Eastern Automotive Summit

1
The Global Automotive OutlookStrategic Trends
Implications

• Eastern Automotive Summit
• October 19, 2006

2
Presentation Outline

• The automotive outlook
• North America
• Global
• Strategic and tactical issues
• Shifts OEMs and segments
• Winners and losers
• Contribution to growth
• Key drivers, enablers and constraints
• Brand positioning and momentum
• Energy
• Strategic investment
• The path to growth/recovery
• Other issues
• Alliances
• Delphi
• Summary, conclusions and implications

3
North American Automotive Outlook
4
Outlook ScorecardKey NAFTA Drivers

• 2006-2007
• Business environment
• Economic growth 2.5-3.0/yr. overall
• Employment growth slow pickup productivity
  growth
• Inflation increasing pressure 2.7-3.1
• Interest rates slow adjustments
• Energy improvement but risk remains
• Government regulations emphasis on fuel economy,
  emissions
• Automotive environment
• Ownership operating cost incentives slow
• Vehicle demand moderately high volume
  without economic, energy, political crises

Expected performance by factor assessed by
color and time of evaluation GREEN (good)
YELLOW (moderate) RED (bad)
Source AutomotiveCompass
5
Mid-term North American Auto Outlook Light
Vehicle Production Volume

• Mid-term, 2010-12
• 17.2-17.5 million planning volume range,
  reflecting .
• Healthy economic growth in the mid-term
• Real GDP up 3.0-3.5/yr
• Supporting employment and income growth
• Inflation advancing at 2.7-3.3/yr
• Growth in driving age population
• Immigration driven
• US and Canada driving age population growing at
  1.0-1.5/yr
• Substitution effects imports replaced by
  domestic production
• Europe - Euro pressure
• Asia - domestic content credibility political
  support labor stability
• North America gaining an export base - BMW, VW,
  Mercedes-Benz

Source AutomotiveCompass
6
Oil Prices 12 months tracking

• 2006-07 planning range 60-80/bbl
• Risks supply disruptions - hurricanes, war,
  terrorism

Updated 10/11/06
7
NAFTA Auto Outlook ProductionLight Vehicle
Production Volume in 000s, 2002-2010
Source AutomotiveCompass
8
NAFTA Auto Outlook ProductionLight Vehicle
Production Share (), 2002-2010
Source AutomotiveCompass
9
Segment Definitions Cars and Light Trucks
Source AutomotiveCompass
10
Segment Shift Cars
North American Market Share by Product Segment
Source AutomotiveCompass
11
Segment Shift Light Trucks
North American Market Share by Product Segment
Source AutomotiveCompass
12
Segment Shift Big Pickups Small Cars
North American Market Share

• Pickups stabilize
• Functionality and competitiveness
• Added PU capacity products will drive a content
  and price war
• Small cars grow
• Energy pressure and competitiveness
• Strong entries battle it out with content and
  price European-type market development

Source AutomotiveCompass
13
Segment Shift SUVs vs Crossovers
North American Market Share by Product Segment
Source AutomotiveCompass
14
Market Share shift in 2001-2012 Big 3 Domestics
North American Market Share by OEM Brands
Source AutomotiveCompass
15
Market Share shift in 2001-2012 Big 3 Transplants
North American Market Share by OEM Brands
Source AutomotiveCompass
16
GM Overview

• The sleeping giant is awake
• Period of denial over?
• Gaining momentum
• Needs sustained positive results to maintain
  credibility and control
• Stock price up sharply up almost 75 since April
  2006
• Gaining traction
• New products
• 2 strong products in the global top ten (GMT900,
  Delta2)
• Other strong platforms Epsilon2, Theta, Lambda,
  Zeta
• Strongest product line-up in decades emerging
• Improving cost structure
• Delphi situation improving
• Risks
• Cash squeeze
• Proxy fight for control
• Union cooperation
• Delphi
• Execution - sustained speed and agility

17
GM Stock Price
Up almost 75since April!
40
30
20
Oct 04
Feb 05
Jun 05
Oct 05
Feb 06
Jun 06
Oct 06
18
Delphi Update

• Delphi GM near a pact to avoid strike
• GM to subsidize Delphi wages
• GM to guarantee business to Delphi
• Supply disruptions likely to be avoided
• Risks
• Creditors fear their claims will be swamped by
  those from GM
• Terms for capital infusion from investors
• Struggle for control strategic investors vs.
  financial investors

19
Threats of Private Capital

• Financial investors have much to gain
• Where business are drastically reorganized
  (pensions, health care, underperforming assets)
  AND someone else pays the bill
• BUT, some of the driving factors in other
  industries (for example, steel) are not present
  in the auto industry
• Tactical advantage?
• Capturing low-cost control of re-emerging
  businesses may have a relatively quick payback
  for financial investors
• Strategic investors vs. financial investors
• Potential difficulty for OEMs, and ultimately for
  suppliers, concerned about stability and
  long-term investing in the business
• Funding of strategic investment ( long-term
  commitment)
• New products (to sell more cars) vs. new
  processes (to increase productivity, quality and
  lower cost)
• At odds with goals and needs of financial
  investors ( short-term gains)
• Holding OEMs hostage?

20
Global Automotive Outlook
21
Global Overview

• The global automotive outlook
• Global automotive production expected to grow by
  almost 20 to approx. 72 million light vehicles
  in 2010
• Toyota emerges as the largest OEM, passing GM in
  2008
• Product, manufacturing, cost, branding strengths
• Increased global competition
• Some traditional OEMs are trailing losing share
• Product, manufacturing, cost weaknesses
• But some level of recovery is expected
• Asia (China, S.Korea, Thailand, India) and
  Eastern Europe will account for 75 of the growth
  in automotive production
• Excess capacity remains a serious concern (Asia,
  Western Europe)

22
Winners Losers 2005-2010
Mid-termScorecardResults
Source AutomotiveCompass
23
Top 10 Global Platforms 2005-2010
NOTE For comparison purposes the previous
generation platform information is also provided
Source AutomotiveCompass
24
Global Market Clusters OEMsChange in Market
Share ( pts.), History and Forecast
Top 11 OEMs represent almost 90 of the global
market
Improving
Leading
Slipping
Trailing
Source AutomotiveCompass
25
Global Production by Region 2002
Global Light Vehicle Production (units, of
total)
Global Volume 56.1 mil
26
Global Production by Region 2010
Global Light Vehicle Production (units, of
total)
Global Volume 72.4 mil
27
Global Production by Region 2002 - 2010
Units as of total growth over 2002 Global
Production
Global Volume Growth 16.3 mil
28
Light Vehicle Production by Country
Ranking of light vehicle production volume by
country
2010
2005
2000
1. US 2. Japan 3. China 4. Germany 5. South
Korea 6. France 7. Brazil 8. Canada 9. India 10.
Spain
12.2 M 8.6 M 8.5 M 5.9 M 3.6 M 3.5 M 2.8 M 2.7
M 2.6 M 2.6 M
12.0 M 9.5 M 5.2 M 4.8 M 3.6 M 3.4 M 2.7 M 2.6
M 2.3 M 1.7 M
1. US 2. Japan 3. Germany 4. France 5. Spain 6.
South Korea 7. Canada 8. China 9. Mexico 10. UK
1. US 2. Japan 3. German 4. China 5. France 6.
South Korea 7. Canada 8. Spain 9. Brazil 10. UK
11.2 M 10.1 M 5.5 M 3.4 M 3.0 M 2.9 M 2.5 M 2.0
M 1.8 M 1.8 M
Source AutomotiveCompass
29
Key Global Issues

• Growing global excess capacity
• As major Asian OEMs substitute home market
  production with local production in North America
  and Europe
• China supply growing faster then demand export
  concerns in an increasingly hostile trading
  environment investment slowdown likely
• Alliances Do they help or distract?
• Renault-Nissan ()
• GM Fiat, Isuzu, Suzuki, Subaru, AutoVaz, SAIC
  (), Toyota ()
• Ford Mazda (), Volvo (), Land Rover, Jaguar,
  Aston Martin
• DCX Mitsubishi, Hyundai
• Toyota PSA (), GM ()
• Investment substitution
• Growing evidence that scarce investment funding
  is shifting from Asia to Eastern Europe
• Asia higher then expect costs, growing excess
  capacity, declining margins
• Eastern Europe market access (Russia), low-cost
  production

30
GM - Renault Nissan Alliance Chronology

• May 4, 2005 Kerkorian seeks to boost his GM
  stake to 9 percent.
• Nov. 21, 2005 GM lays out plan to cut 30,000
  jobs, reduce capacity by 1 million vehicles and
  close 12 plants in North America to restore
  profits.
• Jan. 10, 2006 In a speech in Detroit, longtime
  Kerkorian adviser Jerry York calls on GM to cut
  brands, dividends and executive pay.
• Feb. 6 York named to GM board.
• June 30 Kerkorian calls for GM board to
  immediately study a three-way alliance with
  Renault and Nissan. GM board calls an emergency
  meeting to discuss Kerkorian's actions. Directors
  agree to study the situation.
• July 7 GM board agrees to have company
  management team, led by Rick Wagoner, open talks
  with Renault-Nissan.
• Sept. 27 Carlos Ghosn, CEO of Renault and
  Nissan, meets with Wagoner in Paris as a deal
  appears increasingly unlikely.
• Sept. 28 Kerkorian tells GM he wants to buy up
  to 12 million more shares, increasing his stake
  in the company to about 12 percent. He again
  calls for GM board to examine the deal, including
  hiring independent adviser.
• Oct. 3 GM board convenes regularly scheduled
  meeting and discusses widely different analyses
  of the benefits of a tie-up. While Renault-Nissan
  has estimated the eventual potential annual
  savings to GM at 10 billion, GM puts the savings
  closer to 3 billion a year.
• Oct. 4 Companies announce that they've ended
  talks because they could not reach an agreement
  on the value generated by the proposed alliance.

31
Conclusions Implications
32
North American Trends

• North American automotive outlook
• Recession likely to be avoided for 2007
• Moderately strong mid-term
• Economic growth, driving age population growth,
  import substitution
• Automotive industry risks energy, cost of
  regulations, ability to withstand shocks,
  profitability needed to fund investment growth
  and replacement, the Asia factor
• Price and content war in full-size pickups likely
  for 2008-09
• Domestics dig-in as NAMs add capacity/products
  and attempt to extend momentum Toyota, Nissan
  and possibly Hyundai
• Cross-overs and small cars will gain volume and
  share
• NAMs expected to gain over 3 share points
  (550,000 units) at the expense of the traditional
  domestics
• Mexico will gain approx. 3 share points

33
Global Trends

• Global automotive outlook
• Global automotive production expected to grow by
  almost 20 to approx. 72 million light vehicles
  in 2010
• Toyota emerges as the largest OEM, passing GM in
  2008
• Product, manufacturing, cost, branding strengths
• Increased global competition
• Some traditional OEMs are trailing losing share
• Product, manufacturing, cost weaknesses
• But some level of recovery is expected
• Asia (China, S.Korea, Thailand, India) and
  Eastern Europe will account for 75 of the growth
  in automotive production
• Excess capacity remains a serious concern (Asia,
  Western Europe)

34
Pervasive Global Change

• Kondratiev (1920s) predicted the fall of
  communism because it could not generate the
  investment to drive invention, while capitalism
  rewarded invention
• 11/9/89, the Berlin Wall came down
• Spiraling fuel prices
• Escalating fuel prices from very low cost to an
  expensive, essential commodity in 50 years
• The growth of Asian auto OEMs
• Gaining 25 share points (globally) in 50 years,
  from nothing to dominance

35
Business Models in Conflict

• The traditionalists (Mass Production)
• Resistant to change reactive, slow, legacy
  restrictions, decisions short-term oriented, less
  focus on innovation, business as usual.
• The change specialists (Lean System)
• Proactive, agile anticipate and thrive on
  change long-term planning point-of-view
  understand that growth favours the prepared
  crisis-driven and enabled energy, financial,
  brand image

36
The Lean Model Critical Elements

• The Lean Model has 5 essential elements
• A Product Development Process
• A Supplier Management Process
• A Customer Management Process
• An Overarching Enterprise Management Process
• A Production Process From Order to Fulfillment

37
Special Issues Opportunities/Threats

• An energy crisis favours agile OEMs with advanced
  powertrain technology
• Toyota, Honda, Nissan
• DCX (diesel)
• Hyper-competition favours low-cost OEMs
• Asia
• Eastern Europe
• Financial crisis favours deep pockets to fund
  technology and innovation
• Toyota

38
Conclusions and Implications

• Building a successful future for shareholders
  and the workforce depends on building and
  sustaining a competitive advantage
• Adopting the change specialist business model
• New and better products
• New and better processes
• Collaborative relationships (partnerships)
• Customer-facing interaction
• An innovative point of view
• Turning threats into opportunities

39
The Global Automotive OutlookStrategic Trends
Implications

• Eastern Automotive Summit
• October 19, 2006