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President's Message 2006

Management group message

January 6, 2006

A Sense of Urgency: Transforming Yamaha Motor into an Excellent Global Company

Last year, Yamaha Motor celebrated its 50th anniversary, and initiated its new medium-term management plan, "NEXT50-Phase II." During 2005, we reviewed our activities over the past half-century and embarked on a path marked by determination for new growth over the next 50 years.
Having successfully completed the first year of this medium-term management plan, we achieved our goals in terms of both sales and profits. The business environment has grown increasingly harsh, however, reflecting serious concerns, including soaring raw material prices, consequent cost increases downstream, and depressed demand -- for motorcycles in the ASEAN region and ATVs in the United States -- which resulted from a dramatic rise in gasoline prices. Other sources of concern include the depreciation of the Indonesian rupiah against the Japanese yen, and the effects of devastating hurricane damage in the United States. We must be determined to quickly recognize changes in the business environment, and to respond flexibly to these changes.

This is the second year of our medium-term management plan, NEXT50-Phase II. If we liken the three-year management plan to a triple jump, then we have finished the "hop," and are about to execute the crucial "step" before making the final jump. In any multi-stage process, the middle stage is the most crucial phase, where weaker competitors lose focus and momentum. Our first-year hop was strong, but how far we jump into the final year will depend entirely on our performance in 2006. With this in mind, we will execute the following key policies during the coming year.

1. Expanding the Motorcycle Business and Other Businesses

In NEXT50-Phase II, we have been implementing our basic strategy of balancing value, profitability, and growth in a bid to make Yamaha an exclusive brand in the global marketplace. Following is an outline of how we have positioned each business based on this policy.
In the motorcycle business in Asia and the automotive engine business, we are working to maximize growth opportunities, while in the motorcycle business in North America and Europe, the outboard motor business, and the ATV business, we are focused on attaining high profitability. Meanwhile, in the Intelligent Machinery (industrial robot) business, we aim to maintain high profitability and expand the scale of operations. In the motorcycle and boat businesses in Japan and the PAS electro-hybrid bicycle business, our top priority is stabilizing business infrastructures and improving profitability.
During our previous medium-term management plan, NEXT50, we cultivated a profitable corporate structure. All of our businesses will build on this structure to meet and surpass projected results. We must enhance the competitiveness of our core motorcycle business in particular if we are to achieve further growth.
To that end, in mature markets such as Europe and the United States, we will focus on creating high added value and securing a large market share. Our approach involves strengthening product competitiveness, promoting high value-added marketing to differentiate Yamaha from its competitors, and enhancing area marketing to improve regional market share.
In the ASEAN region and other growth markets, we will expand the scale and profitability of business by aggressively introducing new products and promoting a branding strategy, and by cutting costs and improving the production system in line with increased production capacity.
In India, China, and Brazil, where our profitability and market share remain relatively low, we will further strengthen the manufacturing and sales foundation in order to improve profitability.
In Japan, we are facing a generally harsh environment, in spite of some growth in the sports bike category that reflects the positive effects of deregulation. We will stabilize the foundations of our domestic business through marketing activities that get back to the basics; for example, creating demand and opening up markets.

2. CSR (Corporate Social Responsibility) Activities

In recent years, we have seen severe public condemnation of scandals that have occurred in numerous Japanese companies. Some of these corporations have nearly been driven out of business. We at Yamaha Motor, however, have been committed to environmental preservation and corporate compliance since the company's establishment, when in our corporate pledge we promised "to contribute to the good of our country and society." Carrying on this tradition, we formally mapped out our CSR program in 2005. This is the first year in which we will pursue the activities specified in that roadmap.
We will place a particular emphasis on fundamentals such as product quality, the environment, employment, personnel management and industrial relations, compliance, and risk management. In each field, we will identify issues and set goals and schedules to lay the groundwork for consistent improvements in performance.
Starting from this year, we will develop CSR into a global initiative. In the past, CSR activities have been centered on Yamaha Motor Company Limited and its affiliated companies in Japan, but beginning in 2006, we will implement these activities worldwide, pursuing different tasks and objectives tailored to the conditions and requirements of each locality.

3. Developing Multi-talented, Globally-oriented Personnel

Ultimately, it is our people who will determine whether we succeed in achieving the two key priorities outlined above. With this in mind, we will continue to actively develop human resources in 2006.
Although more than 80% of our consolidated net sales are derived from overseas markets, we still have a shortage of capable personnel in our global operations. We recognize our weaknesses in long-term personnel development, and are committed to developing systems to address the shortcomings this year.
Specifically, to ensure that each and every employee has a broad range of skills and the ability to handle global operations well enough to meet Yamaha Motor's high standards, we will systematically train young talent and promote more advanced career development for experienced staff. As a measure to enhance global perspectives in our workforce, we will reintroduce the overseas study system. We will also take full advantage of the skills and experience of older employees, for example by gradually extending the mandatory retirement age to 65 in keeping with the revised "Law Concerning Stabilization of Employment of Older Persons," which was passed in June 2005 and will be enacted in April 2006.

Becoming an Excellent Global Company

Since the launch of the original "NEXT50" medium-term management plan, profitability has been steadily entrenched into Yamaha Motor's corporate structure. Unfortunately, we are slightly behind in our drive to reach one other crucial objective specified in the "NEXT50" plan: attaining a recurring profit ratio of 5% at an exchange rate of 100 yen against the U.S. dollar and the euro. We must achieve this objective as soon as possible and set the stage for further growth if we are to survive in the age of global mega-competition.
This January, we are inaugurating a second motorcycle manufacturing company in Indonesia, where our production capacity will increase to 1.8 million units by 2007, and also a motorcycle-parts manufacturing company in Vietnam. In May, our new parts center in Fukuroi will begin full-scale operation. Construction of an experimental building at our headquarters will be completed in July, and a biotechnology plant will be completed in October. With these developments, we can and must move forward.
In the racing world, where Yamaha Motor competes as a corporate activity, only the strongest can win. Participating teams have to overcome any problems that arise by the morning of the event, no matter what. Nobody can make excuses about some difficulty or shortage of support staff. We are determined to take on management tasks with the same sense of urgency.
"Excellent Companies" with a recurring profit ratio exceeding 10% always operate in crisis mode, even when -- especially when -- there is no crisis. We will quickly transform Yamaha Motor into a truly excellent Japanese company - and a truly excellent global company - by addressing and overcoming the management issues laid out in NEXT50-Phase II.

Yamaha Motor Co., Ltd.
President and Representative Director
Takashi Kajikawa
(January 6, 2006)

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