The U.S. auto industry has never been more difficult to predict, says Mazda Motor America CEO Jim O'Sullivan.
Just a few months ago, U.S. dealers couldn’t get customers into their showrooms. But in recent weeks, it seems, they could barely keep up with demand, thanks to the Cash-for-Clunkers program. But now, with that cash, all $3 billion worth, running out, the program is winding down. So, what happens next? Will the momentum keep building, or will the American market once again fall flat on its face?
That’s just one of the questions we posed to Jim O’Sullivan, CEO of Mazda Motor of America during a preview of the Japanese maker’s 2010 line-up. A 30-year Ford Motor Co. veteran, O’Sullivan was appointed to his current post six years ago, when Ford still held a controlling stake in Mazda. Recently, the American maker sold off much of its holdings, but O’Sullivan chose to remain on the Mazda payroll. He spoke with TheDetroitBureau.com’s Bureau Chief Paul A. Eisenstein at the Laguna Seca Raceway, in Monterey, California, that Mazda has sponsored for a number of years.
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Q: It seems the Cash-for-Clunkers program has been a success – almost too much so. How has it played out for Mazda?
Jim O’Sullivan: The program, from our perspective, has been very successful. In fact, our share, based on what (the government) has posted, has been much higher than what our market share is, which tells you people are attracted to our products because of their fuel economy.
Q: Some makers have actually had problems keeping up because the unexpectedly strong demand left their dealers short of product.
Jim O’Sullivan: Our inventories were a little lean and we probably didn’t capitalize on it as much as we could. We’re totally out of Mazda5s anywhere in the country and we’re running out of Mazda3s. Our dealers are obviously benefiting because they’re seeing business they hadn’t seen before. And before the program, people thought a lot of these folks wouldn’t have good credit and would be hard to get these people financed, but it’s quite the contrary. These are people who are frugal, pay their bills every month and just kept the (Clunker) for a long time. It’s like the millionaire-next-door story.
Q: Clunkers has led some makers to boost production, GM, for example, for the first time since 2006. What about Mazda?
Jim O’Sullivan: That doesn’t surprise me. As to Mazda, when we knew this program was passed, we added a little bit of production and were able to get some cars to our dealers in time to take advantage of it. We also asked a handful of fleets to delay taking delivery and shifted those cars to dealers.
Q: Now, with Clunkers winding down, some analysts fear we could see a notable drop in car sales, again. Do you expect a significant payback?
Jim O’Sullivan: There will be some payback, I would surmise, after the program is over with, but I don’t expect it to last that long. There are lots of people shopping for cars, right now, that aren’t Cash-for-Clunkers buyers. They’re in the market and ready. And I thought a lot of Clunkers business was incremental, anyway. A lot of people came into showrooms and got deals who wouldn’t have qualified but the dealers gave them a little money, anyway…to make the sale. That was incremental business.
Q: Your one-time colleague, Ford President Mark Fields, suggested to me that the Clunkers program marks the first time since the financial meltdown began, last year, that American consumers have been encouraged to shop, notably for cars.
Jim O’Sullivan: Gosh, the media reports have all said, you better get to the showroom and buy something. And people realized that their old car would be worth more today than it ever would again. This has created a demand among people who otherwise weren’t in the market. Normally, we wouldn’t have seen these customers.
Q: There also seems to be a debate over whether we will now see a sharp decline in the record incentives the industry has been using to spur sales, or an even bigger push by manufacturers who wish to keep the momentum going. What do you see?
Jim O’Sullivan: Based upon 2009 models, a lot of people have been spending aggressive amounts of money to get rid of their inventory. I think you’ll see them hold that back down for awhile (in the 2010 model-year) because inventories are so low. It makes no sense to spend so much money if you don’t have the product. But it depends on whether a manufacturer wants to buy market share. The money Toyota is spending is significant. On the 2010 Corolla, they have 0-interest for 60 months, already. But you’ll generally see a pullback.
Q: What sort of sales are you predicting for all of 2009, now that we’ve had the boost from Clunkers?
Jim O’Sullivan: Probably about 10 million, overall, maybe a little bit better for the full year. And I see a run rate of more like 11 million for next year. There’s a lot of uncertainties: the government stimulus program, tax rates, the unemployment rate, which I think will continue to rise a little bit. There’s no way around that.
Q: Have you ever, in your career, seen a period that has been harder to predict?
Jim O’Sullivan: Well, that’s the biggest problem. If anything, we’re being on the conservative side, not putting a lot of inventory out there for our dealers, and making sure they’re healthy and viable, but this is a month-to-month situation. But that’s not only in the U.S. Consider what’s happening if you have to plan a worldwide production system. China’s recovered, a bit, but Russia has imploded. It’s a kind of roller-coaster, with the U.S. at the front and Europe nine months behind us, so it’s going to take a lot longer for them to come out of this again.
Q: You’ve had some big launches, in recent years, and some modest but noteworthy additions for 2010.
Jim O’Sullivan: We’re not launching any major new models, this year. You know that building awareness takes a long time to achieve. I would say we’ve got the tightest focus we’ve ever had relative to the showroom we have today. Our plan is to take models like the CX-7 and Mazda3 and make them better. We have the momentum and more people looking at our showrooms than ever before.
Q: You’ve still not launched a hybrid vehicle. Any plans?
Jim O’Sullivan: Not at this point, not for a year or more. Our plan is to continue improving fuel economy. We’re looking to increase it by 30% by 2016. You guys, (in the media), need to tell us when you think it makes sense for us to deliver diesels to North America. We think that makes a lot of sense. We’ve been successful with diesels in Europe, but we’re not big enough to build a market on our own, so we’re going to be fast followers. I truly believe the U.S. market is becoming more and more like Europe’s, which means there’s more room for diesels, but there’s been a stigma about them. Longer-term, I think they have a better opportunity than electric vehicles.
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