Global Automotive Market Growth Opportunity & Strategy Discussion With China OEMs

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Global Automotive Market Growth Opportunity & Strategy Discussion With China OEMs. July, 2009. Table of contents. Appendices Deloitte Automotive Experience Deloitte Team Resumes . About Deloitte. Deloitte serves 90 percent of Fortune global 500 companies in the Auto industry. - PowerPoint PPT Presentation


July, 2009Global Automotive MarketGrowth Opportunity & Strategy

Discussion With China OEMs

2009 Deloitte Touche Tohmatsu1AppendicesDeloitte Automotive ExperienceDeloitte Team Resumes Table of contents21The Global Automotive Industry Our Point of View2Creating Growth Strategy3M&A Considerations4Acquisition Integration5Supplier Network Development6Next Steps 2009 Deloitte Touche Tohmatsu2Auto OEMs Example ClientsBMWBrillianceChryslerDaimlerFAWFiatAutomobile Manufacturer #5General MotorsGeelyHondaAutomobile Manufacturer #3Jaguar/Land RoverKiaMitsubishiAutomobile ManufacturerPSA Peugeot/CitrenPorscheRenaultSAICTataAutomobile Manufacturer #6Automobile Manufacturer #1About Deloitte3Our Global OrganizationOver 160,000 professionals670 offices in over 140 countriesServes nearly 750 companies with sales or assets in excess of $1 billionOur Automotive PracticeOver 5,000 professionalsMulti-Disciplinary Service Offerings:M&A and FinanceStrategy and OperationsInformation TechnologyHuman CapitalTax

$27 B revenue140+ countriesConsulting: 30,000 professionals, $3.0B revenueStrategy and OperationsTechnology IntegrationEnterprise ApplicationsHuman CapitalFinancial AnalysisOutsourcing

ConsultingAuditTaxFinancial Services

Auto Practice

5,000+ professionalsDeloitte serves 90 percent of Fortune global 500 companies in the Auto industry

Our Asia PracticeOver 3,300 professionals serving manufacturing clientsExtensive experience with auto dealerships and national and state governments as well as auto OEMs and Suppliers 2009 Deloitte Touche TohmatsuCover Firm size and geo coverageService footprint (incl M&A)Global auto network

3Todays global automotive market offers your company unprecedented opportunities to build its business and technology base, either organically or through acquisition.Todays market also offers unprecedented risks and challenges.Our objective today is to share our insights and help you advance your thinking regarding the strategy and direction.In particular, we will discuss:Our view on the global automotive market today, and the implications for value creation in the automotive sector.Approach to creating a growth strategy in the automotive supply marketConsiderations and key questions to create an acquisition strategyOur experience and lessons learned during complex acquisitionsApproach and analytic framework for developing a strong supplier network.Path forward.Todays Discussion4 2009 Deloitte Touche Tohmatsu4Table of contents51The Global Automotive Industry Our Point of View2Creating Growth Strategy3M&A Considerations4Acquisition Integration5Supplier Network Development6Next Steps 2009 Deloitte Touche Tohmatsu5Dramatic Structural Change Due To The Global DownturnPoor capacity utilization and lack of manufacturing flexibilityNon-viable OEMs and suppliers requiring dramatic restructuring insufficient capital to operate and invest for the futureBrands lacking identity and customer emotionBankruptcies, mergers and acquisitionsNew global combinations (e.g., Fiat and Chrysler, Acquired Company... and ??)New players (e.g., Penske and Saturn)Changing Customer Needs and PreferencesDesire for green vehicles (without paying more)Higher levels of urbanization shifting markets to smaller, more utilitarian segmentsDesire for individualizationUnique requirements in many emerging marketsUncertainty Over Future Powertrain and Other TechnologiesDiverse greenhouse gas and safety requirements are being enacted in most marketsFossil fuel prices have become unstable, but are generally expected to riseAlternative powertrain and fuel developments have been unpredictable, but require long-lead-time infrastructure developmentCurrent assessment of the global auto industry6 2009 Deloitte Touche Tohmatsu6After the near term liquidity crisis, we expect a major restructuring of the auto industry followed by a period of renewed growth

Current assessment of the global auto industry (cont.)Liquidity CrisisRe-Restructurethe IndustryGrow theNew Industry2010-2012Significant structural changes after first two phasesNewly-consolidated global OEMs and suppliersNew companies born from restructuringEmergence of new technologies (powertrain, telematics, other)Emergence of new business models

2009-2010Capital availability improvesLarge-scale asset salesStrong balance sheets lead consolidationNew players and consolidators emerge, especially in emerging markets2008-2009Major assembly and component capacity reductions in NAFTA and W. EuropeRe-sourcing to stronger suppliersGovernment loansBankruptcy and restructuringsLiquidations7 2009 Deloitte Touche TohmatsuNote point on new business models (last column).For example, Fisker is one of the new electric vehicle manufactures. Their business model is much more of an asset light, networked company. They plan to subcontract manufacturing and distribution, to focus on design and sales. Many of their employees are contractors, borrowed temporarily from major suppliers. Other new EV companies are also experimenting with alternative, more flexible models.

7Our view of the future industry8Improving Fuel EfficiencyPermanent structural shift to higher fuel economy and alternative powertrain carsSafety and TechnologyIncreased emphasis on vehicle technology and safety electronic controls, lighter materials, reduced friction, etc.Supply Chain RegionalizationIncreased logistics and inventory costs will drive more supply chain regionalization vs. globalization (while globalization of R&D and OEM programs continue to increase)Global Organizations and Global ManagementMore sophisticated commodity cost strategies and management tools will be adopted to manage financial and cost volatilityOEMs and suppliers will better match revenue and cost footprints to reduce currency exchange riskCompanies will adopt global organizational strategies to facilitate lower-cost support structures, global tax optimization, and cash repatriation 2009 Deloitte Touche Tohmatsu8Global platform volumes are increasing as a result of global product strategies, more flexible platform architectures, and more flexible production systemsOur view of the future industry (cont.)Source: Automotive News2003 Top 10 Global Platform Volumes(Millions of Units Produced)2007 Top 10 Global Platform Volumes(Millions of Units Produced)GM T800 (Silverado, Tahoe, Escalade, etc.)1.67Automobile Manufacturer #1 A5 (Golf, Passat, A3, TT, etc.)2.58Automobile Manufacturer #1 PQ35 (Golf, Bora, Beetle, A3, etc.)1.42Automobile Manufacturer #6 MC (Camry, Avalon, ES)1.87Automobile Manufacturer #6 NCV (Corolla)1.31Renault/Automobile Manufacturer X85/B (Clio, Micra, Logan)1.86Honda CYR (Accord, Odyssey)1.18Automobile Manufacturer #5 C1/P1 (Focus, 3 & 5, S40, V50, C70)1.66Automobile Manufacturer #6 TMP (Camry)1.08Automobile Manufacturer #6 NBC (Vitz/Yaris, Aygo, etc.)1.53Automobile Manufacturer #1 PQ24 (Polo, Ibiza, Fabia)1.04Renault/Automobile Manufacturer X84/C (Megane, Serena)1.16Automobile Manufacturer #5 CW170/C1/P1 (Focus, C-Max, etc.)0.97Automobile Manufacturer #1 AO4 (Polo, Fox, Fabia, Ibiza, etc.)1.12Automobile Manufacturer #5 PN96/P221 (F-Series)0.92Automobile Manufacturer #6 NCV (Auris/Corolla, Matrix, etc.)1.06Honda Civic (Civic, CR-V)0.91GM T900 (Silverado, Sierra, Escalade EXT)1.06Renault-Automobile Manufacturer X65 (Clio, Kangoo, Platina)0.88Honda GCP (Civic, CR-V, Integra, etc.)0.98Total 2003 Top 1011.38Total 2007 Top 1014.88+30%9Globally-integrated capabilities will be increasingly critical for suppliers to win and retain major platform business. 2009 Deloitte Touche Tohmatsu9Global platforms will continue to increase in importance.This has implications for suppliers as well as OEMs, favoring Tier 1 suppliers with global supply chain / manufacturing footprints.As the global auto market recovers, production is expected to shift from Japan, Korea, and Europe to the Americas and South Asia to align with regional demand; China growth remains strong

Our view of the future industry (cont.)Light Vehicle Production ForecastMillions of Units/Share of ProductionSource: CSM Worldwide, April 200930.7%15.6%3.1%15.7%8.3%20.0%27.1%15.5%10.6%17.9%18.8%6.6% 3.0% 7.0%10 2009 Deloitte Touche TohmatsuN America will rebound by 2011. 10Our view of the future industry (cont.)From the 2009 low point of 60%, global capacity utilization is projected to steadily improve to 80% by 2013 even as capacity increases from about 93 million to 100 million vehicles

Source: CSM Worldwide (March 2009)90%80%70%60%50%40%30%20%10%0%12010080604020020082009201020112012201320142015Global Straight Time Capacity (Millions)Global Straight Utilization %Global Capacity UtilizationSouth AsiaSouth AmericaNorth AmericaMiddle East/AfricaJapan/KoreaGreater ChinaEuropeGlobal Utilization %11 2009 Deloitte Touche TohmatsuGlobal industry profitability should improve by 2011 or 2012, will still be challenged next year. There will be local country exceptions, like China.11Nearly 80% of volume growth is expected to be driven by the B, C and D vehicle segments from 2009-2015Our view of the future industry (cont.)

Source: CSM Worldwide (March 2009)Global Production by Global Segment2009-2015 CAGR%(volume Change)2009-2015 Growth Share+1.9%;(+0.8 million)+5.4%;(+1.4 million)+7.1%;(+5.4 million)+6.0%;(+6.8 million)+7.2%;(+2.8 million)+5.9%;(+2.8 million)12 2009 Deloitte Touche Tohmatsu12The industry structure will continue to evolve, becoming more globally balanced, with China-based OEMs and suppliers becoming more prominentOEM restructuring will continue, resulting in major volume players based in six major markets (W. Europe, Japan, US, Korea, China, India)Large players with excess capacity in mature markets will restructure to align capacities and brands with market shareEmerging market players will acquire more spin-offs by bigger OEMs and troubled suppliers as seeds to gain capabilities and market accessSeveral medium-sized and emerging market OEMs will consolidate to gain further scale and balanced market accessVehicle production will continue to migrate to regional low cost locations for sale within local trade regions (EU, NAFTA, ultimately an Asian trade bloc)OEMs and suppliers will adopt more local-region low cost sourcing to reduce their global supply chain risks and reduce their exposure to exchange rate fluctuationsOEM partnerships will increase with players from other industries (electronics, energy, etc.) and with each other to support new technologies and manage risk

Our view of the future industry (cont.)13 2009 Deloitte Touche Tohmatsu13Supplier loan covenant violations, insolvencies, bankruptcies and liquidations will continue during 2009 and 2010 due to a combination of global credit-tightening and overcapacityA restructuring of suppliers and capacity is underway, creating opportunities for strategic and financial investors

The supplier market is also under stress valuations are low

Average Net Margin (%)1Dow Jones Auto Supplier Index 2Source: (1) Company 10Q and other filings from Capital IQ, Average net margin (excluding one time items) of 3 largest public auto suppliers each in U.S., Japan, Europe; (2) (13/03/2009), Index used (DJUSAT) consists of 13 broad cap auto suppliers listed in the U.S., (53 Economist Intelligence Unit, Crunch time for component makers (11/02/2009)\Global Auto Supplier Performance(2000-2009 YTD)14 2009 Deloitte Touche Tohmatsu1414In the past few decades different factors have driven OEM / supplier relationshipsOpportunities to create valueTraditionalBrake systemsGlassTires & rubber partsPremium BrandEntertainment systems (Bose, Boston Acoustics, Mark Levinson, Sirius XM)Electronics (JCI HomeLink)Brakes (Brembo)Steering (ZF)Struts (Bilstein, Tokico)Outside CapacityVehicle assembly (Automobile Parts Manufacturer #1)Stampings (Tower, Martinrea)Machining (Linamar)Labor ArbitrageAcquired (JCI, Lear, Automobile Parts Manufacturer #1)Interior trim (Lear, Grupo Antolin)Modular pre-assembly (Mobis, Visteon, Lear, CalsonicKansei)Wiring harnesses (Delphi, Yazaki, Lear)Supplier TechnologySafety systems (Autoliv, TRW, Takata)HVAC (Denso, Delphi, Behr)Fuel management (Bosch, Delphi, Denso)Mirrors (Gentex, Automobile Parts Manufacturer #1)Sunroofs (Webasto, Inalfa)Electronics (Bosch, Continental, Delphi, Denso, Continental)New Material ApplicationPlastic truck bed (Automobile Manufacturer #6/Continental Plastics)Plastic fuel tank (Automobile Manufacturer/Inergy)15Cleansed ECC clients Logo 2009 Deloitte Touche Tohmatsu15Over the past 10-15 years, rapid supplier growth has resulted from one or more of four primary drivers:

Opportunities to create value (cont.)Material SubstitutionAlcoa AutomotiveGKNInergyAutomobile Parts Manufacturer #1Superior IndustriesGrowing CustomersAisin SeikiDensoHitachiJtektMandoMobisTakataToyo SeikoAutomobile Manufacturer #6AWDAmerican AxleBorgWarnerAutomobile Parts Manufacturer #1ZFDieselBoschContinentalDelphiDensoSafetyAutolivTakataTRWElectronicsAisin SeikiBoschContinentalJohnson ControlsCommunications Equipment Manufacturer #4ValeoABS/Ride ControlAisin SeikiBoschContinentalDelphiTRWTechnology or FeaturesDe-integration/ OutsourcingAmerican AxleContinentalFaureciaJohnson ControlsLearLinamarAutomobile Parts Manufacturer #1De-integration/outsourcingNew technology or featuresMaterial substitutionSelling to more rapidly growing customers16 2009 Deloitte Touche Tohmatsu16Despite growth and concentration, today an unprecedented number of global automotive suppliers face financial distress.Recent bankruptcies in North America and Europe include:North AmericaFluid Routing SolutionsFoamexGrede FoundriesHayes Lemmerz IntermetJ. L. FrenchKey PlasticsLearMetaldyneNoble InternationalPlastechVisteon

Distressed supplier market17EuropeEdschaEybl InternationalGeiger TechnologiesGoertz + Schiele HoldingHenniges AutomotiveKarmannKittel SupplierSakti GermanyStankiewicz GmbH/GimotiveTMD Friction Holdingtedrive HoldingWagon Automotive

The global recession, while a great challenge to all players in the auto industry, presents a unique opportunity for companies with strong balance sheets and carefully-considered growth strategies. 2009 Deloitte Touche Tohmatsu10% of N American suppliers are bankrupt. Might be up to 50% without support that OEMs and banks are currently giving beyond normal terms.17Future sources of supplier growth and value18Expanding global footprintTier 1 suppliers continue to develop more extensive and integrated global networks to better compete for and serve global vehicle platform programs. Mastering new technologiesAs new powertrain, safety, telematics, and other technologies emerge, winning suppliers take the lead in mastering the new product development, production, distribution, and support capabilities. Aligning with evolving industry structureSuccessful suppliers adapt to the shifting global OEM structure, aligning with growing OEM networks while maintaining customer base diversity and a balance of power that allows pricing flexibility.Creating new business modelsTo meet the investment requirements of new technologies and manage risks, top suppliers will create new networks of alliances and JVs, including non-traditional partners, and adopt virtual company paradigms.Growing through acquisition and consolidationSuppliers with strong balance sheets take advantage of weaker players and cheap asset valuations to grow in value-creating segments.With the change in structure and dynamics of the global auto industry, the future will see different paths of supplier growth and value creation. 2009 Deloitte Touche TohmatsuFrom the earlier slide, we saw that the historic drivers of supplier or product segment growth included:OEM outsourcing / reducing vertical integrationSubstitutionsTechnology innovationsAligning with faster-growing OEMsWe believe that over the next 10 years the drivers of supplier growth will be somewhat different.Global footprint: better able to compete for and serve global model platforms / programsNew technologies: powertrain, emissions, lighting, electronics, etc.Industry structure: new OEM configurations, new global networksBusiness models: following / adapting to some of the new OEM electric vehicle startups, new alliances to develop new technologies / share riskM&A: higher pace and more dramatic change over the next 2-4 years

Question for client: how does this align with your view of the future?

18The changes in the industry plus the stress on suppliers has created a wealth of investment opportunities in N. American and Europe.There is obviously risk, however, as many suppliers will not survive and many assets, despite low market prices, will not be utilized.The following pages discuss some of the analyses that Deloitte has done to help clients assess opportunities and risks in the N. American and European supplier markets.Opportunities for growth in the supplier market19 2009 Deloitte Touche Tohmatsu19Deloitte and CSM Worldwide have developed a Supplier Health Rating which assesses overall financial strength and stability, strategic positioning, and exposure to high-risk OEMs and platforms N. American supplier marketRevenue concentration with high-risk OEMs/platforms and customer diversificationDeloitte/CSM Supplier Health RatingOEM ExposureGlobal coverage, company and product diversification, and capabilitiesStrategic PositioningLiquidity, debt and cash flowFinancial StrengthAltman Z-score (bankruptcy risk)Debt Debt MaturitiesCash Burn RateFinancial MetricsGlobal PresenceCompany DiversificationProduct DiversificationBreadth of CapabilitiesUnique or Proprietary TechnologyCustomer DiversificationHigh-risk OEM ExposureHigh-risk platform exposureShort-termLonger-termStrategic MetricsExposure MetricsHealthyAt RiskUnhealthy05075100Rating Scale20 2009 Deloitte Touche Tohmatsu20Powertrain SummaryAverage D/CSM health rating is 46Two-thirds of the suppliers in powertrain are UnhealthyD/CSM Health RatingUnhealthyAt RiskHealthy Our framework indicates many suppliers are unhealthyThis example shows that the majority of powertrain suppliers to OEMs in North America are stressed financially and have significant exposure to risky OEMs and platformsSupplier Financial Rating Strategic Rating N.A. Exposure Rating D/CSM Health Rating Supplier 1 30 75 77 58 Supplier 2 20 15 23 20 Supplier 3 75 60 68 69 Supplier 4 20 58 59 43 Supplier 5 75 80 50 66 Supplier 6 30 60 97 63 Supplier 7 10 73 40 34 Supplier 8 90 45 - 45 Supplier 9 15 48 53 37 Supplier 10 5 58 40 29 Supplier 11 80 80 83 81 Supplier 12 15 43 59 38 Supplier 13 50 53 47 49 Supplier 14 30 63 47 43 Supplier 15 10 50 43 31 Supplier 16 10 38 49 31 Supplier 17 20 68 77 52 Supplier 18 55 65 68 62 Supplier 19 - 13 24 12 Supplier 20 50 23 - 25 Supplier 21 30 55 78 54 Supplier 22 15 55 73 46 Supplier 23 100 50 100 90 Supplier Financial Rating Strategic Rating N.A. Exposure Rating D/CSM Health Rating Supplier 24 35 63 58 49 Supplier 25 15 20 57 33 Supplier 26 50 65 39 48 Supplier 27 15 95 46 43 Supplier 28 75 53 60 65 Supplier 29 25 35 68 44 Supplier 30 5 35 0 9 Supplier 31 25 78 88 61 Supplier 32 5 38 55 32 Supplier 33 55 45 43 48 Supplier 34 45 48 100 67 Supplier 35 15 43 42 31 Supplier 36 20 63 63 46 Supplier 375 65 57 38 Supplier 38 15 23 39 26 Supplier 39 100 58 79 83 2009 Deloitte Touche TohmatsuNote: specific supplier names are available. These can be shared with clients as part of actual engagements, on a confidential, non-disclosure basis.21Powertrain product familySize of the bubble indicates the Strategic Positioning scoreColor of bubble indicates D/CSM Health RatingUnhealthyAt Risk Healthy Average Health Rating: 46 2009 Deloitte Touche Tohmatsu22Electronics product familySize of the bubble indicates the Strategic Positioning scoreColor of bubble indicates D/CSM Health RatingUnhealthyAt Risk Healthy Average Health Rating: 53 2009 Deloitte Touche Tohmatsu23Electronics /ElectricalProduct FamilyExteriorsInteriorsPowertrainChassis / MechanicalClimate ControlKey InsightsSignificant excess capacity will drive additional consolidation weaker players are extremely vulnerableOEMs are unbundling interiors, reducing supplier value add and increasing exposure to commodity pricesAverage Health Rating: 53HHI: 5.5Consolidation potential: HighMay see further consolidation in lightingOEMs are moving away from exterior modules (e.g., doors), forcing a restructuring of this businessMany weak and few strong players in this segmentAverage Health Rating: 46HHI: 6.7Consolidation Potential: MediumVery diverse and globalized segment for both development and production with more strong playersGrowth in differentiating technologies will continue despite economic downturnSegment will continue to require investment to remain competitiveAverage Health Rating: 53HHI: 7.1Consolidation Potential: MediumSignificant investment and new players in hybrid/electric systems, but volume growth will be slowRapid growth in relatively inexpensive fuel efficiency actions (e.g., direct injection with turbo)Relatively weak, fragmented segment with significant consolidation likelyAverage Health Rating: 46HHI*: 4.2Consolidation Potential: HighFuel economy regulations will drive migration to electrically-driven components (e.g., electric steering, brake-by-wire) and impact current sourcing patternsMany traditional suppliers (frames, casting, forgings, axles) are struggling with excess capacityAverage Health Rating: 48HHI: 4.5Consolidation potential: HighSegment dominated by major global suppliers Asian players are generally strongestSome additional consolidation likelyAverage Health Rating: 55HHI: 15.5Consolidation Potential: Medium* HHI is the Herfindahl-Hirschman Index, a market concentration metricSome product families will see greater consolidation 2009 Deloitte Touche TohmatsuNote that consolidation brings: Threats: stronger suppliers, higher prices Opportunities: acquisitions, JV opportunities

24The OEMs will drive much of the consolidationOEMs are assessing the health of their suppliers and have stated they will force significant consolidation (e.g., Automobile Manufacturer #5 from current 1,600 production suppliers to 750 globally)

ABACBCPotential OutcomesOEM PressureSurviving Tier 1 suppliers must have:A best cost, global production footprint which supports customers platform needs locallyGlobally-deployed R&D and customer support centersStrong product technology and system integration capabilitiesFinancial stability 2009 Deloitte Touche Tohmatsu25Product Family Example: exhaust manifold26Exhaust Manifold SummaryD3 are heavily weighted towards cast manifolds (90%)Asian and European OEMs use about 90% fabricated manifoldsWescast has nearly 50% of the cast market in N.A. a very high shareTechnology developments could alter future industry sourcing patterns

CExhaust manifolds is one of 17 specific component groups within powertrainCleansed ECC Client

2009 Deloitte Touche Tohmatsu26Product Family Example: exhaust manifold27SummaryThe majority of suppliers in this category are unhealthyMany have significant exposure to the D3Health RatingUnhealthy At RiskHealthy Supplier Country Ownership Major Shareholders Market Cap ($M) 2009 Share Automobile Manufacturer #5 Chrysler GM Other Health RatingCast Manifold Only49.3%Supplier 1 CanadaPublic LeVan family (majority ) $11 22.9%8.7%1.5%12.6%0.1%2.9Supplier 2USA Public $12 5.0%-1.1%1.0%2.9%2.3Supplier 3Japan Public Hitachi (54%) $9,780 7.9%6.9%0.6%0.4%-2.9Supplier 4Canada Private -1.9%-1.9%--NASupplier 5China JV Lioho (55%)/Sumitomo (45%) -1.9%0.9%-1.0%-NASupplier 6China Public $145 2.7%1.7%-1.0%-Supplier 7USA Private -1.0%-1.0%--NASupplier 8Portugal Private Fiat/Teksid (84%) -0.8%--0.8%-NASupplier 9France PEI Zen Group (Italy)-0.8%--0.8%-NASupplier 10USA Private Wescast (49%) (minority bus) -0.7%-0.4%0.3%-NASupplier 11USA Private -1.0%-0.1%0.9%-NASupplier 12Taiwan -0.2%--0.2%-NASupplier 13USA Public $2,1411.1%1.1%---2.5Supplier 14-0.0%----NASupplier 15-1.4%1.4%---NASupplier 16USA Private (minority business) -0.0%0.0%---NAFabricated Manifolds Only29.4%-Supplier 1 Germany Private Family owned -8.6%-0.2%0.1%8.3%2.9Supplier 2USA PEI One Equity Partners -9.2%---9.2%NASupplier 3Germany Private Family owned -3.7%-1.3%0.5%1.9%Supplier 4Japan/USA PEI Asahi Tec - 100%$1551.7%0.02%1.7%--Supplier 5Japan Public Automobile Manufacturer (42%) $2853.2%---3.2%NASupplier 6USA JV Emcon (50%)/Sango (50%) -2.4%---2.4%NASupplier 7Japan Public Automobile Manufacturer (47%) $1680.3%---0.3%NASupplier 8France Public PSA (72%) $3210.3%-0.2%-0.1%2.7Both Cast & Fabricated Manifold11.8%Supplier 1Japan -4.5%---4.5%NASupplier 2Japan Public Automobile Manufacturer #6 (22%) $4,0407.3%-0.02%-7.3%3.4OEM9.5%NAOEM-OEM -9.5%-0.1%2.7%6.7%NAThis analysis reveals potential acquisitions, asset sales, or partnerships considering OEM exposure, geography, public / private status, as well as financial strength. 2009 Deloitte Touche Tohmatsu27Top European suppliers ranked by revenue28RankCompany2008 Auto OEM Revenue (US$ billions)HQ CountryOwnership1Robert Bosch GmbHUS$ 33.9GermanyPrivate - trust2Continental AG25.0GermanyPublic3Faurecia SA17.7FrancePublic4ZF Friedrichshafen AG16.9GermanyPrivate - trust5ThyssenKrupp11.3GermanyPublic6Valeo SA10.3FrancePublic7Benteler9.3GermanyPrivate - family8Schaeffler KG7.9GermanyPrivate - family9Magneti Marelli7.6ItalyFiat Group10Mahle GmbH6.3GermanyPrivate - trust11Hella KGaA Hueck & Co.5.7GermanyPrivate - family12Behr GmbH4.9GermanyPrivate - family13Michelin Group4.3FrancePublic14GKN PLC4.2United KingdomPublic15Brose4.1GermanyPrivate - familySource: Automotive News 2009 Deloitte Touche Tohmatsu28Climate ChangeElectrification of the Automobile (zero tailpipe emissions):Vehicle manufacturers will continue to work with battery suppliers on issues like energy density, durability and recharge times.Alternative Fuels:Issues like sustainable fuel production, quality and the development of comprehensive re-fuelling infrastructure remain key to encouraging wider take-up of these vehicles.Sustainable Mobility / Regulatory Framework (especially the regulation CARS 21)Reduce waste / recyclable parts In the manufacture of vehicles, sustainable mobility means finding more sustainable materials in vehicle manufacturing, improving logistics in the supply chain to cut unnecessary waste, and designing more parts to be recycled at the end of their lives rather than being sent to landfill.Reducing man-made CO2 emissions / CO2 - based taxesThe automotive industry is actively working to reduce CO2 emissions from cars and commercial vehicles in-use, but also from its production sites, logistics and transport operations. Tax incentives encourage motorists to consider the environmental impact of vehicle choices and to use vehicles responsibly.Road SafetyIntelligent Transport Systems (ITS):Further technological progress with complementary Intelligent Transport Systems (ITS) measures, improved driver training, better road design and enforcement of existing traffic regulations promise safer roads for all.CompetitivenessDeliver quality products around the globe:Opportunities to develop trade abroad should be pursued and manufacturers support steps to remove barriers such as unreasonable import tariffs and non-tariff barriers (NTB).Integrated InnovationsIn a world of ever-increasing globalization and international competition, the automotive industry will work to keep costs down, to retain R&D facilities and production in Europe, and to safeguard the quality of its products.

Key issues facing European supplier market29 2009 Deloitte Touche Tohmatsu29There has been a wave of insolvencies.Over the past nine months in Germany alone, more than 70 automotive suppliers and suppliers with plants there have filed for insolvency.Many of the troubled or insolvent suppliers have strong technology positions.A wide variety of assets are for sale, from healthy companies focusing on core operations and from troubled or insolvent companies who are reorganizing.In Germany, for example, over 20 insolvent suppliers are currently for sale (chart at right).The Europe supplier market is also restructuring30CategoryNo. CompaniesTurnover Range ( MM)Powertrain440 500Exterior310 1,500Interior510 1,100Electronics1160Climate1110Metalworking1110 - 170Strategic buyers are reviewing supplier asset opportunities in Europe, both for technology acquisition and for market entry / expansion. 2009 Deloitte Touche Tohmatsu30Table of contents311The Global Automotive Industry Our Point of View2Creating Growth Strategy3M&A Considerations4Our Perspectives on Acquisition Integration5Supplier Network Development6Next Steps 2009 Deloitte Touche Tohmatsu31Creating a growth strategy for the auto business involves answering these fundamental questions:What is your companys strategic intent?Where to compete?How to compete?When and how to invest?How to align existing relationships?

Strategic Questions32The following discussion centers on growth in the auto parts business. Many of the same considerations apply, however, to planning for growth in the OEM / finished vehicle markets. 2009 Deloitte Touche Tohmatsu32Strategic Question #1: Strategic Intent?33What is your objective for your parts business? How will the investment create value for the organization?Example ObjectiveExample ImplicationsCreate a global, tier 1 parts business, profitable on a stand-alone basisGlobal scale and capabilitiesComplex interactions / conflicts with existing JVsHigh level of investment and competenceHigh riskCreate a tier 1 parts business focused on the China market, profitable on a stand-alone basisCompeting against global suppliersExposure to the dynamics of the China marketLess scale, but equally high level of competence requiredMedium riskCreate stakeholder value through an early IPOSelect attractive, high-growth segment(s)Leverage existing assets, acquire cheap assets build scale quickly, position for high-return growthCreate strategic options for alternative engine / powertrain futures (protect the OEM vehicle business)Invest in multiple engine technologies at exploratory levelsMix of investment mechanismsPriority is capability technology and market over near term profitsDifferent strategic objectives will lead to different answers to the following strategic questions. It is important that your management have clarity on the objectives at the start, and that the objectives are focused. 2009 Deloitte Touche TohmatsuThe first question to ask is why is ___ investing in the parts business? Different answers will drive different strategies.(points on slide)It is very important to be clear on this from the start. We have seen investment programs run into trouble when there are different viewpoints within management on the strategic objective for an acquisition.Consumer products example, Western company acquiring a China company. Initial rationale was presence in China, market share. It turns out the Chinese company is losing money and has declining financial performance. Different managers in the acquiring company are now questioning the deal, putting more emphasis on profitability and positive cash flow. This has created dissatisfaction and uncertainty about the future.33Strategic Question #2: Where to Compete?Strategic IntentWhere to CompeteProduct Family



OEM Market

-- CHINA --Cleansed ECC logo 2009 Deloitte Touche TohmatsuThe next question is where to compete. There are 4 dimensions to this (points on slide).34Determining which product family will include consideration of:Market growthImpacts of technology changeStrength of current suppliersPotential to acquire assets at favorable pricesYour existing capabilities and JV relationshipsStrategic intentStrategic Question #2: Where to Compete? (cont.)35Which product families / systems? Which technologies (product and production?)

2009 Deloitte Touche TohmatsuWhen thinking about where to compete, the questions of product family and technology are obviously related.Factors that will impact the choice of product family include (points on slide).Note this is a standard part family taxonomy that we use. Others exist. We have a lot of data and experience based on this particular family tree.35Strategic Question #2: Where to Compete? (cont.)36Which OEMs / customers? In which geographies?OEMs2007 Global ProductionGlobal Market ShareCum. Market ShareOEMs2007 Global ProductionGlobal Market ShareCum. Market Share1Automobile Manufacturer #69,498,00013.5%13.5%21Tata578,9520.8%93.4%2GM8,818,40912.6%26.1%22Chongqing Changan546,2530.8%94.2%3Automobile Manufacturer #56,365,4569.1%35.1%23China FAW509,4490.7%94.9%4Automobile Manufacturer #16,213,3328.8%44.0%24Dongfeng503,8680.7%95.6%5Automobile Manufacturer #3-Kia3,987,2675.7%49.7%25BAIC454,3210.6%96.3%6Honda3,911,8135.6%55.2%26Chery387,8800.6%96.8%7Automobile Manufacturer3,431,3984.9%60.1%27Shenyang Brilliance293,5880.4%97.3%8PSA/Peugeot-Citroen3,233,0004.6%64.7%28Hafei231,4880.3%97.6%9Fiat2,813,8704.0%68.7%29AvtoGaz223,1220.3%97.9%10Renault2,635,7533.8%72.5%30Zhejiang Geely216,7740.3%98.2%11Suzuki2,596,1793.7%76.2%31Anhui Jianghuai209,8800.3%98.5%12Chrysler2,572,2033.7%79.9%32Iran Khodro196,0070.3%98.8%13Daimler2,096,8933.0%82.8%33Mahindra178,9820.3%99.1%14BMW1,541,5032.2%85.0%34Proton148,4240.2%99.3%15Mitsubishi1,411,9752.0%87.0%35SsangYong122,8570.2%99.4%16Automobile Manufacturer #71,286,8081.8%88.9%36Great Wall122,6050.2%99.6%17AvtoVaz785,9701.1%90.0%37Jiangxi Changhe112,0830.2%99.8%18Isuzu628,8000.9%90.9%38Porsche101,8440.1%99.9%19SAIC610,0280.9%91.8%39Soueast (Fujian)59,0890.1%100.0%20Fuji585,0280.8%92.6%Total70,221,151 2009 Deloitte Touche TohmatsuNext question: which OEMs to target? This includes considering:OEM health and future growthOEM geographic marketsOpenness to new suppliers, willingness to buy from a supplier that you controlRelationships and approach to their suppliers (do any of their current suppliers make money?)36Strategic Question #3: How to Compete? 37BasicComponentSupplierDiversifiedComponentSupplierSystemSupplierModuleSupplierCost leadershipHigh qualityEfficient manufacturingShort time-to-market"R&D capabilitiesMultiple core competenciesStrong innovation & technology baseEngineering integration capabilitiesAssembly know-howEfficient partneringLocal productionIncreasing capabilities requiredDifferent bases of competitionTechnology DisruptionR&D leadershipM&A and network developmentStrategic commitment and investment 2009 Deloitte Touche TohmatsuNext question: how to compete. Cost, product development, product features, serviceOne dimension is breadth of offering:Left side: focus on a few components. Tends to be cost and time driven.Right side: provide complete systems. Here R&D, integrated development with the OEM, system performance and unique features tend to me more important.Disruptive technologies. These can change the game at different points on the curve. At the individual component level, a disruptive technology can change the game from cost to features / performance. E.g., batteries. LED lighting. 37Strategic Question #4: When to Invest? And How?38Existing capability platform and relationshipsNew capabilities and relationshipsFuture / emerging capabilitiesExtend/defend core businessIntegration OpportunitiesHighest Value-add and riskDiversified component supplierSystem supplierModule supplierInvestment DecisionsOrganicTechnology Acquisitions Joint VentureAcquisitionLevelMechanismStrategic Options Learning / SignalingFull CommitmentBasic component supplierIncreasing Capabilities

Increasing InvestmentPrioritiesProduct technologyProduction technologyProduction capacityDistribution footprintAftermarket footprintManufacturing footprintR&D capabilitySales / customer supportBrand 2009 Deloitte Touche Tohmatsu4th question: When to invest. And how.When: Simple answer is now lots of change, lots of companies / assets available. Better question: will prices for assets will continue to fall or start to recover? Our view: probably have 12 month window. Great opportunity, but have some time to act.

How relates to Level and Mechanism.By Level, we mean the extent of investment. There is a spectrum. At the right is full commitment: investing to be a major player in a product segment or market. This might include building or buying factories, a sales and distribution network, and brand. At the right is something we call Strategic Options. We will talk more about this later. The idea is more limited investment in a new capability -- product, technology, market, etc. -- that creates an option for a larger investment in the future. Example: an R&D project, possibly with a university or other partner, to learn about a new technology.

Mechanism can include a spectrum from Organic (build it yourselves) to full Acquisition (buy an entire company). The best choice will be a combination of your objectives (Strategic Intent) and the opportunities in the market.The how to invest also depends on the priority for an investment (points on slide).38Question #5: How to Align Existing Relationships?39Alliance RationaleForm aPowerfulCompetitiveForce to dominate target markets ShareFinancialRisksIncrease Return from OperationsParticipate in attractive markets and brandsParticipate in the development of new and emerging technologyManufacture more effectively and efficientlyManage Global Alliance StructureAsiaNorth AmericaEuropeROWOverarching Objective Strategic AdvantageBroader ValueFocused, TacticalValueConsolidate and Gain Protectable Competitive Advantage From Existing Partners and AlliancesIncreasing ValueIncreasing CommitmentIncreasing Investment and RiskLimited value / no strategic fit 2009 Deloitte Touche TohmatsuThe 5th question relates to your current network. Where do you want to go with each of your current JV relationships?One useful analysis is to put your existing network into a framework of this sort.Some JV partnerships will be strategic. They either dominate or can potentially dominate a particular market or product segment. They offer you very significant financial, product, technology, or other advantages. These are at the top of the pyramid and would be targets to be preserved and expanded.Other JVs offer more limited advantages. Perhaps a particular geographic market or very specific type of part. They provide value, but not significant competitive advantage to you. These relationships at the bottom of the pyramid can continue for the short term, but are candidates to be replaced by acquisitions or other initiatives.And of course some JVs may be producing little or no value today and are candidates for termination as quickly as possible.

39Growth strategy development 40External AnalysisInternal AnalysisSynthesisActionOEM / Customer Market

Supplier Market

Product Segments


Regulatory / ExternalitiesChinaGlobalCapabilitiesRelationships / NetworkProject ManagementPeople and Change ManagementStrategic IntentOpportunitiesChallenges / RisksFinancials / Business CaseM&A PlanInternal Development PlanRisk Management PlanImplementation RoadmapStrategy DocumentOrganization Change PlanPerformanceScenario AnalysisChinaGlobal 2009 Deloitte Touche TohmatsuTo answer the question about growing the business, we follow this framework.Four major components:External AnalysisInternal AnalysisSynthesisAction PlanWe will talk about each of these briefly in the following pages.Project Management and Change Management run through all these and connect the pieces. Both are very critical to developing a timely, effective strategy. Many strategy development projects overlook the change management element. The result is often elaborate strategies but no management consensus or support the strategies are never implemented, or worse implemented badly.40Analytic Framework for Strategy Development41External AnalysisOEM / Customer MarketSegmentation and prioritization growth, health, profit potentialSales & service modelsChannelsLocation footprint / proximity requirementsCompetitors and white spaceCustomer strength / pricing powerOEM attractivenessAftermarket attractivenessTarget customers

Product SegmentsSegment trendsPrice, volume, market size, and growth rateProduct and production technologyMaturing / life cycle analysisCapacity / demand balanceCompetitor map / concentration analysisMarket capability requirementsScale requirements / economies of scaleAsset base requirementsService requirementsProduct development approach and resourcing

TechnologiesProduct and production technologiesEmerging technology assessmentPotential / risksRelationship to different externality scenarios (energy, environment, safety)Technology maturity mapSupplier / technology mapOpportunity mapRegulatory and ExternalitiesRegional analysisCurrent regulations and trendsImpact on OEM / customer marketImpact on Supplier marketImpact on Product segmentsImpact on Technology developmentGlobal trends: energy cost, consumer behaviorChinaGlobalSupplier MarketPositioning strengths and weaknessesProduct and product technologyProduction capacity and capabilityCost structureAsset baseFinancialsSales and distributionManagement / peopleBrandCustomer networks and relationshipsStrategic intent / investment directionCompetitor ViewM&A / JV ViewNote: these analyses should be done with two views, China market and global market (depending on your intent) 2009 Deloitte Touche TohmatsuExternal analysis looks at several areas.OEM market potential customers. Which OEMs are healthy? Which would be good customers? Where are they, how to sell to them? How attractive is the consumer aftermarket? Which should be your target customers?Supplier market look at this from two perspectives, as competitors and as potential M&A candidates. Financial strength. Product technology. Relationships with OEMs (and would major customers be ok with a change in ownership). Geographic coverage.Product segments Future size / growth rates. Attractiveness (competitive intensity, barriers to exit). Technology change. Scale requirements. Technologies Direction. Potential for disruption. Risks / maturity. Which future scenarios favor which technologies (e.g., sensitivity to future oil costs).Regulatory trends by geographic market.Consumer / OEM preference trends by geographic market.

Note that there are two versions of this external market analysis. One focuses on the China market. The other focuses on the world outside China. The balance or mix of the two will depend on your strategic intent.41Analytic Framework for Strategy Development42Internal AnalysisCapabilitiesProduct R&D and technologyProduction R&D and technologySupply chainSales and service, complex customer relationship managementInformation systems and controls, governanceGlobal experienceSupplier network (tier 2-n)M&A experience, JV managementManagementPeople

PerformanceUnderstand your current performance and performance management, identify gaps versus strategic objectives.Product technologyProduction technologyProduction cost and qualityOverall costCustomer satisfactionManagement systems and controlsFinancial performance margins, operating income, net income, ROCE, ROA, etc.Performance management systems

ChinaGlobalRelationship / NetworkAssessment of current JVs / other relationshipsCompetitive position: product, quality, cost, service, customer / OEM relationshipsTechnology capabilitiesGeographic footprintStrategic importancePortfolio analysisProduct / market / alliance JV mapExisting coveragePrecluded areas (contractual / non-competes)Open areasNote: these analyses should be done with two views, China market and global market (depending on your intent), particularly the Capabilities analysis.Note: Internal Analysis also includes assessing leadership alignment on Strategic Intent, and on commitment and willingness to invest and change. 2009 Deloitte Touche TohmatsuInternal analysis looks at where you are today.Capabilities: R&D, manufacturing and supply chain, sales and distribution. Technology know-how. People management. Brand management. Ability to manage / integrate acquisitions.JV network: Look at your current network, put each partnership into the strategic framework we discussed earlier.Performance: Are you meeting your performance targets today, financial, production, etc.? Technology strength (qualitative). OEM customer relationships.Again, China view and global view. Also determine management alignment. Is there a consensus to invest and grow the parts business? If not, what is required to build consensus?42Analytic Framework for Strategy Development43SynthesisOpportunitiesProduct segments TechnologiesCustomers / segmentsGeographic marketsSupplier market acquisition / partneringFit with strategic intent

Strategy DocumentStrategic intentTarget markets customer, geographicTarget product segmentsPortfolioInvestment requirements and prioritiesCapabilitiesTechnologiesProduction capacityInvestments for strategic options (vs. full scale commitment)Targets / expected outcomesOrganization and accountability

Business CaseSales and market share projectionsInvestment and resource detailsFinancial targets and projectionsTax impactsQualitative targets and benefitsRisksContingenciesChallenges / RisksDependencies on externalitiesCapability gaps / dependenciesCompetitor responseImpact on existing network / businessStrategic IntentClear statement of your strategic objectives for the parts businessMarket positioningRelationship to your OEM businessFinancial returns

Scenario AnalysisCreate hypotheses, evaluate under different environmental scenarios, e.g.:Energy / oil cost scenariosEnvironmental regulation scenariosPowertrain technology disruption scenariosMarket access disruption scenariosIndustry reconfiguration scenarios 2009 Deloitte Touche TohmatsuSynthesis: put external and internal analyses together to form conclusions.Articulate strategic intent.List opportunities.List challenges, gaps, risks.Scenario analysis:Key external variables (e.g., oil prices)Possible future directionsImpact of each future direction scenario -- on different parts product families, markets, OEMs, etc.Output: strategy, growth / investment paths for each scenarioPut it all together into a strategy document and business case.Strategy document should be clear, understandable. It should have measurable targets. It should be a tool to build consensus among management.Business case should include financial projections and returns. Be realistic about investment requirements. Talk about contingency plans if an investment does not work out.43Analytic Framework for Strategy Development44ActionInternal Development PlanInvestmentsAssetsTechnology / R&DPeople and management recruiting, training, etc.Capabilities

Implementation RoadmapGraphical sequence of all major activitiesDetailed workplansResource plansResponsibilitiesTime line and dependenciesMilestones and measurement pointsExecution threads:Project managementChange management and communication

Organization PlanTargeted end stateChange planCommunication planRoles and responsibilitiesM&A PlanObjectives and prioritiesSecure advisorsTarget screeningDeal parameters and negotiationsDue diligenceIntegration

Risk Management PlanMajor / identified risksMitigation planMeasurement and reportingResponsibility matrix 2009 Deloitte Touche TohmatsuAfter the strategy and business case have been reviewed and accepted, then create specific action plans for the future.M&A plan: objectives, target product segments and geographic markets, plan for the how of doing acquisitions. The M&A plan should fit into the overall strategic plan for your parts business.Internal development plan: what capabilities you will need to develop internally. This may include a hiring plan to add certain talent or management experience.Organization plan: any organization change to support the strategic plan. E.g., new geographic business unit.Risk management plan: important thing here is to actively think about the risks.Implementation road map: put all this together into one document. Wall chart format, a communication and change vehicle for the entire organization.Keys to good plans: measurable targets / outcomes. Clear statements of who is accountable for what. Being realistic about resource requirements, including management time. Being realistic about timeline. Move quickly, but do not over extend your capability to change (especially your capability to assimilate acquisitions).

Question for client: how much of this have you done already? Are you working on these analyses today?

44No company can make major investments in every possible technology or future direction. Investment strategy: invest to create a portfolio of capabilities and options. Make selected major commitments now.Invest in a more limited, focused way in other areas to create and maintain options.Scenario Analysis45

Michael E. RaynorDeloitte Consulting LLPDistinguished Fellow, Deloitte Research

Synthesis 2009 Deloitte Touche Tohmatsu45How to conduct scenario analysis.The thinking I will share here is from a book, The Strategy Paradox. Written by Michael Raynor who is a member of Deloitte, part of our Deloitte Research organization. We have a few copies of this book for you.As we have discussed, there are many options for investment in the auto parts business. Also many risks.No company, not even you, can make major investments in all areas. You need to make some choices.But what if you make the wrong choice? What if, for example, you invest in a powertrain technology that is a dead end, and some other technology wins?46Scenario Analysis: basic steps Key Idea Invest to Create OptionsAnticipateIdentify drivers of changeDefine the range of possiblefuturesDetermine which are truly plausibleFormulateDevelop an optimal strategyfor each scenarioCompare optimal strategies todefine core and contingentelementsAccumulateAcquire those capabilities needed to implement the core strategyTake options on capabilities needed for contingent strategiesOperateExecute the core strategyMonitor the environmentExercise or abandon options as appropriate 2009 Deloitte Touche Tohmatsu46Raynors book offers a solution. The key idea is to invest to create options for future capabilities. He offers a four step process:Anticipate create a (small) number of future scenariosFormulate for each scenario, what is the best strategyAccumulate looking across all the scenarios, which capabilities are common across all strategies? These are core capabilities and can be developed now. Capabilities that are needed for some scenarios but not others are contingent. For these, invest in an option to create the capability, but do not invest in creating the full-blown capability.Example: advanced engine controls might be a core capability. Fuel cell technology could be contingent.Example: China and S America markets might be core for you, India might be contingent.Operate build the core capabilities. Continually scan the environment to see which scenarios are coming true. Exercise or drop options as scenarios become clear.Example scenario analysis framework47TechnologyRegulationMacro-economyEach vertex could bea plausible scenarioContinued Recession / Slow GrowthRecovery / Return to Higher GrowthNew Carbon LimitsCurrent C Limits, Growth Incentives Electric AdvancesGasoline AdvancesHow to create capability options?Partial / seed investmentPilot projectsJVsAcademic R&DDevelopment rightsLicensing inbound and outboundEtc.Scenario analysis can help determine where to invest (e.g., product family / technology) and how to invest (e.g., early commitment / big bet versus creating options). 2009 Deloitte Touche TohmatsuLet me demonstrate with an example. We might consider 3 dimensions How might these evolve over time?To keep it simple, lets just consider 2 outcomes on each dimension. This gives us an 8 point grid.Each point on the grid could be a scenario.For example, on the global economy axis we can consider continued global recession vs. quick rebound / Asia growth.On regulation, we might consider two extremes of environmental regulation.On technology, we might consider the evolution of different engine technologies, which develops faster with respect to efficiency, emissions, and overall costs.The process then is to see what capabilities you need for each scenario, and to create options for those you lack (but are not common to all scenarios).This is a very high level overview of some profound ideas. I encourage you to read the book!How to create options without doing the full investment? For example:(go through points)

47Example (from Deloitte work with another OEM)48

1. Determine external factors shaping the industrys future.2. Define a manageable number of planning scenarios

3. Assess the impact of each scenario on different technology / product segment options. Develop investment strategy: commitments, options, defer / exit. 2009 Deloitte Touche TohmatsuThis is an example from work we did for another auto company.This was looking at the OEM vehicle market, not parts.But we looked at the same sorts of things.

We looked at external factors and defined a specific set of auto industry drivers. Fuel prices, environmental regulation, consumer lifestyle choicesWe formed four different scenarios for how the global market might evolve, based on how these drivers might change.We evaluated different strategies, particularly powertrain strategies, under each scenario. This then went into the companys investment planning.48As noted, this is a time of disruptive technology changes in automotive. The future path of development is uncertain.Assessing different technologies requires analysis to answer several different questionsAssessing emerging technologies49External Analysis / Synthesis

Fit with strategic intent and current capabilities 2009 Deloitte Touche Tohmatsu49Base TechnologyVariationsGasolineGasoline advanced technologiesFlex Fuel (ethanol blends)Multi Fuel (gasoline plus other hydrocarbon fuel)DieselDiesel advanced technologiesBiofuelsGasoline Electric HybridParallel (propulsion from gasoline and electric motors)Serial (propulsion from electric motors)Diesel Electric Hybrid

Parallel (propulsion from diesel and electric motors)Serial (propulsion from electric motors)ElectricPlug In BatteryFuel Cell / BatteryAlternate Fuel Internal CombustionNatural GasLPGHydrogenExample: powertrain alternatives (cont.)50 2009 Deloitte Touche Tohmatsu50TechnologyDescriptionSupporting TechnologiesAdvantagesDis-advantagesPlayers (Examples)Prospects (Deloitte Point of View)GasolineContinuing improvements to conventional gasoline engines to improve efficiency and mileageVariable valve actuationMultiple displacementTurbo / superchargingFuel stratified injectionHCCICVTDCTAdvanced electronic engine controlsBuilds on existing technologiesNo major new infrastructure investmentMore certain / positive economics

Continued reliance on fossil fuels / vulnerability to oil pricesContinued CO2 emissionsTrade-offs around complexity, reliability, certain emissions

All OEMsAisinBoschBorg WarnerContinentalMagneti MarelliEatonHoneywell Etc.

Baring major disruption in oil supplies, gasoline will continue to be the dominate passenger vehicle engine option in US and Asia for the next 10 years. Efficiency improvements of up to 20% are likely.DieselContinuing improvements to conventional diesel engines to improve efficiency and mileagePiezoelectric injectorsVariable geometry turbochargersExhaust scrubbingHCCICVTDCTAdvanced electronic engine controlsHigher level of efficiency compared to gasolineBuilds on existing technologiesNo major new infrastructure investmentMore certain / positive economics

Higher build cost than gasolineContinued reliance on fossil fuels / vulnerability to oil pricesContinued CO2 emissionsTrade-offs around complexity, reliability, certain emissions

Automobile Manufacturer #1, Daimler, BMW, Peugeot, etc. BoschContinentalValeoBorgWarnerTennecoEtc.Baring major disruption in oil supplies, diesel will continue to be a major passenger vehicle engine option in Europe for the next 10 years, while gaining some share in the US. Continued efficiency improvements, though not to the extent of basic gasoline engines.

Example: powertrain alternatives (cont.)51 2009 Deloitte Touche Tohmatsu51TechnologyDescriptionSupporting TechnologiesAdvantagesDis-advantagesPlayers (Examples)Prospects (Deloitte Point of View)Gasoline Plus Other Hydrocarbon FuelsBurn gasoline and other fuels in same engine.Flex fuel gasoline / ethanol blendMulti fuel burn gasoline or natural gas / LPG / other (separate tanks and feeds).Engine control systemsEmissions control systems sensors, catalytic convertersExtension of existing technologies.Ability to take advantage of varying pricing/ availability of different fuels in different markets.Ethanol: renewable, reduced net greenhouse gases.

Ethanol: vehicle performance issues (e.g., lower mileage per volume, cold starting), infrastructure investment, impact on food costs.Multifuel: complexity, vehicle cost, infrastructure requirements (fueling, service).Fiat, GM, Automobile Manufacturer #5, Automobile Manufacturer #7, Honda, BMW, Acquired Company..., Automobile Manufacturer #3, etc.BoschEtc.

Ethanol: US economics driven by government incentives, break-through required in cellulosic ethanol commercialization. High potential in markets with appro-priate agriculture conditions and no oil (e.g., Brazil).Multifuel: This will remain a niche application in markets with high petroleum costs or uncertain gasoline/ diesel supplies.Diesel BiofuelsBurn crop-derived or other organic fuels with petroleum-based diesel.InjectorsEngine control systemsCatalytic converters / scrubbers, sensorsExtension of existing technologies.Reduce dependence on imported oil.Reduced emissions (with some exceptions).Leverage existing infrastructureLimits on the mix % (currently 5% in most engines).Potential impact on engine wear and performance.

Most / all diesel OEMs and suppliers.Widespread adoption likely, but limited impact due to practical limits on the percent of the fuel mix derived from biofuels.Example: powertrain alternatives (cont.)52 2009 Deloitte Touche Tohmatsu52TechnologyDescriptionSupporting TechnologiesAdvantagesDis-advantagesPlayers (Examples)Prospects (Deloitte Point of View)Gasoline Electric HybridsGasoline engine works with batteries and electric motor, either in series or parallel, to provide propulsion.Parallel gasoline and electric motors can both provide propulsion.Series electric motor(s) provide propulsion, gas motor drives a generator.BatteriesElectric motorsRegenerative brakingHigh current electrical systemsDrive controlsAuto shutoff / start (ignition systems)

Increased efficiency / mileage.Reduce emissions.Utilize existing infrastructure.

Cost, economics.Advantages primarily in urban driving.

Automobile Manufacturer #6, Honda, Automobile Manufacturer, Automobile Manufacturer #7, Automobile Manufacturer #5, GM, Chrysler, Daimler, Automobile Manufacturer #3, etc.Battery suppliersElectric motor suppliers

Hybrids currently represent about 1% of global sales. Within 10 years this may approach 10%, but unlikely to be much higher (barring major oil supply disruption or regulatory change). Economics and diminishing efficiency advantage over advanced gasoline and diesel will inhibit growth.Example: powertrain alternatives (cont.)53 2009 Deloitte Touche Tohmatsu53TechnologyDescriptionSupporting TechnologiesAdvantagesDis-advantagesPlayers (Examples)Prospects (Deloitte Point of View)ElectricElectric drive, driven by batteries or batteries + fuel cell or other power source. (Better Place is developing a removable battery which allows filling station-style replace-ment.)

BatteriesElectric motorsRegenerative brakingCVTDrive controlsPower management systemsHigh current electrical systems

Zero vehicle emissions.Reduced dependence on oil.

Vehicle performance range, drivingCharge time.Battery life, replacement costsHigh cost, economics.Infrastructure investmentsImpact on power grid.Battery disposal.LI sources.Automobile Manufacturer/Renault (with Better Place)ApteraBYDCommuter CarsDynasty Electric Car (Canada)ElBil Norge (Norway)Fly Bo (China)Fisker (US)Lightning Car Co. (UK)Miles Electric Vehicles (China mfg)Myers MotorsReva (India)Think (Norway)Twike (Switz)Tesla (US)Zap (US)Battery makersElectric motor manufacturersPE / VC firms

Economics and battery performance issues will continue to be major hurdles.Not a significant factor within the next 10 years. Limited to niche urban markets, areas / groups that are highly environmentally sensitive. More uses in commercial / mass transit applications.Example: powertrain alternatives (cont.)54 2009 Deloitte Touche Tohmatsu54Base TechnologyVariationsPower-trainChassisInteriorExteriorElectronicsClimateGasolineGasoline (advanced)Flex Fuel Multi FuelDieselDiesel (advanced)BiofuelsGasoline Electric HybridParallel Serial Diesel Electric HybridParallel Serial ElectricPlug In BatteryFuel Cell / BatteryAlternate Fuel Internal CombustionNatural GasLPGHydrogenIn scenario planning we consider cross-impacts55Disruption Potential on Current Technologies & SegmentsChanges in base powertrain technology will impact other auto systems. Understanding these correlations is important in crafting your overall growth / investment strategy for parts. 2009 Deloitte Touche Tohmatsu55Fundamental physics will affect technology evolution56Physical factors suggest the continued dominance of fossil fuels for the next 10+ years. 2009 Deloitte Touche Tohmatsu56Technology Example: maturity analysis57Relative Technology MaturityBusiness and Technical RiskFuel Cell / H2Electric SteeringRegener-ative BrakingVenture CapitalDevelopment PartnershipSupplier AcquisitionTypical Sources of Leading TechnologiesNew Battery Technol-ogiesLi-ion BatteriesOrganic BatteriesNew Combus-tion Technol-ogiesDifferent technologies at different stages of maturity carry different risks and investment requirements. New technologies may require different approaches to building or acquiring capabilities .TraditionalNon-Traditional 2009 Deloitte Touche Tohmatsu57Table of contents581The Global Automotive Industry Our Point of View2Creating Growth Strategy3M&A Considerations4Acquisition Integration5Supplier Network Development6Next Steps 2009 Deloitte Touche Tohmatsu58Opportunities to create value via M&A OEM level59Many OEM cross-border acquisitions of brands have been unsuccessfulBuyerAcquisition DateCurrent StatusAssessmentSuccessful AcquisitionsAutomobile Manufacturer #1Acquired Company...19XXIntegrated into Automobile Manufacturer #1 GroupHighly successful, Acquired Company... retains own HQ and identity but shares product platforms with Automobile Manufacturer #1BMWMini (part of Rover Group)1994Integrated into BMW in 2000 and operated as a sister brandBecame successful after the brand was brought into the BMW engineering and management processesDaimlersmart1994Integrated into Mercedes Car GroupStarted as a standalone JV with swatch; not successful until integrated into Mercedes in 2006RenaultDacia1999Integrated into RenaultMaintains own HQ and identity, but shares Logan platform globally with RenaultGM/ SAIC/ SuzukiDaewoo Auto2002Integrated into GM Asia-PacificIntegral to GM global product development and production networks; Daewoo brand generally discontinued outside KoreaMixed Success or UnsuccessfulAutomobile Manufacturer #1Acquired Company...19XXIntegrated into Automobile Manufacturer #1 GroupDifficulty establishing brand outside Spain, relatively high cost baseGMSaab1989Insolvent; agreement to sellMaintains own HQ and identify, shares platforms with GM/Opel, but cost structure/ exchange rate has limited successBMWRover Group1994Sold Land Rover to Ford and MG Rover to investors in 2000BMW was not able to overcome past brand problems and did not integrate RoverDaimlerChrysler1998Chrysler sold to Cerberus in 2007Never achieved synergies due to limited shared platforms or functionsFordVolvo Cars1999Attempting to sellMaintains own HQ and identify, shares platform with Ford, but cost structure/ exchange rate has limited profitabilitySAICSsangyong2004Insolvent; plant closed due to strikeAfter initial turnaround success, limited product range of large vehicles and poor labor relations have caused major disruptionToo Soon to TellNanjingMG Rover2005MG production re-started; Rover platform basis for Roewe brandSAIC appears to be using MG Rover to expand internationally

TataJaguar/Land Rover2008Operating as an independent subsidiaryDifficult timing for Tata with the downturn, but brands may strengthen with new products and technology transfer may be valuableFiatChrysler2009Fiat acquired a 35% ownershipFiat and Chrysler intend to introduce Fiat platforms and products into NAFTA as soon as possibleKoenigseggSaab2009Transaction being finalizedBusiness plans not known 2009 Deloitte Touche Tohmatsu59Opportunities to create value - OEMs60Cross-border brand acquisitions have typically fulfilled one or more of four strategic objectives for the buyerAccessNew MarketAcquireTechnologyAcquire aStrong BrandBuild ScaleCleansed ECC ClientGM/ Suzuki/ SAIC Daewoo Auto: low-cost small car designTata Jaguar/Land Rover: premium vehicle designSAIC Ssangyong: SUV and premium car designNanjing MG Rover: volume vehicle designTata Jaguar/Land Rover: luxury car and SUV brandsAutomobile Manufacturer #5 Acquired Company...: premium brandGM Saab: premium brandAutomobile Manufacturer #1 Acquired Company...: add volume to existing platformsRenault Dacia: build volume for a new low-cost platformFiat Chrysler: bring Chrysler products onto Fiat platformsStrategic ObjectiveTransaction Examples 2009 Deloitte Touche Tohmatsu60Opportunities to create value - OEMs61There have been some general patterns of success and failure in the examples of cross-border automotive brand acquisitionsSuccess patternsFailure patternsEffectively shared product platforms and leveraged procurement across brandsMaintained a high cost structure relative to brand price positioningMaintained sufficient brand uniqueness and a strong identity with the acquired brandWere unable to build upon and strengthen the brandWere able to leverage the acquired brand into new marketsExposure to currency fluctuations for high proportion of exports eroded margins for extended periodsDeveloped a cost structure which supported brand price positioningCultural challenges limited ability to work together and achieve synergiesSuccessfully matched leadership and management style and structure to the culture and needs of the businessWere unsuccessful in developing a management structure and process which achieved objectives 2009 Deloitte Touche Tohmatsu61Opportunities to create value - OEMs62Today, there are three primary alternatives for building a global automotive brand they will all require significant investment and risk, and acquisition success is unknownAcquire Standalone OEM (e.g., Acquired Company...)Acquire Dependent Brand (e.g., Hummer)Build New Global BrandConsolidate position in existing marketsIntroduce/grow brand in China marketDevelop low-cost production footprintExtend brand into new marketsSecure transition production support from sellerAcquire technology and hire/ contract product development capabilitiesDevelop models and prepare production for exportDevelop low-cost production footprintExtend brand into new marketsAcquire technology and hire/ contract product development capabilitiesEstablish/grow brand in China marketContract with distributors for export marketsDevelop models and prepare production for exportDevelop low-cost production footprintExtend brand into new marketsProsFastest route to growthBrand and products are known quantitiesFaster entry into existing marketsBrand is known and establishedCan design brand and image

ConsCould be prohibitively expensivePotential cultural/political issuesAcquire legacy problems (e.g., contingent liabilities, image issues)Need to develop vehiclesRequires investment in brand, engineering and facilitiesPotential cultural/political issuesWill take significant time to growMay not own distribution channelsRequires investment in brand, engineering, facilities 2009 Deloitte Touche Tohmatsu62Opportunities to create value - OEMs63There are a very limited number of OEMs or brands which can be considered as potential targets for acquisitionPotential TargetStand-aloneMarket Cap($US billion)Geographic Breadth2007 Vehicle Sales (Mils)HoldenPartialNAAustralia0.2Hummer*NoNANAFTA0.1Automobile Manufacturer #7Yes$3.7Global1.3MitsubishiYes$10.7Global1.3Opel (Europe)*YesNAEU1.3Saturn*NoNAUS/Canada0.3Acquired Company...PartialNAEU0.4SubaruYesNAGlobal0.6SuzukiYes$11.4Global2.4Acquired Company...*PartialNAGlobal0.5*Deal announced or pending 2009 Deloitte Touche Tohmatsu63Evaluation and prioritization of external market opportunities should consider each product segment and balance potential value creation with your companys needs

Developing a parts investment / acquisition strategySegment-Based Strategy QuestionsWhich product segments are most attractive?How and where will value be created in each product segment?What level of scale is needed to be competitive in the long term?What is the optimal global footprint?Which companies are most at-risk? Will their customers continue to support them? Are they an attractive candidate? Should we be interested?Do I need/want deal partners?Risks and Issues Specific to Your Company Globalization and your plans to expand outside China (or focus on China market)Access to new or expanded markets through your existing channels U.S./Europe/ Latin America/AsiaImporting and integrating technology (e.g. transmissions) back to Chinese market your current R&D efforts / know-how vs. future technology directionsHow to most efficiently capitalize on your China labor force and home market positionYour exposure to / ability to manage currency risksYour capabilities to integrate acquisitions, manage offshore entities / facilities64 2009 Deloitte Touche TohmatsuQuestions to answer as part of forming a M&A strategy.64Growth OpportunitiesConsolidation PotentialProprietary Technology PositionsRelative Market ValuationsPowertrainChassis/ MechanicalExteriorsInteriorsClimate ControlElectronics/ Electrical= High= Low= MediumGrowth-by-acquisition (roll-up) strategies should focus on one or two product families and consider long-term prospectsAssessing the market (cont.)Which product segments are most attractive?How and where will value be created in each product segment?What level of scale is needed to be competitive in the long term?What is the optimal global footprint?Which companies are most at-risk? Will their customers continue to support them? Are they an attractive candidate?Do I need/want deal partners?65 2009 Deloitte Touche TohmatsuProduct family attractiveness.. segment growth consolidation companies that have dominate technology positions price / availability of assets, company evaluations65Value DriversTechnology/InnovationUnique product or technology positioningOverall product segment growth potentialThere can be multiple sources of value creation this should be a key foundation for the overall business development strategyAssessing the market (cont.)Capacity Utilization/ScaleFacility consolidation potentialProduct design commonizationPricing LeverageAbility to maintain/improve customer pricingImproved sourcing leverageMarket & Customer AccessAbility to more rapidly enter new marketsPotential to leverage existing products to new customers66Which product segments are most attractive?How and where will value be created in each product segment?What level of scale is needed to be competitive in the long term?What is the optimal global footprint?Which companies are most at-risk? Will their customers continue to support them? Are they an attractive candidate?Do I need/want deal partners? 2009 Deloitte Touche TohmatsuSources of value in a segment should drive investment approach.66For most components, there will be a limited number of dominant suppliers, each with global coverage and the ability to invest in technology developmentAssessing the market (cont.)Production ScaleMarket ShareGeographic CoverageR&D ScaleSingle LineMultiple PlantsSmallestLargestLocal MarketAll MarketsSingle ApplicationMultiple TechnologiesSupplier A =Supplier B =Supplier C =67Which product segments are most attractive?How and where will value be created in each product segment?What level of scale is needed to be competitive in the long term?What is the optimal global footprint?Which companies are most at-risk? Will their customers continue to support them? Are they an attractive candidate?Do I need/want deal partners? 2009 Deloitte Touche Tohmatsu67The optimal global, regional and local footprint will be determined primarily by the type of product produced and the customer portfolioAssessing the market (cont.)AsiaEUNAFTAROWProduct transportabilityCustomer locationsProduction cost structureLocal supply base capabilitiesPolitical stabilityCultural fitExample Footprint Evaluation Criteria68Which product segments are most attractive?How and where will value be created in each product segment?What level of scale is needed to be competitive in the long term?What is the optimal global footprint?Which companies are most at-risk? Will their customers continue to support them? Are they an attractive candidate?Do I need/want deal partners? 2009 Deloitte Touche Tohmatsu68Stronger suppliers are gaining business at the expense of weaker competitors; it is critical to understand the competitive positioning of a potential acquisition targetAssessing the market (cont.)Powertrain Supplier ProfilesSupplierFinancial RatingStrategic RatingN.A. Exposure RatingD/CSM Health RatingSupplier 1 30 75 77 58 Supplier 2 20 15 23 20 Supplier 3 75 60 68 69 Supplier 4 20 58 59 43 Supplier 5 100 80 50 76 Supplier 6 30 60 97 63 Supplier 7 10 73 40 34 Supplier 8 90 45 0 45 Supplier 9 15 48 53 37 Supplier 10 5 58 40 29 Supplier 11 80 80 83 81 Supplier 12 15 43 59 38 Supplier 13 48 53 47 48 Supplier 14 30 63 47 43 Supplier 15 10 50 43 31 Supplier 16 10 38 49 31 Supplier 17 20 68 77 52 Supplier 18 55 65 68 62 Supplier 19 25 13 24 22 Supplier 20 50 23 0 25 Supplier 21 15 55 73 46 Supplier 22 100 50 100 90 Supplier 23 35 63 58 49 69Which product segments are most attractive?How and where will value be created in each product segment?What level of scale is needed to be competitive in the long term?What is the optimal global footprint?Which companies are most at-risk? Will their customers continue to support them? Are they an attractive candidate?Do I need/want deal partners? 2009 Deloitte Touche Tohmatsu69One strategy could be to acquire an existing strong supplier as the roll-up platform; however, banks and private equity investors (PEIs) are also possible partnersAssessing the market (cont.)Exhaust Manifold Supplier ProfilesSupplier Country HQOwner-ship Major Shareholders Market Cap ($M) Supplier AJapan Public Automobile Manufacturer (47%) $168Supplier BJapan Public Automobile Manufacturer #6 (22%) $4,040Supplier CUSA JV Emcon (50%)/Sango (50%) -Supplier DGermany Private Family owned -Supplier EJapan Public Automobile Manufacturer (42%) $285Supplier FChina Public $145 Supplier GGermany Private Family owned -Supplier HUSA PEI One Equity Partners -Supplier IFrance Public PSA (72%) $321Supplier JChina JV Lioho (55%)/Sumitomo (45%) -Supplier KPortugal Private Fiat/Teksid (84%) -Supplier LUSA Public $12 Supplier MJapan Public Hitachi Ltd. (54%) $9,780 Supplier NJapan/USA PEI Asahi Tec - 100%$155Supplier OFrance PEI Zen Group (Italy)-Supplier PUSA Private Wescast (49%) (minority bus) -Supplier QCanadaPublic LeVan family (majority) $11 BanksPEIsStrong SupplierPotential Partners?70Which product segments are most attractive?How and where will value be created in each product segment?What level of scale is needed to be competitive in the long term?What is the optimal global footprint?Which companies are most at-risk? Will their customers continue to support them? Are they an attractive candidate?Do I need/want deal partners? Is a JV preferable to an acquisition? 2009 Deloitte Touche Tohmatsu70There is an enormous range of uncertainty and choicesin todays parts market71

Base TechnologyVariationsGasolineGasoline advanced Flex Fuel Multi Fuel DieselDiesel advanced BiofuelsGasoline Electric HybridParallel Serial Diesel Electric HybridParallel Serial ElectricPlug In BatteryFuel Cell / BatteryAlternate Fuel Internal CombustionNatural GasLPGHydrogenDirection of base fuel and powertrain technologyImpact on other part families / vehicle systemsChanges in powertrain and other technologies will create opportunities in many different auto systems / parts families. 2009 Deloitte Touche TohmatsuLots of technology change, but not only in powertrain. The choice of different base engine technology ripple through the entire vehicle, creating changes and opportunities in other product families.71Table of contents721The Global Automotive Industry Our Point of View2Creating Growth Strategy3M&A Considerations4Acquisition Integration5Supplier Network Development6Next Steps 2009 Deloitte Touche Tohmatsu72Our insights come from assisting clients in over 600 post-merger integration and separation situations73Auto & ManufacturingHi Tech & FinanceProcess & Life ScienceChina & Consumer ProductsAutomobile Manufacturer #5HP acq. of CompaqDow acq. of Union CarbideNanjing Auto acq. of MG RoverAutomobile Manufacturer #5 HP div. of AgilentExxon merger with MobilLenovo acq. of IBM PC businessGeneral Motors div. of DelphiSprint acq. of NextelChevron acq. of TexacoJ&J acq. of DabaoGeneral Motors acq. of DaewooAgilent Technologies div.of AvagoPharmacia acq. of MonsantoPharmaceutical Preparation Manufacturer #2DaimlerChrysler div. of MTUBrocade acq. of McDataBP acq. of AmocoBayer div. of medical diagnostics business to SiemensMitsubishi div. of FusoSun Microsystems acq. of StorageTekMonsanto div. of SolutiaJ&J acq. of Pharmaceutical Preparation Manufacturer #2 consumer businessGoodyear div. of Engineered Products businessActivision acq. of Vivendi games businessDomtar acq. of Weyerhaeuser paper businessNomura acq. of Lehman Bros. AsiaHill-Rom div. of HillenbrandAdobe acq. of MacromediaCargill acq. of Degussa HulsPetroChina acq. of PetroKazakhstanArcelor acq. of CorusJP Morgan acq. of ChaseBayer AG acq. of Schering AGUnilever acq. div. of BirdsEyeBoeing acq. of McDonnell DouglasFirst Data Corp. acq. of Western UnionBayer acq. of Roche consumer health businessKraft acq. of Danone biscuit businessRockwell Collins acq. Of Kaiser AerospaceCredit Suisse acq. of First BostonPhilips Medical acq. of Agilent Technologies Nestle acq. of DreyersAuto Significant China componentEXAMPLES 2009 Deloitte Touche TohmatsuDeloitte has very extensive M&A experience, including helping companies integrate acquisitions.Our experience includes auto (incl Chrysler and Fiat). And China (incl Hebei Steel, Baosteel). Failure to integrate successfully is one of the key sources of failure to realize value and meet integration targets.

7374The key challenge in any acquisition is the ability to successfully execute across multiple dimensions, balancing a compressed timeframe while maintaining business as usual activities.Rapidly capture cost and revenue synergies

Streamline organization structure and critical business processes

Minimize disruption to customers

Execute an issue-free transition

Maintain focus and current business momentum

Retain key people and talent, transfer key technologies and capabilitiesSynergies, post-merger, not achieved in 70% of cases

45% of executives leave by the third year

Customers see and are frustrated by change

First 4 to 8 months productivity reduced by 50%And building a strategic platformNew customer value proposition New processesNew organization How do you deliverbenefits..Personnel reductionSourcing/PurchasingFacilities consolidationWhileintegrating. Systems CustomersManagementChannelsProcesses Employees Without negativelyimpacting..CustomersChannelsEmployeesShareholdersFinancial performance Source: *Deloitte Consulting M&A survey; DC analysisThe Principal ChallengeAreas Impacted Desired Outcomes*Typical ResultsOur perspectives on acquisition integration 2009 Deloitte Touche Tohmatsu7475PMO Launch2 to 4weeks8 to 26weeks1 to 4weeksPhase 1Integration BlueprintStrategic imperative for integration delineatedIntegration structure and management processes implementedDay 1 priorities identified and successful launch definedCost and headcount baseline for synergy review and budgeting completedLevel 1 organization design and Level 1 leadership definedEstablish location consolidation decision frameworkCustomer integration approachEnd-state guiding principlesTop - down functional synergy targetsAdopt and Go decisionsBrand and product plans for launchLevel 2 and 3 functional leadership assignedDay 1 policies, initiatives and processes (customer, R&D, finance)Functional integration plansSynergy initiatives and integration costsCompensation, titles and benefit rationalizationProduct roadmapBrand initiativesExternal and internal communicationEconomic development incentive negotiationsCustomer facing resource trainingCustomer and employee retention initiativesRapid customer team integrationSuccessful Day 1End-state planning integrated with synergy plans and integration costsFinancial plan integrated with synergies and integration costsFinancial process controls implemented IT integration and rationalization Real Estate consolidationIntegrated HR modelRationalized product portfolioHeadcount targets achievedSourcing benefits achievedBLUEPRINTCLOSELA UNCHPhase 2Detailed PlanningPhase 3ImplementationPhase 4End-State12 18monthsKey to success follow a structured processThe typical integration roadmap has four phases Our perspectives on acquisition integrationDay 1 2009 Deloitte Touche Tohmatsu75Key Messages:The integration roadmap follows a structure 4 phase approach to make this integration successfulPhase 1 Integration Blueprint: 21 day effort to develop the integrated end state vision and identify must haves for Day 1; PMO is also established to establish the appropriate structure to support the success of the integrationPhase 2 Detailed Planning/Prototyping: 5 month effort to develop detailed functional and synergy plans to prepare for Day 1Phase 3 Day 1 Implementation: Begin to legally operate as one company; implement Day 1 must havesPhase 4 Day 100 & Day 1 Year implementation: Implement more complex functions/processes to achieve the End State vision

Carve-out transactions offer a unique set of opportunities and risksCarve-outs represent a different risk profile than other types of M&A transactionsIdentification and understanding of shared functional support is required to develop standalone requirementsTransition periods during which the two entities transition to standalone operations often involve complex and far reaching functional activityCreation of stand-alone infrastructure of corporate functions from scratch is required to replace functions and processes previously provided by the corporate seller Critical knowledge of business operations and functional processes are often left with former parentCarve-out risksInsufficient pre-deal diligenceUnderestimating complexity, cost, and timing of separation, and establishing stand alone infrastructure and capabilitiesOver- or under-reliance on transition service agreements (TSAs) or insufficient TSA drafting attentionBuilding standalone capabilities appropriate to the carve-out entityCarve-outs create opportunities to significantly improve financial and operational performance for the new stand-alone companyBuyer can optimize tax and legal entity structure tailored to the operating model of the stand-alone entityBuyer can design and configure the infrastructure, geographic footprint, and corporate functions to the specific size and needs of the stand-alone entity, often eliminating corporate overhead taxes that the divesting entity allocates to its business unitsOur perspectives on carve-outs (like Opel from GM)Speed is critical both to minimize transition service costs and to take advantage of the window for change. 2009 Deloitte Touche Tohmatsu7677Deloitte has identified six leading practices for post-acquisition planningOutcomesIntegration ChallengesLeading PracticesStart with the End in MindBlueprint for the futureEstablishing a common understanding of integration objectives among stakeholdersEnergy consumed on positioning and politicsUpfront established a clear integration strategy and rationaleDeveloped detailed blueprint which defined end state vision by function, high level org design within first few weeks Clearly defined decision making protocolLaunch Command and Control Integration ProgramWho is doing what with whomMaintaining current momentum, Day 1 needs, synergy capture and longer term migrationCo-chief Integration Officers; two in a boxCapitalizing on best practices of both companiesCentralized command and control Program Management Office (PMO ) with clearly delineated decision making process/authority Did not use integration as a re-engineering or re-architecting effort used adopt-and-go Disciplined decision making and executionEmployed clean teams for key sensitive areasSelected strong functional leads supported by centralized PMOFocus on an Issue-FreeDay 1Some assembly requiredDistinguishing mandatory and nice-to-havesPreventing market disruptionBalancing a multi-year transition with Day 1Identified list of must-have requirements for Day 1 from a customer, employee, back office perspectiveBifurcated integration effort to focus first on Day 1 and then longer term integrationExpand and Front-Load SynergiesSynergies MatterJump starting synergy capture within regulatory constraints Identifying who owns what and how is it measuredManaging synergy leakageTargeted 30% to 50% above expectationsDocumented and managed top-down/bottom-upsynergy targetsRigorously managed synergy trackingPlan Customer Strategies Before Day 1Hearing the voice of the customerPreventing customer attrition (consumer and dealer)Meeting customer requirements Day 1Disparate sales approaches and productsIntegrated from the customer in and communicated early onCreated customer playbooks and ensured no let up in customer experiencePerformed a comprehensive review of customer contractsCreated a unified sales and customer approachRetain Key Talent

Its always personalStabilizing the workforce segmentsRetaining key personnelCreating a fair selection process Creating 3600 communications program to protect corporate reputation and drive delivery on the value proposition..Developed a clear, fair, workforce transition processOrganization charts with clearly identified reporting lines Early integration of Total Rewards programs and HR policiesSelective retention bonuses and rapid knowledge transferDetermined communication needs/barriers (pre Day 1, Day 1 and post day 1)Developed an integrated communications strategy and key messages for all stakeholders123456Our perspectives on acquisition integration 2009 Deloitte Touche Tohmatsu7778Degree Of Integration & ControlKey PrinciplesVision & StrategyRisks & IssuesProgram ManagementSynergy BenefitsKey MilestonesIntegration Blueprint

At the heart of the merger blueprint is an agreed end state view1. Start with the End in Mind: Integration Blueprint: The integration blueprint defines the overall integration strategy and scope for Day 1 and End StateWhy are we merging?Is there an aligned view of how we achieve the strategy?What is the design for the organization on Day 1? After 12 months?How will we communicate the strategy?What are the sources of benefits?Where are there cost reductions?What is the target revenue growth?What is the value and blend?Who owns the benefits?How can they be tracked and measured?How will the programbe structured?Who are the key managersrunning the program?What is the decisionmaking process?What are the key program milestones?What has to be in place forDay 1? In 30, 60, 90 days?How can the program be accelerated?What issues/risks must be answered now?What decisions have to be taken now?What do people have to do to respond?To what degree will the two organizations be integrated?What parts will be kept separate and for how long?If the acquired organization is to be maintained as a separate entity or unit, how will the acquirer ensure control (mechanisms and degree).What are the guiding principles?How much focus is on program priority vs. business as usual?What are the principles for employee selection?What are the key priorities?To what degree of openness and information access is each organization comfortable?Our perspectives on acquisition integration 2009 Deloitte Touche Tohmatsu78Governance is typically a big issue in China.

792. Launch Command and Control Integration Program (Integration Team Structure): A focused integration team structure and approach is critical to manage the effortCoordinate integration of individual functionsDrive savings identification, business design, and implementation planningFocus on operating issues and concernsCoordinate all integration activities across functionsDrive savings identification and captureResolve transaction specific issuesSet direction integration strategy, priorities, synergy mergers and timingResolve major issues, identify and address risksSign-off on major decisions and communications Cross-Functional TeamsFinance and TaxFunctional Integration StreamsManufacturing andOperationsHumanResourcesOtherInformationTechnologySalesandMarketingChief Integration OfficerCIMOSteering CommitteeDay 1 ReadinessSynergy Capture(including Clean Room) Other Transaction Support (legal, regulatory, etc.)Organization Development and SelectionChange, Communication and CultureOverall ResponsibilitiesIntegration Team StructureOur perspectives on acquisition integrationChairman, CEO, Top Management 2009 Deloitte Touche Tohmatsu79Create what we call an Integration Program Office. dedicated resources focused on integration issues temporary structure

80Day 1Day 1 Vision(set out in the Blueprint)Day 1 Checklist (by Workstream)BusinessUnitDay 1 PlansFunctionDay 1 PlansMandatoryNice to HaveDeferThe principal focus on Day 1 lies with enabling Workstreams e.g. IT, HR. All Workstreams will require Day 1 plans.Day 1 activities are prioritized according to business necessity i.e. compulsory to be in place for Day 1. 3. Focus on An Issue Free Day 1: A single face to the market, employees, customers, and regulators is required while meeting legal, regulatory, and financial control requirements.Coordinate all integration activities and develop integration playbook Define Day 1 must-haves from corporate levelEstablish integration team structure Manage internal and external communications Manage execution of prioritized Day 1 activitiesTransition to post Day 1 business as usual activitiesKey marketing processes that will be affected by the merger are identified: Pricing, Promotion planning, Product/brand management, Marketing program managementExisting levels of autonomy between sales and marketing identified.High level strategy for brand integration / management

Key messages to all stakeholdersRetention plan agreed and messages formedPayroll transfer in placeSeverance policy agreedRetention and incentive plans in placeKnowledge transfer processes in placeDefinition of total rewards and HR policy integration planInitial choreographed employee experience activitiesClear cut-over plan in placeMonth-end financial and management reporting process in placeDay 1 organization roles and responsibilities definedDelegated authorities agreedDisbursements and Receivables integrated at macro levelRegulatory and SOX and tax requirements completeCompliance requirements complete

Link inter-company firewalls, access controls, email, and websiteTelephony and data networks integratedAdministration and application support processes in place with proper controlsDefine help procedures and linkagesLink email and other employee systemsCorporateSales and MarketingHRFinanceTechnologySupply chain priorities and key levers for Detailed Planning and Quick Win Execution timeframesQuick hit plan for sourcing and procurement synergiesPre-integration supply chain operating procedure (high level playbook)Synergy plans and operating strategy for sourcing, operations, and distribution.Manufacturing and OperationsRollout of customer and partner Question and Answer document/webpageCustomer experience model defined which describes Day in the life of a customer at Day 1. Day 30, Day 90 etc. Updated point of contact information, policies and procedures communicated to customers and distribution networkSales summit conducted with sales forceImmediate customer service level requirements and issues identifiedWeb sites linked and re-branded accordinglyCustomer ExperienceReal Estate / FacilitiesObtain buy-in from real estate and facilities stakeholders for the initial 3 week planGather internal data through interviews and workshopDevelop real estate portfolio databaseInventory any real estate transactions and capital projects in processInventory facilities and site services vendorsDevelop baseline costDefine Day 1/Day 2 priorities of business requirementsIdentify implementation optionsOur perspectives on acquisition integration 2009 Deloitte Touche Tohmatsu80Successful Day 1 avoid business disruptions customers are unaffected, products, services, orders, cash all continue to flow employees know what to do dont lose talent

814. Expand and Front-Load Synergies: Several keys tools and methodologies exist to drive cost synergy, depending on timing and urgency. Cost Synergy Framework(Estimated Percentage of Operational Expenditure Baseline) Purchased Goods & Services (~30%)Facilities (~20% )Staff Functions (~10%)HRFinanceITSales and MarketingBusiness processes within BUs (~40%)Manufacturing and OperationsInformation TechnologyHuman ResourcesOrganization SimplificationReduce headcount by simplifying and streamlining the organizationTypical Savings: 10~25%External Spend ReductionEmploy demand management, sourcing and tax strategies to reduce procurement costsTypical Savings: 5~15%Business Process OptimizationReduce process-based costs via adopt and go, streamlining, automation, outsourcing and redesignTypical Savings: 5~20%Infrastructure RationalizationRationalize projects, platforms, space and associated supportTypical Savings: 10~20%Marketing(Other)Our perspectives on acquisition integration 2009 Deloitte Touche Tohmatsu81Aggressive targets for synergies. Both time and size. Take opportunity of window for change.

825. Plan Customer Strategies Before Day 1: Protecting and growing the customer base is critical to delivering the business value promisedPlanStabilizeGrowWhenImmediatelyPrior to and through Day 1During integration period and beyondWhatAnalyze customer base and create profiles:Products/services boughtHistory and relationshipGeographiesRevenue and margin realizedIssues and risksSwitching costs and competitive playsDeal benefitsDevelop playbook per profileImplement retention playbook for each profileFrequent and consistent communication to customersNerve center to coordinate, track and refine messaging, monitor and respond to competitor initiativesResources prioritized to match customer value/risk profilePrepared positions to respond to anticipated situations (e.g., pricing arbitrage) depending on client profileIdentify and prioritize specific cross-sell opportunitiesCreate incentives for cross product line cooperationTrack and publicly reward desired behaviorsMigrate to cross product line client relationship teams for most significant customers and targetsHowBusiness leads drive profile developmentSubset of clean teams handle customer data, with firewalls as neededUse existing sales/relationship teams as much as possible, but deal with competing teams immediately at closeCreate mechanism for senior management support as specific flight risk issues arisePost close, move as quickly as possible to a unified syntax and approach to customer management, encoding best practices from each organizationOur perspectives on acquisition integrationFor automotive deals, these strategies should include dealers and service networks as well as consumers in different markets. 2009 Deloitte Touche TohmatsuDefine customer strategies: consumers dealers

82836. Retain Key Talent: Retention of critical talent, design of the new organizational structure and open communication are key to managing the people transition and stabilizing the workforceInputsEnd-state org vision, including financial and operational goalsGuiding principles for integrationSynergy targetsTwo separate organizations, cultures, operating models, and geographic footprintsBaseline headcounts, HR policies, and compensation/benefits programs Regulatory constraints and notice period requirements by locationOutputsStreamlined, integrated organizationRedundant positions releasedClear responsibilities and reporting linesRetention and effective deployment of top talentOrganization DesignDefine end-state org structuresSet staffing levels by LOB/ function and geographyDevelop position descriptionsCritical Talent RetentionDevelop short, medium, and long-term retention strategyDevelop criteria for identifying top talentEstablish and manage talent listsCreate financial and non-financial retention programsSelection/DeselectionDetermine selection approachIdentify Unaffected positionsAffected: work elimination, staff reduction, job restructuringDevelop assessment approach and toolsDraft candidate slatesFill slotsNotify employees of individual status Track outcomesDevelop training plans to support transitionSeparation Develop severance packagesTransition work to remaining employeesPrepare systems to process increased separation volume DeploymentConfirm reporting and stakeholder relationsRelocate departments/ individuals as neededConfirm overall resource deploymentHR Policies and ProgramsCommunicationIntegrate comp/benefits programs (including titling/leveling)Standardize performance/career managementCommunicate openly and promptly on selection processand progressSpeed and timing of employment release is important Headcount reduction represents a significant portion of total integration savings; tight PMO management of the people transition is needed to meet merger targets; it is vital to understand the relevant labor laws and union contracts in each market and business unitFrequent and transparent communications around staffing process are critical for remaining employees to commit to the new organizationManagement of People TransitionKey ConsiderationsOur perspectives on acquisition integration 2009 Deloitte Touche Tohmatsu83Maintain momentum as the new organization integrates employees across multiple geographies, operating models and culturesLaunching a stand-alone Opel presents both opportunities and risks

Deloitte is uniquely positioned to assist in this endeavorPotential OpportunitiesAbility to rapidly leverage and develop leading product development capabilities and technology into your companyPlatform to build a major new brand in the China market and throughout AsiaAbility to reshape and grow a major European icon into a more global brandOpportunity to create a more competitive player in the European automotive marketplacePotential RisksMaintaining focus on ongoing operations during the transitionAligning people to the future operating visionDeveloping a comprehensive understanding of Day 1 transition items to prevent risk of business interruptionRetaining key talent, establishing appropriate controls over acquired operationsProperly structuring and managing post-closing arrangements with General Motors (engines, common parts, intellectual property, transition services, others)

Significant Automotive ExperienceOver 2,000 industry-focused resources world-wideExtensive functional depth and expertise, including global network of specialistsExperience in divestitures to both Strategic and Private Equity InvestorsSupported the separation of Jaguar and Land Rover, Automobile Manufacturer #5s acquisition of ACH plants from Visteon, as well as many other carveoutsLeading Carve Out PracticeOver 700 previous transaction experiencesRecognized divestiture market leaderGlobal network of experienced resourcesBattle Tested divestiture toolset, accelerators and project management capabilitiesIntegrated change management (Worlds 2nd largest Human Capital practice)The separation of Opel into a stand-alone entity brings both significant opportunities and risksOur perspectives on acquisition integration 2009 Deloitte Touche TohmatsuMajor opportunities:Grow Opel in ChinaReduce Opels cost structure by establishing China mfg.Opel technology helps other ___ wholly-owned brands growMajor challenges:GovernanceOperating in different countries with different legal and business practicesReally getting costs outPeople and cultural differencesThere are many examples where people and cultural differences caused mergers to fail. Cross-border acquisitions are particularly tricky (e.g., Daimer and Chrysler). But it is not impossible, there are positive examples (e.g., GM and Daewoo).84Separation will raise operational transition questions in nearly every functional areaProduct DevelopmentHow will engineering resources be shared and managed for development of common platforms? What happens to common platforms if GM sells additional brands?How will engineering/ design changes be managed for common parts?How will new IP generated on common development efforts be addressed?FinanceWhich Finance services will be provided to Opel during the transition? How will Opels payables be isolated within payments made to a common supplier?Will Opel have to recreate some of GMs Finance systems and processes (stand-alone controls, policies and compliance requirements for the new organization)Systems and ITHow are the application licenses being addressed?How will any updates and maintenance to the applications be managed?How will the IT costs be allocated? Materials, Planning and LogisticsWill GM transportation and logistics contracts be assigned to Opel?Will communication (e.g. EDI) links to suppliers and customers have to be re-established?Manufacturing & QualityWhat restrictions on use of IP may prevent future/geographic development?How will supplier quality tracking and evaluations be done for shared suppliers?PurchasingHow will common tooling be assigned? How will capacity allocated for shared parts?Which supplier contracts will be assigned to Opel? Which will need new contracts? Who will manage the relationship with common suppliers during transition?What special requirements need to be addressed for distressed suppliers?

Marketing, Sales and ServiceWhat is the message going out to dealers, customers and media?What services does GM provide in planning incentives and sales programs?How is communication to customers and media being coordinated?CreditHow will ongoing retail financing for vehicles work? Should Opel make changes to the wholesale financing structure?Facilities and PropertyWhat is the approach for shared facilities and for segregation?Which services would need a reverse TSA from Opel to GM for shared facilities with Saab?Human ResourcesHow will the new organization being designed for the stand-alone company?What new skill sets must be recreated within the new organization (treasury, tax, legal, others?)How will secondees be managed between GM and Opel?AftermarketHow will GM SPO support Opel during the transition? How are common service and aftermarket parts being managed?How will warranty costs and recall campaigns related to pre-separation products be managed post-Day 1?Legal and RegulatoryWhat are the lobbying and regulatory services that Opel participates in with GM? Saab? How will Opel ensure its needs are addressed during the transition?How does GM Corporate Legal Counsel support Opel? How can this capability be replaced?Our perspectives on acquisition integration 2009 Deloitte Touche TohmatsuParticular challenges for Opel and ____:Product: maintaining strong Opel product development and European brand characteristics and imageFinance: managing a global finance network, including exchange rate risk and foreign tax requirementsPurchasing: leveraging common sourcing without compromising Opel brand characteristics; shifting sourcing base to China while maintaining qualityIT: extent of integration, languageMarketing and Sales: maintaining relationships with Opel dealers different than in ChinaHR: retain talent, harmonize performance measurement and reward systemsAftermarket: how to support older Opels on the road? Warranty costs, current and in the future. Deloitte has significant large-scale carve-out experience and is prepared to assist with the Opel acquisitionSample ClientsHighlightsIssue Free Day 1Automobile Manufacturer #5 and Jaguar Land RoverSupported in the creation of a standalone entity over an 11 month periodEnabled a successful Day 1 and launch. Provided continued support with the separation projects to exit TSAs.

Automobile Manufacturer #5 and Automotive Components HoldingsSupported in the creation of $1 billion per year Service Level Agreement and developed an organisational structure of purchased services and temporary leased employees Supported successful Day 1 and Launch and on-going strategic plant divestituresGeneral Motors and DelphiEnabled successful IPO by achieving divestiture milestones ahead of scheduleDeveloped and supported work plans to guide design, modification, testing, and installation of information systems and data modified to support standalone OrganisationDaimlerChrysler and MTUDeveloped an integrated separation work plan, including prioritization, cross-functional linkages and key milestones, for the sale of a $2B company to Private Equity InvestorsMapped the manufacturing order-to-delivery supply chain process improvements into the post-separation environment Agilent Technologies and AvagoAccelerated the separation and functional carve out and stand up of semiconductor unit, reducing time to Day 1, and reducing the reliance on TSAs for sale to Private Equity InvestorsLed the carve out and selective outsourcing across 40+ countries and legal entitiesIBM and LenovoSupported the $10B carve-out and integration of IBMs PC business to LenovoEstablished a global operating model in 66 countriesCreated a new finance and accounting organisation and supported change readinessBayer Healthcare and SiemensLed the successful carve-out of a 4.2 billion ($6.1 billion) transaction with ~6,000 employees Led carve-out activities in all major functional areas including IT, Finance, Human Resources, Regulatory, Research and Development, Manufacturing, Distribution, ProcurementOur perspectives on acquisition integration 2009 Deloitte Touche Tohmatsu86Small, dedicated, senior team that works very collaborativelyOperationally knowledgeable

Transaction SummaryTransition Scope and approachAutomobile Manufacturer #5 divested Jaguar Land Rover (JLR), a $16 billion business unit, in 2008 to Tata Motors, an Indian automotive company. The divested business was a significant and integrated business unit of Automobile Manufacturer #5, requiring a complex carve-out of business and IT operations. The carve-out included over 16,000 employees and 27 National Sales Companies (NSC) covering over 120 countries.Deloitte led the Overall Separation Planning, focused on delivering a successful Day 1 and a charting the path for JLR to eliminate Automobile Manufacturer #5 dependence and become a standalone subsidiary of Tata Motors. The approach included the following:Global program office coordinated and managed the separation planning, TSA set up and development and Day 1 Readiness Developed detailed functional blueprints for 13 business functions covering over 2500+ processes and 27 National Sales Companies (NSC)Regional Teams spanned the globe focusing on all aspects of NSC separation planning and post-close execution activitiesDeveloped and supported work plans to guide design, modification, testing, and installation of information systems and data modified or cloned to support standalone organizationDeveloped the Day 1 validation process, across functions for 8 business process scenarios and 3 different business units across all geographiesLed end-to-end Global validation workshops with over 100 participants testing critical Day 1 validation scenarios and operated Global Day 1 Launch CentreExecutive Team fully engaged in transition efforts with direct reports on a weekly basis to the Board

Applicability to OpelMany of the challenges of separating JLR from Automobile Manufacturer #5 are very similar to those which will occur with OpelDeep familiarity with the complex connections between the organizations, along with lessons learned from the JLR separation provide for a more orderly, efficient and lower-risk transitionSelected resultsDeloitte delivered an Issue Free Global Day 1 with no disruption to Automobile Manufacturer #5 or JLR business operations. Day 1 was completed in less than 45 business days after deal announcement. Managed separation of 27 National Sales Companies, across multiple business entities tracking 54 Day 1 and 80 Separation projects (including Project Charters, detailed Project Plans, and Resource and Cost Estimates). Led development of over 200 TSAs supporting 1000 processes. Developed new processes to plan, budget and manage the execution of $100M in annual Engineering Transitional Services over a 5-7 year period .

Case Study Automobile Manufacturer #5 Divestiture of Jaguar-Land Rover Our perspectives on acquisition integration 2009 Deloitte Touche Tohmatsu871Our Understanding2The Global Automotive Industry Our Point of View3Our Perspectives on Acquisition Integration4Supplier Network Development5N. American Market6Next Steps 2009 Deloitte Touche Tohmatsu88Assuring overall competitiveness of the network, now and in the futureTechnology and product development directionCostFinancial healthInnovationAssuring appropriate supplier base diversity and balance of powerConcentrationPricing

Assuring appropriate relationship with suppliersInvestment of time and effortJoint developmentInformation sharingAvoiding network conflictsMeasuring and managing supplier performanceDifferent expectations and metricsDifferent rewards and incentivesOrganizing the internal sourcing and procurement function for the best resultsGlobalFocused supplier contactsLeveraging volumesManaging time and prioritiesSpending time with the right suppliersSpending time on the right thingsChallenges in developing the supplier network89There are never enough time or resources to spend with all suppliers by necessity OEMs must prioritize. 2009 Deloitte Touche TohmatsuSix challenges in developing supplier network:Competiveness cost and technology, speed, etcDegree of concentrationRelationship extent of sharing plans, technology, financial investmentManaging performanceAppropriate organization structure and talent in your internal procurement organization to manage the supply networkTime

89Clear strategy and priorities for supplier networkStructured approachAppropriate organization structureCapable peopleSupplier categorization, different levels of engagement and investmentComprehensive, tailored performance measures and supporting IT systemsCommunication, internally and externallyCommitment to the program and to strategic relationshipsKeys to success90Developing a world-class supplier network takes time. Commitment and building trust with key suppliers are important requirements 2009 Deloitte Touche TohmatsuWe have done a lot of work of this type globally and in China, for auto mfg and for other industries. (In 2008 we had discussions of this sort with another China auto OEM facing the same issues.)In our experience we have seen 8 keys to success for successfully managing a complex supplier network90Developing and managing an automotive supplier network requires a structured approach91Foundation: Design and BuildDefine Supplier CategoriesDefine Supplier Engagement ModelDesign and Build Procurement OrganizationDesign Supplier Management ProcessesDesign Sourcing & Procurement TechnologiesExecuteDefine Supplier Performance MetricsCategorize SuppliersDevelop a Transformation RoadmapChange Organization, Assign ResponsibilityDevelop Talent Measure Supplier PerformanceEngage Suppliers, Manage Individual Supplier PerformanceReview and Manage Supplier Portfolio 2009 Deloitte Touche TohmatsuHigh level process picture

(add chevron on supplier portfolio update)91Define supplier categories92Strategic Importanceof Product or ServiceMarket Concentration / ComplexityGroup 2Group 1Group 3Level 3Level 2Level 1Level 1: These suppliers provide business critical components (or services). Products are non-commodity, relatively few suppliers exist. Products are important to end vehicle performance and differentiation. Technology innovation and product performance are extremely important. Very high switching costs for these suppliers. Relationships tend to be global.Level 2: These suppliers provide components (or services) on a long-term basis. Products are non-commodity, but there are more choices of suppliers. Products are important to end vehicle performance but are not a major source of differentiation. Technology innovation and product performance are important but must be balanced with cost competitiveness. Relationships tend to be long term, but switching is possible. Relationships can be regional or global.Level 3: These suppliers provide components (or services) on a medium-term basis. Products are commodity, with some customization or value add. Cost competitiveness is the major consideration, while technology and product performance must be on par with competing vehicles. Relationships tend to be medium term, regional or country level. Switching is possible.Example (Heavy Equipment)Others: These suppliers provide components (or services) on a contractual or transaction basis. Products are commodity, with little or no customization. Cost competitiveness is the major consideration, with acceptable quality and performance. Relationships tend to be regional or country level. 2009 Deloitte Touche Tohmatsu92Define supplier engagement model93Business RelationshipComplete Ownership (Vertical Integration)Partial Ownership (Keiretsu)Joint Ventures / PartneringExclusive, Long Term ContractsTransactionalAutomobile Manufacturer #5 1914Automobile Manufacturer #6Automobile Manufacturer, MercedesAutomobile Manufacturer #5Chrysler 1970Relentless focus on cost.Broadly diversified supply base.Internal technology / product developmentBalanced performance measures.Focused supply base.Shared technology / product developmentEngagement DimensionsTechnology developmentJoint product developmentJoint marketingFacility planning / locationValue addComponent designSupplier manufacturing processLogistics integration / JITCost managementDelivery performanceQualityOEMs typically use a mix of engagement models for different component categories. The trend is toward the middle of the spectrum. 2009 Deloitte Touche TohmatsuSpectrum of possible relationships.Far right: Automobile Manufacturer #5 in the early 20th century, some Russian companies in 50s and 60s. This is a vanishing model.Today Automobile Manufacturer #6 is probably furthest right in terms of outright equity relationships with their suppliers.Far left purely transactional, cost-based relationship. Also vanishing.Trend is toward the middle.OEMs use a mix, different models for different product categories and geo markets.93Define performance measures for each supplier category9435%30%Estimated costs are equal or below market or benchmark pricingHistoric supplier bid evaluations demonstrate competitive pricing practicesPricing remains competitive vs. the market over timeDemonstrated investment in being cost competitive20%Continuous process improvement and development of leading edge ideas, concepts or technologiesContributes to development of competitive advantage for CompanyContributes to new products / services / innovative solutions through collaborative development and problem solvingDemonstrated corporate responsibility that reflects Companys core valuesOverall corporate citizenship (e.g., environmental, social, etc.)Adherence to environmental, health and safety regulationsExceptional industrial relationsAlignment with Procurement diversity objectives (US & PR suppliers only)5%Non-Supply50%25%15%Supply



Ongoing Cost Competitiveness

Process Innovation

Corporate ResponsibilityAssigned WeightMetric GroupDescription10%5%Materials / services meet or exceed expectationsMaterials / services are within regulatory compliance and Company specifications and acceptable quality levelsOperational activities (e.g., billing, reporting, etc.) are accurate Measured in terms of compliance with expectations (right the first time)Demonstrated effort and flexibility toward exceeding expectationsDelivery of products and services within agreed time windowOperational activities (e.g., billing, reporting, etc.) are timelyAdequate system and process redundancies and up-timesMeasured in terms of degree of proactive responsiveness and adherence to agreed upon timings / processesExample (Life Sciences)Performance measures will differ by supplier and component category. It is important that the measures are clearly communicated to suppliers. 2009 Deloitte Touche TohmatsuDefine a balanced scorecard for suppliers.The scorecard will be different for different product families and for different supplier categories (Level 1, Level 2, etc.).Important point: share the definition with suppliers, let them comment, be sure they understand.94

Design and build procurement organizationOptimal Balance of Governance / Control and ResponsivenessContinuous Improvement In Cost Of Purchased Goods and ServicesInternal Process Efficiencies and SavingsCompetitive Advantage Cost, Technology, Features, VehicleWorld-Class Procurement2. Organization4. TechnologyObjectives3. ProcessesEnhanced Supplier Management CapabilitiesCenter-Led Procurement Strategy & OperationSystematic Buying and Fulfillment ProcessesIntegrated Procurement Information SystemIntegrated Measurement, Tracking, & Reporting InfrastructureChange Leadership / Knowledge Management & TrainingInfrastructureInstitutionalize Change & Sustainability of Results1. People 2009 Deloitte Touche TohmatsuBuild your own internal procurement organization. Build in capabilities to develop suppliers.Important point: appropriate relationships with other functions in your business. For example, if you are going to help Level 1 suppliers improve their internal manufacturing processes or IT systems, procurement must have the right relationships (and clout) with your manufacturing and IT departments to be able to draw on the right resources.95Center-LedCentralizedDecentralizedDescriptionSourcing and procurement activities occur in various regional and/or functional areasPart-time responsibilities for sourcing and procurement activities occur within each of the functions and businessesSourcing and supplier management are center-led for most categories and decentralized for only localized buysAll procurement and strategic sourcing activities/decisions are made within a centralized procurement organizationBenefitsMaximum use of local suppliersStrategic purchasing/ sourcing decisions are made by businessesFormalized interaction between divisionsGreater capability to leverage purchasing across the organizationBusiness area experts still own requirements but non-core purchasing activities are off-loaded to expertsAbility to enforce commonality and standardsCommonality/alignment across divisionsUniform approach to suppliers Ability to focus on leverage with suppliersImproved control (quality and standards)RisksLittle to no cross-divisional leverage exists for pricing/volume discountsSupplier base is large and hard to manage (minimal formal agreements)Duplication of efforts is likely to occurNo full-time focus on procurement/sourcingNo efficient focal point for executive and cross-process communicationDifficult to maintain a degree of commonality/ standardizationTo avoid conflicts around sourcing strategy and vendor selection, goals/incentives between procurement and business areas must be aligned and active executive leadership must existOften requires great organizational changesCultural resistance to VP of Procurement and line organization conceptWeakened link to field operationsSlower response timeFewer local suppliersDistributed GovernanceThe leading practice for procurement organizations is to progress toward a center-led or centralized governance modelTrendingDesign and build the procurement organization (cont.) 2009 Deloitte Touche Tohmatsu96One question is the degree of centralization of your procurement organization. (explain dimensions at upper right)Pros and cons for different models.With other China OEMs we have seen procurement too decentralized, at the factory level.As China OEMs globalize, procurement will need to become more centralized and more international.Design supplier management processes97Supplier Performance & Development Process - Draft Version 5.0Supply Chain Hub (SCH)Sourcing (PSM)PSSupplierAccreditationSupplier Performance & DevelopmentSCH 3.0 - IdentifyBenchmarkmeasuresSA 2.0 - Audit andapprove suppliersPSM 4.0 - DevelopcontractsSCH 11.0 - Obtain suppliercommitment to performance anddevelopment processSPD 1.0 - DefineperformancemetricsSPD 2.0 - Definemetric datacollection processSCH 13.0 -Aggregateperformance datafor suppliers withina SCHSPD 9.0 -Produce supplierscorecardsSPD 12.0 -Produce reportsSPD 13.0 -Communicateperformance tostakeholdersSPD 8.0 - Assignownership forSCH relationshipsSA 1.0 - Developsupplier profilesSPD 10.0 -Assess supplierperformance andrelationshipSCH 4.0 - Definegoals withsuppliers anddevelop plansSA 3.0 - Conductongoing complianceauditsSPD 3.0 - Definerecognition or non-performancecategories andcriteriaSPD 11.0 -Nominate supplierfor recognition ornon-performanceSPD 14.0 - InitiateSuppliersrecognition based onperformancePSM 3.0 -NegotiateagreementsSCH 7.0 -CategorisesuppliersSCH 5.0 - Assesscurrent servicecategoriesSCH 6.0 - Defineservice vision andgoalsSCH 2.0 - Definespecifications andrequirementsPSM 5.0 - Selectsuppliers andaward contractPSM 1.0 -Develop and issueRFI, RFQ, andRFPPSM 2.0 -Evaluate supplierproposalsSPD 15.0 - InitiateSupplier correctiveaction for non-performanceSCH 12.0SCH 12.0 - Assistend user withcompletion ofsupplierperformanceevaluationSPD 4.0 - Communicateand train stakeholders onsupplier evaluationscorecard and datacollection processSCH 14.0 - Senddata to SP&DteamSCH1.0 - AssessSCH businessneedsSCH 9.0 - Implementand execute Supplierrecognition orcorrective actionSPD 6.0 - ValidateAggregatedPerformance DataSPD 5.0 -Aggregate Datafor Supplierproviding ServicesAcross SCHsSPD 7.0 - Collectand AggregateData for Suppliernot Linked to aSCHSCH 8.0 -Participate inSupplierPerformanceEvaluationSCH 10.0 -CommunicatePerformance toSuppliersStartEndExample (Oil and Gas) 2009 Deloitte Touche TohmatsuPoint here have a structured, repeatable process for managing suppliers. It can be simple, but it should be standard, routine, repeatable.97Design sourcing & procurement technology architecture98

SOURCING & PROCUREMENT IT ARCHITECTURE COMPONENTS Spend data and spend managementCategory managementSupplier performance reportingTransaction supportCommunicationsDocument managementIntegration with corporate systemsAnalyticsEtc.ExampleTechnology design should follow organization and process design. 2009 Deloitte Touche TohmatsuFor advanced supplier management need the appropriate performance measures and reports. This means having the right IT systems, especially to manage a global network.Important point: your strategic objectives for your supplier network and the design of your processes should drive the design / selection of IT systems. Not the reverse! (dont buy an expensive IT package until you are clear on strategy, process, and organization)98Develop a transformation roadmapA procurement transformation roadmap defines the spend management, process, organization and technology initiatives to capture and sustain value from procurement.

---Illustrative--- 2009 Deloitte Touche TohmatsuCreate an implementation plan, or a roadmap.Include development of processes, measures, programs, IT, procurement organization and talent (hiring and training).May take several years.Important points: be sure there is clear accountability for major milestones. Be sure other functions besides procurement understand this it will impact them.99Categorize suppliers100Rank suppliers in order of total scoreTop 5 suppliers identified as Level 1 suppliers. All remaining suppliers categorised as Level 2Review / Refresh periodically (e.g. every 6 months) or when a trigger factor instigates a change (e.g. when spend with a supplier significantly increasesCalculate the overall supplier score based on the weighted score and the criticality to Client X's business Complete supplier weighting survey for each Level 1 or Level 2 supplierReview categorised suppliers to identify any missing from list (e.g. future strategic supplier)Capture spend data from AP system: (Current suppliers October 07 to March 08 = 539)Assess whether the supplier is a network critical supplierAssess if spend >1m p.a.Is the supplier a sole supplier for a category?Supplier categorised as Level 1 or Level 2Supplier categorised as Level 3NONONOYESYESYES56789101123412Company XYZSupplier Management Manual

2009Example 2009 Deloitte Touche TohmatsuThen put the plans into action.Start with categorizing your suppliers.We typically help companies create a supplier management manual that describes the process and criteria in detail.100Measure supplier performance101SPD 1.0 - Define performance metricsSPD 2.0 - Define metric data collection processSPD 5.0 Aggregate data for Supplier providing services across CategoriesSPD 12.0 Produce ReportsSPD 13.0 Communicate supplier performance to Category ManagerSPD 5.0 Communicate and Train stakeholders on supplier evaluation and data collection processSPD 9.0 Produce supplier scorecardsSPD 3.0 - Define recognition or non-performance categories & criteriaSPD 6.0 Validate aggregated performance dataDefinePerformance MeasurementsCollect and Aggregate DataReportSupplierPerformancePerformance MeasurementSPD 8.0 Assign ownership for supplier relationshipSPD 10.0 Access supplier performance and relationshipSPD 7.0 Collect and Aggregate data for suppliers not linked to a Category ManagerExample

Supplier Scorecard 2009 Deloitte Touche TohmatsuNext measure performance.Remember that the measures and targets will differ by product family and supplier category / Level.101Engage suppliers and manage performance102SPD 11.0 Nominate suppliers for recognition or non-performanceSPD 14.0 - Initiate Supplier Recognition based on performanceSPD 15.0 - Initiate Supplier corrective action for non-performanceInitiate Development InterventionsInitiate DevelopmentExample Improvement Areas / InitiativesCostSupplier mfg process improvementJoint material sourcingDFMQualityDefect root cause analysis6 sigma / other programsProduct/process redesignDelivery PerformanceException reporting and root cause analysisJIT programTechnologyMaturing assessment & benchmarkingJoint developmentInnovationEvaluationProcess reviewsNetwork developmentJoint ValueJoint evaluationEarly vehicle life cycle engagementThe level of OEM investment in supplier improvement will differ by supplier category more effort and resources for strategic or Level 1 suppliers, less for commodity suppliers. 2009 Deloitte Touche TohmatsuLastly use the measures to manage the suppliers and improve their performance along different dimensions.The degree of engagement will vary by Level.For example, for non-strategic, Level 3 suppliers you may simply have biannual discussions on cost targets, quality issues, delivery exceptions.For strategic, Level 1 suppliers you may be doing joint product development, may send (or station) your own engineers in their factories to improve processes.For all levels communication is important. Standard. Clearly defined and understood. Joint agreement on actions.102Review and Manage Supplier Portfolio103

Perform an annual review of the overall supplier portfolio:Update portfolio map and matrix of supplier / product familyReview product family coverageReview supplier category / level assignmentsIdentify concentration gaps vs. targets (too few or many suppliers in a category)Identify risk areas based on individual supplier performance and health

Market ComplexityIdentify supplier portfolio initiatives:Product families to add or reduce suppliersSuppliers that are candidates for level upgrade or downgradeSuppliers that are candidates for removalNew suppliers to approachVerify responsibilities for actions (by supplier) 2009 Deloitte Touche Tohmatsu1031Our Understanding2The Global Automotive Industry Our Point of View3Our Perspectives on Acquisition Integration4Supplier Network Development5N. American and Europe Supplier Markets6Next Steps 2009 Deloitte Touche Tohmatsu104The global automotive market faces a period of unprecedented change.Restructuring and failuresShifting demandTechnology and regulatory disruptionsThere are many options and much uncertainty around the future direction of powertrain and other key auto component technologies.No one knows which scenarios and technologies will come to dominate.The market offers extraordinary risks, but also extraordinary investment opportunities.Historically cheap assets, many suppliers for sale.Available talent.This situation calls for a structured, careful approach to developing the strategy for your parts business.Answering the strategic questions and determining investment priorities.Part of this strategy will involve investing to create capability options for the future.

Key takeaways105While we believe you should undertake the analyses to develop a robust strategy, there are steps you can take now to position the company to take advantage of the current opportunities. 2009 Deloitte Touche Tohmatsu105Confirm your strategic intent (1st strategic question)Review analyses that have been completed, determine what remains to be doneComplete analyses answer the remaining strategic questionsComplete strategy articulation and business caseSecure board / executive management approval on strategy and business caseComplete implementation roadmapLaunch development and M&A activities

Next Steps106

2009 Deloitte Touche Tohmatsu106Given the uncertainties in the market, the risks, and the magnitude of potential investments, a rigorous analysis (as above) is prudent.However, you not need to wait for the completion of the analysis before taking action. Immediate steps can include:Discussions with current JV partners on technology direction and planned investments.Discussions with other suppliers who are potential acquisitions or asset sellers (test the market).Discussions with non-traditional players (PE, venture capital) to ascertain interest and direction.Next Steps (cont.)107 2009 Deloitte Touche Tohmatsu107

2009 Deloitte Touche Tohmatsu108Appendix Deloitte Automotive Experience 2009 Deloitte Touche Tohmatsu109We know the automotive industry and serve the entire automotive value chain, including OEMs, suppliers, distributors and retailersDeloitte serves 32 of the 35 top automotive companies in the Global Fortune 500 and offers a broad range of audit, tax, consulting and financial advisory servicesClient service teams, drawn from a pool of over 2,500 dedicated automotive professionals in all corners of the world,combine insight and innovation from multiple disciplines with business knowledge and industry specializationOur client service approach integrates our broad service capabilities, including audit, tax, financial advisory, risk management, and management consultingDeloitte serves 88% of the manufacturing companies on the Fortune Global 500

Deloitte has extensive global automotive experienceFor more information visit our web site:

2009 Deloitte Touche Tohmatsu110Our experience encompasses OEMs, suppliers, finance companies, dealerships, and other segmentsOEMsBMWBrillianceChryslerDaimlerFAWFiatAutomobile Manufacturer #5General MotorsGeelyHondaAutomobile Manufacturer #3Jaguar/Land RoverKiaMitsubishiAutomobile ManufacturerPSA Peugeot/CitrenPorscheRenaultSAICTataAutomobile Manufacturer #6Automobile Manufacturer #1Off Highway/Trucks/Recreation OEMsBombardierCase New HollandConstruction Machinery Manufacturer #1Club Car (Ingersoll-Rand)Daimler TrucksDeereFusoHarley DavidsonJ. B. PoindexterKomatsuNavistarScaniaAcquired Company...YamahaCaptive Finance CompaniesBMW Financial ServicesChrysler Financial ServicesDaimler Financial ServicesAutomobile Manufacturer #5 Motor CreditGMACJohn Deere CreditAutomobile Manufacturer AcceptanceRenault Credit InternationalAutomobile Manufacturer #6 Motor CreditAcquired Company... Commercial FinanceSuppliersAisinAmerican AxleArvinMeritorBorgWarnerBoschBridgestone/FirestoneContinental/SchaefflerDanaDelphiDensoEatonFederal-MogulGKNKeihinLearLinamarAutomobile Parts Manufacturer #1MahleMichelinThyssenKruppTimkenTRWValeoZFDealerships, Distribution and SupportAllied HoldingsAutoNationConstruction Machinery Manufacturer #1 LogisticsCN RailOnStarMBCL (China)Vector111 2009 Deloitte Touche Tohmatsu111Our global automotive network of 2,500 professionals covers all major markets, including:We have a large, global network of professionals serving the industry112Europe, Middle East and Africa Region

BelgiumCzech RepublicFinlandFranceGermanyHungaryIrelandItalyNetherlandsNorwayPolandRomaniaRussiaSlovak RepublicSpainSouth AfricaSwedenTurkeyUnited KingdomAsia Pacific Region

AustraliaCambodiaChinaIndiaIndonesiaKoreaJapanMalaysiaNew ZealandSingaporePhilippinesTaiwanThailandVietnamAmericas Region

ArgentinaBrazilCanadaChileColombiaMexico United StatesVenezuela 2009 Deloitte Touche Tohmatsu112Asia Pacific regional automotive profile

Large footprint in the Asia Pacific region to match that of our automotive clientsRegional manufacturing industry practice comprising of more than 3,300 people across 13 markets More than 1,500 partners and professionals focused on serving automotive OEMs and suppliers Dedicated Asia Pacific retail motor industry services team providing services to auto dealerships and OEM sales companiesExperience assisting state and national governments with automotive industry assessmentsMultidisciplinary skills to deliver audit, consulting, financial advisory and tax services to the automotive industryAsia Pacific RegionAustraliaChinaIndiaIndonesiaKoreaJapanMalaysiaNew ZealandSingaporePhilippinesTaiwanThailandVietnam113 2009 Deloitte Touche Tohmatsu113We have perspective and analyses which your team can leverageEvaluate potential roll-up strategies and consolidation alternativesSupplier assessmentsStakeholder analysis customers, banks, potential investors Roll-up scenario modeling/planningIndustry intelligence suppliers and OEMsRisk assessmentPotential partner strategiesPartner strategy alternatives developmentAlternative investor financial modeling and scenario developmentAcquisition and/or divestiture planning and executionBuy-side planning and due diligenceIntegration planning and executionSell-side planning and due diligenceCarve-out divestiture planning and executionDeloitte helps automotive clients define and execute their growth and M&A strategies114 2009 Deloitte Touche Tohmatsu114Deloitte has global experience in automotive M&AApproachExecutionSupported US Private Equity firms evaluation of various potential targets, including Global Auto OEMs, Tier 1,2 & 3 Suppliers, Aftermarket Distributors and Remanufacturers, Commercial VehiclesLed post-close separation activities (operational support and transition to buyers) for the finance function of a $10+B supplier divesting multiple manufacturing facilitiesLed development of TSAs covering $200M+ per annum in transition services for divestiture of a global OEMLed end-to-end validation workshops with over 100 cross-functional participants for multiple Day 1 operational scenarios for global network of OEM National Sales Centers involved in transitionSupported transition associated with divisional divestiture and stand-up of a $1.5B automotive supplierAssisted private equity buyer in development of future state processes, SAP reconfiguration/ roll-out and coordinated training efforts for financial processes of auto supplier acquisitionSupported IT Testing, program management, process documentation and multi-country transition in South America for business unit divestiture of Tier 1 automotive supplierEstablished and supported ongoing transition governance process for divestiture planning of global Tier 1 automotive supplierStrategic assessment of hold, sell, or restructure alternatives for various assets of a Global Auto supplierAssisted Chinese automotive OEM with strategy development for North American market entry including potential M&A alternativesLed global OEM client team through validation and finalization Purchase and Transition Service Agreements for $12B acquisitionSupported the validation of Day 1 requirements and established a Day 1 issues resolution and support center for acquisition of NA-based Tier 1 supplierEstablished Project Management and supported functional planning efforts for the integration of an acquired $2B business unit into an global automotive OEMSupported $8B Tier 1 manufacturer in post-close stabilization and ongoing management of a $1B/yr transition services arrangementSupported Tier 1 supplier post-transaction in developing multiple cross-functional resolutions required to mitigate operational issues not fully contemplated in the transactional documentationAssisted large US supplier in separation efforts required to exit post-close transition service arrangementsAssisted global OEM in defining post-transaction Target Operating Model for network of 25 National Sales CompaniesLed sell-side divestiture due diligence for large automotive supplier, including development of primary functional cost baseline, identification of country specific divestiture considerations and quantification of incremental transition services and one-time investments Conducted Financial and Tax diligence on a Global Tier One Supplier and a US OEM for an Asian automotive companyConducted financial and operational due diligence on a European OEM for a China automotive OEM

Led global automotive OEM through development of Day 1 functional blueprint and requirements for the divestiture of $16B subsidiaryAnalyzed Definitive Agreement details for all functions and geographies of a global automotive transaction and advised on the long-term implications to changes in the deal termsLed functional separation and Transition Services definition for carve-out of off-highway diesel engine business from major diesel engine manufacturer to a Private Equity firmSupported Tier 1 Supplier in development of draft Transition Service Statements of Work (SOWs) by function in support of manufacturing facilities sold to another Tier 1Assembled global automotive team in 26 countries for US based OEM acquisition of a Korean OEM, and led cross functional due-diligence, Day One readiness and Integration activities worldwide.

OverviewDeloittes Automotive Industry professionals serve the entire automotive value chain, including OEMs, suppliers, distributors and retailers.Client service teams, drawn from a pool of more than 2500 dedicated and specialized automotive professionals globally, help automotive clients create powerful business solutions. This integrated service approach combines insight and innovation from multiple disciplines with business knowledge and industry specialization to help automotive industry clients excel.Pre-announcementCloseAnnouncementM&A StrategyTarget Screening Due DiligenceTransaction ExecutionDivestitureIntegration115Deloitte Automotive M&A Lifecycle Experience - Examples 2009 Deloitte Touche Tohmatsu115Deloitte provides insights on industry and market developments to help clients shape their responses to business issues. Some of our automotive perspectives include:Industry thought leadership

116 2009 Deloitte Touche Tohmatsu116Sustainable continuous thought leadershipTransforming the Automotive Industry: The Road To Recovery Transforming the Automotive Industry SG&A Savings Can Put Cash Back in Your BusinessFast tracking Indian automotive logisticsConvergence in the automotive sectorInnovation in emerging markets. 2008 Annual study. Ladies and gentlemen. Start your service engines.Managing strategic risks in Chinas unpredictable automotive market.Managing the talent crisis in global manufacturing. Why finance transformation matters in global manufacturing. Exports Opportunities and challenges for the Chinese automotive industry. Future drivers of the China automotive industry.The Automotive Summit - Discussion with Sales & Marketing VPs at GM, Automobile Manufacturer #5, Automobile Manufacturer #6 and Chrysler, Audio MP3 recordingProspering from the automotive service revolution.Creating the Wholly Sustainable Enterprise A Practical Guide to Driving Shareholder Value Through - - Enterprise SustainabilityAutomotive Update. Quarterly News and Analysis of the European Automotive MarketGreat Minds Think Alike. Practical ideas about how auto makers and dealers can sell more cars and make more money.Integrated Lead Management. Managing across channels to sell more vehiclesDriving Value: 2006 Asian Automotive Tax Survey.Collaborative Commerce In the Automotive IndustryIT Trends in Automotive (survey with OESA) Demand-Driven Automotive Sales and Distribution - Asian Automotive Performance in the U.S. MarketBesonderheiten der Rechnungslegung in der Automobilzulieferindustrie (specific features of the accounting in the automotive supplier industry - Germany)Innovation in Emerging Markets. 2007 Annual StudyAutomotive manufacturers seek revenue growth in emerging markets. Innovation in Emerging Markets. Strategies for Achieving Commercial SuccessLaboratories of Innovation. Leveraging Emerging Markets for Commercial SuccessThe Service Revolution in Global Manufacturing IndustriesUnlocking the Value of Globalisation: Profiting from Continuous OptimisationMastering Innovation: Exploiting Ideas for Profitable GrowthGrowing the Global Corporation: Global Investment Trends of U.S. ManufacturersMastering Complexity in Global Manufacturing: Driving Profits and Growth through Value Chain SynchronizationReducing Earnings Volatility: A Short Course in Energy Cost ManagementRFID: Critical Considerations for ManufacturersA selection of Deloitte thought leadership publications relevant to the automotive sector include:

Industry thought leadership (cont.)Visit our web site to obtain or request copies of these reports: 117 2009 Deloitte Touche Tohmatsu117Appendix Resumes 2009 Deloitte Touche Tohmatsu118Your Deloitte Team Head of Global Automotive119Dr. Martin HlzPartnerHead of Global Automotive

Deloitte Consulting GmbHLffelstrae 4270597 StuttgartGermanyDr. Martin HlzHead of Global AutomotivePartnerTel: +49 711 16554 7305mhoelz@deloitte.deProfessional Experience Dr. Martin Hoelz joined Deloitte Consulting as Partner in March 2007. He has spent his career in the automotive industry since 1994, including several leading positions in big automotive companies. His professional experience ranges from medium-sized companies to multinational corporations like DaimlerChrysler AG, Audi AG as well as Automobile Manufacturer #1 AG.Martin leads the global automotive practice in which all activities regarding OEMs, suppliers, financial services and wholesalers/ retailers are combined.Selected automotive project experiences include business transformation and organizational development, developing and implementing template-based global process and IT-strategies for manufacturing plants world-wide, Corporate Audit regarding reviews and Management consulting services in sales and marketing strategies within Asia-Pacific, IT-Governance and IT-Architecture, Process Integration Officer (PIO) etc. Martin was awarded his PhD title in business economics (Doktor der Wirtschaftswissenschaften, Dr. rer.pol.) and he has completed an IT master degree (Diplom-Informatiker).

Representative clients served:Audi Daimler Mercedes-BenzAutomobile Manufacturer #1Automobile Manufacturer #5Acquired Company... Bosch Automobile Parts Manufacturer #1 Acquired Company...SAS Automotive SystemsZF Friedrichshafen

2009 Deloitte Touche Tohmatsu119Your Deloitte Team Automotive Consulting Leader120Randy MillerPrincipleDeloitte Consulting

Deloitte Consulting LLP600 Renaissance Center,Detroit, MI 48243USARandy MillerDeloitte ConsultingPrincipleTel: (313) Professional Experience Randy is a principal with thirty years of automotive industry experience. He has extensive international automotive consulting experience, including six years resident in Germany leading our European automotive practice. He previously served as our automotive industry consulting practice leader globally. Prior to joining Deloitte, he held various positions in car product development at Automobile Manufacturer #5 Motor Company. His clients have included automotive OEMs and suppliers around the world, including North America, Europe, Asia and Africa.Randy has focused on many aspects of strategy and operations, including business and process strategies, acquisitions and divestitures, shared services, and cost management. He has led several automotive industry studies and has spoken often about critical industry issues.

Representative clients served:ChryslerDaimlerDetroit DieselAutomobile Manufacturer #5Automobile Manufacturer #3Linamar ThyssenKruppTRWValeoVisteonAutomobile Manufacturer #1

2009 Deloitte Touche Tohmatsu120Your Deloitte Team Asia / Pacific Manufacturing Leader121Kevin GromleyPrincipleDeloitte ConsultingAsia / Pacific Manufacturing

Kevin GromleyDeloitte ConsultingPrinciple

Deloitte Consulting LLP600 Renaissance Center,Detroit, MI 48243USADetroit, USA &Shanghai, ChinaTel: (313) Professional Experience Kevin is our cross-functional regional lead for Manufacturing in Asia / Pacific, splitting his time between Shanghai and his home in Detroit. He has extensive manufacturing experience, including:Merger integrationReengineering and lean manufacturingManufacturing supply chain redesign and optimizationGrowth and China market entry strategiesFinance transformation, business and financial planningKevin also practiced Japan for 3 years, during which he acted as the Asia manufacturing lead for Deloitte Consulting.

Representative clients served:GMChryslerAutomobile Manufacturer #6Mitsubishi Motors and FusoFAW-Automobile Manufacturer #1GeelyDelphiZexel - Valeo

Armco SteelDow ChemicalOwens-CorningWheeling-Pittsburgh SteelRhodiaIngersoll-RandApplied MaterialsNetwork Equipment Manufacturer #1

2009 Deloitte Touche Tohmatsu121Your Deloitte Team Automotive M&A Transaction Services122Andrew WilsonPartnerM&A Transaction Services

Deloitte & Touche LLP111 South Wacker DriveChicago, IL 60606 USAAndrew WilsonM&A Transaction Services Accounting Partner Tel: (312) Experience Andy specializes in providing accounting and finance services relating to mergers and acquisitions transactions. He has worked with many of our most significant strategic and private equity clients, leading due diligence services for domestic and international transactions. In connection with this work, Andy has also developed significant expertise in helping companies maximize the value of dispositions through effective sell-side due diligence. While serving as our national M&A Automotive M&A leader, Andys experience covers a broad range of industries, including industrial products and chemical, as well as general manufacturing, distribution and services. Andy has significant global experience working with clients in Brazil, Mexico, U.K., Germany, France, Italy, Poland, Spain, India and China, with transactions covering most global manufacturing centers. He has significant experience in managing complex, carve-out transactions and an in-depth knowledge of our global resources.

Representative clients served: Affinia ArvinMeritor Blackstone Centerbridge Partners General Motors Goodyear Federal-Signal Keystone Automotive Linamar Mark IV Navistar Penske TRW Visteon

2009 Deloitte Touche Tohmatsu122

2009 Deloitte Touche Tohmatsu123Chart1196.1450.0926918333194.460.0348036667175.520.033188163.53666666670.030686176.650.0037475714196.92333333330.026543194.42333333330.000125183.3966666667-0.0213848571219.89333333330.0177145714227.11666666670.0321075192.850.029008625173.24333333330.01744175164.31333333330.021285625181.49333333330.029949625204.05333333330.0173382222226.82666666670.028305242.53666666670.0324234444236.28666666670.0365738889229.67333333330.03300575237.0133333333-0.049038625218.50666666670.023409875199.34666666670.0422335216.92666666670.0298346667203.910.036996192.84333333330.0254983333204.0933333333-0.007763875188.9566666667-0.0067587778211.23333333330.0380547143235.72666666670.0233245262.330.0244514286262.940.006190125262.950.0194215556229.540.0169683333226.16333333330.0200565556200.5166666667-0.0184854148121.1333333333-0.07857062585.9266666667'09

Dow Jones Auto Suppliers Stock Price IndexAuto Suppliers Average Net Margin



Dow Jones Auto Suppliers Stock Price IndexAuto Suppliers Average Net Margin



Passenger / Light VehicleChassisBrake AssemblyBrake ControlsControl ArmsDamperFuel TankSteering GearSteering WheelClimateDuctingHeat ExchangerHVAC CompressorHVAC CondenserHVAC ControlsHVAC SystemElectronicsAdaptive Cruise ControlAirbag ECUBrake LightingCHMSLForward LightingFront Entertainment SystemJunction BoxKeyless Entry Control UnitKeyless Entry TransmitterNavigation SystemOccupant Classification SensorRear Entertainment SystemTire Pressure Monitoring SystemWire HarnessExteriorBumper FasciaConvertible Top AssemblyDoor Hardware ModuleExterior MirrorSunroofVehicle StructureWindow RegulatorInteriorAirbag CushionAirbag InflatorAirbag ModuleDoor Trim PanelFloor ConsoleFloor SystemHeadlinerInstrument ClusterInstrument PanelPackage TraySeat AdjusterSeat AssemblySeat Backrest FrameSeat BeltSeat CoverSeat Cushion FrameSeat ReclinerTrunk LinerPowertrainCamshaftCatalytic ConverterCrankshaftCylinder BlockCylinder HeadDrive AxleDrive ShaftEngine ECUExhaust ManifoldFuel InjectorHybrid SystemIntake ManifoldThrottle BodyTorque TransferTransmission ECUTurbo/SuperchargerVariable Valve TimingLikelihood of Adoption?DisadvantagesInfrastructure RequirementsAdvantagesMaturityGovernment SupportCompetitive Intensity / Profit Potential?

ConcentrationCurrent PlayersLevel of CommitmentExit CostsSources of Advantage (IP, manufacturing, customer intimacy)Required Capabilities?ManufacturingR&D / IPSales & ServiceSupply Chain

Investment Options?People / TalentIPPhysical AssetsNetwork / InfrastructureUbiquity (e.g., supports many other technologies)Passenger / Light VehicleChassisBrake AssemblyBrake ControlsControl ArmsDamperFuel TankSteering GearSteering WheelClimateDuctingHeat ExchangerHVAC CompressorHVAC CondenserHVAC ControlsHVAC SystemElectronicsAdaptive Cruise ControlAirbag ECUBrake LightingCHMSLForward LightingFront Entertainment SystemJunction BoxKeyless Entry Control UnitKeyless Entry TransmitterNavigation SystemOccupant Classification SensorRear Entertainment SystemTire Pressure Monitoring SystemWire HarnessExteriorBumper FasciaConvertible Top AssemblyDoor Hardware ModuleExterior MirrorSunroofVehicle StructureWindow RegulatorInteriorAirbag CushionAirbag InflatorAirbag ModuleDoor Trim PanelFloor ConsoleFloor SystemHeadlinerInstrument ClusterInstrument PanelPackage TraySeat AdjusterSeat AssemblySeat Backrest FrameSeat BeltSeat CoverSeat Cushion FrameSeat ReclinerTrunk LinerPowertrainCamshaftCatalytic ConverterCrankshaftCylinder BlockCylinder HeadDrive AxleDrive ShaftEngine ECUExhaust ManifoldFuel InjectorHybrid SystemIntake ManifoldThrottle BodyTorque TransferTransmission ECUTurbo/SuperchargerVariable Valve TimingTeam TitleCompany NameCompany NameDepartment NamePassenger / Light VehicleChassisBrake AssemblyBrake ControlsControl ArmsDamperFuel TankSteering GearSteering WheelClimateDuctingHeat ExchangerHVAC CompressorHVAC CondenserHVAC ControlsHVAC SystemElectronicsAdaptive Cruise ControlAirbag ECUBrake LightingCHMSLForward LightingFront Entertainment SystemJunction BoxKeyless Entry Control UnitKeyless Entry TransmitterNavigation SystemOccupant Classification SensorRear Entertainment SystemTire Pressure Monitoring SystemWire HarnessExteriorBumper FasciaConvertible Top AssemblyDoor Hardware ModuleExterior MirrorSunroofVehicle StructureWindow RegulatorInteriorAirbag CushionAirbag InflatorAirbag ModuleDoor Trim PanelFloor ConsoleFloor SystemHeadlinerInstrument ClusterInstrument PanelPackage TraySeat AdjusterSeat AssemblySeat Backrest FrameSeat BeltSeat CoverSeat Cushion FrameSeat ReclinerTrunk LinerPowertrainCamshaftCatalytic ConverterCrankshaftCylinder BlockCylinder HeadDrive AxleDrive ShaftEngine ECUExhaust ManifoldFuel InjectorHybrid SystemIntake ManifoldThrottle BodyTorque TransferTransmission ECUTurbo/SuperchargerVariable Valve Timing


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