Mazda to Make a Tiny Toyota in Mexico for Sale in North America

Here is a way for both Japanese companies to cut costs, decrease their dependence on a strong Japanese yen  and access the large auto markets in the Americas.

Mazda Motor Corporation today announced that a plant in Mexico currently under construction would also produce a Toyota-brand vehicle for sale in North America. The sub-compact will be based on the new Mazda2, and will enter production during the summer of 2015. Toyota Motor Corporation is requesting 50,000 units per year for a Yaris-sized car that will be sold through Toyota dealerships.

Hiroshima-based Mazda is planning to make about 140,000 Mazda2 (Demio) and compact Mazda3 (Axela) cars at Mazda Motor Manufacturing de Mexico in Salamanca city, Guanajuato state, starting in the winter of 2014. Engine assembly is also planned for the site. The new Mexican plant is being financed in part by the 400-year-old Sumitomo Trading Corporation, which bought 45,963,000 shares of Mazda from Ford Motor in November of 2010. Sumitomo now holds about 3% of MMC.

Toyota said it is investing a prorated portion of equipment, tooling and plant expansion costs, as well as the development costs for the Toyota vehicle. The current Mazda2 is the donor vehicle for the Ford Fiesta, but Mazda and Ford Motor are increasingly going their separate ways after decades of collaboration, with the notable exception of China. (Changan Ford Mazda Automobile Breaks Ground for Chongqing 3) As a result, Mazda is under extreme pressure to come up with development costs for replacement models, now that Ford’s deep pockets and better credit ratings are gone. In its current Japanese fiscal year forecast, Mazda predicts earnings of ~$125 million or a little more than three yen per share, not enough in my view to compete with the more profitable top automakers.

TMC is also under extreme pressure from the strong Japanese yen that is currently trading at ¥79:$1. TMC recently thrived on exports when the yen was weak at ¥120 to $1 (or much more further back), but is now moving production out of Japan to increase profitability. The current Yaris is a 3-door hatchback exported to the U.S. with prices starting at ~$15,000. Given Toyota’s strong balance sheet and lack of debt, this move is either puzzling or a deft marshaling of resources in an increasingly expensive product development world. (See Toyota Makes $3.2 Billion Because of Sales Increases, Cost Cutting)

Mazda only established its sales network in Mexico seven years ago, and has a modest 3% share of the market by selling roughly 30,000 vehicles annually. The Mexican plant provides access to Canada, United States, Central and South America.

About Kenneth Zino

Ken Zino is an auto industry veteran with global experience in print, broadcast and electronic media. He has auto testing, marketing, public relations and communications expertise garnered while working in Asia, Europe and the U.S.
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