Mitsubishi’s Transition to a Demand-Driven Business Model Greg O’Neill President & COO, Sales Division Mitsubishi Motors North America, Inc. Forrester Automotive Summit February 19, 2003

In 1997 Mitsubishi was not a successful Automotive Brand in the U.S.

MMSA - Prior to 1998  Profit: None in last 10 years  Sales:Flat over last 10 years  Brand: Only 44% awareness  Incentives: times industry average  Distribution: 45,000 units of port inventory  Dealer Attitude: Bottom third of Industry  Dealer Network:Poor ROI  Residuals:10 points below competitors  Profit: None in last 10 years  Sales:Flat over last 10 years  Brand: Only 44% awareness  Incentives: times industry average  Distribution: 45,000 units of port inventory  Dealer Attitude: Bottom third of Industry  Dealer Network:Poor ROI  Residuals:10 points below competitors

North American Consolidated Profit Source: MMC

Other Issues  No new scheduled product  No $ to fund ‘brand campaign’  No profitable dealer in the distribution chain  No new scheduled product  No $ to fund ‘brand campaign’  No profitable dealer in the distribution chain

 GOAL: To build a brand – a market driven company with an effective distribution system

District Managers called dealers to sell huge pool of cars. Ports stored excessive cars Distribution Mitsubishi – 1997 Production: long lead times, volume/mix simplified factory processes 2 1 MMSA accepts factory production plan and orders vehicles 3 4

45,000 Vehicles in Inventory

‘The Death Spiral’ Distribution Issues:  Huge “carrying” costs: 45,000 units stored at ports costing $100 million per year  Wholesale mentality  Aging Inventory  High Warranty Costs  Poor Quality ratings  High Incentive Costs Distribution Issues:  Huge “carrying” costs: 45,000 units stored at ports costing $100 million per year  Wholesale mentality  Aging Inventory  High Warranty Costs  Poor Quality ratings  High Incentive Costs

Demand-Driven Supply Chain Corrective Actions:  Flip it around: Develop a retail “pull” strategy  Utilize demand forecasting software and incorporate dealer input  Empower dealers with responsibility for inventory control  Decrease factory lead times, improve flexibility  New order system must be web based and user friendly  Ensure “Right Car, Right Time, Right Place”. Corrective Actions:  Flip it around: Develop a retail “pull” strategy  Utilize demand forecasting software and incorporate dealer input  Empower dealers with responsibility for inventory control  Decrease factory lead times, improve flexibility  New order system must be web based and user friendly  Ensure “Right Car, Right Time, Right Place”.

Completely Integrated System Dealer – Supplier using the latest technology  Budget Planning  Demand Planning  Turn & Earn  Forecast Tool  Dealer Order System  Order Management  Consumer  Budget Planning  Demand Planning  Turn & Earn  Forecast Tool  Dealer Order System  Order Management  Consumer ORDER TO DELIVERY SUPPLIERSFACTORY MITSUBISHI DEALERS

Order-To-Delivery  Mitsubishi never wanted a ‘5-day car’…  We wanted to be a responsive, market- driven company  Mitsubishi never wanted a ‘5-day car’…  We wanted to be a responsive, market- driven company

Order-To-Delivery  Order-to-Delivery does not work in a vacuum  It is a function of Incentives and competitors  Order-to-Delivery does not work in a vacuum  It is a function of Incentives and competitors

Mitsubishi’s Goal 1.Build a dynamic process with tools to allow for  Demand Planning  Accurate Forecasting  Complete Integration (Dealer to Factory) 1.Build a dynamic process with tools to allow for  Demand Planning  Accurate Forecasting  Complete Integration (Dealer to Factory)

Mitsubishi’s Goal 1.Build a dynamic process with tools to allow for  Demand Planning  Accurate Forecasting  Complete Integration (Dealer to Factory) 2.Use the information to impact the other critical elements  Incentives  Competitors 1.Build a dynamic process with tools to allow for  Demand Planning  Accurate Forecasting  Complete Integration (Dealer to Factory) 2.Use the information to impact the other critical elements  Incentives  Competitors

Next Step Order To Delivery Meets Market To Delivery Order To Delivery Meets Market To Delivery

 Order to Delivery only works if there is ‘demand’  No piece of technology can create demand  In the real world, demand is influenced by:  Incentives  Competitors  Economy  Order to Delivery only works if there is ‘demand’  No piece of technology can create demand  In the real world, demand is influenced by:  Incentives  Competitors  Economy

To Make ‘Order to Delivery’ thrive, expand the inputs Purchasing Trends Purchasing Trends Competitive Actions Competitive Actions Event Planning Event Planning OTD System OTD System Dealer Consumer

Example When we launched a Lancer event nationwide, we were able to do it different, at the same time. L.A.  LANCER OZ  Communication: Focus on deferral & sporty  Incentive: ‘0/0/0’ and 1 st time buyer allowance  Mix: 60% OZ; 30% ES; 10% LS L.A.  LANCER OZ  Communication: Focus on deferral & sporty  Incentive: ‘0/0/0’ and 1 st time buyer allowance  Mix: 60% OZ; 30% ES; 10% LS Chicago  LANCER ES  Communication: Focus on APR & ‘value’  Incentive: 3.9% for 48 months and $500 trade allowance  Mix: 25% OZ; 35% ES; 40% LS Chicago  LANCER ES  Communication: Focus on APR & ‘value’  Incentive: 3.9% for 48 months and $500 trade allowance  Mix: 25% OZ; 35% ES; 40% LS

Results  4 Years of Records Sales, Brand Awareness and Dealer Attitude  Sales increased by 81% in 4 years  A $1.2 Billion turnaround  Record Brand Awareness  Continued increases in Dealer Attitude  Momentum Continues in 2003  4 Years of Records Sales, Brand Awareness and Dealer Attitude  Sales increased by 81% in 4 years  A $1.2 Billion turnaround  Record Brand Awareness  Continued increases in Dealer Attitude  Momentum Continues in 2003

Record Sales Growth 81% Growth * 1 Less Product!

Mitsubishi Sales Growth vs. Competition 1998 – 2002 CY Volume Growth Sources: DRI-WEFA North America Light Vehicles (Industry Data, 1998) Automotive News Data Center, January 2003 Toyota includes Lexus; Honda includes Acura; Nissan includes Infiniti

UP 335% Since 1997! UP 335% Since 1997! Average Mitsubishi Dealership Profitability Exclusive Entities Source: MMSA Dealer Franchise, November 21, 2002: October CYTD results extrapolated for CY2002

Incentive Spending per Unit Industry vs Mitsubishi Source: CNW Market Research

Source: CNW Marketing Research Industry average. Incentive Spending Per Unit Industry Average January 2001 through December 2002 Industry $2,884 Mitsubishi $1,673

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Questions And Answers Greg O’Neill President & COO, Sales Division Mitsubishi Motors North America, Inc. Forrester Automotive Summit February 19, 2003