Mazda: Sell to the Next Generation, Not the Last One

Mazda: Sell to the Next Generation, Not the Last One

By Michelle Krebs February 6, 2008

By Michael Jordan

There’s been a lot of turmoil in the car market over the past year, and you can see it in the first decline in overall sales in the U.S. in more than a decade.

It leaves us with a new set of winners and losers, evidence of a shift in consumer attitudes.

This is reflected in the unexpected success of Mazda, which expanded its sales 10 percent this year, more than any other nameplate in the U.S.

Higher sales in North America, as well as Europe and emerging markets, led Mazda Motor Corp. in Hiroshima on Wednesday to report profit growth in the third quarter and forecast double-digit increases in the current fourth quarter and for the year when Mazda closes the books on fiscal year 2007 on March 31.

Big Numbers; Poor Sales Satisfaction?

Mazda sold 296,096 cars and trucks in America during 2007, according to data recorded by Edmunds.com. A closer look at the numbers shows the growth came primarily in the compact segment, where the Mazda 3 accounted for 115,898 vehicles, an improvement of 22,530 vehicles over 2006. That makes the Mazda 3 the brand's best seller by a long shot, accounting for nearly 40 percent of its sales. Overall this also reflects a growing interest in fuel-efficient cars in the U.S.

Yet all is not sweetness and light with the Mazda sales story. Its customer sales satisfaction ratings are very poor. As measured by J.D. Power & Associate's 2007 Sales Satisfaction Index, Mazda ranks fourth from the bottom.

James O’Sullivan, the executive vice president of Mazda North America Operations, acknowledged the gap, yet he said Mazda’s strong sales among young buyers have ironically compromised its consumer satisfaction ratings.

Mazda's U.S. Sales Success: Higher Sales in 2007
	Brand Market Share		Volume				Avg TCI*
Models	2007	2006	2007	2006	Difference	% Change	2007	2006
MAZDA3	39.4%	35.2%	115,898	93,368	22,530	24.1%	$562	$86
MAZDA6	18.6%	23.2%	51,861	61,199	(9,338)	-15.3%	$2,342	$2,509
CX-7	14.4%	16.5%	42,199	22,325	19,874	89.0%	$1,666	$771
CX-9	10.1%	n/a	25,484	n/a	n/a	n/a	$1,672	n/a
MX-5 Miata	5.5%	6.4%	15,080	16,841	(1,761)	-10.5%	$779	$390
Tribute	5.3%	10.7%	13,805	26,785	(12,980)	-48.5%	$2,031	$3,324
MAZDA5	5.0%	6.6%	13,485	17,109	(3,624)	-21.2%	$525	$202
MAZDASPEED MAZDA6	2.3%	1.9%	6,395	5,004	1,391	27.8%	$2,652	$2,407
RX-8	2.0%	3.7%	5,797	9,344	(3,547)	-38.0%	$2,499	$1,978
MAZDASPEED MAZDA3	1.3%	1.8%	3,600	1,069	2,531	236.8%	$1	$0
B-Series Truck	0.9%	1.6%	2,399	4,086	(1,687)	-41.3%	$2,191	$1,956
MPV	0.4%	4.9%	93	11,600	(11,507)	-99.2%	$1,821	$3,265
MAZDASPEED MX-5 Miata	n/a	0.3%	n/a	56	n/a	n/a	n/a	$2,851
Totals			296,096	268,786	27,310	10.2%

* TCI: True Cost of Incentives
Source: Edmunds.com

Selling to a New Generation

Speaking about the sales satisfaction rankings, Sullivan told AutoObserver , “Yeah, they need a little bit of work, but you’ve got to remember that the Gen X and Gen Y customer that we're working with is a little different than the mainstream customer. He’s a customer with high expectations, wants things right away, and is very demanding.

“It’s the consequence of being the brand with the second-youngest appeal in the U.S., next to Scion. Look at Scion’s sales satisfaction numbers and you’ll see the same thing.”

O’Sullivan said, “When we did the Mazda 3, we broke the paradigm of the entry-level car. The Mazda 3 is not an entry-level car anymore. It’s a premium small car — we were the first ones with leather interior, HID headlamps and a navigation system. We felt like it wasn’t right to punish people because they could only afford an entry-level car. And we’ve found the kind of demanding consumers who appreciate that.”

Cars, not Commodities

As O’Sullivan sees it, the Mazda 3 has dramatized the difference between Mazda’s product approach and those of other manufacturers.

He said, “I think there's a lot of manufacturers that are looking at what have been commodity cars all along that no longer have that niche, or they're feeling threatened by new global brands, whether it's the Koreans or whether it's the Chinese. So they feel like they have to take out cost, take out cost, and take out cost.

“If you’re focused only on doing that, you end up taking out content. Then you’re not making any money and then you’re not keeping your customers happy. Because they’re, you know, driving a cigarette carton to work every day. At Mazda, we’ll never sacrifice what we think a Mazda 3 is.”

Leaving the Baby Boomers Behind

Apparently Mazda has reason to be secretly pleased about its strange combination of climbing sales and struggling sales satisfaction ratings. It’s an indication of its strong appeal to the young, hard-to-please drivers of Generation X and Generation Y, which together add up to an audience that’s actually larger than the Baby Boom generation, so the demographic experts tell us.

Once the allegiance of this younger generation is won, Mazda believes, the future looks bright. It’s a classic case of making sure your strategy is designed to fight the next war, not the last one.

Stronger Sales and Profits Continue

While Mazda North America closed its books on the calendar year with higher U.S. sales, Mazda Motor Corp. in Japan tallied up its third-quarter results for the October-December quarter.

In that third quarter, Mazda reported a net profit of $149.3 million, up 7.1 percent from the same period a year earlier on revenues that were 10.7 percent higher than a year ago. Retail sales worldwide grew 9.7 percent to 316,000 vehicles with a rise in all major markets — Japan, North America and Europe. The exception was China, where sales fell 17 percent.

Operating profit was down nearly 6 percent, more than analysts projected, in part because of Mazda’s success with vehicles such as the Mazda 3 and the Mazda 2/Demio sold outside of the U.S., which are low-margin cars. Mazda also spent more on sales promotions in North America’s down 2007 market.

Still, Mazda sees the good times continuing. It is forecast to have a 26 percent gain in profits in this fourth quarter and full-year profits at the end of March up 11 percent.

In Europe, customers are buying up the Mazda 2 as well as the CX-7 and CX-9 crossover vehicles. Mazda’s global sales are expected to continue growing as the automaker gears up to sell the Mazda 2 in China and revamps the Mazda 6 for global markets.

Analysts attribute Mazda’s success to its sharpening of the brand’s recognition as a sporty car maker, which has helped boost sales not only in the U.S. but also in Europe and in emerging markets. Its alliance with Ford, which owns about a third of Mazda, has also helped reduce costs.

Dan Morris, Mazda’s director and senior managing executive officer, said at the Detroit auto show Mazda plans to sell 1.6 million vehicles worldwide in 2010, compared with the 1.36 million it sold in 2007. He predicted another year of record sales and profits in 2008.

Photos by Mazda
1- Mazda 3
2 - Mazda CX-9

Michael Jordan is executive editor of Edmunds' InsideLine.

Michelle Krebs:  is Editor-in-Chief of AutoObserver.com. Follow @AutoObserver on Twitter.