Mazda's innovative SKYACTIV and new manufacturing technology

Plans to grow emerging markets and expand overseas production

2012/04/10

Summary

 On February 2, 2012, Mazda announced for the third quarter financial results that it projected to register a net loss of 100 billion JPY in the fiscal year ending in March 2012. When the projection is realized, the car maker is to post a net loss for four consecutive years. The net loss for FY2011 will exceed about 71.5 billion JPY (FY2008), when the Japanese economy was in recession; the accumulated loss amounts to about 238 billion JPY over the four years. The car maker says that, in the changing environment including appreciation of yen and expansion of emerging markets, the loss results from its structural problem, in which it produces a large percentage of its products in Japan and sells them mainly in developed countries.

 In order to solve this structural problem, Mazda announced a structural reform plan that consists of four core programs: (1) Business innovation by next-generation technology - SKYACTIV TECHNOLOGY, (2) Acceleration of further cost improvement through "Monotsukuri Innovation" (manufacturing technology innovation), (3) Reinforcement of business in emerging countries and establishment of global production footprints, and (4) Promotion of global alliances. At the same time, the car maker revised its medium- and long-term outlook (announced in 2010); the operating profit target for FY2015 is revised downward from 170 billion JPY to 150 billion JPY.

 On February 22, 2012, Mazda announced that it would increase capital and raise funds through public stock offerings and loans to receive about 214 billion JPY.

 The following is a summary of Mazda's structural reform plan.

Rerated reports:
Tokyo Motor Show 2011 (Concept TAKERI), Tokyo Motor Show 2011 (SKYACTIV Techonogy)
Mazda: launches vehicles adopting SKYACTIV technology (Nov. 2011)



Structural reform plan and public stock offerings

 On February 2, 2011, Mazda announced a structural reform plan that consists of four core programs. At the same time, the car maker revised its target for the FY2015 business performance; the operating profit target is revised downward from 170 billion JPY to 150 billion JPY (it does not change the global sales target of 1.7 million, but raises the return on sales target from more than 5% to more than 6%). It aims to improve operating profit by 100 billion JPY through innovation for (sales) volume and mix/marketing and by 120 billion JPY through promotion of overseas production (including cost improvement) by FY2015.

 On February 22, 2012, the car maker also announced a plan, in which it raises capital of about 214 billion JPY through public stock offerings and loans, as capital to enhance R&D and overseas production.

Structural Reform Plan to reinforce "the framework for medium- and long-term initiatives"

Background * Historical appreciation of yen that has persisted for a long time
* Deterioration of the external environment (including unstable economy in major countries due to a financial crisis in Europe, the Great East Japan Earthquake, and flooding in Thailand)
* Change in global automotive industry demand
Four core programs
for structural reform
(1) Business innovation by next-generation technology - SKYACTIV TECHNOLOGY
(2) Acceleration of further cost improvements through Monotsukuri Innovation
(3) Reinforcement of business in emerging countries and establishment of global production footprints
(4) Promotion of global alliances
Source: Mazda's third quarter financial results in FY2011

Targets for FY2015 business performance

Prior target
(announced
in April 2010)
New target
(announced
in February 2012)
FY2011 full-year
estimate
Operation profit 170 billion JPY 150 billion JPY Loss of 40 billion JPY
Return on sales 5% or more 6% or more -2.0%
Global sales volume 1.7 million units 1.7 million units 1.25 million units
Exchange Rate Assumption (USD) 90 JPY 77 JPY 78 JPY
Exchange Rate Assumption (Euro) 125 JPY 100 JPY 108 JPY

 

Items to improve operating profit
(in billions of JPY)
Financial
amount of
improvement of
operating profit
(FY2011→FY2015)
Innovation
for volume
and mix/
marketing
Overseas
production
(including reform
of cost structure)
Improvement
of fixed cost
Development
cost
Exchange
rate
Others
(further risk for
appreciation
of yen)
190 100 120 30 (10) (30) (20)

 

Financing of 214 billion JPY through public stock offerings and loans

On February 22, 2012 Mazda announced that it would finance up to about 214 billion JPY through public stock offerings and allocation of new shares to a third party (about 144 billion JPY) and through subordinated loans (about 70 billion JPY). The car maker will enhance its weaker financial strength due to a deterioration of the business environment caused by the appreciation of the yen, an unstable economy, and disasters. The proceeds will be used for the structural reform plan that it announced on February 2.
As of the end of January, Mazda has issued about 1.78 billion shares. With this capital increase, the number of shares issued will increase up to 3 billion, up nearly 70%.
Source: Mazda Press Release (February 22 and March 5, 2012)
(Note) 1. The maximum amount of financing is as of March 5, when the offer price is announced.
2. In November 2009, Mazda also raised about 93.3 billion JPY through public stock offerings, selling of own shares, and allocation of shares to a third party.

 

Use of proceeds
(in billions of JPY)
FY2012 FY2013 FY2014 Total
Investment and loan Mexico (plant, production facilities) - 20.0 10.0 30.0
Russia (production facilities) - 2.5 2.5 5.0
ASEAN (production/sales facilities) 5.0 - - 5.0
Capital investment Headquarters/Hofu plant (production facilities) 10.0 10.0 10.0 30.0
R&D New generation eco-friendly/safety technology 25.0 25.0 24.2 74.2
Total 40.0 57.5 46.7 144.2

 

 



Innovation of business by SKYACTIV TECHNOLOGY: Improvement of profitability by enhancing product and brand power

 Mazda will introduce eight models with next-generation SKYACTIV TECNOLOGY, which achieves fun-to-drive and outstanding environmental and safety performance, during the next five years. The car maker will enhance its product and brand power and will also revise its marketing strategy, aiming to improve profitability through full-price sales.

 Mazda adopted SKYACTIV TECNOLOGY partially starting in June 2011, and launched a new SUV, the CX-5, which fully adopts SKYACTIV TECNOLOGY, in February 2012.

Business innovation by SKYACTIV

SKYACTIV SKYACTIV TECNOLOGY is a collective term for Mazda's next-generation technologies that achieve fun-to-drive and excellent environmental and safety performance. Mazda innovated engine, transmission, body and chassis. The car maker began introducing SKYACTIV gradually starting in June 2011, and launched the CX-5, which fully adopts SKYACTIV TECNOLOGY, in February 2012 (Note 1).
Launching plan * Plan to introduce eight models (including the CX-5) during the next five years (Note 2).
* Plan to increase the percentage of models with SKYACTIV to 20% in FY2012 and further to 80% in FY2015.
* Scheduled to start marketing regenerative braking system, i-ELOOP, in FY2012 and a HV with SKYACTIV in FY2013.
Improvement of
brand value/
Innovation
of marketing
* Enhance Mazda's brand value further with SKYACTIV, which wins awards worldwide and receives a high evaluation.
* Marketing strategy that increases opportunities to experience SKYACTIV.
* Realize full-price sales.
Source: Mazda's third quarter financial results in FY2011, Mazda's production and sales (preliminary report) (Feb. 24, 2012), and Automotive News Europe (Mar. 14, 2012)
(Note) 1. Mazda added a model with SKYACTIV-G gasoline engine to the Demio (Mazda 2) in June 2011 and models with SKYACTIV-G and SKYACTIV-DRIVE (AT) to the Axela (Mazda 3) in September. Models with SKYACTIV account for 50-60% of the total sales of the Demio and the Axela (data by Mazda).
2. Mazda is said to unveil the New Atenza (Mazda 6) in the fall of 2012, which is based on the concept car (TAKERI) that was announced at the 2011 Tokyo Motor Show.

First full-SKYACTIV model, CX-5

Full SKYACTIV The CX-5 is a new crossover SUV that is marketed worldwide starting in February 2012. The model fully adopts SKYACTIV TECNOLOGY for the first time. The sales target is 160,000 units per year worldwide (12,000 units in Japan).
KODO-Soul
of Motion
Mazda's new design theme, "KODO-Soul of Motion" is introduced for the first time. Vitality and dynamism of "a cheetah" is expressed on the exterior.
Eco-friendly
technology

The SKYACTIV-D 2.2 is a diesel engine to be introduced for the first time and meets emission regulations worldwide without an NOx after-treatment system. The fuel economy of a 2WD vehicle with SKYACTIV-D is 18.6km/L (JC08 mode), which is the best among the SUVs sold in Japan (data by Mazda).

Driving
performance
The SKYACTIV-CHASSIS suspension/steering system is newly adopted. Drive feel of "a rider and a horse become one" and ride comfort are achieved.
Safety
performance
The SKYACTIV-BODY adopts a body 61% of which is made up of high-strength steel, improving collision safety. In addition, Smart City Brake Support, which automatically controls braking to mitigate collision damage, is adopted for the first time.
Cost
improvement
Yield profit when the exchange rate is USD1 = 77JPY, and 1 Euro = 100JPY. Improve fluctuations of profit by 150,000 JPY as compared to the CX-7.
Source: Mazda Press information "CX-5" (Dec. 2011) , Mazda Press Release (Mar. 15, 2012),
and Automotive News (Mar. 9, 2012)
(Note) 1. The fuel economy of a 2WD model with SKYACTIV-G gasoline engine is 16.0km/L (JC08 mode).
2. In the Japanese market, where the market share of diesel-powered cars is less than 1%, the percentage of sales of the CX-5 diesel version is assumed to be 50%. During one month by March 14, about 8,000 units are ordered (monthly sales are planed to be 1,000 units); a diesel version accounts for 73%.
3. In the US, at the same time as the CX-5, compact crossover SUV, was launched, it was reported that the sale of the CX-7, crossover SUV, will end when the inventory is sold out.

 

 



Monotsukuri Innovation (manufacturing technology innovation): Cost improvement through innovative manufacturing of vehicles

 Mazda has been working on "Monotsukuri Innovation (manufacturing technology innovation)", which changes the way vehicles are made, since 2006. "Monotsukuri Innovation" consists of three concepts - "Integrated Planning" in which products are collectively planned, "Common Architecture" in which design concepts of products are standardized, and "Flexible Production" in which various models are produced highly efficiently and randomly. So far, the car maker has improved development efficiency by more than 30% and cost of capital investment in vehicle production facilities by more than 20%.

Effect of "Monotsukuri Innovation"

Cost improvement/
promoting efficiency
Improvement of performance
Promoting development efficiency More than 30%
Investment
in production
facilities
SKYACTIV-G More than 60%
Vehicle More than 20%
Cost Vehicle (excluding
additional equipment)
More than 20% → 30% (target) Weight reduction of more than 100kg
(equivalent to improvement of fuel
efficiency by 5%)
SKYACTIV-D Improve more than the current
diesel engine
Improve fuel efficiency by 20% Meet EURO6
SKYACTIV-G Improve more than the current
direct-injection gasoline engine
Improve fuel efficiency and torque by 15%,
can meet EURO6
SKYACTIV-DRIVE The same level as the current AT Improvement of fuel efficiency by 4-7%,
Improve direct feel

 

Monotsukuri Innovation: Mazda's innovative manufacturing of vehicles

 "Monotsukuri Innovation" is a structural reform activity not only in the production process, but across the company covering development and purchasing. It consists of three concepts - (1) Integrated planning, (2-1) Common architecture, and (2-2) flexible production.

Objective Achieve diversification of products in order to respond to various needs in the market and scale merit for profit.
Areas covered The entire process in manufacturing vehicles including development, purchasing, and production.
Units covered The entire core unit including engine, transmission, body, and chassis.

Source: Mazda Press information (Dec. 2011) "Mazda Monotsukuri Innovation"

(1) Integrated planning

 Integrated planning is a method in which products are collectively planned based on the 5-10 year forecast. For each product, fixed elements that are standardized and variable elements that express identity of models are made clear. Then, standardized structure and production process (production method) are formulated.

Prior New
Develop each model, and structure/
production process is determined.
Products are collectively planned and development/
production concepts are standardized.
Achieve scale merit for the entire lineup.

(2-1) Common architecture

 By standardizing the basic concept of each unit regardless of vehicle segment and displacement, "design like similar figure" is realized. With this, multiple products are developed and produced in the same process, which shortens time and cuts capital investment.

(Example) Prior New
Underbody
(C/D-segment
vehicle)
Type of vehicle
(C/D-sedan, C-sedan, C/D-SUV/MPV)
- each type of vehicle is developed separately.
Based on the underbody of C/D-sedan, C-sedan, C-minivan,
C-SUV/MPV, and C/D-SUV/MPV are developed.
Fixed elements Variable elements
* Body structure
  (straight structure, continuous structure,
  multi-load path structure)
* machining method
* Overhang
* height of the floor
* wheelbase,
Engine By giving "burning characteristics" to
each displacement, develop separately.
"Burning characteristics" is made the top fixed element and is given to each displacement. By collectively planning the entire engine series, resources and time for development is almost halved.

(2-2) Flexible production

 Every model, engine, and transmission can be produced on the same production line. By absorbing changes in production volume due to change in volume and popular models, addition of models, and remodeling, the car maker maintains stability of quality, cost, and delivery time. By eliminating production facilities exclusive to certain models, time to change facilities and jigs becomes unnecessary, which makes it possible to flexibly produce multiple models on one line.

(Example) Prior New
Body assembly
(assumption)
Produce vehicles of 2 to 5 segments of vehicles on each line Produce vehicles of every segment on every line.
Machining of
cylinder blocks
45 processes mainly by special equipment 4 processes by using general-purpose equipment

(Note) By December 2011, Mazda shifted to flexible production in six processes including machining of engines, transmission, welding, and painting.

 

 



Strengthening business in emerging countries and establishment of global production footprints: Increase the ratio of overseas production to 50%

 Mazda will increase the percentage of overseas production from 30% in FY2011 to 50% in FY2015, boosting sales in emerging countries such as China, Russia, ASEAN countries, and Brazil. The car maker will increase resilience to the appreciation of the yen and meet the demand in emerging markets.

 In China, Mazda will establish a consistent production and sales framework through the restructuring of joint venture companies, start local production of SKYACTIV models, and expand sales network, with the aim of selling 400,000 units (215,000 units in 2011). In ASEAN countries, the car maker considers boosting production capacity at a joint venture in Thailand, aiming to almost triple sales volume in the entire ASEAN region from FY2011 to 150,000 units in FY2015.

 In Mexico, Mazda is currently building a new plant, aiming to start operations in FY2013. The car maker plans to use the new plant as production facilities in the Americas including the USA and Brazil.

Reinforcement of business in emerging countries and establishment of global production footprint

FY2011 FY2012 FY2013 FY2014 FY2015
Percentage of overseas production 30% 40% 50%
Percentage of overseas purchasing by Japan plant
and of settlement in foreign currency
20% 25% 30%

 

Initiatives
China Establish consistent production and sales framework The car maker is currently planning to divide Changan Ford Mazda, which is a three-way joint venture with Changan Automobile and Ford, into two companies - Changan Ford and Changan Mazda. The Nanjing plant is planned to be transferred to Changan Mazda and the Chongqing plant to Changan Ford (Note 1).
Local production of SKYACTIV models (The Nanjing plant of Changan Ford Mazda is reported to start production of the CX-5 in 2013).
400,000-unit sales structure * Expand sales network (Accelerate to open outlets in in-land areas and open areas in coastal regions)
* Expand product line-up (Local production models: 6 → 10)(Sales in China in 2011 declined by 10% year-on-year to 215,000 units. The car maker plans to sell 270,000 units in 2012.)
Russia Establish local production footprints The car maker has been talking with Sollers on the establishment of a joint venture production facility in Vladivostok since November 2011. It plans to produce two models locally. It aims to reduce import duties and to cut inventory time by utilizing the Siberian Railway (Note 2).
Increase sales volume The car maker plans to sell more than 50,000 a year by FY2015 (In 2011 (calendar year), it increased volume by 59% year-on-year to about 40,000 units).
ASEAN Thailand The car maker is currently considering expansion of production capacity at a joint venture with Ford in Thailand - AutoAlliance (Thailand) (AAT).
The entire ASEAN region Local production model: 3 (FY2011) → 6 (FY2015)
Sales volume: 55,000 (FY2010) → 150,000 (FY2015)
Marketshare: 2.4% (CY2011) → 4.7% (CY 2015)
Number of dealers: 236 (CY 2011) → 330 (CY 2015)
Americas Mexico plant The car maker constructs an assembly plant and an engine plant in Mexico (start operations in FY2013). With production capacity of 140,000, it plans to produce the Mazda2 (Demio) and the Mazda3 (Axela) (Note 3).
By utilizing FTA, the car maker transfers production of the Mazda2 and Mazda3 for North America from Japan, enhancing marketing of Mexican made cars in North America, and Central and South America.
Entry into Brazil Mazda will establish a joint venture sales company with Sumitomo Corporation in Brazil, with plans to start sales in FY2012. It will initially import products from Japan, with plans to start shipping also from the new joint venture plant in Mexico after it is completed.
USA By transferring production of the New Mazda 6 to Japan, the fixed cost at a joint venture plant in the USA, AAI (AutoAlliance International, which is a joint venture with Ford) will be reduced by about 15 billion JPY (Note 4).
Europe Introduce SKYACTIV products The car maker aims to increase sales by introducing SKYACTIV products; it intends to improve volume/product mix especially with the SKYACTIV-D diesel engine.
Focus on priority market (Among European countries, Mazda sold the most in Germany at 42,000 units, followed by 40,000 in Russia and 31,000 in the UK)
Complete improvement of efficiency of dealer network (Example) Restructure the dealer network in Germany
Source: Mazda's third quarter financial results in FY2011, Mazda News Release (Nov. 26, 2011), Nikkan Jidosha Newspaper (Nov. 28, 2011), Mizuho Research Institute Ltd. "Mizuho Research September 2011", and various media reports.
(Note) 1-1. The establishment of a new joint venture between Mazda and Changan Automobile is expected to lag behind the initial schedule (reported in February 2012). Originally, Changhe Suzuki, which was under the umbrella of Changan Automobile and which had planned to withdraw, planned to transfer the approval for production which it had had to Changan Mazda. Yet, there was a strike at Changhe Suzuki, which cancelled the withdrawal. Changan Mazda plans to apply for approval for production again.
1-2. Mazda is reported to be planning to launch a joint-venture brand and to establish an R&D center in Nanjing with Changan Automobile. The authorities are concerned about excessive production capacity and are reported to be asking for the launch of a joint-venture brand and the establishment of an R&D center as requirements for founding a new joint venture company.
1-3. FAW Car, which is under the umbrella of FAW, produces Mazda models by consignment, announced in February 2012, that it would upgrade its first plant in order to produce Mazda's new model and would add production capacity of 60,000 units a year (the total production capacity is planned to be 260,000 a year).
2. It is said that, at a joint venture plant between Mazda and Sollers, auto-parts will be imported from Japan and knock-down production will be conducted.
3-1. Mazda's plant in Mexico is the plant of Mazda Motor Manufacturing de Mexico S.Z. de C.V., which is a joint venture owned 70% by Mazda and 30% by Sumitomo Corporation. The construction began at Salamanca City, Guanajuato in October 2011. The investment is worth USD500 million.
3-2. In March 2012, the Mexican government and the Brazilian government announced that they would limit the financial amount of customs-free export of light vehicles from Mexico to Brazil for three years. It will be limited to USD1.45 billion in 2012, USD1.56 billion in 2013, and USD1.64 billion in 2014 (It is said to be USD1.55-1.7 billion in 2011). Customs-free export is said to resume in 2015.
4-1. AAI continues to produce Mazda 6 while the current model is produced.
4-2. In January 2012, Ford announced that it would also produce the new Fusion at AAI.

 

 



Promotion of global alliances

 Mazda makes promotion of new global business/technical alliance one of its core programs of its structural reform plan and is currently negotiating with other car makers. The car maker is seeking alliances that supplement each of its products, technology, and regions and will also provide technology and products including SKYACTIV powertrain.

Global alliance strategy

1. Aggressively promote a strategy for alliances that supplement each of its products, technology, and regions optimally.
2. Provide products and technology, including SKYACTIV powertrain, to other car makers.
Existing
alliances
Ford Joint production in China (Changan Ford Mazda) and in Thailand (AAT).
Toyota Mazda is licensed to use Toyota's hybrid system technology.
Suzuki Suzuki supplies the entire mini vehicles that Mazda markets on an OEM basis.
Nissan Mazda supplies Nissan with Premacy minivan and other models while
Nissan supplies the AD light van to Mazda.
Isuzu Isuzu supplies the Elf light-duty truck, which is marketed as the Titan.
Sollers Mazda begins talking on the establishment of joint production facilities in Russia.
Changan Automobile Establishment of a production and sales joint venture (Changan Ford Mazda)
FAW Consignment of production of Mazda 6 and Mazda 8 in China.
Establishment of a joint sales company.
Source: Mazda's third quarter financial results in FY2011, Nikkan Jidosha Newspaper (Feb. 17, 2012), Sankei Biz (Mar. 8, 2012), Automotive News Europe (Mar. 8, 2012)
(Note) 1. At the presentation of the New CX-5 in February 2012, Mazda's President, Yamauchi, said that Mazda has been negotiating alliances with other car makers and signed a "non-disclosure agreement".
2. Fiat CEO, Marchionne, mentioned Suzuki and Mazda as negotiating partners for new alliances (reported in March 2012). Fiat is currently seeking ways to strengthen its operations in the Asian market, which is its weak point.
3. Ford had been the largest shareholder of Mazda for about thirty years, but lowered its stake to 3.5% in November 2010 (as of the end of September 2011, Ford is the second largest shareholder).

 

 



Consolidated results: Mazda projects to post net loss of 100 billion JPY in FY2011

 In the April-December period of 2011, Mazda posted revenues of 1 trillion 418.3 billion JPY, down 17.4% year-on-year, operating loss of 54.3 billion JPY, and net loss of 112.8 billion JPY due to the appreciation of yen, an unstable economy in Europe, and flooding in Thailand. In the full-year outlook that was announced at the same time, the car maker estimates that revenues would decline by 11.9% year-on-year to 2 trillion 50 billion JPY, an operating loss of 40 billion JPY, and a net loss of 100 billion JPY. The results bottomed out in the third quarter and the car maker expects to achieve positive results in all profit categories in the fourth quarter. Mazda also aims to achieve positive results in all profit categories in FY2012.

Mazda's consolidated results

(in 1 millions of JPY)
FY2007 FY2008 FY2009 FY2010 2010 2011 FY2011 FY2011
Apr.-Dec. Apr.-Dec. Forecast
in Nov.
Forecast
in Feb.
Sales Japan 880,100 620,300 575,000 541,500 404,900 395,000 570,000 560,000
Overseas 2,595,700 1,915,600 1,588,900 1,784,200 1,313,000 1,023,300 1,590,000 1,490,000
Total 3,475,789 2,535,902 2,163,949 2,325,689 1,717,935 1,418,302 2,160,000 2,050,000
Operating profit 162,147 (28,381) 9,458 23,835 13,232 (54,279) 0 (40,000)
Ordinary profit 148,461 (18,680) 4,644 36,862 23,085 (58,106) (2,000) (43,000)
Net income 91,835 (71,489) (6,478) (60,042) 2,846 (112,844) (19,000) (100,000)
Capital expenditure 75,500 81,800 29,800 44,700 30,000 50,200 80,000 80,000
Research & Development 114,400 96,000 85,200 91,000 69,200 69,900 92,000 92,000
Exchange rate Yen/US$ 114 101 93 86 87 79 78 78
Yen/EUR 162 144 131 113 113 111 110 108

Source: Mazda's third quarter financial results in FY2011
(Note) In the third quarter of FY2011, Mazda broke deferred tax asset by 36 billion JPY and posted it as corporate taxes-adjustments (net loss factor).

 

Global sales volume
(1,000 units)
FY2007 FY2008 FY2009 FY2010 2010 2011 FY2011 FY2011
Apr.-Dec. Apr.-Dec. Forecast
in Nov.
Forecast
in Feb.
Japan 256 219 221 206 153 137 209 206
North America 406 347 307 342 257 266 376 370
Europe 327 322 239 212 155 129 204 182
China 101 135 196 236 186 165 260 236
Others 273 238 230 277 206 194 261 256
Total 1,363 1,261 1,193 1,273 957 891 1,310 1,250

 

Global production volume
(units)
FY2007 FY2008 FY2009 FY2010 2010 2011 FY2011 FY2011
Apr.-Dec. Apr.-Dec. Forecast
in Nov.
Forecast
in Feb.
Japan 1,046,948 899,448 827,910 866,992 687,836 634,146 895,000 848,000
Overseas 279,042 234,707 315,594 410,502 300,005 241,792
Global 1,325,990 1,134,155 1,143,504 1,277,494 987,841 875,938

Source: Mazda's third quarter financial results in FY2011
(Note) Overseas production refers to the lined-off units of Mazda brand vehicles (excluding CKD).

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