Mazda's Kogai: New product, pricing drive move upmarket

HIROSHIMA, Japan -- CEO Masamichi Kogai is piloting Mazda Motor Corp. through a massive transition more befitting automakers double its size.

It starts with a diversification of drivetrains to meet more stringent emissions rules. A diesel engine finally arrives in the U.S. with the redesigned CX-5 cross-over next year.

And then Mazda brings in an electric vehicle and plug-in hybrid.

Meanwhile, Mazda is working on a new generation of Skyactiv technologies that will be rolled out by March 2019. Kogai is banking on the Skyactiv 2 lineup to burnish Mazda's image as a sporty, unique brand and lift it one rung above its mass-market rivals.

To support the upmarket move, Kogai also is overhauling the U.S. incentive structure.

Kogai, 62, speaking through an interpreter, sat down with Asia Editor Hans Greimel on Nov. 18 to discuss his outlook for the U.S., the potential for diesel sales in the U.S., the company's cooperation with Toyota and the future of Mazda's trademark rotary engine.

Q: Has the U.S. peaked, and what is the outlook for next year?

A: Looking at the past three months, it seems like it may have hit the peak. However, the unemployment rate in the U.S. is still low, and the U.S. economy itself hasn't really slowed. So overall consumer sentiment can be maintained. U.S. demand continues to be strong.

Mazda's sales are down this year; how will it perform in the flattening market?

We should not allow too much inventory to build up. In the first half [of the fiscal year ending March 31, 2017] we struggled a bit, so we ended up with a year-over-year decrease. But that coincided with a new sales approach that we started at dealers.

In the latter half of this fiscal year, we are going to increase our momentum. Looking at the overall fiscal year, we expect a 6 percent increase. There will be significant model upgrades in the second half, and new models such as the MX-5 RF and the new CX-5 will lead to strong sales next year as well.

On a calendar year basis, where will Mazda's U.S. sales go in 2017?

We should achieve at least a 5 percent increase. There will be new models, but the entire lineup will also contribute. Instead of just focusing on individual models, our communications will focus on the entire brand. We have the slogan "Driving Matters" in our advertising. That's the primary brand communication.

Are you seeing signs of a brewing price war in the U.S.?

Yes, especially in the sedan C-segment, where the Mazda3 is placed, and in the C-D-segment, where we have the Mazda6. These segments have more intense competition.

Doesn't that undermine Mazda's Right Price strategy of trying to improve transaction prices?

The price at which customers are purchasing our vehicles is another point. If you look at average prices by segment, the CX-5 has attained a higher average price range than its Japanese competitors. The same goes in the C-D sedan segment with the Mazda6. At Mazda, we have a higher percentage of vehicles sold in the upper grades. The same can be said for the C-segment with the Mazda3. The higher grades are selling quite a lot.

What indicators is Mazda basing its new U.S. incentives on?

How well, for example, dealers conduct employee training. Also, customer satisfaction with the service of vehicles. Whether salespeople give sufficient explanation of the products.

We want to focus on mid- to long-term goals, not short-term ones. The mid- to long-term goal is to improve the rate at which customers come back to Mazda to buy new cars. Of course, we still have incentives for achieving volume, but that ratio has been reduced.

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. If we pursue that approach, we won't be able to improve our customer retention.

What is the retention rate, and where do you want it to be? 

It's about 37 percent. So, it's not that great. But we've made improvements. In 2011, it was about 26 or 27 percent. That's about a 10-percentage-point improvement. We are targeting a retention rate exceeding 60 percent. 

We'd like to achieve it in five years. In Japan, the retention rate is more than 50 percent. We want the U.S. rate to catch up. 

What brand image is Mazda pursuing? Something near-luxury? 

A sporty and unique brand. We want to distinguish ourselves by being a little elevated above the other Japanese or mainstream brands. 

If the car itself is not attractive, we can't command a higher price. So, for the Mazda3, the Mazda6 and the CX-3, they will all have major updates. And the CX-5 is undergoing a full model change. In that way, we keep improving the models all the time. 

Instead of just creating a buzz to come see a new design, we enhance the vehicle's potential in performance and technology. That is something new we are implementing. 

How is Mazda benchmarking its Right Price strategy performance? 

We look at companies we believe have an excellent brand and then see where they were 20 years ago and what kind of approach they took. What were the prices they commanded at certain stages, and how did they grow and improve? How were they able to command better prices? We are studying two companies that way, though I can't tell you which ones. 

What lessons have you learned so far? 

The companies we are studying actually repeated the same kind of success twice. 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 the [next] generation. We need two successful jumps up. We are introducing the CX-5, so that means we are coming back to the lead-off batter in our lineup. No we are going to start our offensive again. 

Mazda is introducing the Skyactiv-D diesel drivetrain to the U.S. with the next-generation CX-5 next year. How much potential do you see for diesel in the U.S.? 

In Japan, diesel fuel is cheaper than gasoline, and it offers better fuel economy. That was the advantage here. About 70 percent of the overall CX-5 sales in Japan are diesel. 

In America, gasoline is going to be the main engine people purchase. 

In the U.S., diesel is not necessarily the cheaper option. It's about 8 percent more expensive than gasoline. But compared with high-octane gasoline, diesel is cheaper. We still have to pinpoint where people can find the advantage in buying diesel. 

But gradually, we would like to increase the share of diesel sales. 

Mazda often talks about reviving the rotary engine as a range extender for a hybrid vehicle. Does that mean Mazda has abandoned plans to use it as the main traction powerplant? 

We ended production of the RX-8 with the rotary engine. But if we were to restart production of the rotary engine again, we need to make sure it wouldn't be just short-lived. We need it to meet future emissions regulations. We are still conducting our r&d activity to overcome any issues we have with emissions and fuel efficiency. 

Which would come first, a range-extender rotary or a main traction rotary, like in the RX-8? 

Considering regulations such as the zero-emissions vehicle mandate, electrification is a technology we need to introduce in the near future. The range extender would be the first. 

Could Mazda ever create an RX-8 sports car successor with a range extender? 

I think that as a sports car option, the MX-5 1.5-liter or 2.0-liter conventional engine, with its power and acceleration, might be a more exhilarating experience. 

No plans for a larger sports car entry with a range extender? 

No. 

Mazda is exploring joint work on electric vehicles with Toyota. What other areas of cooperation is the company studying? 

Electric vehicles would be one example. And another is in connectivity, connected cars. If we jointly work together, we can enjoy some synergies. 

When do you expect to see the first concrete projects? 

Developing personnel and promoting technology exchange are the first things we would want to do. In those areas, we want to see results in a short period of time.