5 Lessons for a Corporate Turnaround from an Auto Industry CEO

But Masahiro Moro, the new president and CEO of Mazda’s North American operations, is accelerating an auto industry turnaround story that is admirable even in that difficult environment. A managing executive officer of parent Mazda in Japan, Moro took over the position in January from retiring CEO Jim O’Sullivan and has been doubling down on a corporate-revitalization strategy that he helped hatch at the parent company.

Mazda’s U.S. sales were down 8% in the first half for some one-off reasons, and it still holds less than 2% of the global automotive market. But Moro is confident that U.S. sales for the year will end up being about flat with 2015—and that Mazda has a bright future because of the big steps it’s been taking.

The Japanese brand has been seeking to punch above its fighting weight by overhauling its entire product lineup, gaining technologically with its new Skyactiv development platform, expanding its offerings in fast-growing SUV and crossover segments and, most recently, casting itself as a near-premium marque instead of a mainstream brand, to take advantage of its product improvements and to boost profitability.

As they do, here are some general-management principles that Moro and Mazda are applying to their turnaround story that other CEOs might want to mimic.

1. Break with the past. A few years ago, Mazda’s brain trust decided to break with the company’s past focus on sales-volume growth, which had hindered profits and brand equity. “Every 10 years, the company would have an up or down cycle,” recalled Moro, a 33-year veteran of Mazda. But following the Great Recession, “we wouldn’t have been able to survive like that. So we changed our philosophy 180 degrees and started from scratch.” Now Mazda has a half-dozen essentially new products that are among the strongest in their segments.

2. Value your brand. Previously, Mazda “sold at a discount so the customer didn’t see value other than the price deal,” Moro said. “We also focused on selling smaller cars” with relatively small profit margins. Customer retention rates were low to match, he said—less than 30% in the United States. “But we weren’t going to survive that way,” he recalled. “We have changed to emphasize brand and product value to customers,” Moro told Chief Executive.

3. Be riveted to customers. “It was ridiculous in a way, but we had to throw out convention,” Moro said. “And now our philosophy is designed around how to keep customers coming back to Mazda. Everything is customer-focused. We used to be essentially a wholesale producer. Now we are focused on how to take care of the customer throughout the ownership cycle. It’s a big shift in mindset.” For example, Mazda has drastically curtailed high-volume but low-margin fleet sales that ended up retarding the value of used products and eroding overall brand equity. Better prices for their used Mazdas mean that customers can and want to afford higher-priced new Mazdas. “It’s a new cycle for our business,” Moro said.

4. Risk being contrarian. Although Mazda can’t afford as much as bigger carmakers to make big mistakes, its status as a small fry requires more risks for it to thrive or even survive in a stiffly competitive automotive market. In part, Mazda is doing this by betting against conventional wisdom in at least three areas: It isn’t aggressively pursuing autonomous driving, believing, as its brand slogan says, “Driving Matters”; it doesn’t have much to offer in terms of electrified vehicles, counting instead its remarkable advances in internal-combustion engines; and it isn’t necessarily willing to give up on high-mileage diesel power in the United States despite the mess of the “clean diesel” market made by Volkswagen’s emissions scandal.

5. Think long-term. Mazda has placed a bet for the long haul, which is one reason the company isn’t dismayed by this year’s set-back in U.S. sales, which largely has to do with the pace of launch of a vastly improved new version of its flagship vehicle, the CX-9 SUV. In fact, Moro believes it will take another generation of Mazda products and maybe to the company’s centennial in 2020 to complete the turnaround. “You have to continue to evolve your technology, product and design for five years in a consistent way, otherwise the customer doesn’t believe you,” he said.

The jury is still out on how successful Mazda’s turnaround strategy will be. But certainly it is using concepts that give it a fighting chance.