Mazda Motor Corp., burdened with the second-worst credit rating among Japan's carmakers and a 62 percent surge in short-term borrowing this fiscal year, plans to apply for government aid as it consumes cash.

"We can't sell bonds right now," said Nobuyoshi Tochio, general manager of Mazda's financial services division. "The market isn't functioning. Conditions are really bad."

Mazda used ¥174 billion in cash last quarter as sales of Mazda6 sedans plunged in the U.S. and Europe. The Hiroshima-based company may turn to the government for low-interest loans because its junk rating prevents it from following Toyota Motor Corp. in tapping capital markets.

"Mazda needs loans from the government badly, as it's vulnerable," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments Ltd. "The company is important to the local economy, so it should be able to get them."

Mazda's short-term borrowings, including leases, loans and bonds due this year, surged to ¥221 billion in the nine months to December, exceeding the company's untapped ¥200 billion credit line. The carmaker expects a ¥13 billion loss for the year ending this month and analysts forecast the loss will almost triple to ¥37.5 billion next fiscal year.

The company may apply to the Japan Bank for International Cooperation and Development Bank of Japan for loans to bolster its cash position, Mazda's Tochio said in an interview Friday.

Surging unemployment and tight credit has driven overall car demand to an almost 30-year low in the United States. In the first two months of 2009, the company's sales plunged 29 percent in the U.S., 16 percent in Europe and 38 percent in Japan.

Exacerbating the drop in sales is the yen's 17 percent gain against the euro and 7.5 percent rise against the dollar in the past six months. The stronger yen cuts Mazda's earnings when repatriated.

Every ¥1 drop against the dollar cuts Mazda's annual operating profit by ¥2.6 billion, while a ¥1 drop against euro slashes ¥1.4 billion.

In response, the carmaker slashed production by at least 221,000 vehicles in the second half of the fiscal year, slowing down the rate it was burning cash.

"We're adjusting inventory in the fourth quarter," Chief Financial Officer Kiyoshi Ozaki wrote in an e-mailed response to questions. "We're aiming to have our cash flow at least break even this quarter."

Mazda also added to its debt after it bought back 6.9 percent of its own shares from Ford Motor Co. in 2008. Ford relinquished control over the smaller company, forcing it to do more development by itself.

"As an independent, Mazda needs to find a way to allocate money for development," said Ichiro Takamatsu, chief investment officer at Alphex Investments Co. "Mazda's struggle may continue next fiscal year as the market shows no signs of a recovery."

Toyota, with an Aa1 rating from Moody's Investors Service, sold ¥200 billion worth of bonds in February. Honda Motor Co. is rated Aa3 by Moody's and A+ by Standard & Poor's. Nissan Motor Co. has a Baa2 rating from Moody's and a BBB rating from S&P.

Mitsubishi Motors Corp. has the worst rating among Japan's carmakers, with a Ba2 rating from Moody's and B+ from S&P. Still, the carmaker is part of the Mitsubishi Group, one of Japan's biggest conglomerates, which bailed out the carmaker in 2004 and 2005.

"Unlike Mitsubishi, Mazda has no backing," said Yasuhiro Matsumoto, a senior analyst at Shinsei Securities Co. "It's hard for Mazda to raise money from the capital markets, because it needs to give a premium to sell bonds with the current rating."