Expanding to five domestic sales channels — and the post-bubble breakdown (1989)

The subordination that expansion invited

The heart of this decision was that a subscale “weak player” took head-on the multi-channel expansion that was the big makers’ home turf. Tie-ups with firms in other industries did hold down store investment, but the fixed cost of the development spending needed to keep feeding new cars to five channels bore down heavily, never making up for the smallness of scale. Shifting the whole lineup upmarket while splintering the channels at the same time, and mistaking the bubble’s tailwind for permanent growth, hurt the parent’s finances. As with the 5,000-person secondment under the 1977 dealer-support scheme, Mazda repeated twice the failure in which an overreaching sales front wounds the parent.

With an overgrown sales network and lineup already in hand, a strong yen piled on, and Mazda sank to an ordinary loss of $431.4M (¥44bn) for the year ended March 1994. As convertible-bond redemptions loomed, self-rescue reached a dead end, and in 1996 its largest shareholder, Ford, raised its stake to 33.4% and took control of management (see the separate note, “Ford raises its stake and seizes control of Mazda”). The 1989 bet in which a weak player reached for the top through expansion became, ironically, the doorway to deeper subordination to foreign capital. It was the turning point at which expansion out of proportion to scale drew in the next shift of ownership.