Mazda Tries Turning Its Small Size Into a Big Advantage

The Japanese automaker is too small, theoretically, to exist on its own. But building a stronger brand may lead to more collaboration or a merger.
By Doron Levin ,

As the automotive industry consolidates into fewer large companies seeking greater global scale, plucky Mazda (MZDAF) remains an anomaly, a pilot fish trying to turn smaller size to its advantage.

Mazda's relatively new CEO for North America, Masahiro Moro, has cut back on sales to daily-rental and other fleets to concentrate on pushing the brand toward premium status and increasing resale value on behalf of hard-core enthusiasts of the automaker's distinctive design and cutting-edge engine technology.

"I think autonomous driving is an important technology, but how we deploy and how we use that technology is different from a leading company," Moro last April told an Australian car enthusiast magazine. This week, he told reporters in Detroit that improving relationships with customers is his priority, an about-face from conventional industry strategy to concentrate on increasing unit sales in order to drive down costs.

Because Mazda lacks the size to generate sufficient capital to invest in alternative-fuel systems and autonomous technology, it has created partnerships with larger rivals like Toyota (TM) - Get Report and Fiat Chrysler Automobiles (FCAU) - Get Report . For investors, the relevant questions are whether one of the bigger fish -- and, of course, which one -- might eventually decide to devour the pilot fish.

The increasingly global nature of automaking has only heightened the pressure on automakers like General Motors (GM) - Get Report , Volkswagen (VLKAY) and Ford (F) - Get Report to increase scale. The cost of driverless, battery and fuel-cell technologies is immense, creating intense pressure to finance their development across a large number of vehicles and markets.

Over the past five years, the price of Mazda shares has risen about 30% in Tokyo, less than the 66% increase in the Nikkei 225 and the 70% increase for Toyota.

With 1.3 million vehicle sales worldwide -- compared to the 9 million to 10 million scale of GM, Toyota and VW -- Mazda ranks far behind. An automaker like Fiat Chrysler, which concedes that it is struggling to reach sufficient scale, may find Mazda attractive. The two automakers have collaborated on the creation of the Fiat 124 Spider, derived from Mazda's new Miata. Mazda's market capitalization of $8 billion is about the same as Fiat Chrysler's $8.5 billion.

Another possible acquirer or merger partner for Mazda could be a Chinese automaker with ambitions to gain brand identity in the West. Chinese billionaire Li Shufu pursued that strategy by investing $11 billion into the Volvo brand, giving his largely unknown Chinese company a Swedish flavor. The payoff for Li's Zhejiang Geely Holding Group has been a raft of new models starting with the Volvo XC90 crossover and S90 sedan -- and the prospect, eventually, of global scale.

(The counterpoint to this theorizing is that global mergers often don't work. See: DaimlerChrysler).  

For the moment, Mazda isn't posting any "for sale" notices. Demand for vehicles remains strong in the U.S., its most important market, as well as in Europe. Mazda's brand is strong, and its new U.S. chief promises to strengthen it further. 

When global vehicle markets turn, as always they do, Mazda may face the choice of whether to continue as a pilot fish.

Doron Levin is the host of "In the Driver Seat," broadcast on SiriusXM Insight 121, Saturday at noon, encore Sunday at 9 a.m.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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