Rivals' spiffs undermine Mazda's pricing strategy

Mazda3 a casualty of Civic-Corolla war

Rivals' spiffs undermine Mazda's pricing strategy

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LOS ANGELES -- The Mazda3 has racked up accolades as the driving enthusiast's choice in the compact segment since the redesigned 2014 model went on sale last fall. But its sales numbers tell a different story.

Sales have fallen every month since August, with volume off 27 percent through the first two months of the year. It's a troubling slide for a car that has long been Mazda's best-selling nameplate and a key contributor to its profitability. And it illustrates how Mazda -- a small, independent automaker that has adopted a near-premium pricing strategy -- remains especially vulnerable to the whims of bigger players in the market.

In this case, Mazda's strategy of limiting incentives to maximize transaction prices and profits has run up against a bigger force: a running battle for small-car supremacy between the Toyota Corolla and Honda Civic. The Mazda3 has ended up as collateral damage in that battle, says Dennis Bulgarelli, director of the automotive practice at data analytics firm Millward Brown Digital.

The redesigned Mazda3 went on sale around the same time as the redesigned Corolla. While the Mazda3 drew higher online shopping traffic from consumers nearing a purchase decision, many Mazda3 shoppers opted to buy the Corolla instead, Bulgarelli said, citing Millward Brown data.

Bulgarelli said incentive spending by competitors, particularly on the Honda Civic, increased while Mazda curtailed Mazda3 spiffs. Mazda3 incentives reached more than $2,700 per unit during the outgoing model's sell-down last summer but were cut to $1,233 in January, the lowest spend among the Mazda3's main competitors.

"In that segment, unless you've got some compelling reason to be considered over a Honda and Toyota, you're probably going to lose that battle," he said.

Mazda and its dealers know they need a turnaround -- and fast. By June, Mazda's new plant in Mexico will be churning out 10,000 Mazda3s a month, much of that output destined for the U.S. market. Unless sales pick up, dealers risk having jammed lots.

Mazda spokesman Jeremy Barnes says the Mazda3's slump is partly weather-related, but mostly due to the competition from Honda and Toyota. He also noted that the compact segment has slowed down lately, down 5 percent through the first two months of 2014.

Barnes said Mazda won't try to go toe-to-toe with its bigger rivals on incentives anytime soon, reaffirming the company's long-term strategy of controlling incentives to preserve residual values and brand strength.

Jim Bagan, a Mazda dealer in Austin, Texas, says it has been tough to compete against heavy incentives and clearance sales from bigger competitors. But he says he senses that Mazda understands the challenge. The factory this month released new regional incentive programs to help make the Mazda3 more price-competitive.

"This car is as important to them as a brand and a factory as it is to us at a dealership level," Bagan said. "We are now at the point where now we've got to go to market and figure out how to sell these cars."

You can reach Ryan Beene at rbeene@crain.com. -- Follow Ryan on Twitter


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