Prices hit for 6

Mazda has shocked the industry by reducing prices across the board for the company's mid-size car, the Mazda6. As reported earlier today, price reductions range from $1750 for the entry-level Mazda6 Limited sedan to $3920 for the Mazda6 Luxury Sports hatch with automatic transmission.

Within the ranks of the motor industry, reducing prices tends to be a tactic of last resort. If not handled correctly, it sends a signal to the buying public that the new car is not popular and is thus flawed in some way.

Reduced new-car prices can also drive away repeat business, since existing owners are not able to take advantage of the lower prices. Perhaps more importantly, the margin between the price they paid and the subsequent reduced resale value (based on a lower starting price), leaves them further out of pocket when they sell the car.

That's why Mazda has announced that the reduced pricing structure will be accompanied by three "goodwill" packages aimed at existing owners of the latest generation of Mazda6. These packages won't redress the potential resale impact, but they will at least save the current owners some additional outlay for the period of ownership.

The goodwill packages will vary according to the level of trim. Owners of Mazda6 Limited and Classic models will be offered a three-year/60,000km "free scheduled maintenance" program -- including fluids and labour for all handbook services during that period.

For owners of the Mazda6 Luxury models, the free servicing program is extended to four-years or 80,000km. This program is also available to owners of the Mazda6 Luxury Sport, with the added benefit of a two-year warranty extension, increasing the warranty cover to five years.

On the face of it then, Mazda is handling the price reduction tactic with as much care as possible, but the question remains, why reduce the price in the first place? Mazda denies there's an issue with the new car's sales right here and now, but VFACTS figures suggest otherwise.

In the VFACTS medium segment, the Mazda6 is almost 14 per cent down on last year's sales, in a year-on-year comparison from January to June. The whole segment shows a 5.7 per cent decline over the same period, so the Mazda's slump has been particularly stark. But the Mazda6's traditional competitor, the Honda Accord Euro, has suffered even worse, with sales down 36.6 per cent during the same period.

The difference between the two, however, is that the Accord Euro is due to start racking up sales of a new (cheaper) model, so the Honda's sales decline during the first six months of this year must be seen in that light -- the company running stocks down to minimal levels in anticipation of the new car.

By comparison, the previous generation of Mazda6 was still selling strongly right up to its last month of onsale (February 2008). In comparison, the new model's sales have been lacklustre and have not built to the same level as the 'old' car was managing in the last quarter of 2007 and the first month of '08.

Indeed, in its first full month on sale (March), the new '6' showed no indication of satisfying any sort of pent-up demand -- a total of just 937 units (both old and new) were sold. The June figure may well have been the tipping point for the company's decision to reduce prices of the car, since only 807 units were sold during that month.

On this point, Mazda's Managing Director, Doug Dickson admits that the new car hasn't met the sales forecast of a thousand units a month, but it has come close, on average.

"We're not unhappy with where the sales position is," he insists.

"We said at the launch that we're looking for a thousand Mazda6 sales per month. For the six months 'til the end of June, we've been averaging 950. For the months since the launch of the new Mazda6, we've averaged 920 -- which is pretty close to where we thought we'd be.

"We're looking to the future and we want to make certain that Mazda6 maintains its position as the top fully-imported medium car."

Against a backdrop of rising raw material prices (more here) but a favourable exchange rate between the Aussie dollar and the Yen, Mazda has balanced the price of the 6 to remain competitive, it claims.

"The most important part of the equation is the relative pricing within the segment," says Dickson. "We intend to maintain our position as the leader."

That suggests that Dickson is worried by a cheaper Accord Euro and possibly, an already competitive Mondeo. The Ford has begun to pick up sales in recent months and while it still has some way to go, it's gaining traction in the market.

On that point, the price reduction positions the lowest-price Mazda6 with automatic transmission at exactly the same level as the entry-level Ford Mondeo LX -- with automatic transmission as standard. All three cars (Mondeo, Accord Euro and 6), are perceived to be the current class-leading exponents in vehicle dynamics.

Is Mazda then anticipating increased competition within the medium segment and digging in for the long haul? Competition from the similarly priced European Ford and the higher-priced Japanese Euro may already be taking a toll on Mazda6 sales.

Historically, Mazda has done well when Honda's sales have been in the toilet and vice versa. In good times, people can afford to pay for the more expensive Honda, but in bad times, they'll opt for the less expensive Mazda equivalent.

Though lower priced than the preceding generation, the latest Accord Euro is still significantly more expensive than the Mazda6, but the Honda brand is perceived in some quarters as the more prestigious of the two.

But Mazda's probably not specifically anticipating the future with this move. It's much more likely, as Doug Dickson circuitously said, that Mazda is reacting to current and recent-history market fluctuations.

"If you look at the market overall, the large [car] segment in the last six months has dropped about 16 per cent. If you look at the medium segment, it's increased about 1.4, which is less than the overall market increase.

"But if you look at the medium segment in its components, what's in fact happening is that the segment in which Mazda6 competes -- which is the under $60,000 [segment] -- that's actually gone back by six per cent.

"What that means is that the medium segment, right now, is not necessarily gaining the benefits of the changes in segmentation -- from fuel prices and environmental concerns," he says.

Dickson sees the small car segment picking up large car buyers, when logically, the medium car segment should be swelling with large car buyers migrating to more fuel-efficient cars. Arguably part of the reason that the medium car segment hasn't made any significant gains at the expense of large cars is due to the fact that medium cars are de facto large cars anyway (more here) and often, not substantially cheaper to run than the large cars that buyers are deserting.

The Mazda6 is heavily reliant on private buyers and Dickson sees those traditional Mazda6 buyers moving towards the lower end of the segment -- around or under $30,000. So on that basis, the price reduction is less a tactic, more a longer-term strategy, depending on whether fuel prices remain high and whether, conversely, buyers continue to purchase new cars at the same level (a prospect less certain than high fuel prices).

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