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Update 3: Weaker ties with Ford seen as boon, risk for Mazda
by Chang-Ran Kim | Japan © Reuters Limited 2010.


Reuters News, Oct-18-2010 â?? (Adds analyst comment, Ford share performance)
TOKYO, Oct 18 (Reuters) - Ford Motor Co nd Mazda Motor Corp look set to drift
further apart as the U.S. car maker plans to wind down its stake in the Japanese
company, leaving Mazda freer to make decisions, but possibly in need of a new
partner down the line.

Ford is set to sell most almost all of its stake in Mazda, which currently
stands at 11 percent, a source told Reuters on Saturday. Trading house Sumitomo
Corp and other Japanese business partners of Mazda were in talks to buy the
shares, the source said.

Sumitomo Mitsui Banking Corp President Masayuki Oku said the bank was
considering a purchase of part of Ford's Mazda stake by year's end. The bank is
the core unit of Sumitomo Mitsui Financial Group Inc.

Speaking to a small group of reporters in Tokyo, Oku noted that Ford's reason
for selling its stake in Mazda was not because it needed cash, as some media
reported.

"I can't disclose what they are, but there are other reasons. If we become
Mazda's top shareholder, the operational and psychological relationship between
Ford and Mazda will not change," he said.

He said the bank did not intend to sell any stake it buys in Mazda to other
automakers.

Ford issued a statement saying it continued to work with Mazda in areas of
mutual interest and offered no comment on what it called "speculation" about its
Mazda holdings.

Sources said Ford was looking to sell its Mazda stake to gain more freedom for
its Chinese operations. A three-way venture between Ford, Mazda and Chongqing
Changan Automobile Co Ltd is currently seeking government approval to split into
two, with Ford and Mazda each partnering Changan separately.

"It sounds like Ford decided to cut its ties with Mazda, and it would rather
nurture its Chinese venture businesses," said Fumiyuki Nakanishi, a manager at
SMBC Friend Securities.

Aaron Bragman of IHS Automotive Insight said from his office in Michigan said
that, if Ford distances itself from Mazda, it is not a surprise.

"Mazda needs Ford a lot more than Ford needs Mazda," said Bragman. "Ford has
basically said it is their plan to work on small-vehicle development in-house.
They will focus more on Ford than in the partnerships they have. They have the
resources, they have the people to do it without an outside partner."

JP Morgan Securities auto analyst Kohei Takahashi said he viewed a further break
of Mazda from Ford as positive for Mazda.

"Mazda has indicated that it wants to expand sales of its 'SKY' series of
next-generation powertrains in the future, and we believe that achieving greater
capital independence would help Mazda expand its business with companies outside
the Ford group," he wrote in a note to clients.

Shares of Mazda ended down 0.9 percent at 212 yen on Monday after falling almost
5 percent earlier. Most other auto stocks rose, while the benchmark Nikkei
average .N225 closed flat.

Ford's shares were up 0.5 percent at midday at $13.87 in New York.
WHO'S NEXT?
With Ford's equity participation heading lower, the next big question would be
whether -- or how long -- Mazda will hold out on its own as a smaller but
technologically savvy maker of sporty cars without a major capital alliance.

"Ultimately this could mean that at some point Mazda finds itself aligned with
someone else," CLSA Asia-Pacific Markets auto analyst Christopher Richter said.

"As I scan the horizon of other Japanese, European or U.S. automakers, nobody
jumps out. The most likely suspect would be a Chinese or Indian automaker with
global ambitions."

There is no shortage of emerging Asian automakers harboring big global ambitions
ranging from Changan Auto to India's Mahindra & Mahindra Ltd, which will soon
take over South Korea's Ssangyong Motor Co.

Analysts said, however, that Mazda would likely prefer to stay independent.
Mazda officials have privately lamented the lack of flexibility in the past even
under Ford's control.

"They're not desperate, so (a new grouping) doesn't have to happen tomorrow or
even next year," Richter said.

"They can make an argument (to their shareholders) to stay independent as long
as they're profitable. And because a sale to a Chinese automaker, for example,
would be controversial, they may not need a hell of a lot of convincing."

Mazda has forecast a net profit of 5 billion yen ($61.4 million) for the year to
March 31, 2011, but faces worsening conditions under the yen's rise. Mazda,
which builds most of its cars in Japan, is especially vulnerable to a strong
yen.

ENGINEERING SAVVY
While Mazda has no hybrid technology of its own, it is seen as among the most
advanced in internal combustion engine technology, becoming one of the first
Japanese automakers to introduce an automatic engine-idling feature to the
market.

Through a new generation of gasoline and diesel engines and transmissions under
its SKY series, Mazda is aiming to improve the fuel economy on its cars by 30
percent by 2015, compared with 2008 levels, without using a hybrid or pure
electric system.

While the long-time partners have many intertwined operations, Mazda and Ford
have been growing apart. In a recent sign of distance, Mazda in March turned to
Toyota Motor Corp for help in developing its first hybrid car, instead of Ford.

Both Ford and Mazda called the report speculation, issuing similar statements
stressing their strategic alliance remained intact.

Mazda CEO Takashi Yamanouchi will address the media on Wednesday about the
company's next-generation technology. ($1=81.43 Yen) (Additional reporting by
Daiki Iga, Aiko Hayashi and Taiga Uranaka in Tokyo and Bernie Woodall in
Detroit; editing by Joseph Radford and Andre Grenon)