Isn't it difficult to raise prices and reduce incentives, with the overall market slowing?
I don't think it's difficult. We are trying to expand the powertrain range as well.
But basically, we're not going to increase that for the entry models. We need to provide connectivity, advanced safety and deal with regulations. So even on entry models, we will have to increase pricing to adapt to those things. But they are not going to be aggressive price hikes.
Why is the entry-level Mazda3 seeing weak demand, even as higher trims sell well?
The price jump for the entry-level could have been too large — that is something we are reflecting on right now. For the previous-generation Mazda3, there were entry, core and high-grade models. For the entry, the price was around $17,000 or $18,000. We made a conscious decision not to battle in that arena anymore. The new Mazda3 entry level sits around the $21,000 level. That's where we think the hike was maybe just a little too high.
If customers had better understood the value of the new model, then there wouldn't have been a problem. But our problem was that we were not successful in communicating the value of this model. We need to improve that. The people in that market are pretty price-conscious. We have to communicate these values in a more easy-to-understand manner.
How will you respond?
Without reducing the price, we're raising the value for the 2020 model year. We're going to add easy-to-understand value. For example, safety features. At the same time, we're going to add a powertrain option so we can lift the high-end even higher, to the level above $28,000 or so.
Mazda recommends high-octane premium fuel for the Skyactiv-X engine in Europe and Japan. When will Skyactiv-X come to the U.S., and will high octane also be recommended there?
The engine really achieves good performance through high-octane gasoline. We were considering just using regular gasoline. But we decided to recommend high-octane premium gasoline for the Skyactiv-X. The biggest reason is performance. We are a company that really focuses on driving pleasure.
The price gap between premium and regular is larger in the U.S. than in Japan. Because of that, we have to carefully look into what we should do there. We are looking at a long life for Skyactiv-X — like through 2030. Over that span, we are going to accumulate upgrades and improvements. So at some point in the journey, we will introduce it to the U.S.
Why has the launch of the new large-vehicle architecture been delayed by nine months until the fiscal year ending March 31, 2023?
We thought about the scalability of electrification technologies in the future, and we found if we stayed with the planned architecture as it was, we may get in trouble. So we decided to make a change.
What kind of powertrains will the new architecture accommodate?
An I-4, an I-6 and plug-in hybrid. A 48-volt mild hybrid and Skyactiv-X. The current I-4 Skyactiv-X uses a 24-volt [mild hybrid]. But the I-6 could use the 48-volt.
But the 48-volt is not introduced yet?
Not yet. It can be combined with Skyactiv-X and other types of engines as well. We can deploy that to the small architecture as well.
What size vehicle will ride on the large-vehicle platform?
You can think of it as covering the CX-5 and above.
Are customers ready for the price jump expected to come with the large vehicles?
We will, of course, offer entry, core and high trim levels. In Japan, the customers who buy the diesel CX-5 should be able to afford the new pricing. Or, in the U.S., customers who currently have the Skyactiv 2.5-liter turbo should be able to afford the pricing.
Will the new vehicle made in the upcoming Alabama plant be on the large platform?
No, it will be on the small platform. But it will utilize the common architecture, bundled planning and flexible production, so we can have very efficient development and manufacturing.
I believe this model will become a favorite model among American customers because that is how we are developing it. We are focusing on American customers.
This will be Mazda's new top-selling model in the U.S.?
That is my expectation.
Is Mazda trying to reposition itself in the premium market?
Some media have reported that Mazda is going for premium. But as a brand, Mazda is not established as a premium brand. It is not a goal. If you're asking whether we aim to be like one of the established German 3 premium brands, the answer is no.
Even if the price ends up higher than today, we will develop products that provide higher value, and customers will feel convinced of the pricing.
What competitors are in that area of the market?
I wonder who. Why do we always have to think it's about competing with other brands? It may be possible there is no other brand in the same positioning that we are aiming for. We want to be considered an alternative to established premium brands.
But at a lower price?
Yes. We're not going to position ourselves in comparison to some other brand. Mazda is Mazda.
Given that Mazda is a small player, if we do the same thing as big players, we will have no chance of winning. That's why I have to manage in a way that takes our small scale as a strength. One of the things about being small is that we can be unique, in terms of product, technology, pricing and customer experience. If we don't do that and do the same thing as big players, I'm afraid it will be hard for Mazda to survive.
Does Mazda need to step higher because of pressure from Korean and Chinese rivals?
The Korean players have now reached a level that really gives us pressure. And the Chinese brands will eventually become something that will globally exert pressure as well. No matter who enters the market, Mazda's small size won't change. So we have to stick to our uniqueness. That's how we should be doing our business.
How is the U.S. campaign to reduce incentives and build quality of sales going?
I asked everyone to achieve three things. We wanted to raise prices, reduce incentives and grow revenue. We've increased the pricing slightly while decreasing incentives. But our sales volume hasn't reached the targeted level. So, we achieved only two of the three.
The next question is how we are going to improve revenue growth in terms of quantity. We are trying to increase volume year-on-year this fiscal year and next fiscal year. But the increase is not going to be aggressive.
We're going to do that through product, sales, finance and showroom upgrades.
We're going to take care of dealers in a more detailed way, giving support to each individual dealer. The top priority is helping dealers make profit.
We need to place importance on trade-cycle management in the U.S. as well. We need to raise loyalty through new-car sales, increase CPO and improve the service retention rate.
How are the facility upgrades coming?
By the end of November, we completed upgrades of 100 stores. Right now, 170 stores are under construction or having their design upgraded.
Over the next 18 months, six to eight new branded stores will open every month. So by the end of 2021, the number of upgraded facilities will reach 300 or more.
If we upgrade facilities, employee loyalty improves, and owners enjoy better profit and can provide better training. So, we can expect good synergy effects.
Through the Retail Evolution program, we are able to have profit improvement and new customer retention and CPO as well. But we need to make sure we get the revenue increase so dealers can enjoy the fruits.