How do smaller mainstream brands broaden their appeal? Subaru doubled their sales between 2008 and 2018 by offering customers affordable all-wheel drive in segments where four wheel traction didn’t previously exist. Similarly, Volkswagen created a following with their diesels until all that fell apart in 2016. By contrast, Mazda relied on their sporty driving dynamics and sexy styling to woo buyers. At least until recently. With its push towards luxury, Mazda is taking a bit of a risk. And it’s a gamble that hasn’t exactly paid off yet. But the company is confident everything will work out just fine.
If you’ve experienced a contemporary Mazda (roughly model year 2016 and up) you know their interiors have drastically leapfrogged the competition. Even Acura can’t compete with what Mazda is putting in their cabins. But to make their lineup noticeably more premium, they had to increase their prices, which dented sales. The redesigned Mazda 3 won accolades from the automotive press but critical acclaim has not translated into higher volume. The company will probably move slightly over 50,000 examples of the 3 for 2019. That’s down sharply from 64,000 in 2018 and less than half the volume Mazda sold in 2012.
To counter decreased volume, Mazda is filling in their white space with more crossovers. The upcoming CX-30 is key to that plan. Mazda’s CX-30 will slot between the CX-3 and CX-5 and act as a premium subcompact of sorts. The cheapest Mazda 3 hatchback, which donated its platform to the CX-30, is $800 more expensive. Aside from this poorly named addition to the Mazda lineup, executives are also touting another new crossover. This mysterious new entry will be built at a joint plant with Toyota and arrive some time next year. In all likelihood, the crossover will compete with the Ford Edge and Nissan Murano in the mid-size segment, but no concrete details have surfaced yet.
Perhaps more important to Mazda is their new Retail Evolution showroom modernization initiative. Like most dealer upgrade programs, the new aesthetic is designed to mimic luxury showrooms. Some dealers pushed back on the expensive upgrades, which is not an uncommon phenomenon among any automakers that encouragee similar changes. But for Mazda, things are a bit different. The somewhat niche automaker is…even more niche than it used to be. Overall sales are down about ten percent. And no model is in the black. But the company thinks the upgraded showrooms will buoy sales. Mazda says dealers who already participated in the Retail Evolution program experienced a 57 percent increase in service retention and a ten percent jump in sales when compared to non-participating dealers.
Do those numbers offer a solid glimpse into Mazda’s future? Maybe. In all likelihood it was the largest and most profitable dealers that remodeled first, giving Mazda a nice set of skewed numbers to present to news outlets and the roughly 200 dealers that haven’t upgraded yet. It’s entirely possible the company’s new strategy will succeed. But competitors haven’t exactly been asleep at the wheel. Key to Mazda’s plan is how well they leverage their new alliance with Toyota. If they can keep costs down and sell their product at a higher margin than before, they might be able to eke out a win and pacify the dealers upset at the loss in volume.
A superior captive finance arm might also prove useful. Mazda recently ditched JP Morgan Chase for Toyota Financial Services. That move probably enhances the company’s ability to offer better rates for customers, which would no doubt come in handy for the higher prices they’re asking. In any event, the upmarket positioning is a risky move. Volkswagen tried a similar tactic until about ten years ago. Now their products are exactly in line with their mainstream competitors. But the German automaker didn’t produce interiors nearly as premium as contemporary Mazda vehicles. Perhaps the Japanese automaker is on to something. Maybe the old adage of “if you build it, they will come” will propel Mazda to new heights. If it doesn’t, they’re going to have to ask themselves if their upmarket manuever was worth it.