Further Structural Reform in the Boat Business: Production, Development, Sales and Administration Liquidation of Yamaha Gamagori Works Co., Ltd.

Yamaha Motor Co., Ltd. (Yamaha Motor) and Yamaha Gamagori Works Co., Ltd. (Yamaha Gamagori) have made the following proposal on October 19, 2001 to the labor unions of both companies with regard to comprehensive structural reform in Yamaha Motor's boat business, encompassing production, development, sales and administration, and also the liquidation of Yamaha Gamagori's operations.

1. Circumstances surrounding Japan's boat business and the management situation at Yamaha Gamagori
In April 1998, Yamaha Motor launched a three-year business plan for the Japan's boat business, in which sales have continued to decline due to the economic slowdown. In the plan, Yamaha Motor focused on a series of restructuring measures, involving integration of five domestic boat manufacturing factories into three, workforce reduction, efficient organization to enhance product development and the sales system, and the reciprocal supply of products with other companies under OEM agreements, in order to tailor the business structure to better meet shrinking demand and to break boat operations out of its loss-generating patterns.
Total demand after 1998 for pleasure, fishing, utility and other boats, has been 30% less than expected, due to the worsening recession and intensified competition in the marketplace. Amid such a significant demand decline, Yamaha Motor's boat body sales in the domestic boat business* dropped from 12 billion yen in FY 1998 to 7 billion yen in FY 2000. Against this backdrop, Yamaha Motor is obliged to transform its business structure, by implementing further restructuring.

Although boat production was consolidated into three factories - at Yamaha Gamagori Works Co., Ltd.; Yamaha Amakusa Works Co., Ltd.(Yamaha Amakusa); and Yamaki Manufacturing Co., Ltd.(Yamaki Manufacturing) - the current average operating capacity in these three facilities has fallen to just 67 %, due to the substantial demand decline.

Since May 1973, Yamaha Gamagori has mainly produced medium- and large-sized, and special order, FRP boats on consignment from Yamaha Motor. Yamaha Gamagori has taken a variety of measures to improve profitability, including aggressive production improvement activities, cost saving and sales expansion, making an all out effort amid difficult management conditions, triggered by falling demand for medium-and large-sized boats since the collapse of Japan's bubble economy.

Nevertheless, actual production has fallen to as low as 286 units a year in FY 2000 - from 570 units in FY 1997 - dropping factory operating capacity 56%. Consequently, Yamaha Gamagori's financial position has reached a very serious juncture, in parallel with the sales decline, with the company registering several hundred million yen in ordinary loss every year since 1991.

* Total sales in the domestic boat business were 33.5 billion yen in FY 1998 and 25.3 billion yen in FY 2000. Sales of boat bodies consist of the sales amount for boat bodies and package boats.

2. Further Structural Reform
Yamaha Motor plans to initiate a new three-year business plan starting in April 2002, aiming to establish an operational foundation capable of successfully managing the domestic boat business even at a boat body sales level of 6 billion yen, far less than the current amount. Based on the new plan, Yamaha Motor will promote further structural reform in production, development, sales and administration.

To cope with the significant demand decrease and intensified price competition in the production sector, Yamaha Motor will implement further reorganization at domestic boat factories, while focusing on consignment to outside partners capable of making use of Yamaha expertise.
In concrete terms, this means liquidating Yamaha Gamagori at the end of March 2002. The decision to liquidate Yamaha Gamagori, which had been producing medium- and large-sized boats, was based on the determination that no improvement in profitability can be expected that would justify writing off the accumulated losses in the future. Medium-sized boat production will be transferred to Yamaha Amakusa Works, while Yamaha Motor study the possibility of consigning the large-sized boat production to a domestic manufacturer.
Meanwhile, to enhance price competitiveness, production of some small-sized boats at Yamaha Amakusa will be shifted on consignment to an overseas manufacturer. Yamaki Manufacturing will continue production of fishing and utility boats, mainly for the markets in Hokkaido and Tohoku areas.

In the development sector, management resources will be focused on pleasure boats incorporating outboard motors, and on the environmental technology. Aiming at more efficient development by commonizing boat bodies and production lines, and by granting greater work responsibility to each individual on the technical staff, Yamaha Motor will streamline the administration and support sectors to fulfill the minimum functions required.

In the sales sector, Yamaha Motor will strengthen data transmission along the sales route and bolster sales support by centralizing receiving and ordering procedures, and integrating customer service, which will be performed at the sales promotion center and the service information center, to be set up in the head office of Yamaha Motor Marketing Japan Co., Ltd. By establishing these two centers, the current organization consisting of nine sales offices and six service centers will be consolidated into four departments, each encompassing both sales and service. Yamaha Motor will also implement various measures to increase demand, such as applying information technology to the reception of boat license applications, and expanding franchised boat licensing.

By promoting these measures, Yamaha Motor will effect a workforce reduction from the present 374 development, administration and sales personnel to 260, thus establishing a slimmer, more efficient business structure.

3. Measures for the employment problem
Recognizing the potential employment problem resulting from this structural reform as a crucial challenge for the entire Yamaha Motor group, the company will make every effort to basically keep personnel employed within the group. Yamaha Motor will explain the measures to be taken to the labor unions while continuing sincere and honest discussions on this issue with them.

4. Yamaha Motor's business position after the structural reform
Yamaha Motor plans to transform its domestic boat business to balance demand and supply, while promoting "Japanese-style marine leisure," a boating lifestyle which fits Japan's distinctive geographical conditions and natural features, as well as the preferences of Japanese consumers.
At the same time, the company will review the domestic market from the global perspective, and make full use of the international network for production and sales. With this in mind, in supplying domestic customers with boats and marine sports suitable for Japanese marine leisure, Yamaha Motor will continue to develop customer-oriented products and services designed to enhance their enjoyment and meet their needs.
By introducing the fun and excitement of the marine leisure to more people, Yamaha Motor intends to help grow the industry overall. The company also considers supporting fishery modernization part of its social responsibility, one that it can and will fulfill.

(as of the end of September 2001)