Some U.S. Mazda dealers are divided over new retailer incentives tied to a dealership improvement program introduced last summer, called Mazda Brand Experience Program 2.0.
Jim Bagan, Mazda National Dealer Advisory Council chairman, defended the program in an interview. In his view, the No. 1 concern for U.S. Mazda dealers is a new crossover due in 2021 from a joint venture with Toyota.
But in separate actions, a Florida dealership and the New Jersey Coalition of Automotive Retailers sued Mazda in U.S. District Court last year to throw out Mazda's new dealer incentives, which took effect in July. According to the complaints, the Mazda program amounts to a two-tier pricing scheme that puts dealers who don't comply at a huge disadvantage.
The New Jersey dealer association suit says retailers who comply with all Mazda dealership standards, including exclusivity, and who meet "customer experience" goals can earn a bonus of up to 6.5 percent of the sticker price for every vehicle sold, for up to four years, vs. nothing for dealers who don't meet the standards. Mazda had dealer incentives previously, but the new incentives are "exponentially" higher, according to the other suit, by Kuhn Mazda in Tampa, Fla.
In a response seeking to get the New Jersey suit dismissed, Mazda said the dealer association failed to show the incentives had hurt any of the state's 16 Mazda dealerships. On the other hand, Mazda said cutting off the incentives would hurt three New Jersey dealerships already eligible for benefits, and another eight that have enrolled in the program.
Bagan, 57, is co-owner of Roger Beasley Automotive Group (Mazda-Hyundai-Genesis-Mitsubishi), which includes four Mazda stores in the Austin, Texas, area. His term as dealer council chairman ended Jan. 24. He spoke with Special Correspondent Jim Henry. Here are edited excerpts.
Q: How are Mazda and its dealers addressing margins getting squeezed on new cars?
A: This process we started on — we're coming on the end of the fourth year — for the investments dealers were making, well, like everyone else new-car margins are getting squeezed. So they made changes in the bonus programs. That all comes under Mazda's new dealer performance programs. The original program started five or six years ago. Now we're on the "2.0" version.
What are the requirements?
There's a factory program where we are trying to engage all dealers to go to a more premium dealer atmosphere — the same feel, amenities and customer touch points that premium stores have.
And that's new?
That's basically been in place for about six months. In the next two to three years, the goal is to get 75 percent of the dealers committed to new facilities. It's pretty good progress that one-third are already committed to, in the process of or finished new facility upgrades.
How's that going?
All those facilities that have done the upgrade are experiencing higher throughput and a higher return on net profit.
Why are the dealerships more profitable? Is it strictly because of higher sales?
It's a pretty good program both ways, for both parties. It's more efficient. It's better for the dealer to go forward, and the factory has given a pretty good commitment. For four years, you get a substantial amount of support and that way the dealer knows that is in place.
What form does Mazda's dealer support take?
They put a little seed money upfront for dealers doing the upgrade.
What do you mean by seed money?
You can earn up to a substantial amount of money per sale. They committed to the program for four years. That money can really add up to a small windfall at the end of four years. It is a true buy-in from the manufacturer, knowing that these facilities are getting costly. Without these programs in place, I don't think we would've been as successful.
How specifically are the new facilities different?
The old version was more like a garage, more like something a car enthusiast would have. The colors were more aggressive and louder. The new version is more open, more muted, premium colors. It's got high-dollar oak furniture. We're trying to change the opinion, trying to change the customer perception.
Does exclusivity improve the customer experience?
The customer experience — by that for Mazda I mean their product — has always been superior. But we always kind of missed that final thing we need to be successful, that premium space, the focus and concentration specifically on your brand. We had to increase the ability to meet those expectations. The real changes are really to be customer-focused. You can't just talk about premium. Being a premium experience, the customer has to feel it, they have to experience it. It's got to be in our DNA.
What's the No. 1 concern in the coming year for Mazda dealers?
The biggest anxiety out there for the Mazda dealer body is with the new relationship with Toyota, and what model they're going to be building out of Huntsville, Ala. The dealers are excited to see what that car will look like, and what we're going to go after. There's a lot of anxiety about that.
Your newest model is the new Mazda3, which was at the Los Angeles Auto Show. What do you think of it?
I think it's going to be kick-ass. When we get all the final technology, I think that car will take us back to the top of the chart.
Isn't it a tough time to be introducing a car instead of a truck?
All those markets are cyclical. I think it's the right time. The total dropout of that [car] segment is pretty much over. I think they did a pretty good job with that 3, particularly that hatchback.
Sales today are mostly CXs, right?
The CX segment has definitely taken over the majority of the volume for our operation. It's representing, I think, 60 to 65 percent of the overall sales of the company. We're going to continue to grow our presence in the market.
The CX-5 is the biggest seller by far, isn't it?
The new CX-5 is bringing in more customers, I think due to the premium nature of that car. The car is hitting, probably exceeding, any expectations any of us had. We've only been selling the brand-new model six or seven months. They've got a diesel coming that will probably get a resurgence next year of those customers. It's been very well received so far by consumers.
How is Chase Auto Finance, which provides private-label financing for Mazda, Subaru and Jaguar Land Rover, as a captive?
Chase has gotten better every year, I'll put it that way. The communication is better. It's better today than it was a year ago, and a year ago it was better than it was two years ago. They are better at sticking to a consistent buying pattern, and they are buying a better spread of paper than they did. Overall, I give them a middle ranking, which is not a bad one at all. I think we're just happy to have a captive.
Does Mazda offer much leasing?
It's been climbing. It used to be in the low 30s, which is on the low side. It's substantially north of that now. If you look at our lineup, for some trim levels and for some models and in some parts of the country, it is higher. Like everybody else, the West and East coasts are the highest and the South and Midwest a little lower than nationally. That holds pretty true of everybody.
Does Mazda use stair-step incentives?
No, we don't do stair-step, not in the traditional sense. Whether you're a premium brand, or if you're Toyota, Honda — anybody — everybody has got pressure. What Mazda did about four years ago was to engage with the dealers and get creative, to keep the dealers' ability to make some money in the new-car department and address the problem.
How do retailers make money in new cars?
The dealer performance standards allow the dealer to earn more money. And if you do well in customer experience, they allow the dealer to earn extra incentives. That's taken some of that margin money out of the trade cycle and kept it aside, and hopefully kept it where we can pay some bills with it.
By kept "out of the trade cycle," do you mean sort of like holdback?
Where do the Mazda incentives fit in the market? Isn't the brand pretty small?
Candidly, it's still very, very competitive. With variable programs we can be a little shrewder than if everything was the same across the board. We do try to stay competitive in the market. We're kind of in that middle band. We're not the highest and we're not the lowest. But with margins, variable support and with the additional below-the-line money you can earn through the dealer performance standards, the brand has a very, very good earning potential.
And the new incentives help. Can you put any numbers on what percentage of dealers are profitable?
We've been able to have high-performing dealers, and even some middle-band dealers that had been very challenged, that have been able to move the needle, to get net profit moving forward in general.
So, things are generally OK?
If you can sell some Mazdas, and sell some volume, the earnings potential is there.