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Mazda invests in R&D to guard its independence

Mazda's unique engineering approach - and hefty R&D budget - enabled it to develop a breakthrough form of engine technology called Skyactiv-X.

"Under Ford, we had to adopt things, which we felt weren't always optimal. This could be everything from marketing to engine or platform technology." - Susumu Niinai, general manager of Mazda's Asean Business Office.

Sapporo, Hokkaido

MAZDA Motor Corporation isn't just one of the few truly independent major carmakers left, it's also flourishing in an age when being small is seen as a big liability for an automotive brand.

Sales have never been better. The Hiroshima-based company is on track for another year of record volume, after three consecutive years of best-ever financial results.

The first half of its 2017-2018 fiscal year saw production reach 783,000 vehicles. It sold 1.55 million cars in 2016, its fifth consecutive year of increased production, up from 1.2 million cars in 2012. It also earned 3,214.4 billion yen (S$39 billion) in revenue in 2016, up from 2,205 billion yen in 2012.

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With Mitsubishi joining the Renault-Nissan corporate alliance in 2016, only Mazda, Subaru and Suzuki remain as independent Japanese carmakers of note. Mazda may be the largest of the trio, but it's still dwarfed by other mainstream brands. In comparison, Toyota is nearly seven times larger by volume.

In the world of cars, Mazda might be considered an SME. Can it continue to flourish without being swallowed by one of the Goliaths? At a forum for the auto press in Hokkaido, management spelt out detailed plans for the future, as Mazda battles fiercely for its independence.

They involve a groundbreaking new engine technology called Skyactiv X, a next-generation car platform, a new design approach and a more efficient method of producing cars. These are meant to see the company through an emerging era for cars, in which self-driving and electrification technology will place enormous emphasis on research and development.

Mazda's methods have worked so far, and if they continue to do so, here are some lessons SMEs could learn from them.

Last year, Mazda pulled off a technology coup that no one thought possible. It rolled out "spark-controlled compression ignition", a combustion technology it calls Skyactiv X. It gives petrol engines all the benefits of diesel engines, such as increased torque and fuel efficiency, without the extra pollution diesels bring.

Mazda says a Skyactiv X engine has the potential to be up to 30 per cent more fuel efficient than the already frugal Skyactiv-G engines in current Mazdas. That would make it nearly as efficient as some petrol-electric hybrids, but without adding expensive motors and batteries.

Mazda insists a Skyactiv X engine could be as clean as some electric vehicles when measured in well-to-wheel metrics, which account for emissions produced to manufacture an electric car and generate the electricity to run it.

Combining a Skyactiv X engine with a hybrid system, which Mazda says is possible in the future as it intends to expand into electrified vehicles, would wring even more efficiency from the technology.

The first production Skyactiv X car will be the next-generation Mazda 3, which will launch in Singapore next year.

The system came about through stubbornness. Rivals focused on diesel technology when the car industry committed to reducing carbon emissions, since diesel engines are inherently more efficient than petrol ones. But Mazda believed there was a way to make a petrol engine run like a diesel one, something other engineers saw as an impossibility.

It took resources and a decade of research to make Skyactiv X a reality. "We were determined that no matter what, we would develop this engine," Mitsuo Hitomi, Mazda's head of engine development, told Reuters at the Tokyo Motor Show last year.

Making a car is a complex business, not least because there are numerous stakeholders: engineers, designers, product planners, and an army of other suits from production, sales, finance and upper management and more.

Mazda has a unique way of "unifying" them: its engineers are shuffled around to different parts of the company at different stages of their career. This ranges from its current president/CEO, Masamichi Kogai, to junior level staff.

Susumu Niinai, the general manager of Mazda's Asean Business Office, is an engineer specialising in internal combustion engines and developed the current generation of Mazda's engines. Takeji Kojima, Mazda's general manager of corporate communications, is also a qualified engineer and was previously a product planner.

In other words, its executives don't just wear suits, but have a deep knowledge and understanding of technology, which informs what the company needs to do to continue to make cars that sell.

With the average on-sale lifespan for any car now being six years, car companies live - or die - by their research and development budget, or lack thereof. Mazda's engineer-brained management thus knows the importance of a large R&D budget, and exactly what they need to accomplish with it.

"We spend more than Mitsubishi and Subaru on research and development," says Mr Kojima. Mazda spends 4.5 per cent of its revenue on research, which is a larger proportion than Toyota does (3.7 per cent).

In 2017, Suzki spent 131.5 million yen (S$1.6 million) on R&D, and produces roughly twice as many automobiles as Mazda does, but the latter spent almost as much on R&D (126.9 million yen).

It also knows that a future is best built today: while Skyactiv X is a big breakthrough, Mazda laid the groundwork for it very early on.

"We began research into Skyactiv X a decade ago, at the same time we began the programme for Skyactiv diesel engines you see today," said Mr Kojima.

Mazda now revels in its independence, but that's also because it knows well the other costs that come with belonging to a larger group.

Ford had a controlling stake in Mazda from 1995 to 2008, and while the access to a larger group's resources was useful, it also came with serious downsides.

"Under Ford, we had to adopt things, which we felt weren't always optimal. This could be everything from marketing to engine or platform technology," says Mr Niinai.

In other words, Mazda's technological edge was blunted by the necessities of cost-cutting and platform sharing. When Ford divested itself of the ownership in 2008 after the financial crisis, Mazda's then president, Takashi Yamanouchi, described it as a "godsend", and the company was free to pursue its own direction.

In fact, being aware of Mazda's small size forces management to focus on its most crucial projects."Our resources are limited, so unlike bigger automakers, we don't have the array of options in which to invest our R&D funds," said Mr Hitomi, "That's why we're betting on Skyactiv X."