Mazda looks to next-gen CX-5 for a lift

HIROSHIMA, Japan -- Mazda Motor Corp. CEO Masamichi Kogai, fighting sliding sales and a tougher U.S. auto market, is banking on an ambitious next-generation product plan to lift the boutique Japanese brand above its mass-market competitors.

In an interview, Kogai described the strategy as a two-step jump to break from the pack in terms of brand image, pricing power and profitability.

Step one came in 2012 with the debut of Mazda's Skyactiv lightweight platform and range of fuel-efficient powertrains. Step two now kicks off with the next-generation CX-5 crossover unveiled in November in Los Angeles.

The CX-5 is the lead nameplate for a lineup overhaul that will culminate in the full deployment of Skyactiv 2 products by March 31, 2019.

"We need two successful jumps up," Kogai said in a November interview at the carmaker's global headquarters here. "Now we are going to start our offensive again."

Mazda is one of Japan's smallest car brands, and Kogai's goal is to elevate it above its larger-volume players. Doing so is critical to the company's long-term viability as an export-dependent niche brand that requires higher margins to reinvest in costly alternative drivetrains and advanced safety technology.

Kogai's strategy aims to:

• Hold the line on incentives to boost transaction prices. 
• Cultivate an upmarket aura around the brand with sporty handling, elegant interiors and sumptuous design. 
• Improve the brand's low customer-retention rate to 60 percent. 

Achieving all that will require getting Mazda's dealers on board with the image make-over.

"We want to distinguish ourselves by being a little elevated above the other Japanese or mainstream brands," Kogai said.

Kogai's ambitions will face some tough realities.

Through November, Mazda's U.S. sales dropped 7.2 percent in a market that was flat. And many forecasters believe U.S. auto sales have peaked and are poised to slow even further. In that environment, Mazda will be trying to lift its prices as rivals slash theirs amid a possible price war.

The company's brand metrics also have a way to go.

Mazda ranked below the industry average this year in three closely watched J.D. Power studies -- those gauging vehicle dependability, initial quality and customer satisfaction with service.

But Mazda is studying two benchmark brands that Kogai says have done what he wants to do: propel the brand upward through two successive generations of vehicles. He declines to identify the brands Mazda is studying.

They "actually repeated the same kind of success twice," Kogai said. "We have had only one leap so far, from the [previous] generation of products to the [current] generation that we introduced starting in 2012. We really need to achieve a similarly big leap from the [current] generation to [next] generation."

The redesigned CX-5 hints at what's in store. The popular crossover doesn't get the new Skyactiv 2 drivetrain technology, which Mazda says will deliver a 30 percent boost to fuel economy through an ultrahigh-compression engine. 

The technology is a big gambit. Known as homogeneous charge compression ignition, the system compresses the fuel-air mixture to such a high pressure and temperature that it ignites by itself without requiring a spark, similar to the way a diesel engine operates. 

But the CX-5 gets Skyactiv 2 treatment in design, chassis technology and Mazda's new G-Vectoring Control system, which delivers sharper handling and a smoother ride. 

The outgoing CX-5 was the original vehicle to get the full suite of first-generation Skyactiv technologies. The first vehicle with the complete set of Skyactiv 2 goodies should arrive by April 2019. 

"We are introducing the CX-5, so that means we are coming back to the leadoff batter in our lineup," Kogai said. Mazda is so bullish about the upcoming CX-5, it believes it will sell an average of 400,000 a year worldwide over the vehicle's life. Last year, Mazda sold 370,000. 

U.S. sales of the CX-5 were up 0.2 percent to 100,246 through November.

Kogai calls the upmarket move Mazda's "Right Price Strategy." It involves a new approach to incentives.

This year, Mazda shifted the focus of its dealer incentives to representing the brand better rather than selling more cars, Kogai said. The new thrust encourages better training of dealership employees, better customer service and better product pitches.

"We want to avoid boosting volume by discounting. If we do that, customers who buy that way will go to a cheaper brand when it's time to buy a new vehicle," Kogai said. "If we pursue that approach, we won't be able to improve our customer retention."

Mazda's average U.S. transaction price rose just 1.9 percent through October, from a year earlier, according to Kelley Blue Book. That trailed an industry average increase of 3.5 percent.

Mazda's interim goal is bringing more customers back to buy another Mazda.

Mazda's U.S. retention rate is a lackluster 37 percent. While that is up from around 26 percent in 2011, Kogai concedes "it's not that great." He wants it to top 60 percent in five years. "In Japan, the retention rate is more than 50 percent," he said. "We want the U.S. rate to catch up."