TECHNOLOGY BREAKTHROUGH BY OPERATION BREAKTHROUGH

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TOCICO 2013 Conference

TECHNOLOGY BREAKTHROUGH

BY

OPERATION BREAKTHROUGH

Presented By: Mitsuo Hitomi, Executive Officer Power Train Development Division

Mazda Motor Corporation Date: June 3, 2013

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Introduction of Mazda

- Company Establishment January 30th, 1920

-Representative Chairman and CEO Takashi Yamanouchi -Headquarter Fuchu, Aki district, Hiroshima-prefecture -No. of Employees 20,863 (as of March 31st_{, 2012)}

-R&D Headquarter

R&D Center Yokohama

Mazda North American Operations (USA) Mazda Motor Europe (Germany)

China Tech Support Center -Production Site

Japan HQ Plant (HQ, Ujina)

Hofu Plant (Nishinoura, Nakanoseki) Miyoshi office

• Overseas USA, China, Taiwan, Thailand

Zimbabwe, South Africa

Ecuador, Columbia, Malaysia, Russia, Vietnam, Mexico (Planned to start by 4th _{quarter of 2013)}

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Introduction of Mazda

Corporate Philosophy

With the challenger’s spirit, the entire Mazda group will work as “One Mazda” to create a special bond with our customers and become a "premium" brand in their hearts and minds.

Vision

To create new value, excite and delight our customers through the best automotive products and services.

Mission

With passion, pride and speed, we actively communicate with our customers to deliver insightful automotive products and services that exceed their expectations.

Value

We value integrity, customer focus, creativity, and efficient and nimble actions and respect highly motivated people and team spirit. We positively support

environmental matters, safety and society.

Guided by these values, we provide superior rewards to all people associated with Mazda.

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Introduction of Mazda

Brand commitment

To offer creative and innovative

“Exhilarating driving”

to those people who still hold dear

the love of motion experienced when a child

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Introduction of Mazda

Development of Rotary Engine

1968 1991

Le Mans overall champion

2008

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Introduction of Mazda

Social Responsibilities

We will realize a sustainable future while maintaining domestic production and striving for “Monotsukuri” (Manufacturing) Innovation.

As a company with production bases in Hiroshima and Yamaguchi

Prefectures Japan, Mazda believes it has great responsibility for regional

economy and employment. Mazda has a plan to raise the ratio of overseas production, from the present 30% to 50% by the end of FY March 2016. However, this will be done by increasing total production volume, with domestic

production projected to be 850,000 units. We set this goal because we wish to ensure employment in Japan, so as to give back to the local communities that

have supported and fostered our Company's development. To achieve this goal, it is

necessary to produce vehicles that are profitable even when manufactured in Japan and exported overseas, assuming an exchange rate of 77 yen to the dollar and 100 yen to the euro. SKYACTIV TECHNOLOGY and MonotsukuriInnovation are the

embodiment of what we have pursued in order to realize this goal. Mazda intends to produce positive

results and contribute to regional economic growth by continuing to retain a portion of its manufacturing base in Japan and sustaining the 850,000-unit production level there.

Thanks to support from local communities, Mazda is marking the 92nd anniversary of its founding. Mazda will continue growing as a company that can live up to the expectations of diverse stakeholders, by realizing a sustainable future and making a

contribution to society.

Takashi Yamanouchi

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History and background behind:

Challenge for a Breakthrough

TECHNOLOGY BREAKTHROUGH

BY

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Challenge for a Breakthrough

・_{CO2/Tightened Fuel Efficiency Requirement} ・Large deficit after Lehman crisis

・Increase in HEV and EV (Hybrid and Electric Vehicle) in Japan market due to Economical vehicle tax deduction after Lehman crisis

・Investment ratio decrease by Ford

・Deficit continues due to earthquake and hyper yen appreciation

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A:

The company loved and trusted

B: Continually make good

vehicle that has Mazda taste C: Protect Hiroshima’s local employment

Ｄ：

Invest on Development

Focus on innovation in technology Perpetual drive for challenge

Strive for the best technology in the world

Ｄ’：

Hanging on even in red

Patience even with salary decrease Focus on cost reduction together with component suppliers

(“Monozukuri” manufacturing innovation)

Risks to do D:

・Increased development cost

・Not sure if the developments are something customers are looking for

・Development teams will be exhausted

Risks to do D’

・Can not make the company which can tolerate with currency exchange fluctuation

・Lowered motivation

・“Monozukuri” innovation no longer delivers innovative results

Dilemma as a company based in Hiroshima

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What would happen if we don’t change?

We cannot keep the employment with red

Development resource exhausting which might lose

technology development competitive edge

Can not make cars with Mazda taste (ZoomZoom)

Might lose users

With continuous red performance in 4 fiscal years in a row,

the stock price went down and forced to issue new share for financing.

If 2013 March fiscal performance is red, no way to finance anymore

Endangered existence of the company

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From Users’ Perspective

Hybrid vehicles and EV (HEV) GOOD

・Good fuel consumption

・Environmental friendly

NO GOOD

・Expensive

・Compromising driving pleasure

As engineers, the conflict is a chance for breakthrough! ・Good fuel consumption, and

・Environmental friendly, and AS WELL AS

・Affordable cost, and

・No compromise in driving pleasure

These are the things users want in a car

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We went All Out on our Last Chance

・_{Achieve low fuel consumption as good as hybrid engine by}

internal combustion engine

・No compromise in the driving pleasure

・_{Technology to be affordable for all customers} ・Cut product development duration to half

If we illustrate the ultimate potential and the future of internal combustion engine, there are yet large room for technology innovation. With strong

confidence, mastering internal combustion technology is the way to take to be environmental friendly.

Development of “SKYACTIV” technology and much much earlier release to the market

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Delivering “driving pleasure” and

“outstanding eco-friendly and safety performance” to every customer

Sustainable Zoom-Zoom Manifesto 2007 Mar 22

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Environmental responsibility can not be achieved without improving Internal Combustion Engines!!

(CY) Number of Sales(10tho u sand /y ear) ICE HEV PHEV EV

Forecast for Cars Demand and Power source

0 2,000 4,000 6,000 8,000 10,000 12,000 2000 2010 2020 2030

Mazda’s Strategy

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Building Block Strategy

Trimmed weight

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Delivering “driving pleasure” and “outstanding

eco-friendly and safety performance” to every

customer

…The sky is the limit.

We seek to provide “blue sky throughout our

future” and “driving pleasure” to everyone by

exceeding the limit and seeking free ideas and

maximum efficiency

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After the Japanese Bubble Economy Burst

Middle of 1990’s to around 2003

Advanced technology development group of Powertrain: around 30 members

Varieties of Technology Developments in each company

（_{HEV, lean burn engine, boosted downsizing, cylinder deactivation, various}

variable valve actuation technologies…）

We cannot deal

with all of them…

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Survival first: None thought of the Future

-Product Development=Too busy within themselves

-Technology Development= there is nothing we can do with only few people

2 major constraints

Advanced Development

Product Development

The Road To Breakthrough

Advanced Development

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Development utilizing CAE (not relying on trial and error) CCPM

“Focus” on Technology Development Direction

Resolution of the 2 Major Constraints

Product Development= Too busy within themselves

Technology Development= there is nothing we can do with only few people

The Road To Breakthrough

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For example: Do we have the same number of the engine fuel

economy improvement technologies as the number of engineers?

Lean burn engine

Heavy EGR Miller cycle,

Atkinson downsizingBoosted

Cylinder deactivation Continuous Variable Valve Lift Variable Compression Ratio ・・・・・

Constraint=there is nothing we can do with only few people

Focus on a technology development direction

Have we only been doing the same thing with different actions??

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Thinking differently→Simplification

Fuel Economy improvement is nothing more than 4 major loss reduction

The Road To Breakthrough

Focus on a technology development direction

Pumping loss Exhaust loss Heat Energy Balance (% )

Heat Energy Balance vs. Load

0 20 60 80 100 20 40 60 80 100 Load (%) 40

Mech. friction loss

Radiation, Misfiring loss

Cooling loss

Effective work

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Control factors

Fuel economy improvement technologies are all controlling these 7 factors

Losses to be reduced Losses to be reduced Improve Engine Thermal Efficiency Improve ISFC* Cooling loss Exhaust loss Improve Mechanical

Efficiency Mechanical _{friction loss} Pumping loss

Fuel Economy Improvement＝Loss reduction

Combustion period

Combustion timing

Pressure difference between In. & Ex.

Mechanical friction Specific heat ratio

Heat transfer to wall Compression ratio

*ISFC; Indicated Specific Fuel Consumption

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TOCICO 2013 Conference Final Step=Goal Further reduction LeanＨＣＣＩ adiabatic Higher CR LeanＨＣＣＩ

Roadmap to ideal by Focus – defining Not To DO

Distance to ideal Far Close current current Diesel engine Gasoline engine Specific heat ratio Heat transfer to wall Compression ratio Combustion period Control factors Combustion timing Pressure diff. Btw IN. & Ex. Mechanical

friction

Improving thermal efficiency of ICE is to make these 7 factors closer to ideal

adiabatic

Further

reduction friction reduction More homogeneous World lowest CR TDC combustion TDC combustion World highest CR friction reduction Miller cycle st1 step SKY A C T IV -G 1 st step SKY A C T IV -D 2 nd step SKY A C T IV -G 2 nd step SKY A C T IV -D

Having an ideal perspective and determine the control factors, there is nothing to be hesitate, we can do it with

few people.

We don’t need to care about other companies

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Focus on Technology Development Direction

Solution of the 2 Major Constraints

Product Development=Too busy within themselves

The direction was determined by simplification

The Road To Breakthrough

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Transition on the Advance development Department Personnel

0 50 100 150 200 250 300 350 '00/10 '01/4 '01/10 '02/4 '02/10 '03/4 '03/10 '04/4 '04/10 '05/4 '05/10 '06/4 '06/10 '07/4 CAE group Leading Controls Element Technology New technology tasks

GE,DE,RE,T/ Unit Leading

Development

Increased more resources for CAE starting 2004

SKYACTIV Development Number of engineers

Development effectively utilizing CAE (not relying on trial and error)

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First CAE Evaluation Rate Before 1st _Drawing

2004 2005 2006 2007 2008 2009

Development Based on CAE became Possible

Progress of In-Processing 0 20 40 60 80 100

The Road To Breakthrough

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Focus on a technology development direction

Resolution of the 2 Major Constraints

Product Development=Too busy within themselves

The direction was determined by simplification

The Road To Breakthrough

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CCPM implementation

to product development projects

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The Road to Breakthrough

CCPM implementation history

2007 2008 2009 2010 2011 2012

Step 1

Step 2

Step 3

Apply to short-term development project CCPM advocates and the partial trial

Apply to all projects

2013

Step 4

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The Road to Breakthrough

Step 1: Build CCPM advocates and started partial trial

2007/Oct Volunteers attend seminars in Nagoya and in Tokyo

Utilized CCPM 30 day trial software Start partial trial

2007/Dec Mazda seminar by Mr. Yuji Kishira (about 150 attendees “Holistic Project Management”

2008/Feb Implemented CCPM software with official server Continue the partial trial

Not top down dictation but collect volunteers

(drive for activity)

2008/Sept Second Mazda seminar by Mr. Yuji Kishira at Union Hall “Thinking Process”

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2009/Jan Trial with short-term Development Project

プロジェクトバッファ 0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9 0 1 0 0 1 1 0 1 2 0 1 3 0 0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9 0 1 0 0 進捗率 (% ) バッファ消費率( % )

Aiming for Holistic

project management =

all project members

participated

Shortened the Development Duration from 2 years to 1 year

Breakthrough in the Process

Was: Management by result using milestones Now: Process management in short cycles

（Management takes actions before too late)

The Road to Breakthrough

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The “forced to” and “want to” of CCPM

Number of CCPM

implementation

People who want to do will do

Given the order to implement CCPM to all projects Want To Do Forced To Do Current 2007 2009 2012

The Road to Breakthrough

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The Road to Breakthrough Process of CCPM Application

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Step 3

：

Full implementation to Product Development

with SKYACTIV Technology

Challenged onto multi-project. Succeeded in all projects

2011 2010 2012 Sept June Feb 11月 30km/L(JPN) 40MPG(USA)

Clean DE Regenerative Breaking, MT, 2.5L・・・

・All projects on time for Job #1 date

・_{CCPM stick (common sense)}

2013

MAZDA2

MAZDA3

CX-5

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We went all out to come with SKYACTIV…

Was it accepted in the market?

Did it save us from crisis?

With strong confidence, mastering internal combustion technology is the way to take to be environmental friendly.

The Results?

・Achieve low fuel consumption as good as hybrid engine by internal combustion engine

・No compromise in the driving pleasure

・Technology to be affordable for all customers

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SKYACTIV installed vehicles

SKYACTIV-G

SKYACTIV-DRIVE

SKYACTIV-D

SKYACTIV-BODY SKYACTIV-CHASSIS

MAZDA2 MAZDA3 CX-5 MAZDA6

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TOCICO 2013 Conference SKYACTIV Winning Various Awards Around the World

Model Country Title

CX-5 Japan Car of the Year Japan 2012/11

CX-5 Malaysia Best SUV of the Year : CX-5 (Malaysia COTY

2012)

2012/12

Mazda6 Switzerland 1st place: Swiss Car of the Year 2013 2012/11

SKYACTIV-D Japan Combustion Society of Japan 2012/12

CX-5 UK Green Awards 2012 - Best SUV 2012/11

CX-5 U.S.A. ''2012 Compact SUV of the Year award (North

West Automotive Press Association)

2012/3

Representative Awards:

The Results?

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CX-5 Car of the Year Award from Japan

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・ “Mazda 3” was sold the most in Australia as an independent

vehicle

・ “CX-5” Most sold car in Japan in 2012

・Diesel car has sold three times more than last year’s diesel cars sold total in Japan

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Net Income/(Loss)

The Results?

Turning the company black from continuous 4 fiscal year red

1000 500 0 (500) (1000) (1500)

FY2009 FY2010 FY2011 FY2012 FY2013

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What TOC delivers to us

Increase Development Capacity and Productivity

（_{Comparison of Number of Man-hours}）

Old

New Old _New

Base Model A Base Model B

-38%

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What Got Better Through CCPM

Communication with other Gr Adjust Development

automobile (use efficiently

Proxy evaluation (gain other group necessary data along with this evaluation

Create evaluation template (by the 2nddevelopment)

Can entrust work to younger members

Younger members grow

Clear the communication with related Group Get the habit of

risk management Can organize

procedures

Related GR will be hard working Project members’ realization

(used to be just tasks to get done) Able to create

effective plan

Things to do are clarified Teamwork will develop

People’s Growth Connections between organization

End to front plan

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Understand the integrity of the schedule and share it

Eliminate reworks

Periodically check status

Decisions and choices will be made on the spot Will not be oblivious to other events Can sequentially check problem presentation assumptions Prioritize work Will not forget work

Share uncertain information Possible changes in FGR)

Can take preemptive steps by thinking ahead Prevent collapses

Successful project (avoided delay)

Increased

motivation _{discovered within a}Surprises will be week

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Can understand the impact to overall the schedule

Escalation to

upper-level management Powerful involvement

from management

Can resolve the critical problem

Efficient use of resources

Manage with project buffers, easily identify risks at glance Faster decision

making by management

Can clarify what needs to be addressed for earlier delivery

Understand what is critical Able to increase the

number of test cars

Management _{Able to revise}

the overall schedule (flexible mile stone)

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Mainly Project Leaders and division managers

Develop shorten plans from past experience and actual results

When the problem comes up

Milestone basis for management review (management by result)

Weekly Report

Take actions before too late by management

(Process management) Before starting project Develop Logical task networks

Mainly actual Developers

From To

Paradigm shift in Development Planning and its execution management

Development Planning

Management Involvement Progress Report

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TOCICO 2013 Conference ・_{Strengthen CAE} ・_{Model base} development ∑Development Technicians -Successful Products -Effective development -Vitalized organization

(communication, collaboration with confidence) CCPM Fuel efficiency Drive pleasure Absolutely POSSIBLE! Illustrate Ideal picture

Led by TOC

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W

ell-to-Wheel CO2

g-CO2/km

The potential of Internal Combustion Engines

It is possible to attain the same CO2 level of EV with Internal Combustion! If we protect the Engine, local industry can be protected.

There Is No Limitation

50 100

HEV

150

ICE

EV

（including vehicle improvement） 1st _step 2nd _step Final step Demio SKYACTIV-G1.3 JC08 25.0km/L Demio 13MC JC08 20.5km/L 37% B-car (1180kg) 100Wh/km Mazda2 ＥＶ 100Wh/km 0%

※Calculated the Co2 emission unit by electric component ratio from the electric generation life cycle Co2 from Central Research Institute of Electric Power Industry(2010)

Thermal Electric Power Generator 100% Non-Thermal electric Power generator Actual of 2010 Minimum Maximum

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Delivering “driving pleasure” and “outstanding eco-friendly and safety performance” to every customer

…The sky is the limit

We seek to provide “blue sky throughout our future” and “driving pleasure” to everyone by exceeding the limit and seeking free ideas and maximum efficiency

Lesson learned

There is no limit to Technology Breakthrough

There is no limit to Operational Breakthrough either

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Thank you for your attention

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Mitsuo Hitomi, Executive Officer Mazda Motor Corporation

Joined Mazda Motor Corporation in 1979, was engaged in research at the Technical Research Center until 1994, and then has moved to the Powertrain Development Division.

After worked on technology development on boosted engines as well as technology development for emission regulation compliance and served as a testing & research leader for the engine jointly developed with Ford, became the leader for development of SKYACTIV engine project which started from 2007. The majority of the career was spent in the advanced development field, and about 20 years out of which were dedicated for technology development for a boosted down-sized engine that is now the mainstream in the EU market. For the

SKYACTIV development direction, however, selected not a boosted down-sized engine’s but the direction of a naturally aspirated engine with high compression ratio. Some people around him voiced doubts about this unique approach, but he believes in the SKYACTIV engine because what really counts for customers as well as environment is not fuel economy consumption values in catalogues but real-world fuel economy, and in that regard, a naturally-aspirated, big

displacement SKYACTIV engine has a dominant advantage, and also, SKYACTIV is better suited for zoom-zoom that Mazda is pursuing for.

Has an ultimate vision for an internal combustion engine, and is currently devoting all his energy to its realization.

TECHNOLOGY BREAKTHROUGH BY OPERATION BREAKTHROUGH

TOCICO 2013 Conference