President's Message 2008

Business Conditions Surrounding the Yamaha Motor Group

We are living through a time of dramatic change at unprecedented speed, on a global scale. Communities, customers and other stakeholders are becoming more critical about what companies are doing. Business competition is intensifying. Soaring raw material prices, triggered by higher crude oil prices, the declining U.S. dollar, uncertainties surrounding the slowdown of U.S. economy, and the penetration of low-priced Chinese products into the worldwide market have created challenging business conditions for the Yamaha Motor Group. To meet the challenges before us, we must grasp the meaning of these changes and bring a sense of urgency to our daily operations.

Next50-Phase II in Review

Last year marked the conclusion of our previous three-year medium-term management plan, NEXT50-Phase II. In that plan, we focused on three key priorities: maximizing opportunities for business growth; continuing the profit-oriented approach; and creating value that differentiates Yamaha.

With regard to maximizing opportunities for business growth, we achieved substantial expansion in ASEAN countries such as Indonesia and Vietnam, and our results in Brazil and Russia were better than expected. In line with this expansion, we also made aggressive investments in growth areas, extending beyond the motorcycle business, to the outboard motor, intelligent machinery and life science businesses. However, markets like India remain areas of concern. Here we were unable to translate growth opportunities into business expansion during the previous medium term.

In terms of our performance in continuing the profit-oriented approach, we exceeded the plan targets for net sales and operating income. However, we failed to reach the target figure for operating income margin. While our motorcycle business remained highly profitable in ASEAN markets, we missed operating income margin targets for the motorcycle business in advanced countries, and for the recreational vehicle, outboard motor, and intelligent machinery businesses worldwide, due mainly to decreasing demand, intensified competition and rising raw material prices. In respect to product quality issues — which significantly and negatively impact our profitability — we are committed to strengthening our groupwide quality control system. Although it may take a bit longer to see the fruits of the efforts we are making in this regard, we are determined to stick with it. We can achieve the results we seek by continuing to work diligently and building on our steady progress.

In order to create value that differentiates Yamaha, we have successfully raised the profile of the Yamaha brand and have won a high market share in the ASEAN countries, thanks to our comprehensive marketing strategy for products, sales channels, advertising and services. Meanwhile, in the recreational vehicle business, Yamaha has become a pioneer in the new side-by-side vehicle category, making it a core product in this segment. However, in mature markets such as Japan, Europe and the United States, our high value-added strategy did not produce the results we had anticipated.

In respect to risk management and compliance issues, we have moved to strengthen our export control system. We have also made five promises to society, based upon the recommendations the Compliance Special Committee gave us. While we are taking action to deliver on these promises, the progress has been slow. We need to accelerate our activities in this regard, and continue with them until our commitment to society is ingrained throughout our company.

Key Priorities for 2008

We announced the new three-year medium-term management plan in February, and introduced our long-term vision for what the Yamaha Motor Group can and should become in the future.

1. Improving profitability toward future growth
2. Strengthening quality improvement
3. Establishing a model corporate culture

In working to accomplish these priorities, we will have several specific issues to address.

For the manufacturing and procurement divisions, realizing zero-defect production processes, reducing costs, and expanding production volume for the entire Yamaha Motor Group are the most important issues. To accomplish these objectives, the relevant divisions — Motorcycle Headquarters in particular — will return to the basics of our system-supplier system, integrating development, purchasing and manufacturing capabilities based on each motorcycle part unit. The move is designed to develop and expand upon the system’s function. Furthermore, these divisions will work to improve the technological level of each production-related process and strengthen overall production capability using the concepts of theoretical production.

In the technology and development divisions, key issues include building technologies for the future, improving design quality, and creating greater value that differentiates Yamaha from the competition. In addition to creating technologies that meet environmental and safety requirements and set us apart from other companies, we must also work to improve design quality, while rapidly developing and delivering distinctive products to win customer trust.

The 2008 business plan tasks the sales division with developing concrete marketing scenarios, based in reality. This will require a good grasp of the markets and accurate demand forecasting, which in turn will allow local and headquarters sales staff to work together to quickly form plans and take action.

The corporate division needs to upgrade the quality of its operations and establish an internal control system from a global perspective. Laws and social systems are changing dramatically. Rather than merely adapt in order to achieve compliance, we need to predict future trends, stay a step ahead of the changes, and take effective, proactive measures. We are committed to realizing these goals, based on our recognition that what we do or do not accomplish reflects directly on the quality of our management.

Challenge for global excellence

The new medium-term management plan we are initiating this year calls for us to “achieve growth while improving the quality of the Yamaha Motor Group.” I realize that this is not an easy challenge to accomplish, but after we achieve it, a truly excellent global company awaits. We must maximize our abilities in order to make 2008 a very fulfilling year. I am resolved to take the initiative toward a bigger and better Yamaha Motor.