Sumitomo Bank Executive Adviser Sotoh Tatsumi, talking about the Ford-Mazda tie-up (Sumitomo Bank's Head Office, Chuo-ku, Osaka)

In May 1996, Ford increased it stock ownership in Mazda. In the fall of the previous year (1995), I met with Ford's Chairman, Alex Trotman, and Vice- Chairman, Wayne Booker, in a hotel near the Tokyo Motor Show. That was the first time that a stock ownership increase was discussed. They said, "Mazda doesn't have an attitude of wanting to work together. And their business is in extremely bad shape. We can't go on stepping in to fix their problems forever." It was a very difficult situation, and I wasn't sure whether they would even continue with the 25% stock ownership they already had. So I answered, "I'm sorry to hear that this is your view; it could be very damaging for Mazda. I implore you to offer your support. Mazda cannot survive without Ford." Then they asked if the Sumitomo Bank was truly willing to support Mazda, and I said, "Yes, it is."

So it was agreed upon to conduct a review of Mazda's financial condition, and that Ford would reach a decision based on the findings. The review was extensive-it included Mazda dealers-and took about three months. Many problems were uncovered; yet, it also became clear that Mazda possessed high technological capabilities. This realization made me confident that increased stock ownership would be of benefit to Ford.

Meanwhile, Mazda's business situation continued to deteriorate and at Ford people questioned the wisdom of a stock ownership increase. Finally, after several months of negotiations, we received a response from Ford that they would raise their ownership stake and "provide comprehensive support in the area of management." Concerning the increase, I had had the figure of 33.4% in mind right from the beginning.

I had made a trip to solicit Ford's support prior to the increase of Ford stock ownership in Mazda in 1979. That trip, on July 20, 1977, was my first visit to Ford's HQ in Dearborn, and one that I'll always remember. At the time, the oil crisis had created a situation that made it difficult for Mazda to continue to survive on its own.

Talks took place between myself and two top Ford executives, the Vice-Chairman and the Vice-President in charge of international affairs. Initially, they refused my request for help, explaining that Mazda had turned them down when they proposed a capital tie-up in 1972. But of course that wasn't the response that I could take back to Japan. So I dug in and engaged them in negotiations - from 9 in the morning through to 5 in the evening! In the end, they said they would send me a letter at the airport to take back to Mazda outlining their conditions, and suggested if they were accepted further meetings would be possible.

I was due to fly back to Japan the following morning, and as promised, a person from Ford delivered the letter to me at the airport. It said that Ford primarily wanted Mazda to make gears for them, and to progressively increase the number of small-size trucks it received from them. The letter also requested an assurance that the Sumitomo Bank would support Mazda. Another condition expressed was that Mazda produce front-wheel drive vehicles-an area Mazda had no experience in. Ford said such vehicles were set to be a major trend worldwide. Mazda's response was somewhat downbeat, but they eventually agreed. The arrangement brought Mazda orders for 200,000 gear sets annually, which boosted its income.

At the time of that first capital tie-up, there were people saying "How about asking Toyota for help?" "What about Nissan Motors?" and so on. We did consider many alternatives. But it was clear that in the 21st century, reorganization and consolidation among the auto industry would occur, not just in Japan, but on a global scale. Accordingly, we thought in terms of either GM (General Motors) or Ford. GM had already formed a relationship with Isuzu, so we came down in favor of requesting help from Ford. As the first company in the world to mass-produce automobiles, Ford has superb resources for anticipating and exploiting trends and currents in the automobile world. I feel today that that decision was the right one, just as I did 20 years ago.

Restructuring of the Industry Majority Holding Possible at Any Time Looking at the restructuring of the world's automobile industry that is currently taking place, I feel that things are going the way we predicted. In the future, world industry will gravitate around the GM and Ford in the US, Toyota and Honda in Japan, and Volkswagen and Daimler-Benz in Germany. Nissan will make efforts of various kinds to keep itself going. What will happen to French and Italian automakers, and Germany's BMW, I'm not sure. Most likely, they will arrive at some form of balanced cooperation and interaction with one another. I should mention that on several occasions talks have been held concerning a merger of Italy's Fiat with Ford, but nothing ever came of these talks. Around the time of the stock acquisition two years ago, Ford was prepared to take a 51% holding. I thought a 51% holding would be too much at that point in time, and was unsure of the consequences. So it was arranged for Ford to increase its holding to a little over one third instead. Recently, following a Stockholders' General Meeting, Ford Chairman Alex Trotman touched on the subject of Ford increasing its stock ownership in Mazda. But this doesn't mean that such an increase is going to happen right away. Rather, what his words meant was that, taking a long-term view, there is no obstacle whatever to Ford acquiring a majority holding in Mazda. I believe he feels that, provided such a move becomes necessary, it will be appropriate for Ford to acquire a majority holding at any time. Ford does not want Mazda to become just like Ford. That would be of no interest to Ford. Let's make no mistake about that. Ford says it wants Mazda to maintain its own distinctive existence, and to produce characteristically Mazda vehicles. Ford doesn't want to make Mazda indistinguishable from itself. These sentiments are very strongly held at Ford, you know. Tastes in cars vary widely among different groups of people. Japanese people have their favorite kinds of car and so do the elderly and the young. Men prefer different kinds of car to those women prefer. But cost is an important factor, and to cut costs, the adoption of common chassis is increasing. However, such use of common chassis will still permit a wide variety of cars being offered. Although a number of models will share the same "internal organs," extensive variation will be possible in the outer appearances of the different models. Just because the Ford Group is providing Mazda with capital doesn't mean that they want each and every aspect of Mazda made uniform with Ford! For Ford, Mazda isn't simply a collection of plants. It's a fine affiliate company located in the Far East. A relationship in which Mazda languished while Ford thrived, could not be long-lasting. The two companies must prosper together.

With US-Style Management Strict Emphasis on Profitability Bank Wishes to Preserve Mazda's Japanese Character The decision for Ford to take over the management of Mazda is reached. Then Vice-President Henry Wallace and President Yoshihiro Wada of Mazda present greetings to Yuzan Fujita, Governor of Hiroshima Prefecture. The reform of Mazda is going well - thanks to "good American management," you could say. Usually when we think of US-style management we think of intense survival-of-the-fittest practices, especially regarding finance, and of sudden and drastic personnel reductions. But Ford is a little different. I've been in contact with, and observed, Ford since 1975 and that is over 20 years now. I've noticed that they really care about their employees. They have a friendly relationship with the United Autoworkers Union (UAW) in the US. But that's not to say they have a halfhearted approach to business. They run a very efficient operation. Ford attaches very great importance to profitability, and considers how to lower costs an important issue. They set very strict guidelines for their parts purchasing, but that reflects a highly rational approach. They engage in intensive negotiations with prospective suppliers, recognizing that they naturally expect a certain profit of their own. But in such discussions Ford won't ask point-blank for discounts. Rather, they'll be working hard to find ways of making the supplier's manufacturing processes more efficient to bring costs down. To survive in the automobile world today, you must make cars which are world leaders, but at the lowest possible cost. But Mazda, which sells only 300,000-400,000 vehicles per year domestically, cannot do that alone. So, rather than spend tens of billions of yen on developing its own large vehicles, it's better for Mazda to market Ford's large vehicles as its own. In return, Ford will have Mazda develop the small vehicles that it's good at making, and market those vehicles as its own. Thus, I don't think that Mazda could keep going if Ford were not in charge of its management. Ford has no particular preference as to who holds the position of President at Mazda. If someone with suitable management skills emerges in Mazda, they'll make that person President. When Ford was about to increase its stock holding the year before last, and the question of whom to make President arose, I suggested the Vice-President Henry Wallace. Ford hesitated about that, feeling that being President of a Japanese company might be tough for a foreigner. But he got my recommendation because he was able to do the job, and was popular within the company too. Ford's entry into the management of Mazda hasn't changed Sumitomo's position at all. Some have claimed Sumitomo is gradually going to pull out of Mazda, but that isn't so. But having said that, we can't go on assigning our bank personnel to positions in Mazda indefinitely. The best thing is for Mazda to be run by people who know about automobiles. In fact the reason why I was appointed a director of Mazda two years ago was that we didn't want people to say that Sumitomo was getting out of Mazda. We at Sumitomo see our role in Mazda as that of a helper. If some move becomes necessary on the financial front, we will undertake it. In reality, if Mazda fails to prosper, it will mean hardship for dozens of thousands of people-employees of Mazda, its parts makers and related businesses-and depression for Hiroshima's economy. So, while this is no time for the Sumitomo Bank to be meddling in affairs at Mazda, nevertheless we are fully prepared to make appropriate representations to Ford, should matters take a turn that is detrimental to the Japanese character of Mazda.