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Thursday, November 20, 2008

Zoom doom - breakingviews | Ford/Mazda

Considered view
18 Nov 2008 03:41

Zoom doom

Context News

Ford is giving up its controlling stake in Mazda. The US car maker is reducing its holding to 13% from 33.4%. Ford is receiving Y184 a share, or roughly $540m in total. Mazda shares hit a 2008 high of Y660 on July 24th.

Mazda will buy 6.87% of its own shares from Ford. Another 20 unnamed business partners will buy the other 13% up for sale.

Ford/Mazda: This is not a good week for Ford executives to decide to sell the majority of its stake in Mazda. Sure, boss Alan Mulally might be hoping the move will demonstrate a willingness to take tough decisions as US lawmakers consider whether to bail out the country’s three main car makers. But instead it’s an apposite example of the cost of Detroit’s failure to act with alacrity.

How so? Well, first there’s the price. At just $540m, Ford is getting less than a third of what it might have reaped had it offloaded some shares just four months ago. In fact, aside from a brief blip around the 9/11 terrorist attacks in 2001, Mazda hasn’t traded this low in the last 20 years or more.

That’s not to say the relationship with Mazda lacked value – the Japanese manufacturer has been useful in Ford’s attempts to develop smaller, fuel-efficient cars. But the Motown number two’s need for cash to retool its ailing US operations outweighs the benefit of holding a controlling 33% stake in Mazda.

That is emblematic of a broader problem: Detroit’s car makers have been too wedded to maintaining a bloated portfolio of brands. That has arguably diverted their attention from fixing problems in core businesses and prevented them from generating what former Chrysler executive Jerry York almost three years ago dubbed a “sense of purpose…to galvanize the organisation”.

Admittedly, Ford has taken more steps than General Motors, by selling Aston Martin, Jaguar and Land Rover before the credit markets shut down. GM, by contrast, has only shed some minority stakes and tried – and so far failed - to sell its small Hummer unit. In fact, chief Rick Wagoner still insists that the firm must keep its seven at-times competing US brands.

Those probably need slashing to two or three. Ford’s offerings need less trimming – though Volvo now looks like a liability and Lincoln and Mercury could be merged. Its sale of Mazda may be part of that move to focus on its core business. But doing it belatedly, in the midst of a crisis and at a depressed price raises more questions about Ford’s judgment.

Mazda announcement

Copyright © breakingviews 2008

breakingviews | Ford/Mazda

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