Automotive Division – Main Businesses & Vision –

Business Overview

Main businesses include completely built-up (CBU) vehicle export and wholesale, assembly and wholesale, dealership businesses and component business in the ASEAN region, Russia & NIS, Central and South America, and other markets where rapid economic growth is driving expansion of demand for automobiles.

【Main Businesses】

Completely built-up (CBU) vehicle export; local vehicle assembly, manufacturing and sales; wholesale and retail; automobile and motorcycle components; tire sales

Automotive

Headquarters of Mitsubishi Motors Philippines Corporation
Dealership showroom in Moscow, Russia
Headquarters of Hyundai de Puerto Rico
Expanding our earnings base through cost-competitive products in growing markets.
Strengthening businesses in emerging countries for which economic growth and rising automotive demand is anticipated. (The ASEAN countries, Russia/NIS, Latin America, etc.)
Trying our hand at management of those project companies which make up the core of the Division’s profits, through bold management decisions such as taking on vehicles of emerging brand-name manufacturers overseas to supplement our existing brands.
In addition to strengthening our components businesses, we are working to upgrade our premium dealerships—especially those in developed countries.
[Major Business Activities] Subaru Vehicles Imported and Sold in Russia
[Major Business Activities] Sojitz Active in Hyundai Assembly and Wholesale Business in Thailand
[Major Business Activities] Imports and Sale of Hyundai Vehicles in Latin America

Business Overview and Vision

A multi-functional business structure that supports the global expansion of auto manufacturers

In an increasingly mobile world, the vast automotive industry brings tremendous value to industry, employment and lifestyles.

The Automotive Division conducts business in fastgrowing markets where expansion in demand for automobiles is projected to continue, including the ASEAN region, Russia/NIS, and Central and South America. As a partner to auto manufacturers, we have established various business models, including creation of sales networks, globalization of production bases and provision of component supply structures to improve efficiency. In the division’s core business of assembly/ wholesale, we work to secure stable profits by making maximum use of our knowledge and sharing roles with automotive manufacturers and local business partners around the world. In the component business, we provide optimal solutions tailored to diverse customer needs and market characteristics. In the dealership businesses in the United States and Brazil and the after-market business, we are adapting to the attributes of each region, as well as contributing to the improvement of social infrastructure and local job creation.

Strengths That Drive Value Creation

Local management talent in each region is a source of value, in addition to specialized knowledge and insight

The Automotive Division has 30 operating companies worldwide with approximately 3,000 employees (including those at equity-method associates), primarily in emerging countries with good growth prospects. These companies have specialized know-how in the assembly/wholesale business and dealership business as well as insight on their respective markets, but their greatest strength is the management talent they have accumulated.

We manage operating companies of a significant scale in each region, hiring and developing employees locally, and aim for growth that is shared with and rooted in the area. Employees who have been given management responsibilities from early on acquire strong management skills, and organizational capabilities that come from producing management talent around the world are an important source for business development.

One example is the Hyundai vehicle import/wholesale business in Puerto Rico that we began through an acquisition in 2009. Hyundai vehicles, which started with a 2-3% market share at the time of the acquisition, now hold the number-two position in the market with an 11% share. The overall automobile market in Puerto Rico has remained in a downturn since the default of the territory’s government in August 2015, but with our solid management abilities, the business has been able to grow earnings even in a tough external environment and produced record profits in the year ended March 31, 2016.

Such management capabilities are highly valued by auto manufacturers, our business partners, and have become a solid foundation that will support further growth.

Operating Environment and Value Creation Strategy

Shifting to a new value creation model based on “Three Key Strategies”

The division delivered solid performance with growth in profits in the year ended March 31, 2016. However, in the rapidly changing global operating environment, we believe that our traditional business model alone is insufficient for the division to continue to create value. Therefore, we view Medium-term Management Plan 2017 as a transition toward the next step, and are undertaking business innovations.

In these circumstances, we have mapped out “Three Key Strategies” as our value creation model. The first is the assembly/wholesale business, the division’s core earnings driver, which has the asset of many years of experience in managing operating companies. In addition to generating core earnings, this business also serves the function of producing management talent, a key competitive advantage of the division, and we will work to improve and expand that function while enhancing the division’s strengths. The second strategy is dealership businesses. During the current mediumterm management plan, we will work to expand our business scale and earnings through aggressive investment in dealership businesses, including mergers and acquisitions. The third strategy is future strategies, with a view to the next medium-term management plan. We will invest the appropriate resources in order to deal with various challenges as we build new business models. For example, in the Philippines, where we have a strong business foundation and many years of experience in the assembly/wholesale business, we have launched an auto financing company as a business that works more closely with consumers, and will provide high-value added services.

Core Business: Assembly and Wholesale Business

Further refining our strong business model to expand regionally

In addition to the steady growth in Puerto Rico, the Automotive Division also has a solid market presence in Russia, the Philippines and other countries. While we will continue to strengthen business in these existing regions, we are also developing new markets and new businesses.

In Russia, we conduct business with Subaru, but demand for durable consumer goods in Russia has been weak due to economic stagnation. Therefore, in cooperation with Subaru, we plan to secure profitability by establishing an operating framework that can withstand the current market conditions. In the fast-growing market of the Philippines, we will expand our sales network to 70 locations from the current 45. Having received approval as an eligible business for the Comprehensive Automotive Resurgence Strategy (CARS) program being promoted by the Philippine government, we are making large capital investments in expansion of local production, which will help to accelerate the growth of our business in the Philippines.

The division is also developing business in new markets, including automobile sales with a Chinese automotive manufacturer in Myanmar, and will continue to pursue expansion in regions with strong growth potential.

Core Business: Dealership Business

Expanding high-value-added business established in the U.S. to new regions

Sojitz has entered the automobile and motorcycle sales businesses in Brazil

Sojitz has a track record of more than 20 years in the dealership business in California, and currently operates three BMW dealerships including one acquired in 2014. Two of these are also MINI dealerships. The combined sales volume of these three dealerships is approximately 8,000 vehicles per year, and we have established a highly profitable operating model characterized by differentiated pre-owned vehicle sales and after-sales service. While strengthening our position in this market, we will utilize our experience in such a high-added-value business to further develop dealership businesses in other regions. In Brazil, although it has recently been impacted by falling commodity prices, we acquired BMW and MINI dealerships in 2015 that cover all of Santa Catarina, one of the country’s wealthiest states, aiming at the large potential of its high-end automotive demand. We also intend to grow in Brazil by applying the business model we realized in the U.S. market.

Future Initiatives

Further strengthen management talent, which holds the key to growth, and contribute to the industry

Head offi ce and factory of Mitsubishi Motors Philippines Corporation

Expansion of the global automobile industry is expected to continue. While there are many business opportunities, competition is fierce, so the challenge is determining how to capitalize on market growth. In these conditions, the Automotive Division will continue to place top priority on developing the human resources behind its successful track record as it promotes the “Three Key Strategies.” We believe that continuing to produce even more management talent will be the key to value creation in this division. We are implementing unique programs and appointing and assigning people across national borders in an effort to speed up human resource development with an eye on the division’s business expansion five and ten years from now. Since “Challenge for Growth” is the theme of Medium-term Management Plan 2017, we are carrying out management training with an emphasis on strategic thinking to put that theme into practice, promoting active communication with younger employees by senior executives and conducting various workshops for different age groups in order to enhance the division’s ability to execute its strategies.

By further strengthening its pool of management talent and establishing new business models, this division aspires to be an earnings driver of the Sojitz Group and contribute to the advancement of the global automotive industry.

 

Opportunities

▶  Increasing sales volume in the assembly/wholesale businesses with the growth of the middle-income population in Asia
▶  Establishment of new wholesale businesses in emerging countries that are making social infrastructure improvements
▶  Operation of retail and component businesses in response to diversifying needs and globalization

Risks

▶  Changes in country risk resulting from political and economic conditions
▶  Impact of changes in the social environment, including more stringent environmental regulations, on automotive demand
▶  Response to changes in the business environment, functions and profitability, such as manufacturers expanding their overseas operations

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