GS69

Mazda Seeks to Break Out of 2nd Tier

Robert Davis likes to go fast.

Mazda's senior vice president of U.S. operations races RX-8s and MX-5 Miatas in his spare time. He ran the 1991 Mazda 787 Le Mans race car at the Rolex Monterey Motorsports Reunion last August, attacking Mazda Raceway at Laguna Seca at speeds of nearly 200 mph.

But Laguna Seca isn't the only place where Davis needs to zoom-zoom.

Mazda is racing to boost its U.S. market share to 2.5% and sales to 400,000 vehicles by 2014. The ambitious goal -- a 74% gain over 2010 U.S. sales of 229,566 units -- would be a milestone for the company. Mazda has never sold 400,000 vehicles in its nearly 40 years in this country.

And the company faces significant obstacles. For instance, Mazda is highly vulnerable to the profit-punishing strength of the Japanese yen. Japan-made vehicles account for 85% of its U.S. sales.

Whether it will assemble vehicles in the United States to offset the yen's pressure is unclear. Mazda said in June that it will cease production of the Mazda6 at the AutoAlliance International assembly plant in Flat Rock, Mich., when the car's life cycle ends, probably around 2012. The plant is Mazda's 50-50 joint venture with Ford Motor Co. and its only U.S. manufacturing center. A new 140,000-unit plant in Salamanca, Mexico, is scheduled to be producing small cars in 2013. That output, originally meant for Latin America, also may come to the United States, Mazda says.

Also, Mazda is moving away from sharing high-volume platforms with Ford. That means that Mazda has to shoulder the full cost of vehicle development. But Davis says the company is ready to boost sales.

"Our product strategy and what we have in the pipeline is going to allow us to grow," he said. "What that market share becomes and what the total sales number becomes depends really on where the industry ends up, but we see our growth led by our ability to keep our current customers and attract the young customers that we're already doing pretty well with."

Here's what Mazda executives see as the brand's strengths:

-- A dealer network with more exclusive stores and improving customer-experience ratings.

-- Higher quality vehicles with strong residuals.

-- Lighter, more fuel-efficient vehicles that maintain performance and show a new design language.

-- More aggressive and focused advertising with a new agency.

'The glass ceiling'

O'Sullivan: Increasing consumer awareness "has been the biggest issue."

Jim O'Sullivan, CEO of Mazda North American Operations, says Mazda needs to increase consumer awareness.

"That has been the biggest issue," he said. "It's been the glass ceiling for us."

Mazda is counting on its advertising agency, WPP Group of London, to raise awareness by focusing on Mazda's fun-to-drive bona fides.

In October 2010 WPP formed Team Mazda to handle Mazda creative work. Mazda ended a 13-year relationship with Doner -- creator of the "zoom-zoom" slogan.

Davis says consumer-facing marketing spending for Mazda's fiscal year ending March 31, 2012, is up 19% from the previous year. Spending is expected to grow another 9% the following year, Davis says.

In calendar year 2010, Mazda spent $198 million in the United States, according to Kantar Media via Advertising Age. That represents a 29.8% increase over 2009, when Mazda spent $152 million. Advertising Age, like Automotive News, is published by Crain Communications.

The increased spending coincides with a more refined message: Mazda's vehicles are fuel efficient but still fun to drive.

In reference to a recent commercial for the Mazda3, Davis says combining performance and efficiency can work for Mazda. The car, he says, doesn't use hard tires, smaller fuel tanks and other piecemeal tweaks that sacrifice performance for efficiency in some cars.

"The 40 mpg message on the Mazda3 is great because I think we can clearly say that our 40 is better than their 40," Davis said.

Wave of launches

The Takeri concept strongly hints at the upcoming redesign of the Mazda6.

Next spring's launch of the CX-5 compact crossover kicks off a wave of major updates to some of Mazda's highest volume vehicles.

A redesigned Mazda6 is expected by the end of 2012, followed by redesigns of the Mazda3, MX-5 Miata and CX-9 in 2013.

The redesigned products will ride on new lightweight platforms with new gasoline and diesel powertrains that boost power and fuel economy, a system that Mazda markets as its Skyactiv technologies. Mazda also plans to add stop-start, regenerative braking and hybrid technologies by 2016.

The product push is noteworthy: The vehicle platform and powertrains set for launch are the 1st to be developed solely by Mazda in decades.

Mazda currently uses platforms shared with Ford Motor Co. for most of its vehicles. But Mazda has no plans to share its new platforms and powertrain technologies for U.S. vehicles with Ford, which until 2008 held a controlling stake in Mazda Motor Corp. Ford has been selling down its Mazda stake since then.

The equity agreement and long-standing product alliance gave birth to platforms that the companies share today. But there were drawbacks.

For example, the shared compact car platform that underpinned the Mazda3 was very cost-effective, Takahisa Sori, Mazda's global r&d boss, said during an interview through an interpreter.

"But the problem with that was we could only use that with C cars," Sori said. "We couldn't use it for C/D cars or any deviating models."

Mazda now plans to use flexible architectures, developed in-house, which can be adjusted to underpin future generations of the Mazda3, Mazda6, CX-5 and even larger vehicles, Sori said.

"It might be that the cross-sectional areas will be slightly different and the gauges [of steel] will be different, but the basic principles will be the same," Sori said. "This can be deployed to all models."

The approach can cut development costs by 20 to 70% per vehicle, depending on the segment and the number of components that can be shared from other vehicles, Sori said.

Getting healthier

Major industry scorecards have placed Mazda near the bottom for much of the last decade. And O'Sullivan isn't shy about what the problems were.

"Not a lot of exclusive stores -- probably the worst in the industry; initial quality was not all that robust; residuals were low; incentive spending was high; and owner loyalty was 1 of the worst, if not the worst, in the industry," O'Sullivan said.

But the company has made strides in most areas. Mazda vehicles jumped from 2nd-worst in the 2005 Initial Quality Study to 5th-best in the 2011 study, according to J.D. Power and Associates. Mazda kept 37% of its customers within the brand last year compared with about 23% in 2005 -- the second-worst rate in the industry at the time.

A sign of growing dealer focus on Mazda: Half of Mazda's 640 dealerships are exclusive, compared with less than 25% in 2003.

But Mazda ranked No. 15 of 21 mass-market brands in Power's 2010 Sales Satisfaction Index Study. Mazda has consistently ranked near the bottom for most of the past decade but has improved every year since 2008.

O'Sullivan points to the improved scores as evidence that Mazda's U.S. business is fundamentally healthier and in a position to improve its U.S. sales and share. But O'Sullivan says that the company lacks grand aspirations a la Volkswagen AG to become a global volume leader.

"We're never going to be a big volume brand," O'Sullivan said. "It's not our objective."

You can reach Ryan Beene at rbeene@crain.com.

Blackraven

I wanna see a next-gen RX-8......and contrary to what the opposition says, there is still something that can come out of ROTARY engines

Hoovey689

iTrader: (16)

Lighter and more fuel efficient vehicles that retain their sportiness sounds good to

LexBob2

Isn't this model being discontinued by Mazda?

blacksc400

iTrader: (4)

Just give us the real RX-7 already.

KillaIS250

iTrader: (1)

Yep! 2011 is the last year they are producing them.

Hoovey689

iTrader: (16)

As another member mentioned yes, but there is supposedly a successor in the works. Last rumormills I heard regarding it was that it could be named RX-7, RX-8, RX-9, and have around 300hp. All this remains to be scene

GS69

Mazda's Move: Upscale

Having languished for decades in a crowded field of mass-market nameplates, Mazda will reposition itself as a more premium brand, Mazda Motor Corp. CEO Takashi Yamanouchi said.

"The question is: In the global market, what is the significance of a player with a mere 2%?" Yamanouchi told Automotive News last week. "It's something we frequently discuss internally. We came to the conclusion that if we make ordinary cars for the mass market, there is no reason for us to exist."

Yamanouchi, a soft-spoken former purchasing executive, wants to boost sales in Mazda's biggest, most important market by 43% to more than 400,000 U.S. units by the fiscal year that ends March 31, 2016. To get to that record level, Mazda will launch a flood of products over the next few years using an upscale brand image.

Internally, Mazda is calling its brand shift "Japan premium." That term will not be used in marketing.

But the strategy is to leverage Mazda's new technologies and styling to lift the company above its Japanese rivals and other mass-market brands.

Some Mazda insiders see the move as the only way Mazda -- a tiny, financially strapped brand with global sales of just 1.3 million units -- can survive.

The 3rd-generation Mazda6 mid-sized sedan, which hits U.S. showrooms in January, will lead the upswing in sales and brand identity.

At the car's launch in Japan last week, Hirotaka Kanazawa, Mazda's global r&d chief, used the term "Japan premium" for its brand positioning, comparing it with German luxury marques.

Mazda's products, exemplified by the redesigned Mazda6, will be packed with cutting-edge environmental and safety technologies and upscale interior materials.

The company's new lineup of Skyactiv technologies will underpin the shift. They encompass a range of chassis, platform and drivetrain systems that save fuel and boost performance.

The Mazda CX-5 compact crossover, which was launched in the United States in the spring, was the 1st vehicle completely remade using the Skyactiv blueprint. Next comes the Mazda6. By 2016, 80% of Mazda's lineup will employ the suite of Skyactiv features.

Mazda is betting the technologies will not only set it apart but enable it to charge more and protect residual values.

"This is a 1st step in going toward premium," Yamanouchi said. "It's about being a brand that has a strong bond with the customer."

Mazda also will stress a few key elements of its new lineup, including:

• Mazda's new kodo design language, which debuted in the CX-5 crossover. In Japanese, kodo means "soul of motion."

• More attention to customer service at dealerships.

• Active safety systems such as precrash warning technologies.

• Diesel drivetrains that are clean and powerful.

• Minimized incentives and maximized residual values.

"That's how we aim to be like a premium," Yamanouchi said. "Broadly speaking, it is not to rely on discounts but to have consumers appreciate the value of the product."

Kanazawa said: "With each and every feature and function, we want customers to experience" something "that is well-designed and easy to use."

Mazda is banking on a bevy of products, including redesigns of the CX-9 crossover and Mazda3 sedan. Also coming is a new roadster jointly developed with Alfa Romeo to replace the MX-5 Miata.

The emphasis is on North American production and U.S. sales. A year ago, Yamanouchi said Mazda was looking at reducing the 400,000 target for fiscal 2016. He has since revised his target upward.

"At least 400,000 units," Yamanouchi said of the new U.S. sales goal. "It's a significant jump from current levels."

Mazda is forecasting 280,000 units for the current fiscal year that ends March 31. U.S. sales climbed 9% to 228,104 units through October, but the market rose 14%.

A $500 million factory in Mexico will start producing vehicles in early 2014 and will ensure that Mazda has plenty of local capacity to support the increase without being hit by the exchange rate losses it faces from importing cars from Japan. The plant's capacity, for 140,000 Mazda2 small cars and Mazda3s, will be on top of what is already coming out of Japan -- not a substitute for it, Yamanouchi said.

"In the near future, I think we can make an announcement that increases the capacity of that plant even further," he said.

Brand appeal is critical to the successful repositioning.

Yamanouchi points to Mazda's ranking in Consumer Reports' predicted-reliability study as 1 sign that the brand's value is making a difference with consumers. For the 2nd straight year, it ranked No. 4 of 28 brands -- this time behind Scion, Toyota and Lexus.

Mazda wants dealers to up their game for a share of the spoils.

Despite the predicted 43 percent boom in U.S. sales, Mazda doesn't want more U.S. dealers. The goal: Fatten existing dealers' earnings so they will invest more in their stores.

Said Yamanouchi: "We don't intend to increase the number of stores."

mordecai

Absolutely love it. In a world where Honda is retreating somewhat from the luxury/premium market and Nissan just barely trying to stay in it, we have Mazda, who have always delivered great Tier 2 products, being bullish and trying to go for more. I hope they succeed in this endevour and release more captivating products like the new 6 and CX-5, as well as new products like a Mazda 9 perhaps? Bring back that Amati confidence

Hoovey689

iTrader: (16)

More upscale sounds good. Just look at Hyundai > Kia or Chrysler > Dodge.

I too would like to see a range topping Mazda9

LexFather

I wish Mazda the best but the 929 and Millinia are not good signs. Very solid cars that got overlooked as the price and badge didn't match (30k plus for a Mazda).

To me it was always curious how they made money (and other brands) when Lexus has the volume of many non luxury brands. The profit differences must be pretty drastic.

To me Mazda needs help with their marketing, they always put out a very solid product but hyundai/kia for example blew past them.

Hoovey689

iTrader: (16)

that was then and this is now. The new Mazda6 is bucking the trend