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President's Message 2010(Jan. 6)

Management group message

January 6, 2010

Strengthening "Essential Functions" and Cutting Cost Decisively

No sign of demand recovery in developed nations

I want to begin by wishing everyone a Happy New Year and expressing my heartfelt thanks for your ongoing support of Yamaha Motor Co., Ltd.
Last year, Yamaha Motor suffered the biggest losses in its history. Although we have overcome a number of difficulties in the past, no business environment has been more severe than the one we face today. In retrospect, it seems that the impact of past crises, while significant, was still relatively limited in scope. Examples include failures in model development in the 1970s and an excessive battle for market share with our leading competitor in the Japanese market during the 1980s. However, the current economic collapse is unprecedented. Consumption and demand dropped sharply in Japan, North America, Europe and all the other developed nations around the world—all at the same time. What is worse, there is no sign of recovery on the horizon. Perhaps the greatest challenge of all is that the problems are so widespread that—at least in the developed nations—there is no single area where we can focus our efforts. The fall in demand has been particularly severe for motorcycles and other leisure vehicles—our mainstay products-and I don't believe that just introducing new products such as hybrid vehicles with attractive environmental features at affordable prices will be enough to boost sales again.

Some may expect demand to return as the economy recovers, but I remain pessimistic about our future sales as long as we continue developing products based on our old business model. Adding functionality, improving quality and then raising prices in line with the increased value has been a successful paradigm in the past, but now the economic crisis has changed the consumer's interpretation of "value." The economy will likely recover to a certain degree, but consumers will probably continue to steer away from expensive products, regardless of what value the manufacturer believes justifies the price.

Dramatically increase essential functions, drastically reduce costs

Given all these obstacles, there are two directions we will pursue in order to successfully address the challenges of the future.

First, we will dramatically improve the essential functions of our products. Enhancing these core functions will make the products more attractive to our customers in a new way, yet without any increase in price. Customers may exclaim, "Wow, how can this new product perform this well?" or "Why has it improved this much?" With this aim in mind, our people in all areas of the product development process are working hard and creatively with innovative approaches.

Secondly, we need to reduce product prices while maintaining excellent performance, so our customers find themselves tempted for the purchase. Significantly reducing costs means developing innovative cost-cutting measures, not only in manufacturing but across business sectors and processes, from product planning to design, testing and prototype production, and from procurement through pre-production, manufacture, logistics, sales and service.

Applying theoretical value-based principles to all aspects of our business

In discussing "essential functions," I have been referring to products, but of course there are essential functions in the work we do as well. At Yamaha Motor, we have already spent years identifying the essential functions of factory work, striving to improve and restructure work processes in order to eliminate as much superfluous effort as possible. We call this "theoretical value-based production." It is a type of engineering analysis that identifies which work creates value and which should be done away with. In short, it helps narrow factory work down to its value-creating processes, which in our terminology we call "essential functions." Now our aim will be to apply this approach to not only manufacturing but to all aspects of our business. At times like these when we are suffering from a deep slump in sales, the redundancy in our related businesses becomes an increasingly serious burden. Restructuring is unavoidable, and it means a painful downsizing of these operations.

However, we know that this is a process that we cannot avoid if we are going to move forward in today's new business environment, and I am determined to pursue this task with strong resolve in order to get Yamaha Motor back on track toward profitability as quickly as possible. In closing, I would like to ask everyone for your continued support of our company and the Yamaha brand.

Yamaha Motor Co., Ltd.
President, Chief Executive Officer and Representative Director
Tsuneji Togami
(January 6, 2010)

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