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TAKASHI YAMANOUCHI PRESIDENT, MAZDA MOTOR CORPORATION MOTOR PRESS GUILD KEYNOTE ADDRESS 2011 LOS ANGELES AUTO SHOW NOVEMBER 16,

Nov 28, 2011

Thank you Laura for your kind introduction, it is my pleasure to be here today. Good morning, ladies and gentlemen. Thank you for joining us for the opening of this year’s auto show.

Before I start, let me share with you some facts about myself that Laura did not mention….

Let me begin by offering my sincere appreciation and gratitude for the support you extended to the people of Japan in the wake of the Great Eastern Earthquake and Tsunami of March 11th. The remarkable outpouring of support from the United States and around the world has strengthened the resolve of the Japanese people. And I am pleased to say that we, along with the entire automotive sector in Japan, are making a remarkable recovery – perhaps even faster than expected.

I had an opportunity to tour the Tohoku region a few weeks after the disaster and I will not even try to describe to you the devastation that I experienced with every one of my senses.

For me, the key learning from this disaster is not about the need to diversify one’s production footprint or supplier base to avoid a similar situation in the future. There are many reasons for a company to adopt those strategies.

No. In my opinion the most important lesson to be learned from the disaster is this: truly remarkable things can be accomplished when people join together with a common purpose. There are so many examples of this all over the country including in the automotive industry.

Almost immediately, as members of the Japanese Automobile Manufacturers Association, all the automakers joined together to establish a taskforce, rolled up their sleeves and tackled the situation head on. We also worked very closely with Tier 1- Tier 2- and Tier 3 suppliers. Information was gathered and shared on an industry level and decisions were made quickly to support the recovery.

As production of component parts resumed inventories were fairly shared among all OEM’s – Japanese, American and European, to ensure a speedy recovery for the global automotive industry.

Remarkably, for most of the industry in Japan, including Mazda, full production resumed in 3 months, not the 6 or 9 months that was predicted by many industry observers.

Of course we have a rough road ahead of us made even more challenging by the strength of the Yen against both the US dollar and Euro. And currently the flooding in Thailand is causing terrible disruptions and the impact is being felt everywhere.

As for the appreciation of the Yen, the challenge for Mazda in particular is to accelerate construction of our overseas production capacity and expand our parts procurement from overseas suppliers. We are also re-examining our global production footprint with an eye to maximizing the cost efficiencies in the supply chain.

We are working hard to overcome these obstacles and come out ahead stronger than before. For us, a key contributor to that will be the introduction of a new generation of vehicles that encompass a variety of breakthrough technologies that take Mazda’s fun-to-drive character to a new level while at the same time offering outstanding environmental performance to our customers.

Later this morning we will unveil the first of our new generation of vehicles, the compact crossover CX-5. This is the first Mazda vehicle to fully embody our new design language, as well as a suite of new technologies - engines, transmissions, chassis and body structure.

I mention this because it ties in very well with the theme of this year’s auto show – “Fuel Efficiency Comes Standard”. This is exactly the approach we are taking - improve the efficiency of core technologies and offer them as standard equipment throughout a lineup of stylish, fun-to-drive vehicles so that as many customers as possible can enjoy their benefit.
I will speak more about this in a few minutes.

If you ask most people what they know about Mazda they will answer: MX-5 Miata, or Zoom-Zoom. Even if the MX-5 is the best-selling roadster of all time according to the Guinness Book of World Records and Zoom-Zoom one of the most recognized slogans in the industry, there is much more to our company.

Mazda is headquartered in Hiroshima, about 800 kilometers southwest of Tokyo. The company was founded 90 years ago and throughout our history Mazda has distinguished itself–
by demonstrating an innovative and challenging spirit,
by refusing to accept the status quo,

and by defying conventional thinking to find new approaches to the way our products are designed and built. This is the way we have done things in the past and will continue to do so in the future.

By coincidence, I joined Mazda in 1967, the very year we introduced the first dual-rotor Cosmo Sport. From that revolutionary sports coupe to the RX-7 and RX-8 sports cars, to the 787B and its historic victory at Le Mans in 1991, to our hydrogen rotary Premacy
hybrid, we have pursued the potential of the rotary engine. I am very attached to the rotary engine so as long as I am the president of Mazda our R&D in this area will continue.

In order to establish a superior Brand, one that creates an emotional connection with our customers, we have very clearly defined the key values that represent Mazda.

I know you are all familiar with Zoom-Zoom. Yes, it is a catchy tagline. But let me emphasize to you that it is much more than an advertising slogan. It is the essence of what Mazda is, it is the unique appeal we offer to people who love to drive. In addition, it is the defining principle that governs how we design, engineer and market every vehicle we build. Stylish vehicles that are beautiful to look at, insightful use of design and technology that increases the value to all of our customers, and spirited driving dynamics that ensure every Mazda vehicle is fun to drive; this is what Mazda is all about, what sets us apart from our rivals, and what connects our Brand with customers.

For the past 10 years it has consistently defined the direction of the Mazda brand.

The first “Zoom Zoom” vehicle was the Mazda6 introduced back in 2002. After that, we refreshed our entire product portfolio, winning over 600 awards around the world, including the prestigious World Car of the Year in 2008 for the Mazda2.

And we continue to win praise today. For example, in the most recent edition of Consumer Reports every one of our vehicles is “recommended” and out of 28 Brands on the market, Mazda ranks 4th overall for quality and reliability.

Now we are preparing to introduce a new generation of vehicles that will develop even more the values that have defined our Brand over the past 10 years.

Distinctive design is an integral part of our makeup. Mazda design has been exploring the expression of motion for years. The latest evolution of this design direction, called KODO, which translates as – Soul of Motion – draws inspiration from the strength, beauty and tension shown in the swift movement of animals. KODO captures the harnessed energy of the moment and makes hearts race in those people who see it in our cars. We first showed the new design language last year, to wide acclaim I might add, with the Mazda SHINARI design concept. Later this morning you can see it in our new CX-5 crossover.

In addition, our new vehicles will be even more fun-to-drive, while at the same time meeting the highest environmental and safety standards around the world. This is thanks to breakthroughs in our new engines, transmissions, body and chassis architectures, what we call SKYACTIV TECHNOLOGY,
In 2007 we announced our concept of “Sustainable Zoom-Zoom”.
Between 2001 and 2008 we were able to improve the average fuel economy of Mazda vehicles sold in Japan by 30%, the best improvement in the industry.
But we are not satisfied with that achievement. In 2009 we announced that by 2015, we will improve the average fuel economy of our entire fleet sold around the world, by another 30% compared to 2008.
Let me explain how we will achieve this.

According to a report published by The Boston Consulting Group in July 2011 entitled: “Powering Autos to 2020” well over 90 percent of vehicles on the road will still have an internal combustion engine, even with the expansion of hybrid and electric vehicles. Consequently, improving conventional technologies will have the greatest impact in reducing total CO2 emissions. The three areas with the highest potential are:
First, improvements to the internal combustion engine
Second, improvements to automatic transmissions, and
Third, reducing vehicle weight through greater use of lightweight materials and new manufacturing technologies

Did you know that today’s internal combustion engine uses less than 30 percent of the fuel’s energy potential? The rest is completely wasted through friction, heat loss or pumping loss.
“Pure” electric vehicles will lead the way in the quest for “zero emissions” and for some customers they are a very attractive option. But current technology limitations as well as high cost means market penetration will remain quite small in the near term, not more than 5 percent. In time though these obstacles will be overcome and consumer acceptance will grow, especially in dense urban environments. When that time comes we will be ready to meet the needs of those customers.

Long before this report was published, actually it was in 2007, Mazda determined that the best approach for us to take was to improve the core technologies that will be applied to all the vehicles we offer to customers around the world.

We refer to our technology plan as our “Building Block Strategy” and Step One is to build a solid foundation. For example, we have made significant breakthroughs in several areas:

First, our new, high-efficiency direct injection gasoline engine with its ultra-high compression ratio, which is 13 to 1 here in North America. Not only does it deliver 15 percent more torque than the engine it replaces, it also improves fuel efficiency by 15 percent as well.

Second, our new, lightweight, 2.2-litre, clean diesel engine with its ultra-low compression ratio of 14 to 1. This high-revving engine delivers the torque equal to a 4-litre V8 and accelerates from 0 to 60 in 9 seconds. At the same time fuel efficiency is improved by 20 percent compared to our current diesel engine putting it in the range of some hybrids currently on the market. It also clears the most stringent exhaust regulations around the world, without the need for any expensive NOX after-treatment system.

Third, our new, high efficiency automatic transmission with an 88% lock up range, it delivers a 4-7 percent fuel efficiency improvement versus our previous automatic transmission and the performance of the best that manual, CVT or dual-clutch transmissions have to offer…

Fourth, our new light-weight, high rigidity body that meets the toughest collision safety requirements. Our objective is to take out 100 kilograms from every new vehicle we build, compared to the one it replaces.

And finally, our new lightweight chassis developed to enhance the connection between a driver and car that Mazda is so well known for.

With a solid foundation based on improvements to the base technologies the next step is to expand the range of affordable choices available to our customers by incorporating various electric devices: such as idle-stop, regenerative braking and then afterwards electric motors.
Do you know any other automobile company that is able to completely overhaul its power-trains, chassis and body architectures – revamp its entire vehicle development, manufacturing and marketing processes – all at the same time? How are we able to do this while at the same time offering affordable vehicles to our customers?

The answer lies in something we call “Monotsukuri Innovation”. While it may be difficult for you to pronounce the principle is simple and easily understood. From the earliest stage of vehicle development we bring everyone together: the engineers, designers, manufacturing team and suppliers to work cooperatively on the program. This “Integrated Planning” approach also involves developing a variety of different vehicles and components based upon a common architecture and fabricating them with a flexible manufacturing system.

For example, take our new gasoline and diesel engines. Of course parts and components are different but both engines are designed on the same architecture and share common systems. So, today, we are manufacturing our new SKYACTIV 1.3 and 2.0-litre gasoline engines and our new 2.2-litre diesel engine, side-by-side, at the same time, on the same assembly line. I ask you, who else is doing this?

As a result of these activities:
In Research and Development, we achieved more than a 30% efficiency improvement compared with the current system.
In the platform and top hat areas, we accomplished a cost improvement of 20% while at the same time reducing weight by 100 kilograms.
As for our new engines and transmissions, costs will be maintained while improving fuel efficiency and also meeting new regulations.
Looking at production facility investment efficiencies, our gasoline engine production line achieved an improvement of over 60%.

Implementation of our Building Block Strategy is on schedule.

Recently in Japan, we introduced a 1.3-litre SKYACTIV gasoline engine in the Mazda Demio, or Mazda2 as it is known here, that achieves a fuel economy rating of 30 kilometers per litre, exactly the same as some hybrids on the market but at a much more affordable price.

Here in the United States, where the LA Times reported recently that gasoline prices may hit record highs in 2012, we introduced the 2012 Mazda3 in September. We incorporated our new high efficiency SKYACTIV 2-litre gasoline engine and transmissions as part of its mid-cycle update. Even with just this limited application we were able to achieve a highway fuel economy rating of 40 miles per gallon.

Best of all, the benefit of this new technology and fuel efficiency comes standard on our high volume trim grade, it is not confined to a low volume, “high efficiency” package that customers have to pay extra for - as is often the case with other 40 mile per gallon vehicles.

And then in the first quarter next year we will launch our new CX-5 compact crossover, with the full complement of our new SKYACTIV technologies. Later next year we will also offer our Demio electric vehicle to lease customers in Japan.

Over the next 5 years we will introduce 6 more vehicles built upon SKYACTIV TECHNOLOGY and our Building Block Strategy, representing more than 80 percent of our vehicle lineup, allowing us to attain our goal of improving the fuel efficiency of our fleet by 30 percent in 2015 compared to 2008, a commitment we made three years ago.

We have also announced that we will introduce our new SKYACTIV diesel engine into the North American market. We will have more to say about our diesel launch plans, as well as other new technologies, such as regenerative braking, later this year.

We are taking the same innovative approach to the area of sales and marketing. We recognize that Mazda is not a big company. We must constantly build our Brand through improving customer loyalty. And we have seen some very positive results so far.

In 2010 the Mazda3, and this year both the CX-9 and Mazdaspeed3, received residual value awards from Automotive Lease Guide. We will see the equity in our Brand grow even more as we strive to be number one in dealer and customer satisfaction.

Everything we have done for the past ten years, and will continue to do in the future, is concentrated on increasing value for our customers, and equity in the Mazda brand.

Even as our business will grow from the 1.3 million vehicles we sell a year today, to about 1.7 million over the next four years, so too will the global market grow. As a result we will continue to capture about two percent of global demand.

But I don’t believe the key to being successful in this business is all about size. It is about how well we connect with our customers.

Everyone in this industry is committed to reducing carbon emissions. Everyone is developing new technologies to improve fuel economy.
The choices available to consumers are expanding all the time.

As you walk around the show today and tomorrow you will see many, many fuel efficient vehicles. There will be a wide variety of hybrids and EV’s, you will see clean diesels, perhaps even compressed natural gas or bio-fuel vehicles. Most of what you will come across though, will have a conventional internal combustion engine that runs on gasoline.

I invite you to stop by our stand and learn more about Mazda’s contributions and the alternatives we offer to consumers. That is the perfect combination of:
Cars that are fun to drive and stir the emotions,
…that deliver the highest levels of fuel efficiency and safety performance,
…and are affordable to own,
vehicles our customers will fall in love with – over and over again.

It has been my pleasure to join you this morning and I would now be pleased to answer any questions you may have. By the way, I am going to rely on my trusty interpreter since I am better at making speeches in English than answering questions.

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