault-Nissan alliance did not encounter significant Japanese resistance, noted Steve Usher, a Tokyo-based auto analyst for Jardine Fleming Securities (Asia) Ltd.
'Ford's takeover of Mazda has been a wonderful advertisement for foreigners owning Japanese carmakers,' he said.