Automotive News - February 11, 2008 - (Page 32) 32 • FEBRUARY 11, 2008 Mazda’s on the march After a rip-roaring 2007, the brand still has issues — like capacity limits and lousy customer loyalty Mark Rechtin mrechtin@crain.com DETROIT — Robert Davis had had it with being a bridesmaid. He wanted to be the bride. For too many years, Mazda’s North American product and quality boss had seen his company’s vehicles fall short of winning industry accolades. In December, with the Mazda CX-9 crossover nominated for North American Truck of the Year, Davis made a promise to some colleagues. “We win this one,” he said, “and I’ll wear a wedding dress to the next allemployee meeting.” Davis, a guy who races RX-8s every weekend, was wearing white a few days later. The CX-9’s victory — as well as being named Motor Trend SUV of the Year — was merely icing on Mazda’s best sales year in more than a decade. Mazda is on a winning streak. In a rough-and-tumble 2007, it was the only volume brand to grow by double digits. Mazda came within shooting distance of 300,000 units, without resorting to sky-high incentives. And while the CX-9 and CX-7 crossovers exceeded Mazda projections for their first full year on the market, a big chunk of the sales gain came from the Mazda3 compact — in its fourth year on the market. Some concerns remain. Customer loyalty is frustratingly low, and capacity limits could put the brakes on growth. But Mazda is ready to build on its recent success. “We are building lines rather than going through a spike-and-trough mentality,” says Robert Graziano, Mazda’s executive vice president in Japan. Mazda no doubt will leverage the hype surrounding the new crossovers to draw shoppers into showrooms. In fact, the CX-9 and CX-7 already have done that, says dealer advisory board Chairman Jeff Sikes, who has Mazda just don’t pay the bills anymore. “Mazda’s number-one objective needs to be dealer profitability,” he said. “We need to get more focused on parts, service and used cars.” Loyalty needs work The CX-9, left, and CX-7 crossovers exceeded Mazda’s projections for their first full year on the market. Mazda’s growth is comparable to another hard-charger, Kia. Both brands sold around 300,000 vehicles last year, but Kia’s average transaction price hovered in the mid$19,000 range in 2006 and 2007. In that same period, Mazda’s surged from $19,806 to $22,607, according to the Power Information Network. That was due to the CX-7 and CX-9 entering the lineup. But Kia dominates the customer loyalty battle — 45.9 percent to Mazda’s 22.8 percent last year, according to the Power Information Network. What’s more, in the fourth quarter, just 18 percent of Kia owners defected to Toyota, Honda or Nissan, compared with 33 percent for Mazda. That low loyalty rate has Mazda executives worried. The trend was supposed to have turned around with the launch of the CX-7 and CX-9. Another potential problem is rising off-lease inventories. Last year Mazda had 3,000 units come back to dealers. This year it will be 23,000. In 2000, Mazda’s 36-month residuals trailed Honda’s by 11 percentage points. Now it’s down to just 4 points. The improved residuals mean more attractive lease deals to customers – and thus more vehicles eventually coming off lease and into the usedvehicle fleet. In response, Mazda will beef up its certified used-vehicle program in April. But should Mazda mismanage the off-lease inventory the upward residual trend could reverse itself. “It’s a huge increase in value to consumers,” Davis said. “Right now, cars are coming back at higher values than they are on the books for.” c Mazda product and quality chief Robert Davis: “Cars are coming back at higher values than they are on the books for.” stores in Huntsville and Birmingham, Ala. “We lost customers driving Mazda6s and Mazda3s who wanted a crossover,” Sikes said. “Now we have something to show them.” Just as important this year is the redesign of the Mazda6 sedan. A European edition debuted at auto shows, but insiders say the U.S. version is larger and more powerful. A Mazda3 replacement will come in 2009. “The great thing is that the new Mazda6 and Mazda3 will have brand equity, whereas the current cars were replacements” for the 626 and Protege, Davis says. Mazda also is considering bringing the subcompact Mazda2 to the United States to battle the Toyota Yaris and Nissan Versa. But Davis worries about the impact on Mazda3 sales. “We can sell 10,000 Mazda3s a month,” he says. “That’s a great goal. But we would take capacity from the Mazda3 to sell the Mazda2. The U.S. is a good business judgment for sell- ing more of the Mazda3.” Don’t expect Mazda to keep churning at last year’s 10.2 percent U.S. growth rate, says Dan Morris, Mazda’s sales boss in Japan. Mazda is running at 100 percent of global capacity, Morris says. Currently that means 1.6 million vehicles, including the recent expansion of plants in Japan, Thailand and China. Mazda also is talking to Ford about getting more out of its shared plant in Flat Rock, Mich., which builds the Mazda6 and Ford Mustang. Ford owns 34 percent of Mazda. A year ago, CEO Hisakazu Imaki hinted about a new plant in North America. For now, that has been shelved as Mazda wrings the last unit out of existing plants. Mazda learned a painful lesson in the past about trying for too much too fast. It spent most of 1985-94 selling in the mid- to high-300,000-unit range in America. But Mazda overspent on expansion, building a plant in Japan for its unrealized, Lexusstyle luxury brand just as the Japanese economic bubble burst. That crippled the company for years. Mazda’s updraft Mazda’s U.S. sales this decade 2007 2006 2005 2004 2003 2002 2001 2000 296,110 268,786 258,339 263,882 258,865 258,213 269,602 255,526 More exclusives Mazda’s hot streak is being done with far fewer U.S. dealers than it once had. “When we did our previous record, we had 900 U.S. dealers,” Morris says. “Now we have 685. Plus, with fewer fleet sales, our dealer throughput is much stronger.” Mazda also has a growing number of exclusive dealers. Just three years ago, only 16 percent of Mazda dealers had exclusive showrooms. Now it’s more than half. “We are seeing the highest investment ever in the Mazda franchise,” Morris says. Mazda decided to continue the $350-per-car incentive to dealers who create an exclusive store under its “Retail Revolution” plan. Just the same, Davis acknowledges that Retail Revolution may not be right for every community: “We don’t want to play the heavy hand.” Dealer board Chairman Sikes says sales growth doesn’t necessarily mean stronger dealers. New-car sales Despite N.A. sales gain, Mazda’s operating profit falls 6% Hans Greimel hgreimel@crain.com TOKYO — Mazda Motor Corp.’s sales in North America looked nearly recession-proof in the third quarter, which ended Dec. 31. But higher incentives and model rollout costs undercut profits. North American retail sales climbed 12.7 percent to 89,000 vehicles in the October-December period compared with a year earlier, despite a worsening subprime loan problem. Yet global operating profit fell 6.0 percent to $312.4 million. Releasing the quarterly results on Wednesday, Feb. 6, CFO David Friedman blamed the drop on higher U.S. incentives and increased spending to promote overseas launches of the Mazda2 and Mazda6, which debuted in Europe. Higher raw material costs also contributed. U.S. incentives climbed $300 to an average of $2,100 a car compared with a year earlier. Marketing chief Daniel Morris said Mazda had to up the ante to compete in a market crimped by the U.S. cred- Profits dip at Mazda Mazda booked impressive sales gains in October-December quarter, but profit declined. FISCAL 3Q CHANGE Revenues $7.52 billion 11.0% Operating profits $312.4 million –6.0% Source: Mazda Motor Corp. it crunch. Worse still, Mazda was pushing the CX-9 in a crossover segment in which incentives typically soar above the industry average. Mazda sold 3,000 CX-9s a month in the October-December period. Meanwhile, product enhancement and marketing costs, including outlays for the Mazda2 and Mazda6 launches, totaled $72.6 million in the quarter. But the big picture was rosy. Revenue climbed 11.0 percent to $7.52 billion in the quarter, while net income rose 7.0 percent to $140.7 million. Global volume climbed 10.0 percent to 316,000 vehicles. Mazda even sold more cars in Japan, a significant accomplishment in a stagnant market. Sales rose 1.9 percent to 53,000 units, boosting Mazda’s market share. In the United States, Mazda is on track to hit its goal of 296,000 sales in the fiscal year ending March 31. That would be a 5.0 percent increase from the previous fiscal year. January will help. U.S. sales rose 10.2 percent, compared with an overall market decline of 4.1 percent.c I Is your Customer Pay Business becoming anemic? So me g thin new he or t pai n! I Is your Warranty Business experiencing palpitations? I Are Profits and Customer Retention taking a turn for the worse? 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