What do dealers expect for 2020 in terms of product?
First of all, we will have a full year of the Mazda3. And we know it's a tough segment, but the car didn't really get launched until March. So in 2020, we have that car the entire year. We're starting out the year with the CX-30, so we'll have a full year to build on the CX-30. With the CX-3, and especially the CX-5 and the CX-9, there is already solid performance from those three car lines. I think we have a lot more momentum.
Do you expect sales to rise in 2020?
I think we're all expecting an increase. I'm not sure if it's going to be a huge increase, but I think that there will be an increase. It took some time for us to get the Mazda3 going, and having the CX-30 now, we're going to have better volume than we did last year. You also have to keep in mind that there was a lot of construction going on this last year and that will continue into 2020 as dealers transform their stores into the Retail Evolution buildings. I'm not sure it's a headwind, but it's just a fact that while you are in construction, you're going to have to work a little bit harder to maintain a flat pace or an up pace. A lot of those things have already happened, and a lot of them are coming online in 2020.
The CX-30 is a new part of the segment for Mazda because the CX-3 is very small. So is that part of the expectations for improved sales overall?
There's still an important place for the CX-3. People coming in see the choices they have now from the CX-3 to the CX-30 and CX-5 and CX-9, I think the CX-30 just gives us that one more piece of the puzzle and that much more choice to the consumer to consider Mazda as a brand.
How is the facility program coming along? Are the dealers comfortable with the level of factory support?
Yes. There's already been more than 110 stores that have been completed, and there's eight stores on average coming online [per month] in 2020. A lot of these dealers have started the project and they'll be completing it throughout 2020. I think the support from the manufacturer, plus the need for the facility to take our brand to another level, to make the customer experience that much better, I think all those things make sense to a lot of us so that's why we've all decided to participate.
Are there any issues the council believes are important to discuss with the manufacturer?
There's always going to be headwinds or challenges or things that you want to ask. I think the feeling in the council is that [progress in] the second half of the year last year was largely because we asked for additional incentive support, lease and retail APR, all those things. I think the manufacturer really listened, and they brought some things to the dealer body starting in mid-July, and because they did that, we were able to have a better six months.
And I think the biggest thing is that we were able to ask the manufacturer to be a great partner for us to try to help us continue to support not only the lease but the retail. Once we get the customer in the store, we think we have a great product, we just have to get them into the store. The support is there with lease and APR. So, always going to ask more marketing, always going to ask for support for the product moving customers into the store. Once we get the customer in the store, our dealer body does a really good job of showcasing the products and talking about the merits of the brand.
Is the brand doing enough to promote certified pre-owned sales?
Absolutely. We always ask for more sales and so forth. But we did an increase of a little over 15 percent in 2019 over 2018 for the brand. A little over 61,000 units sold last year. The manufacturer, the dealer body recognizes, the council recognizes that a huge part of our profitability, our ability to retain customers and loyalty is by adding a really strong CPO business. I think the dealer body is very satisfied with that part of the business. We are getting the opportunity to get these cars and to resell them.
Is there a healthy discussion with Mazda about how to prepare for mobility services, the advancement of autonomous vehicles and the future of vehicle electrification?
Every time that we have either a face-to-face meeting, or the monthly phone calls, it's always something that is top of mind. We know that the trends in the industry are going toward more autonomous and all the tech and so forth. Obviously, it's a discussion point with us and the manufacturer all the time. I think that Mazda is still a driver's car, driver-centric. We like to have discussion of autonomy in terms of the content we can take from that, to make a driver-centric and driver's car, but have some of the technology like lane assist. That's just the trend of the industry, and I think Mazda is very on top of it.
How are dealers and Mazda addressing profitability at a time when new-car margins are getting squeezed?
First and foremost, the margin squeeze isn't something new; it's been happening for a while. But I think the fact that CPO is up 15 percent gives you an idea of the support from Mazda. The CPO part of our business is something that can offset the flat sales or the margin creep. We have to be better at pre-owned so as to maximize the CPO. Obviously, with the F&I part of our business and fixed ops, you always have to be good at those things anyway. Whether you're in an up market or a down market, in order to be healthy overall, you have to be strong in fixed ops, you have to be strong in pre-owned, you definitely need to be strong in the finance area, and the fact that we have support in all those areas from Mazda, is giving us the opportunity to be profitable and be optimistic.
Are there any products that dealers feel they need that they don't have? An EV perhaps? How do you feel about the product cadence?
What we have right now with all the CXs — the CX-3, the CX-30, the CX-5 and the CX-9 — is we have all of the segments pretty well covered. And I think the fact of the matter is that, when we discuss this in our Mazda 20 groups, the internal-combustion engine is still 95 percent of sales.
Will there be need for EV and all-electric? Yes, I think those trends are down the road and we have to be aware of it, and ready for it, be not reactive but proactive to what the market is demanding.
But I can tell you right now that there's still so much that Mazda is doing with internal combustion, with Skyactiv technology to make those cars and the engines much more efficient. I do think we have the right products, and the cadence right now is better than it's been. You had the Mazda3 last year, and the CX-30 this year. The cadence feels better.
Are Mazda's production and inventory levels in line with demand, and are incentive levels appropriate to manage that?
I would say that throughout this year there has been consistent inventory. I have not heard any dealers from any part of the country complain that they were way too low on this product or that product. So consistently the availability has been there, the pipeline has been very healthy for all of us. We had a really solid July and a really solid November, which took inventories down a little bit versus the norm, but not to the point where we missed sales.
What is Mazda doing to guide dealers on digital retailing? What kind of help do dealers want?
Mazda has been piloting some digital retail tools with select dealers. They started this in 2019 and then they continued to pilot this tool for select dealers around the country. And the goal is that if they can fine tune this and build us a process that works with these select dealers, then they'll roll it out and hopefully have the dealer body online by the end of the year. They are working hand-in-hand with some of the best vendors in the industry that have experience in this area, and working on developing programs and guidelines with the dealer council, and with the dealer body as well. The fact that they are piloting and working with some of the best vendors should give us confidence that we are on top of this.
Obviously, we know that customers more and more want to do a lot of stuff online. But we're also seeing from the pilot that customers at some point want to come in, they want to test drive the vehicles, they want to experience the dealerships, and they want to be able to conclude their transactions in the dealership. So, it's a balance point of constantly being proactive and making this really seamless to the customer to do business with us.
How is Mazda's move to a more premium brand going? Is there a steady progression?
Initially there was probably some trepidation going from a mass brand to premium, but Mazda has backed that up with the Retail Evolution design and programs to get better customer experience that fits with the premium experience. That's one part of it. Obviously, the cadence of the product with the Mazda3 and the CX-30, all those things are progression toward premium. I can't tell you that we're moving too fast or too slow. It's a process and I think we're moving in the right direction.