LOS ANGELES – Mazda Motor Corp. is going upmarket and it’s an obvious strategy for this small Japanese car company. It’s also one that seems to make Jim O’Sullivan just the tiniest bit uncomfortable.

O’Sullivan, the head of Mazda’s U.S. operation, is reluctant to suggest that Mazda is aiming to become the Japanese BMW AG. Not now, at least. He’s got plenty of budget-priced Mazda2 subcompacts to sell before that can happen.

“Premium doesn’t mean luxury,” he says on the floor at the Los Angeles auto show.

Yes, but O’Sullivan has the recent comments of his boss to contend with here at what has certainly become a key global auto show. Mazda Motor CEO Takashi Yamanouchi is here explaining and elaborating on what he has said publicly – that Mazda is aiming to become a premium brand.

Last week, Yamanouchi told Automotive News, “The question is: In the global market, what is the significance of a player with a mere two per cent? It's something we frequently discuss internally. We came to the conclusion that if we make ordinary cars for the mass market, there is no reason for us to exist."

So internally, Mazda has been using the term “Japan premium” to describe Mazda’s plan to ride a wave of new models, designs and technologies to upscale status, and an increase in sales and profitability.  

“You mean the 400,000 in sales,” says a smiling O’Sullivan, referring to Yamanouchi’s publicly stated goal to jump-start Mazda’s U.S. annual sales by some 43 per cent by the spring of 2016.

Mazda officials in Canada are aiming for annual sales of at least 100,000 within two years, up from around 80,000 or so today.

Of course, nothing good happens to car companies unless they push hard with new products. To that end, Mazda here in Los Angeles showed the all-new 2014 Mazda6 midsize sedan, an updated 2014 CX-5 compact SUV and a face-lifted 2013 CX-9 mid-size SUV.

At least as important, O’Sullivan confirmed that Mazda will put its latest SKYACTIV-D 2.2-litre clean diesel engine in the 2014 Mazda6. The gas-powered 6 will hit showrooms early next year, with the diesel 6 due in the fall. Mazda is the first Japanese car company to sell a diesel in Canada.

“We’ve talked about it long enough, and now we are incredibly excited to officially introduce North America to our latest next-generation product, the 2014 Mazda6,” said Kory Koreeda, president, Mazda Canada Inc.

Toyota does hybrids, but not diesels in Canada and the U.S. Honda, the same.

In fact, no other Asian auto maker has announced plans to go diesel. General Motors does plan to launch a diesel version of the Cruze compact, and of course Volkswagen has a successful lineup of relatively affordable diesels, from the Jetta to the Golf to the Passat. Mazda sees diesel as a way to distinguish itself from the Hondas and Toyotas and Nissans and Kias and Hyundais of Asia. And this is a key piece in the premium strategy.

Interesting and promising as this plan looks, the Mazda reality is stark. The company is too small to continue down its current path. With its finances tight and sales of about 1.3 million units – about what BMW sells with much higher prices and profit margins – Mazda must change or die.

The changes include putting greater emphasis on quality – Mazda already ranks No. 4 of 28 brands in Consumer Reports' predicted-reliability study, just behind Scion, Toyota and Lexus – and direct comparisons to the likes of BMW and Audi.

Mazda types think new vehicles such as the 2014 Mazda6 match up with the sexiest shapes in the vehicle world. Good looking cars and light trucks, all based on Mazda’s Kodo design language (Kodo means “soul of motion”) will be packed with the latest environmental, performance and safety technologies. Mazda’s interiors will also match up with the best in the world, say officials such as Hirotaka Kanazawa, Mazda's global R&D chief.

"This is a first step in going toward premium," Yamanouchi told Automotive News. "It's about being a brand that has a strong bond with the customer."

At the same time, Mazda is doing the almost unthinkable on another front. A $500 million (U.S.) factory will start producing Mazda2s and Mazda3s in 2014. Up to now, Mazda has built almost all its vehicles in Japan, where costs are astronomical thanks to the over-valued yen. Moving production to low-cost Mexico will help Mazda’s bottom line.

But while this makes business sense, it’s a tough sell at home in Japan. Mazda accounts for a substantial portion of the GDP in Hiroshima where the company has its headquarters in southern Japan. Mazda is under enormous pressure to keep jobs at home, even though - economically - it doesn’t make sense to do so.

In all this there is a template for Mazda to follow. Back in the early 1970s, BMW and its then-chief Eberhard von Kuenheim faced a similar problem. Desperate to survive while also staying independent, BMW hit on the idea of going “premium” after narrowly avoiding bankruptcy and the prospect of a painful sellout to rival Daimler AG (then known as Daimler-Benz). Under von Kuenheim, and with the firm support of the Quandt family who then and now control BMW, the company turned its focus to building only high-quality products. Period.

"We did not even know the term ‘premium' back then, but it describes our approach," von Kuenheim says in his European Automotive Hall of Fame profile. "We needed to grow without becoming a mass producer. And we wanted to be among the best.”

In a nutshell, the Yamanouchi of 2012 is pushing Mazda to act on a strategy similar to the one crafted by von Kuenheim and BMW in 1970. BMW went a route that turned the company into the world’s No. 1 premium auto maker today.

Mazda officials say they plan gently to slide the brand and its products upmarket, as well, though not quite into BMW territory. Not yet, at least. Whatever the timeline, to get there, Mazda is counting on racy designs, race-tuned driving dynamics and above all what it calls “SKYACTIVE” fuel-saving powertrains to do the job. The trick is to nudge Mazda upmarket where the higher profits can be mined, while not abandoning the meaty part of the mainstream market where Mazda now competes.

BMW managed that miracle and is now a money-making machine. What of Mazda?