Mazda bets rotary sports car will raise image and profit
Wednesday, April 9, 2003
By Lindsay Whipp / Bloomberg News
TOKYO -- Mazda Motor Corp. salesman Hideyuki Egami hopes the number of visitors to his Tokyo showroom will triple after the new RX-8 sports car goes on sale in Japan, helping the automaker win back business lost to bigger rivals.
The buzz created by the car, which Mazda unveiled today and will start selling in May, will also help Egami sell Atenza and Demio cars once customers stop by, he said. His dealership vies with nearby outlets run by Nissan Motor Co. and Toyota Motor Corp. and attracts about 20 visitors on weekend days.
Mazda, a third owned by Ford Motor Co., needs every new model to be a hit to help extend its return to profit in the year ended March 2002 from the previous year's record loss, investors said. Success with the model may also boost its shares, the worst performer on the Topix Transport Index after dropping 38 percent in the past year.
"Mazda doesn't have as many models as rivals, so it's a much bigger impact on their earnings if one of those models doesn't sell," said Akihide Kinugawa, who helps manage 20 billion yen ($167 million), including Mazda shares, at T&D Asset Management Co.
Mazda plans to sell 1,000 RX-8s a month at home and will unveil the car later this year in Europe and the U.S., markets that together with Japan account for more than half of total sales. The company already has 5,000 orders for the car in its home market, it said.
Mazda expects global sales of 60,000 units a year, of which half will come from the U.S. and the rest from Japan, Europe and possibly other markets such as Australia, the company said.
Mazda's first sports car since 1991 will be powered by a rotary engine and have four doors to appeal to sedan owners and those with children, Kenichi Yamamoto, managing executive director at Mazda, said in an interview.
Yamamoto said appealing to sedan as well as sports car drivers will help add sales given the domestic sports car market has shrunk to less than 3,000 units a month, compared with a decade earlier when it was seven times bigger.
The carmaker's latest model, the Demio, went on sale in Japan in August.
A sales spurt may encourage investors and raise Mazda's share price, which is also being hurt by parent Ford's struggle with pension and incentive costs. Shares of the world's No. 2 automaker have lost almost half their market value in the past year. Mazda shares closed down 3.2 percent at 209 yen.
Mazda is selling the RX-8 for between 2.4 million yen and 2.75 million yen, or about two-thirds what it charged for the RX-7 12 years ago. The sticker price compares with Nissan's new Z-car which sells for between 3 million and 3.5 million yen, and Honda's S2000, which sells for between 3.4 million yen and 4.3 million yen.
"The car isn't just a brand icon, so if we don't have a certain level of volume, then that has an impact on the profitability of the car," said Masazumi Wakayama, Mazda's general manager of marketing. "And the young family market we're targeting doesn't have the disposable income to spend so much."
The success of the RX-8 will not just be gauged by sales.
"In terms of burnishing their brand, (the RX-8) is extremely important," said Norihito Kanai, who helps manage $2.5 billion of assets at Meiji Dresdner Asset Management Co., including automakers. "In that sense it's like Nissan's Z-car."
Mazda is also banking on the RX-8 to maintain its separate identity within the Ford group, Mazda's Yamamoto said.
"Just as Jaguar has to be Jaguar, Volvo has to be Volvo, Mazda has to be Mazda," Yamamoto said, referring to luxury brands owned by Ford. "We have to send that message to our customers very clearly, and we can do that through our rotary engine and sports cars."
The promotional campaign includes making the RX-8 a central prop in News Corp.'s film sequel, X-Men 2, starring Oscar-winning actress Halle Berry. The film will be released in May.
Mazda's output of RX-8 will be limited by the 70,000-unit annual capacity at its rotary engine plant, said Steve Usher, an analyst at JP Morgan Asia Ltd. Usher predicted, prior to today's announcement, monthly RX-8 sales of about 1,000 units each in Japan and Europe, and about 3,000 in the U.S.
The RX-7 failed to meet initial sales targets of 3,000 a month by its second year of release probably because it cost too much, said Mazda spokesman Katsumi Yoshitake.
Mazda kept a lid on costs of the RX-8 by upgrading only 30 percent of its 20-year-old rotary engine plant at the company's headquarters in Hiroshima.
"Mazda's ability to reuse old facilities and introduce new models like the RX-8 with very low new capital expenditure does translate into our ability to offer the RX-8 at an attractive price," Mazda Chief Financial Officer Gideon Wolthers said in an interview.
JP Morgan's Usher said the model will probably be Mazda's most profitable, with an operating margin of between 10 percent and 12 percent, compared with between 4 percent and 5 percent for the Atenza.
The RX-8's new Renesis rotary engine, stripped of its turbocharger, will be a third of the size and 25 percent lighter than the previous model, Mazda said. It cost a third as much to develop as Mazda's I4 reciprocating engine, which Ford also uses.
"The engine's the most important and the most expensive component in a car, so if it's not very expensive to put those rotaries into the car then it's going to be quite a high margin," Usher said.
Rotary engines run with less vibration than reciprocating engines, and the Renesis is half the size and has only two-thirds as many parts as an equivalent conventional motor.
"Mazda's famous for its rotary engines," Egami said. "As Mazda stopped production of the RX-7 last August there's been a gap where we haven't had a rotary-engine powered car to sell."
The only drawback may be the engine's fuel consumption, because rotary engines typically consume more gas than equivalent reciprocating engines, analysts said.
"There could be a negative connotation attached to rotary engines consuming more gas," said Mashu Kato, an analyst at Nikko Asset Management, who expects the company to sell about 20,000 RX- 8s a year in North America. "It's very cheap and I think they are trying to appeal to consumers through the price."
For Mazda's Yamamoto, the rotary engine will be crucial in setting the sports car -- and the company -- apart from rivals competing for the attention of new car buyers.
"The RX-8 is symbolic of what Mazda stands for," Mazda's Yamamoto said. "It's the essence of Mazda technology."
My first car was a 67 Mustang Coupe, 2nd one was a 67 Cougar XR-7, 3rd one was a 66 Mustang Coupe. Why did I get rid of these cars for ? I know why, because I'm stupid, stupid, stupid.
My next Ford.....