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Mazda sees profits in Europe at 120 yen/euro

From Reuters| March 07,2007

The head of Mazda Motor Corp.'s European operations said today that the Japanese automaker would be able to make decent returns even if the euro traded at 120 yen -- around 20 percent lower its current value.

"The euro's got to weaken considerably (for us to suffer)," said James Muir, president of Mazda Motor Europe and managing executive officer at Mazda Motor Corp.

"But even at 120 yen to the euro, I think we could still make a reasonable contribution to the company," he said at the Geneva auto show.

The Hiroshima-based automaker has been a major beneficiary of the euro's appreciation against the yen, with exports from Japan accounting for 94 percent of the cars it sells in Europe.

Last month, Mazda, one-third owned by Ford Motor Co., lifted its operating profit forecast for the business year ending this month by 7 percent citing, windfalls from the weaker yen.

But analysts say Mazda's high exposure to currencies posed a big risk in the event of an adverse swing in exchange rates, making production in Europe a must down the line.

Muir said he wanted to make cars in the region, but added that that was unlikely for years to come given the company's limited financial resources and the need to exhaust more viable options such as expanding existing joint venture factories with Ford in the United States and Thailand.

"We do know that we need some form of a foreign exchange hedge. But for the foreseeable future, that will not come in Europe with a manufacturing plant," Muir said.

Muir said Mazda would need to be selling about 500,000 cars a year to build a sustainable business in Europe, while a minimum volume of about 200,000 a year would be needed for a greenfield manufacturing site.

Mazda's sales in Europe, including Russia, jumped 13 percent in 2006 to 303,600 units, topping the 300,000 mark for the first time in 15 years.

Mazda was building 35,000 Mazda2 subcompacts a year at Ford's factory in Spain, but it is scheduled to transfer the model's production to its own underused plant in Japan when it remodels the compact car this year.

Mazda hopes to sell 90,000 to 100,000 of the new Mazda2, which premiered in Geneva today, a year in Europe, which Muir said would likely lower Mazda's regional profit margin but expand absolute profits.

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