Mitsubishi’s Transition to a Demand-Driven Business Model

Greg O’NeillPresident & COO, Sales Division

Mitsubishi Motors North America, Inc.

Forrester Automotive SummitFebruary 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: 1.5 - 2.0 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: 1.5 - 2.0 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

($800.0)

($700.0)

($600.0)

($500.0)

($400.0)

($300.0)

($200.0)

($100.0)

$0.0

$100.0

1989 1990 1991 1992 1993 1994 1995 1996 1997

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

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 ChainCorrective 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 technologyDealer – 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

OR

DE

R T

O D

EL

IVE

RY

OR

DE

R T

O D

EL

IVE

RY

SUPPLIERSSUPPLIERS

FACTORYFACTORY

MITSUBISHIMITSUBISHI

DEALERSDEALERS

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

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: IncentivesCompetitorsEconomy

Order to Delivery only works if there is ‘demand’

No piece of technology can create demand

In the real world, demand is influenced by: IncentivesCompetitorsEconomy

To Make ‘Order to Delivery’ thrive, expand the inputs

PurchasingTrends

PurchasingTrends

CompetitiveActions

CompetitiveActions

EventPlanning

EventPlanning

OTDSystem

OTDSystem

DealerDealer

ConsumerConsumer

ExampleWhen we launched a Lancer event nationwide, we

were able to do it different, at the same time.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 1st time buyer allowance

Mix: 60% OZ; 30% ES; 10% LS

L.A.

LANCER OZ

Communication: Focus on deferral & sporty

Incentive: ‘0/0/0’ and 1st 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 AttitudeSales increased by 81% in 4 yearsA $1.2 Billion turnaroundRecord Brand AwarenessContinued increases in Dealer Attitude

Momentum Continues in 2003

4 Years of Records Sales, Brand Awareness and Dealer AttitudeSales increased by 81% in 4 yearsA $1.2 Billion turnaroundRecord Brand AwarenessContinued increases in Dealer Attitude

Momentum Continues in 2003

Record Sales Growth

190,515

261,254

314,417 322,393345,111

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

1998 1999 2000 2001 2002

190,515

261,254

314,417 322,393345,111

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

1998 1999 2000 2001 2002

81% Growth81% Growth

* 1 Less Product!* 1 Less Product!

Mitsubishi Sales Growth vs. Competition

1998 – 2002 CY Volume Growth

9%

81%

29%24%

19%

7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Industry Mitsubishi Toyota Honda Nissan Mazda

9%

81%

29%24%

19%

7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Industry Mitsubishi Toyota Honda Nissan Mazda

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

$0

$100,000

$200,000

$300,000

$400,000

1997 1998 1999 2000 2001 2002

UP335%

Since 1997!

UP335%

Since 1997!

Average Mitsubishi Dealership Profitability

Exclusive EntitiesExclusive Entities

Source: MMSA Dealer Franchise, November 21, 2002: October CYTD results extrapolated for CY2002

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Industry Avg Mitsubishi

Industry Avg $900 $950 $1,300 $1,600 $1,800 $1,950 $2,000 $2,155 $2,613 $2,884

Mitsubishi $2,185 $2,425 $2,325 $2,435 $2,450 $2,445 $2,175 $2,055 $1,791 $1,673

'93 '94 '95 '96 '97 '98 '99 '00 '01 '020

500

1,000

1,500

2,000

2,500

3,000

3,500

Industry Avg Mitsubishi

Industry Avg $900 $950 $1,300 $1,600 $1,800 $1,950 $2,000 $2,155 $2,613 $2,884

Mitsubishi $2,185 $2,425 $2,325 $2,435 $2,450 $2,445 $2,175 $2,055 $1,791 $1,673

'93 '94 '95 '96 '97 '98 '99 '00 '01 '02

Incentive Spending per UnitIndustry vs Mitsubishi

Source: CNW Market Research

$1,000

$1,250

$1,500

$1,750

$2,000

$2,250

$2,500

$2,750

$3,000

$3,250

$3,500

$3,750

$4,000

Jan '01 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan '02 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Source: CNW Marketing Research Industry average.

Incentive Spending Per UnitIndustry Average

January 2001 through December 2002

Industry $2,884

Mitsubishi$1,673

0 Inventory

Questions And Answers

Greg O’NeillPresident & COO, Sales Division

Mitsubishi Motors North America, Inc.

Forrester Automotive SummitFebruary 19, 2003