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November 10, 2022 04:59 AM

Mazda grapples with tight labor at U.S. plant as it struggles to ramp up CX-50

Mazda is struggling with staffing its U.S. plant in Alabama.

Hans Greimel
Naoto Okamura
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    Mazda CX-50
    MAZDA

    Mazda builds the CX-50 SUV at its U.S. plant in Alabama.

    TOKYO -- Pandemic lockdowns and semiconductor shortages are not the only production headaches hobbling Mazda. An ultra-tight labor market is also slowing the company’s ramp up to full production of the CX-50 crossover at its new plant in Alabama.

    Mazda is having trouble attracting workers and keeping them at the plant, which is still working at one shift some 10 months after its line-off ceremony in January.

    Senior Managing Executive Officer Masahiro Moro said the company is pushing back its original timeline to add a second shift by the end of this year.
     The Japanese automaker is struggling with staffing amid low unemployment in the state.

    “The employment rate stands around the 2 percent level in Alabama,” Moro said. “Retention is not so easy, so the local staff has been working hard to provide training and ensure employee retention. We work to ensure stable operations on one shift there, and then look to move to two-shift operations. So, we are pushing back the two-shift timeline a little.”

    Mazda has full-production capacity to build some 150,000 vehicles at the Huntsville, Alabama assembly plant, which is jointly operated with Toyota.

    But sales of the CX-50, the only vehicle it builds there, reached only 16,006 through October.

    Speaking on Thursday at Mazda’s financial results announcement, executives said U.S. demand for Mazda vehicles remains strong, despite talk of recession. But they warned that the economy in Mazda’s most important market is expected to weaken in the spring, possibly sapping demand.

    That could undercut Mazda’s strategy of moving the brand up market and reaping higher revenue per unit, especially as it readies the introduction of a new top-line CX-90 crossover for the U.S. market next year.

    That is because consumers facing higher interest rates and economic hard times are likely to shift their spending toward lower grade, lower margin models.

    “We think the U.S. economy will likely slow down, damping consumer sentiment,” global sales chief Yasuhiro Aoyama said.
    “High inflation and interest rates could force customers to downgrade the models they purchase. We will carefully monitor such a change in demand and find ways to produce and supply popular models. This will be a big pillar of our efforts.”

    Earnings rebound

    Aoyama’s assessment came as Mazda reported a big bounce back in earnings for the fiscal second quarter ended Sept. 30.

    Riding a tailwind of favorable exchange rates and rising sales, Mazda booked a more than fivefold increase in operating profit in the quarter.

    Operating profit soared to 74.7 billion yen ($516.9 million) in the July-September period, from 13.6 billion yen ($94.1 million) the year before.

    A leap in wholesale shipments, enabled by the resumption of production after interruptions earlier in the year, fueled the earnings surge.

    Wholesale shipments climbed 29 percent to 284,000 vehicles in the period.

    Meanwhile, Mazda’s up-market move pulled in more profitable sales. Better per-unit revenue, paired with the rising volume, added 61.2 billion yen ($423.5 million) to the quarterly results.

    At the same time, the Japanese yen’s dramatic weakening against the U.S. dollar and other currencies chipped in another 38.4 billion yen ($265.7 million) to the bottom line.

    The improved fundamentals helped drive a fivefold increase in net income to 70.9 billion yen ($490.6 million) in the quarter, as revenue climbed 48 percent to 1.03 trillion yen ($7.13 billion).

    Worldwide output increased 8 percent to 503,000 vehicles in the first six months of the fiscal year, as pandemic-related lockdowns in Shanghai ended, restoring the supply of semiconductors and other components for Japanese plants.

    Crucially, output bounced back to 294,000 in the fiscal second quarter, after languishing at 209,000 in the first amid the lockdowns.

    Still, Mazda forecasts that uncertainty in global semiconductor supply will drag into 2023. That is one reason the company trimmed its wholesale volume forecast by 80,000 units.

    But citing windfall gains from favorable foreign exchange rates, Mazda upgraded its profit outlooks for the current fiscal year ending March 31, 2023.

    Operating income is now seen advancing 34 percent this year, compared to the previous fiscal year, and net income is expected to grow 59 percent.
    Mazda now forecasts wholesale shipments to improve 11 percent to 1.1 million units as output returns to more normal levels.

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