How a little automaker survived this long

HIROSHIMA, Japan — Mazda Motor Corp., one of Japan's smallest, scrappiest and sportiest automakers, didn't survive 100 years by chance — though it had its share of good luck at times.

Mazda has lasted so long largely because it consistently turned to brainpower and innovation to compensate for its small, competitive size and scant resources. It was never afraid to reinvent itself or think outside the box. That, in fact, has been Mazda's recipe for survival in a world of giant rivals.

But now that the Japanese carmaker is heading into its second century, Mazda will have to channel that corporate ethos more than ever. Buffered by spiraling costs for a new generation of self-driving, electrified and connected cars, Mazda is determined to again defy the odds by pioneering new technologies as it tries to carve out its own niche on the global playing field.

And that is something that CEO Akira Marumoto concedes even Mazda can't do alone in an age of industry tumult.

New technologies mean leveraging proven approaches with new partners. So as Mazda marks its centennial, it will work to keep employees focused on the future as well as the past — beginning by making its employees aware of the significance of the moment.

"Jan. 30 is the anniversary date, and we will hold some employee events," Marumoto told Automotive News at Mazda's global headquarters here in western Japan. "What we are doing is educating our employees on Mazda's history. We want them to learn about our relationship with stakeholders in the past, so they can think about what kind of relationships we should have in the next 100 years."

"My expectation is that will lead to an understanding of Mazda's uniqueness while co-creating with others."

With global sales of just under 1.6 million vehicles a year, Mazda is realistic about its limitations, Marumoto said. But to maintain its identity and independence, it needs a little help from friends.

"We can't do everything by ourselves," the Mazda boss said. "We have to have strong collaboration with our partners and have strong trust. That is what Mazda must be doing."

Chief among those partners is Japanese giant Toyota Motor Corp., which has a 5.1 percent stake in the smaller Japanese carmaker. That brings Mazda into a Toyota orbit that also encompasses Subaru, Suzuki and Daihatsu, while marshaling joint resources for such projects as electric cars.

Mazda also is leaning on Toyota for manufacturing help. The carmakers are jointly building a $1.6 billion plant in Alabama that is slated to open next year and add 150,000 units of capacity to Mazda — all of which will be devoted to a new Mazda crossover for the U.S. By sharing costs with Toyota, Mazda says the plant will enable it to raise its global sales volume to 2 million units a year.

But Mazda also is charting its own course with a big bet on unique powertrains that it hopes will set it apart from the mass-market Toyotas and Hondas, and hopefully move the brand upmarket.

In Europe and Japan, it has introduced its next-generation Skyactiv-X engine, a powerplant that combines the benefits of gasoline and diesel technologies for higher power and better fuel efficiency. It also is working on a new inline six-cylinder engine. And it continues developing its trademark rotary engine — a technology it bet on in the 1960s — for eventual use as a range extender in an electric hybrid.

It's a costly gambit for a company that saw U.S. sales sink 7.3 percent last year in an overall market down only 1.2 percent. But the effort matters to Mazda because North America is its biggest market, and the company expects its operating profit to drop 27 percent this fiscal year. But the Hiroshima-based manufacturer has a track record of beating bad fortune.

Perhaps its biggest existential crisis came Aug. 6, 1945 — the day the U.S. B-29 bomber Enola Gay buzzed over Hiroshima, the city where the automaker's operations stood, and dropped the Little Boy atomic bomb on the city below.

It also was happened to be the birthday of Mazda founder Jujiro Matsuda. On his way to work, he went downtown for a customary birthday haircut. He got there at 7:30 a.m. and, 30 minutes later, was on his well-coiffed way to the company's head office on the other side of town.

It was good timing. The bomb's 10,000-degree fireball detonated at 8:16 a.m. The shock wave blew Matsuda's car from the street and ejected him and the driver from the vehicle. But by then, Matsuda was far enough away to survive.

Equally amazing, his vehicle assembly factory and headquarters were left mostly unscathed. A mountain between the plant and the bomb's hypocenter shielded the plant from most of the blast.

Matsuda, the company's driving force since its inception in 1920, continued to run the company until 1951, when he handed control to his surviving son, Tsuneji. Matsuda's second son was among the 60,000 to 80,000 people who perished in the attack and its aftermath.

Indeed, it is difficult to understand Mazda without understanding its roots in Hiroshima.

The company known today as Mazda Motor Corp. started life as Toyo Cork Kogyo Co., a maker of cork insulators for items such as refrigerators. It later expanded into machine tools and drills. It eventually took on three-wheel cargo haulers. The company had used the Mazda brand name since the 1930s but didn't change its name to Mazda Motor Corp. until 1984.

After the war, Matsuda reinvented his company as a maker of four-wheel vehicles by launching the Type-CA, a one-ton truck resembling the Jeeps that GIs were driving all around occupied Japan.

To be sure, Mazda's first steps into automobiles were tenuous at best. Its first passenger car arrived only in 1960. The R360 Coupe looked like a rolling egg and was powered by a paltry 16-hp, 356-cc engine. But it was affordably priced and even offered an automatic transmission.

By the end of the 1960s, Mazda was innovating again, this time with a brand-new engine.

Mazda didn't invent what would become its trademark rotary engine. It entered a technical agreement with Germany's NSU to develop the so-called Wankel powerplant in the early 1960s. But in 1967, Mazda became the first company to put the technology to use, deploying a rotary engine in the Cosmo Sport/Mazda S110, a sleek coupe with a top speed of 115 mph and a quarter-mile time of 16.3 seconds.

Mazda's prowess with rotary engines was crucial to its 787B race car, which won the 24 Hours of Le Mans endurance race in 1991. It was the first victory there for a Japanese brand or a car with a rotary engine.

Ever since, the compact, blade-powered rotary engine has been a Mazda bragging point. Even though Mazda hasn't sold a car using one since retiring the RX-8 sporty car in 2012, executives refuse to let the idea die. Part of Matsumoto's challenge is reviving the symbolic powertrain. The centennial could be a year to watch for developments on the rotary front.

Mazda might also commemorate this year's milestone with 100th-anniversary editions of some of its popular nameplates, especially the MX-5 Miata. The pint-sized roadster was another breakthrough model that helped solidify Mazda's zoom-zoom reputation as a driver's brand.

Based in Hiroshima, the company was out of sight and out of mind from the centers of political and financial power, some 420 miles to the east in Tokyo. Capital was harder to come by, especially after World War II, and the company learned to make do with little, devise clever workarounds to problems it couldn't throw money at and innovate its way around rivals.

Scrappy solutions extended even into Mazda's production factories. Visitors noticed assembly lines jury-rigged with primitive contraptions seemingly pulled straight from cartoons, referred to as karakuri. The production line devices relied on gravity, levers, pulleys and even rubber bands or old plastic bottles to save time, money and energy. In and of themselves, they contributed only incremental efficiency gains. But they exemplified the obsession with productivity and creativity that pervaded the company.

Creative corporate culture is one thing; sustainable profits are another. The underdog automaker often squeaked by on financial results. And by the 1970s, Mazda's fragile balance sheet pushed it into an alliance with Ford Motor Co., which took a 25 percent stake in Mazda in 1979. In 1996, again amid troubles at Mazda, Ford raised its stake to a controlling 33.4 percent.

The Ford alliance was largely an amicable and successful one, though the Japanese side sometimes cooperated grudgingly. Mazda picked up valuable lessons in American marketing from Ford — it was during this period that the Japanese brand coined its popular "Zoom-Zoom" advertising tag line.

But in 2008, the American economy veered into deep recession. Over two years, Ford sold down its stake to 3.5 percent. And by 2015, the longtime American partner had completely exited.

When Ford pulled out, some inside Mazda worried about going it alone. But Takashi Yamanouchi, Mazda's first post-Ford CEO, proclaimed it a "godsend." He believed Mazda would at last have a chance to design its own destiny.

The result was a whole new way of engineering and manufacturing vehicles based on a new generation of fuel-efficient engines, transmissions and platforms Mazda rolled out under the Skyactiv name.

A second generation of the approach — the ultra-efficient Skyactiv-X engine — will allow Mazda to roll out a full-electric model, the MX-30, starting this year in Europe. A rotary range extender is likely to follow.

But going solo hasn't been as easy as Yamanouchi imagined.

Developing new technologies is costly, and consumers have been slow to recognize Mazda's strategy of added value. Mazda remains a small player globally, and brand recognition is still modest, even in the U.S.

Free cash flow declined from 2016 to 2019 while parent company net income has fallen three of the past five years. Net income and operating profit in the year ended March 31, 2019, were both down 60 percent from the fiscal year ended March 31, 2015. And Mazda expects net to tumble another 32 percent in the current fiscal year ending March 31 while operating profit drops 27 percent. Global sales are seen stagnating at 1.55 million units.

Given the headwinds, it wasn't long before Mazda sought the assistance of another big brother.

In 2015, Toyota President Akio Toyoda and then-Mazda CEO Masamichi Kogai announced a loose tie-up to approach the expensive future together. At the time of the new arrangement, Toyoda remarked: "Mazda is ahead of us in many areas."

But it was clear who was in the driver's seat. At the time of the link-up, Mazda's r&d budget was only a tenth of Toyota's mammoth outlay.

Two years later, Toyota moved to deepen the commitment, taking a 5 percent stake in Mazda, while Mazda reciprocated with a token 0.25 percent stake in Toyota. Even then, Toyota maintains a more hands-off relationship with Mazda and its other partners. And that suits Mazda just fine.

Marumoto said Mazda needs that breathing space to thrive, not just survive.

"One of the things about being small is that we can be unique, in terms of product, technology, pricing and customer experience," the CEO added.

"If we don't do that and do the same thing as big players, I'm afraid it will be hard for Mazda to survive."