Mazda expects big push from Japanese rivals this year
Age: 56 Dealer since: 1981 Dealerships: Orem Mazda, Orem, Utah; Bountiful Mazda, Bountiful, Utah Average monthly sales in 2011: 75 new, 70 used Quote: "One of the biggest challenges that we as Mazda dealers are going to face will be our competition, who are going to come on strong this year. After the tsunami and what happened in Thailand with the floods, they're going to be ‘game on.' "
Mazda grew less than the overall industry in 2011, but it was a pretty good year for the brand under the circumstances.
Mazda was affected less by earthquake-related inventory shortages than competitors Honda and Toyota, helping it avoid massive sales declines in the months after the March earthquake.
Crafty supply chain management kept launch plans for Skyactiv technologies on track; the Mazda3 with a new Skyactiv direct injection gasoline engine and a new transmission debuted in October. The CX-5 compact crossover, the first vehicle to use all of Mazda's new Skyactiv vehicle frame, chassis, engine and transmission technologies, goes on sale in March.
And Team Mazda, Mazda's new ad agency, flexed some muscle in its first full year of operations with new creative work.
Michael MacDonald, chairman of the Mazda National Dealer Advisory Council and owner of two Mazda dealerships near Salt Lake City, spoke with Staff Reporter Ryan Beene about Mazda's performance in 2011 and what lies ahead.
How was 2011 for Mazda dealers?
In general it was very much like 2010. Overall Mazda's increase year to date turned out to be 9 percent. It was kind of a push from 2010, businesswise. The tsunami didn't really have an effect on Mazda as much as it did on other Japanese manufacturers, fortunately for us.
What are the biggest issues facing Mazda dealers this year?
From an economic standpoint, the elections and where the economy in general is going will probably dictate where new-car sales nationally for the year are going to go. They seem to be heading to a 14 million SAAR, and if that's the case Mazda should see additional sales based on that SAAR.
One of the biggest challenges that we as Mazda dealers are going to face will be our competition, who are going to come on strong this year. After the tsunami and what happened in Thailand with the floods, they're going to be "game on."
And also the Koreans with Kia and Hyundai and the strength of their currency compared to the yen, those are going to be high level challenges, but they trickle down and affect us as Mazda dealers.
Mazda, despite the fact that it was less affected by the earthquake and tsunami-related inventory shortages than its competitors, did not take advantage of the market share that was up for grabs. What was behind that?
One issue was we were in between new product lines. The Skyactiv technology in the Mazda3 didn't come out until October, and that was a pull-ahead. So we really didn't have our current Mazda3 for the complete year. We had product that was coming due for a change, and the Skyactiv technology came out late in the year. Had we had that in the first part of the year, I think we would have had an advantage to capitalize on the share losses of our direct Japanese competitors.
The other part is that there is a challenge, as with the other Japanese manufacturers, with the yen. There's only X amount of dollars Mazda has and the yen situation affects them, and I think from a dealer's perspective we understand that, but at the same time we want more marketing dollars and incentives just like with any manufacturer. But you have to take into consideration the yen factor, which is pretty big.
Skyactiv technologies are about to become a more important part of the lineup with the CX-5 this spring. How has the Skyactiv technology in the Mazda3 been received by customers in your showroom?
It's been excellent. The training and communication by our sales staff is critical, and Mazda has done a great job in getting our salespeople up to speed and to learn about the product.
We've had in-store training where an independent consultant has come in and trained our sales staff about Skyactiv because it has to be explained.
You can't look at the car and say, "oh that's Skyactiv." You have to explain the benefits of the motor, the transmission. ... It's not just gas mileage, it's a whole engineering philosophy, and that's very important.
Our salespeople across the country have done a great job in capitalizing on customers coming into the showroom who ask "what's Skyactiv?" and explaining about the high-compression engine, the transmission, the weight and all the things that go along with it.
Is there buzz about the CX-5 compact crossover?
There's a lot of buzz. A lot of it is coming from people currently in CX-7s that are coming out of leases. Mazda3 drivers coming out of leases are looking to move up. We see CX-5 as a step up for a Mazda3 customer. The salespeople are excited about it, and once your salespeople are excited about it, they can get your customers excited about it. We've had a lot of Internet inquiries about it as well.
The CX-5 is fully Skyactiv -- the chassis, body, engine and transmission -- the full deal.
Mazda's estimating that it's going to be our No. 2 volume vehicle, and I see it that way as well. It's going to fill a gap for us right behind the Mazda3.
The RX-8 will soon disappear from showrooms. Do you anticipate that showroom traffic or interest in the Mazda brand will take a hit?
I don't think it's going to affect us at all. My guess is that Mazda will some day come back with a sports car of some sort, but the RX-8 was such a low-volume vehicle. It really wasn't a traffic driver, maybe an image car, but Mazda will always be associated with an RX-7 or and RX-8. That's always going to be there even if we don't have one to sell.
What do dealers think about the new ad agency, Team Mazda?
The feedback from dealers, and I'm on a lot of calls and groups about this, is that they're very pleased with what's going on with the direction of Mazda's marketing and advertising. We're hitting it where we should hit it. The new Skyactiv "Jailbreak" spot has gone over well with the dealers. We just had an event spot in December that really went after Skyactiv and the benefits of 40 mpg on the Mazda3. They seem to be on it on the creative from the dealers' perspective.
And Mazda has also increased its advertising weight, so dealers get very pleased when they see more advertising. More advertising is good advertising.
How have regional or local marketing and advertising operations changed under the new agency?
Mazda's direction now with their marketing organization is that more of the regional marketing is being pushed down to individual market areas with more control in those markets by the dealers and their associations. The overall plan is that more of the creative choices will be made at the individual market levels. So for instance, in Salt Lake there are four of us, and we decide if we want to advertise a Mazda3, a lease program; we have that option. Or if we want to organize a promotion for a local charity, we can take some of our marketing dollars and do that as well.
Mazda has tapped Robert Davis to head its newly created U.S. operations group. How important was it for Mazda to create this U.S.-focused group, and to pick Davis to run it?
It's a great move. We've worked with Robert Davis for years, some even going back to when he was in the regional offices. His focus on the States is great. Canada and Mexico are growing in leaps and bounds with Mazda, so we needed a focus for the U.S. market, and Robert is a great guy. We work well with him, and the dealers were very much behind this move.
It seems like whenever I call Mazda the executives are out doing meetings with dealers. Has there been a meaningful increase in dealer-factory interaction on the local level?
I've been with other manufacturers, and quite frankly I think that the upper management at Mazda is more accessible, more visible and more communicative than others.
And it's our process as a dealer council with Mazda. We're an advisory council. We understand that, but we're involved with just about every major decision that Mazda makes in regard to the dealer network. We don't always get what we want, but at least we have a voice and decisions made with our opinions and influence.
Mazda is updating its Retail Revolution image dealership program to make less ambitious, cheaper showroom renovation options available. What do dealers think about that?
I haven't had any feedback on that yet. I think it's too soon to tell, it's only been a couple of months, and I don't think the program has been formally announced. I would have to think it would be well received because it's not a forced thing. The dealer can or cannot do it based on what they want to invest.
Mazda seemed to have avoided the vehicle availability problems that other Japanese brands, specifically Honda and Toyota, experienced after the earthquake. Are things completely back to normal with inventory?
As far as availability of vehicles, basically there really weren't any issues. Mazda had to build specific vehicles in terms of options and colors, and we had to choose from those. Now we can order what we want colorwise and trimwise. But prior to that, vehicles were built and we were allocated out of that pool and that was based on what was available in terms of parts and so forth. It wasn't that big of a deal. The combinations of colors and options with Mazda are not that comprehensive to begin with. That was the only change that we had to deal with and we're back to normal now.
How long did that last?
It was probably the last half of the year.
All Japanese automakers will say the pressure to cut costs because of the strong yen is the single biggest challenge they face. How have recent cost-cutting efforts affected how Mazda dealers operate?
The marketing dollars are probably not what they could be. Dealers are always going to want more marketing dollars, but with the yen situation, Mazda has a business model and the yen is affecting that.
The good news is that we don't see any cutback in product development, and that to me is one of the biggest things. Down the road, at some point the yen is going to correct itself and we have to still be in the ballgame with product. We don't see any other really substantial effects on us like cutbacks on warranty or anything like that.
Are Mazda dealers profitable?
They are. I can't tell you exact percentages. A good majority of Mazda dealers were in the black for , and it's up from 2010.
Are dealers making money on new-car sales?
I don't know the numbers, but the overall profitability in the new-car department is up.
That's a change from recent years?
To what do you attribute that improvement?
Better expense control. Dealers in general came out of 2008 and 2009 and had to get their houses in order, and everybody got lean. In 2010 and 2011, business came back, not as quickly as we thought, but it did come back and most dealers kept their expense structures at the level they were in 2008 and 2009.
What could the factory do to help boost new-car margins?
The biggest threat to new-car margins is the visibility on the Internet. That's the biggest thing, and manufacturers aren't going to do anything about that. We just have to continue to be able to sell new cars at a profit, and the consumer has to understand that we can't sell new cars and lose money.
As far as the manufacturers doing anything about it, I don't know. There are back-end incentives that help and aren't visible that help us retain our profitability. I think more of those are good for dealers -- all dealers, not just Mazda dealers.
The normal consumer doesn't understand that it costs us, depending on the store, in the neighborhood of $1,500 to $1,600 range to break even on the car. And the normal consumer doesn't understand that. We've got a building, insurance, people and we've got to pay for all these things.
What are Mazda dealers doing to attract more service business? Is the factory helping?
Mazda just switched over to a new program called Service Smarts. It's an excellent marketing program. Like other manufacturers, Mazda's warranty expense is going down, so warranty business is going down. So a dealer needs to get into customer pay service business or they're going to get into trouble. They can't depend on warranty work because every year it continues to drop.
We have a lot of tools that Mazda has supplied to help us with maintenance business.
Service retention is huge, not only from a standpoint of supporting the dealership, but for customer retention.
Customer retention has been a long struggle for Mazda.
Absolutely, but we're getting there. Mazda's moving up. Their numbers in owner retention are moving up. They're very aware and focused on that, which is good. It's something we should have been focused on a long time ago, especially in the service department, but we are now and I think we're doing the right things.
Are dealers satisfied with Mazda?
Yes. Dealers are never satisfied all the time. The NADA survey is coming out soon, and that will be interesting to see what the dealer body thinks in general.
But the dealers are pleased with the direction Mazda is headed -- the new ad agency, with Robert Davis, with the infrastructure and with the new products we have coming.