How Mazda wants to break out of second tier

Mazda is looking to new models and improved awareness to earn a 2.5 percent market share in the U.S. by 2014.

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 percent and sales to 400,000 vehicles by 2014. The ambitious goal--a 74 percent 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 percent 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 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'

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 percent from the previous year. Spending is expected to grow another 9 percent 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 percent 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

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 power trains 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 power trains set for launch are the first to be developed solely by Mazda in decades.

Mazda currently uses platforms shared with Ford Motor for most of its vehicles. But Mazda has no plans to share its new platforms and power train technologies for U.S. vehicles with Ford, which until 2008 held a controlling stake in Mazda Motor. 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 percent to 70 percent 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 one 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 second-worst in the 2005 Initial Quality Study to fifth-best in the 2011 study, according to J.D. Power and Associates. Mazda kept 37 percent of its customers within the brand last year compared with about 23 percent 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 percent 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 to become a global volume leader.

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

(Source: Automotive News)