global automotive market growth opportunity & strategy discussion with china oems

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July, 2009 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

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Page 1: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

July, 2009

Global Automotive MarketGrowth Opportunity & Strategy

Discussion With China OEMs

Page 2: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu2

Appendices• Deloitte Automotive Experience

• Deloitte Team Resumes

Table of contents

1 The Global Automotive Industry – Our Point of View

2 Creating Growth Strategy

3 M&A Considerations

4 Acquisition Integration

5 Supplier Network Development

6 Next Steps

Page 3: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu3

Auto OEMs – Example Clients

• BMW• Brilliance• Chrysler• Daimler• FAW• Fiat

• Automobile Manufacturer #5• General Motors• Geely• Honda• Automobile Manufacturer #3• Jaguar/Land Rover

• Kia• Mitsubishi• Automobile Manufacturer• PSA Peugeot/Citröen• Porsche

• Renault• SAIC• Tata• Automobile Manufacturer #6• Automobile Manufacturer #1

About Deloitte

Our Global Organization

Over 160,000 professionals

670 offices in over 140 countries

Serves nearly 750 companies with sales or assets in excess of $1 billion

Our Automotive Practice Over 5,000 professionals Multi-Disciplinary Service

Offerings:‒ M&A and Finance‒ Strategy and Operations‒ Information Technology‒ Human Capital‒ Tax

$27 B revenue140+ countries

Consulting: 30,000 professionals, $3.0B revenue

• Strategy and Operations• Technology Integration• Enterprise Applications• Human Capital• Financial Analysis• Outsourcing

• Consulting• Audit• Tax• Financial Services

Auto Practice5,000+ professionals

Deloitte serves 90 percent of Fortune global 500 companies in the Auto industry

Asia Pacific Region• Australia• China• India• Indonesia• Korea• Japan• Malaysia• New Zealand• Singapore• Philippines• Taiwan• Thailand• Vietnam

Our Asia Practice Over 3,300 professionals

serving manufacturing clients Extensive experience with auto

dealerships and national and state governments as well as auto OEMs and Suppliers

Page 4: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu4

• Today’s global automotive market offers your company unprecedented opportunities to build its business and technology base, either organically or through acquisition.

• Today’s 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 market‒ Considerations and key questions to create an acquisition strategy‒ Our experience and lessons learned during complex acquisitions‒ Approach and analytic framework for developing a strong supplier network.‒ Path forward.

Today’s Discussion

Page 5: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu5

Table of contents

1 The Global Automotive Industry – Our Point of View

2 Creating Growth Strategy

3 M&A Considerations

4 Acquisition Integration

5 Supplier Network Development

6 Next Steps

Page 6: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu6

Dramatic Structural Change Due To The Global Downturn

• Poor capacity utilization and lack of manufacturing flexibility• Non-viable OEMs and suppliers requiring dramatic

restructuring – insufficient capital to operate and invest for the future

• Brands lacking identity and customer emotion• Bankruptcies, mergers and acquisitions• New global combinations (e.g., Fiat and Chrysler, Acquired

Company... and ??)• New players (e.g., Penske and Saturn)

Changing Customer Needs and Preferences

• Desire for “green” vehicles (without paying more)• Higher levels of urbanization shifting markets to smaller, more

utilitarian segments• Desire for “individualization”• Unique requirements in many emerging markets

Uncertainty Over Future Powertrain and Other Technologies

• Diverse greenhouse gas and safety requirements are being enacted in most markets

• Fossil fuel prices have become unstable, but are generally expected to rise

• Alternative powertrain and fuel developments have been unpredictable, but require long-lead-time infrastructure development

Current assessment of the global auto industry

Page 7: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu7

After 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 Crisis Re-Restructurethe Industry

Grow the“New” Industry

2010-2012• Significant structural

changes after first two phases

• Newly-consolidated global OEMs and suppliers

• New companies born from restructuring

• Emergence of new technologies (powertrain, telematics, other)

• Emergence of new business models

2009-2010• Capital availability improves• Large-scale asset sales• Strong balance sheets lead

consolidation• New players and

consolidators emerge, especially in emerging markets

2008-2009• Major assembly and

component capacity reductions in NAFTA and W. Europe

• Re-sourcing to stronger suppliers

• Government loans• Bankruptcy and

restructurings• Liquidations

Page 8: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu8

Our view of the future industry

Improving Fuel Efficiency • Permanent structural shift to higher fuel economy and alternative powertrain cars

Safety and Technology • Increased emphasis on vehicle technology and safety – electronic controls, lighter materials, reduced friction, etc.

Supply Chain Regionalization • Increased 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 Management

• More sophisticated commodity cost strategies and management tools will be adopted to manage financial and cost volatility

• OEMs and suppliers will better match revenue and cost footprints to reduce currency exchange risk

• Companies will adopt global organizational strategies to facilitate lower-cost support structures, global tax optimization, and cash repatriation

Page 9: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu9

• Global platform volumes are increasing as a result of global product strategies, more flexible platform architectures, and more flexible production systems

Our view of the future industry (cont.)

Source: Automotive News

2003 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.) 1.67 Automobile Manufacturer #1 A5 (Golf, Passat, A3, TT, etc.)

2.58

Automobile Manufacturer #1 PQ35 (Golf, Bora, Beetle, A3, etc.)

1.42 Automobile Manufacturer #6 MC (Camry, Avalon, ES) 1.87

Automobile Manufacturer #6 NCV (Corolla) 1.31 Renault/Automobile Manufacturer X85/B (Clio, Micra, Logan)

1.86

Honda CYR (Accord, Odyssey) 1.18 Automobile Manufacturer #5 C1/P1 (Focus, 3 & 5, S40, V50, C70)

1.66

Automobile Manufacturer #6 TMP (Camry) 1.08 Automobile Manufacturer #6 NBC (Vitz/Yaris, Aygo, etc.) 1.53

Automobile Manufacturer #1 PQ24 (Polo, Ibiza, Fabia) 1.04 Renault/Automobile Manufacturer X84/C (Megane, Serena)

1.16

Automobile Manufacturer #5 CW170/C1/P1 (Focus, C-Max, etc.)

0.97 Automobile Manufacturer #1 AO4 (Polo, Fox, Fabia, Ibiza, etc.)

1.12

Automobile Manufacturer #5 PN96/P221 (F-Series) 0.92 Automobile Manufacturer #6 NCV (Auris/Corolla, Matrix, etc.)

1.06

Honda Civic (Civic, CR-V) 0.91 GM T900 (Silverado, Sierra, Escalade EXT) 1.06

Renault-Automobile Manufacturer X65 (Clio, Kangoo, Platina)

0.88 Honda GCP (Civic, CR-V, Integra, etc.) 0.98

Total 2003 Top 10 11.38 Total 2007 Top 10 14.88

+30%

Globally-integrated capabilities will be increasingly critical for suppliers to win and retain major platform business.

Page 10: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu10

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.)

2008

2009

2010

2011

2012

2013

2014

2015

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

South America

North America

Japan/ Korea

South Asia/ India

Greater China

Middle East/ Africa

Europe

33.8%

23.9%

20.0%

22.3%

2009

EMEA

China/ S. Asia

Japan/ Korea

Americas

30.1%

26.2%17.9%

25.8%

2015

EMEA

China/ S. Asia

Japan/ Ko-rea

Americas

Light Vehicle Production ForecastMillions of Units/Share of Production

Source: CSM Worldwide, April 2009

30.7%

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%

Page 11: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu11

Our 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%

120

100

80

60

40

20

0

2008 2009 2010 2011 2012 2013 2014 2015

Glo

bal S

trai

ght T

ime

Cap

acity

(Mill

ions

) Global Straight U

tilization %

Global Capacity Utilization

South Asia

South America

North America

Middle East/Africa

Japan/Korea

Greater China

Europe

Global Utilization %

Page 12: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu12

Nearly 80% of volume growth is expected to be driven by the B, C and D vehicle segments from 2009-2015

Our view of the future industry (cont.)

Source: CSM Worldwide (March 2009)

A

B

C

D

E

F

0 5 10 15 20 25

4.1

9.2

12.9

10.7

5.2

10.2

9.6

19

23.1

16.1

5.4

7.8 20152011200720021997

Units in Millions

Global Production by Global Segment

2009-2015 CAGR%(volume Change)

A12%

B27%

C29%

D23%

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)

Page 13: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu13

The industry structure will continue to evolve, becoming more globally balanced, with China-based OEMs and suppliers becoming more prominent• OEM 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 share‒ Emerging market players will acquire more spin-offs by bigger OEMs and troubled suppliers as

seeds to gain capabilities and market access‒ Several medium-sized and emerging market OEMs will consolidate to gain further scale and

balanced market access

• Vehicle 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 fluctuations

• OEM 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.)

Page 14: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu14

• Supplier loan covenant violations, insolvencies, bankruptcies and liquidations will continue during 2009 and 2010 due to a combination of global credit-tightening and overcapacity

• A restructuring of suppliers and capacity is underway, creating opportunities for strategic and financial investors

The supplier market is also under stress – valuations are low

0

50

100

150

200

250

300

-10%

-5%

0%

5%

10%

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09Auto Suppliers Average Net Margin

Dow Jones Auto Suppliers Stock Price Index

Ave

rage

Net

Mar

gin

(%)1

Dow

Jones Auto S

upplier Index 2

Source: (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) DJIndexes.com (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)

Page 15: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu15

In the past few decades different factors have driven OEM / supplier relationships

Opportunities to create value

Traditional• Brake systems• Glass• Tires & rubber parts

Premium Brand• Entertainment systems (Bose,

Boston Acoustics, Mark Levinson, Sirius XM)

• Electronics (JCI HomeLink)• Brakes (Brembo)• Steering (ZF)• Struts (Bilstein, Tokico)

Outside Capacity• Vehicle assembly (Automobile

Parts Manufacturer #1)• Stampings (Tower, Martinrea)• Machining (Linamar)

Labor Arbitrage• Acquired Company...ing (JCI,

Lear, Automobile Parts Manufacturer #1)

• Interior trim (Lear, Grupo Antolin)

• Modular pre-assembly (Mobis, Visteon, Lear, CalsonicKansei)

• Wiring harnesses (Delphi, Yazaki, Lear)

Supplier Technology• Safety 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 Application• Plastic truck bed (Automobile

Manufacturer #6/Continental Plastics)

• Plastic fuel tank (Automobile Manufacturer/Inergy)

“Cleansed ECC client’s Logo”

Page 16: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu16

Over the past 10-15 years, rapid supplier growth has resulted from one or more of four primary drivers:

Opportunities to create value (cont.)

Material Substitution• Alcoa Automotive• GKN• Inergy• Automobile Parts

Manufacturer #1• Superior Industries

Growing Customers• Aisin Seiki• Denso• Hitachi• Jtekt• Mando• Mobis• Takata• Toyo Seiko• Automobile Manufacturer

#6

AWD• American Axle• BorgWarner• Automobile Parts

Manufacturer #1• ZF

Diesel• Bosch• Continental• Delphi• Denso

Safety• Autoliv• Takata• TRW

Electronics• Aisin Seiki• Bosch• Continental• Johnson Controls• Communications

Equipment Manufacturer #4

• Valeo

ABS/Ride Control• Aisin Seiki• Bosch• Continental• Delphi• TRW

Technology or FeaturesDe-integration/ Outsourcing

• American Axle• Continental• Faurecia• Johnson Controls• Lear• Linamar• Automobile Parts

Manufacturer #1

• De-integration/outsourcing • New technology or features

• Material substitution • Selling to more rapidly growing customers

Page 17: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu17

Despite growth and concentration, today an unprecedented number of global automotive suppliers face financial distress.

Recent bankruptcies in North America and Europe include:North America

• Fluid Routing Solutions• Foamex• Grede Foundries• Hayes Lemmerz • Intermet• J. L. French• Key Plastics• Lear• Metaldyne• Noble International• Plastech• Visteon

Distressed supplier market

Europe• Edscha• Eybl International• Geiger Technologies• Goertz + Schiele Holding• Henniges Automotive• Karmann• Kittel Supplier• Sakti Germany• Stankiewicz GmbH/Gimotive• TMD Friction Holding• tedrive Holding• Wagon 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.

Page 18: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu18

Future sources of supplier growth and value

Expanding 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 technologies

As 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 structure

Successful 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 models

To meet the investment requirements of new technologies and manage risks, top suppliers will create new networks of alliances and JV’s, including non-traditional partners, and adopt virtual company paradigms.

Growing through acquisition and consolidation

Suppliers 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.

Page 19: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu19

• The 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 market

Page 20: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu20

Deloitte 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 market

Revenue concentration with high-risk

OEMs/platforms and customer diversification

Deloitte/CSM Supplier Health

Rating

OEM Exposure

Global coverage, company and product diversification,

and capabilities

Strategic Positioning

Liquidity, debt and cash flow

Financial Strength

• Altman Z-score (bankruptcy risk)

• Debt • Debt Maturities• Cash Burn Rate

Financial Metrics

• Global Presence• Company Diversification• Product Diversification• Breadth of Capabilities• Unique or Proprietary

Technology

• Customer Diversification• High-risk OEM Exposure• High-risk platform

exposure‒ Short-term‒ Longer-term

Strategic Metrics Exposure Metrics

HealthyAt RiskUnhealthy0 50 75 100

Rating Scale

Page 21: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu

Electronics /Electrical

Product Family

Exteriors

Interiors

Powertrain

Chassis / Mechanical

Climate Control

Key Insights

Significant excess capacity will drive additional consolidation – weaker players are extremely vulnerable OEMs are unbundling interiors, reducing supplier value add and increasing exposure to commodity

prices Average Health Rating: 53 HHI: 5.5 Consolidation potential: High

May see further consolidation in lighting OEMs are moving away from exterior modules (e.g., doors), forcing a restructuring of this business Many weak and few strong players in this segment Average Health Rating: 46 HHI: 6.7 Consolidation Potential: Medium

Very diverse and globalized segment for both development and production with more strong players Growth in differentiating technologies will continue despite economic downturn Segment will continue to require investment to remain competitive Average Health Rating: 53 HHI: 7.1 Consolidation Potential: Medium

Significant investment and new players in hybrid/electric systems, but volume growth will be slow Rapid growth in relatively inexpensive fuel efficiency actions (e.g., direct injection with turbo) Relatively weak, fragmented segment with significant consolidation likely Average Health Rating: 46 HHI*: 4.2 Consolidation Potential: High

Fuel economy regulations will drive migration to electrically-driven components (e.g., electric steering, brake-by-wire) and impact current sourcing patterns

Many traditional suppliers (frames, casting, forgings, axles) are struggling with excess capacity Average Health Rating: 48 HHI: 4.5 Consolidation potential: High

Segment dominated by major global suppliers – Asian players are generally strongest Some additional consolidation likely Average Health Rating: 55 HHI: 15.5 Consolidation Potential: Medium

* HHI is the Herfindahl-Hirschman Index, a market concentration metric

Some product families will see greater consolidation

Page 22: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu

The OEMs will drive much of the consolidation

OEMs 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)

Powertrain Chassis Exterior Interior Climate Control ElectronicsChr Ford GM Other Chr Ford GM Other Chr Ford GM Other Chr Ford GM Other Chr Ford GM Other Chr Ford GM Other

SupA

SupB

SupC

SupD

SupE

A B A C B C

Potential Outcomes

OEM Pressure

• Surviving Tier 1 suppliers must have:

‒ A “best cost”, global production footprint which supports customers’ platform needs locally

‒ Globally-deployed R&D and customer support centers‒ Strong product technology and system integration capabilities‒ Financial stability

Page 23: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu26

Product Family Example: exhaust manifold

Exhaust Manifold Summary D3 are heavily weighted

towards cast manifolds (90%) Asian and European OEMs

use about 90% fabricated manifolds

Wescast has nearly 50% of the cast market in N.A. – a very high share

Technology developments could alter future industry sourcing patterns

C

Exhaust manifolds is one of 17 specific component groups within powertrain

“Cleansed ECC Client”

Page 24: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu28

Top European suppliers ranked by revenue

Rank Company

2008 Auto OEM Revenue

(US$ billions) HQ Country Ownership1 Robert Bosch GmbH US$ 33.9 Germany Private - trust

2 Continental AG 25.0 Germany Public

3 Faurecia SA 17.7 France Public

4 ZF Friedrichshafen AG 16.9 Germany Private - trust

5 ThyssenKrupp 11.3 Germany Public

6 Valeo SA 10.3 France Public

7 Benteler 9.3 Germany Private - family

8 Schaeffler KG 7.9 Germany Private - family

9 Magneti Marelli 7.6 Italy Fiat Group

10 Mahle GmbH 6.3 Germany Private - trust

11 Hella KGaA Hueck & Co. 5.7 Germany Private - family

12 Behr GmbH 4.9 Germany Private - family

13 Michelin Group 4.3 France Public

14 GKN PLC 4.2 United Kingdom Public

15 Brose 4.1 Germany Private - family

Source: Automotive News

Page 25: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu29

Climate Change• Electrification 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 taxes‒ The 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 Safety• Intelligent 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.

Competitiveness• Deliver 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 Innovations‒ In 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 market

Page 26: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu30

There 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 restructuring

Category No. Companies

Turnover Range (€ MM)

Powertrain 4 40 – 500

Exterior 3 10 – 1,500

Interior 5 10 – 1,100

Electronics 1 160

Climate 1 110

Metalworking 11 10 - 170

Strategic buyers are reviewing supplier asset opportunities in Europe, both for technology acquisition and for market entry / expansion.

Page 27: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu31

Table of contents

1 The Global Automotive Industry – Our Point of View

2 Creating Growth Strategy

3 M&A Considerations

4 Our Perspectives on Acquisition Integration

5 Supplier Network Development

6 Next Steps

Page 28: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu32

Creating a growth strategy for the auto business involves answering these fundamental questions:1. What is your company’s strategic intent?

2. Where to compete?

3. How to compete?

4. When and how to invest?

5. How to align existing relationships?

Strategic Questions

The 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.

Page 29: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu33

Strategic Question #1: Strategic Intent?

What is your objective for your parts business? How will the investment create value for the organization?

Example Objective Example Implications

Create a global, tier 1 parts business, profitable on a stand-alone basis

• Global scale and capabilities• Complex interactions / conflicts with existing JV’s• High level of investment and competence• High risk

Create a tier 1 parts business focused on the China market, profitable on a stand-alone basis

• Competing against global suppliers• Exposure to the dynamics of the China market• Less scale, but equally high level of competence required• Medium risk

Create stakeholder value through an early IPO

• Select attractive, high-growth segment(s)• Leverage existing assets, acquire cheap assets – build scale

quickly, position for high-return growth

Create strategic options for alternative engine / powertrain futures (protect the OEM vehicle business)

• Invest in multiple engine technologies at exploratory levels• Mix of investment mechanisms• Priority is capability – technology and market – over near

term profits

Different 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.

Page 30: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu

Strategic Question #2: Where to Compete?

Strategic Intent

Where to Compete

Product Family

Technology

Geography

OEM Market

-- CHINA --

“Cleansed ECC logo”

Page 31: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu35

Determining which product family will include consideration of:

• Market growth

• Impacts of technology change

• Strength of current suppliers

• Potential to acquire assets at favorable prices

• Your existing capabilities and JV relationships

• Strategic intent

Strategic Question #2: Where to Compete? (cont.)Which product families / systems? Which technologies (product and production?)

Passenger / Light Vehicle

Chassis

Brake Assembly

Brake Controls

Control Arms

Damper

Fuel Tank

Steering Gear

Steering Wheel

Climate

Ducting

Heat Exchanger

HVAC Compressor

HVAC Condenser

HVAC Controls

HVAC System

Electronics

Adaptive Cruise Control

Airbag ECU

Brake Lighting

CHMSL

Forward Lighting

Front Entertainment System

Junction Box

Keyless Entry Control Unit

Keyless Entry Transmitter

Navigation System

Occupant Classification Sensor

Rear Entertainment System

Tire Pressure Monitoring System

Wire Harness

Exterior

Bumper Fascia

Convertible Top Assembly

Door Hardware Module

Exterior Mirror

Sunroof

Vehicle Structure

Window Regulator

Interior

Airbag Cushion

Airbag Inflator

Airbag Module

Door Trim Panel

Floor Console

Floor System

Headliner

Instrument Cluster

Instrument Panel

Package Tray

Seat Adjuster

Seat Assembly

Seat Backrest Frame

Seat Belt

Seat Cover

Seat Cushion Frame

Seat Recliner

Trunk Liner

Powertrain

Camshaft

Catalytic Converter

Crankshaft

Cylinder Block

Cylinder Head

Drive Axle

Drive Shaft

Engine ECU

Exhaust Manifold

Fuel Injector

Hybrid System

Intake Manifold

Throttle Body

Torque Transfer

Transmission ECU

Turbo/Supercharger

Variable Valve Timing

Page 32: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu36

Strategic Question #2: Where to Compete? (cont.)Which OEMs / customers? In which geographies?

OEMs 2007 Global Production

Global Market Share

Cum. Market Share

OEMs 2007 Global Production

Global Market Share

Cum. Market Share

1 Automobile Manufacturer #6 9,498,000 13.5% 13.5% 21 Tata 578,952 0.8% 93.4%

2 GM 8,818,409 12.6% 26.1% 22 Chongqing Changan 546,253 0.8% 94.2%

3 Automobile Manufacturer #5 6,365,456 9.1% 35.1% 23 China FAW 509,449 0.7% 94.9%

4 Automobile Manufacturer #1 6,213,332 8.8% 44.0% 24 Dongfeng 503,868 0.7% 95.6%

5 Automobile Manufacturer #3-Kia 3,987,267 5.7% 49.7% 25 BAIC 454,321 0.6% 96.3%

6 Honda 3,911,813 5.6% 55.2% 26 Chery 387,880 0.6% 96.8%7 Automobile Manufacturer 3,431,398 4.9% 60.1% 27 Shenyang Brilliance 293,588 0.4% 97.3%8 PSA/Peugeot-Citroen 3,233,000 4.6% 64.7% 28 Hafei 231,488 0.3% 97.6%9 Fiat 2,813,870 4.0% 68.7% 29 AvtoGaz 223,122 0.3% 97.9%10 Renault 2,635,753 3.8% 72.5% 30 Zhejiang Geely 216,774 0.3% 98.2%

11 Suzuki 2,596,179 3.7% 76.2% 31 Anhui Jianghuai 209,880 0.3% 98.5%

12 Chrysler 2,572,203 3.7% 79.9% 32 Iran Khodro 196,007 0.3% 98.8%13 Daimler 2,096,893 3.0% 82.8% 33 Mahindra 178,982 0.3% 99.1%14 BMW 1,541,503 2.2% 85.0% 34 Proton 148,424 0.2% 99.3%15 Mitsubishi 1,411,975 2.0% 87.0% 35 SsangYong 122,857 0.2% 99.4%

16 Automobile Manufacturer #7 1,286,808 1.8% 88.9% 36 Great Wall 122,605 0.2% 99.6%

17 AvtoVaz 785,970 1.1% 90.0% 37 Jiangxi Changhe 112,083 0.2% 99.8%18 Isuzu 628,800 0.9% 90.9% 38 Porsche 101,844 0.1% 99.9%19 SAIC 610,028 0.9% 91.8% 39 Soueast (Fujian) 59,089 0.1% 100.0%20 Fuji 585,028 0.8% 92.6% Total 70,221,151

Page 33: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu37

Strategic Question #3: How to Compete?

BasicComponent

Supplier

DiversifiedComponent

Supplier

SystemSupplier

ModuleSupplier

• Cost leadership• High quality• Efficient manufacturing• Short “time-to-market"

• R&D capabilities• Multiple core

competencies

• Strong innovation & technology base

• Engineering integration capabilities

• Assembly know-how• Efficient partnering• Local production

Increasing capabilities required

Different bases of competition

Technology Disruption• R&D leadership• M&A and network

development• Strategic commitment and

investment

Page 34: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu38

Strategic Question #4: When to Invest? And How?

Existing capability platform and relationships

New capabilities and relationships

Future / emerging capabilities

Extend/defend core business

Integration Opportunities

Highest Value-add and risk

Diversified component supplier

System supplier

Module supplier

Investment Decisions

Organic Technology Acquisitions Joint Venture Acquisition

Level

Mechanism

Strategic Options Learning / Signaling Full Commitment

Basic component supplier

Increasing Capabilities

Increasing Investment

Priorities Product technology Production technology Production capacity

Distribution footprint Aftermarket footprint Manufacturing footprint

R&D capability Sales / customer support Brand

Page 35: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu39

Question #5: How to Align Existing Relationships?

Alliance Rationale

Form aPowerful

CompetitiveForce to dominate

target markets

ShareFinancial

Risks

Increase Return from Operations

Participate in

attractive markets

and brands

Participate in the

development of new and emerging

technology

Manufacture more

effectively and

efficiently

Manage Global Alliance Structure

Asia North America Europe ROW

Overarching Objective –Strategic Advantage

Broader Value

Focused, TacticalValue

Consolidate and Gain Protectable Competitive Advantage From Existing Partners and Alliances

• Increasing Value• Increasing Commitment• Increasing Investment and Risk

Limited value / no strategic fit

Page 36: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu40

Growth strategy development

External Analysis

Internal Analysis

Synthesis Action

OEM / Customer Market

Supplier Market

Product Segments

Technologies

Regulatory / Externalities

Chin

a

Glo

bal

Capabilities

Relationships / Network

Project Management

People and Change Management

Strategic Intent

Opportunities

Challenges / Risks

Financials / Business Case

M&A Plan

Internal Development Plan

Risk Management Plan

Implementation RoadmapStrategy Document

Organization Change Plan

Performance

Scenario Analysis

Chin

a

Glo

bal

Page 37: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu41

Analytic Framework for Strategy Development

External Analysis

OEM / Customer Market Segmentation and prioritization – growth, health,

profit potential Sales & service models Channels Location footprint / proximity requirements Competitors and ‘white space’ Customer strength / pricing power OEM attractiveness Aftermarket attractiveness Target customers

Product Segments Segment trends

‒ Price, volume, market size, and growth rate‒ Product and production technology‒ Maturing / life cycle analysis

Capacity / demand balance Competitor map / concentration analysis Market capability requirements Scale requirements / economies of scale Asset base requirements Service requirements Product development approach and resourcing

Technologies Product and production technologies Emerging technology assessment

‒ Potential / risks‒ Relationship to different externality scenarios

(energy, environment, safety) Technology maturity map Supplier / technology map Opportunity map

Regulatory and Externalities Regional analysis

‒ Current regulations and trends‒ Impact on OEM / customer market‒ Impact on Supplier market‒ Impact on Product segments‒ Impact on Technology development

Global trends: energy cost, consumer behavior

Chin

a

Glo

bal

Supplier Market Positioning – strengths and weaknesses

‒ Product and product technology‒ Production capacity and capability‒ Cost structure‒ Asset base‒ Financials‒ Sales and distribution‒ Management / people‒ Brand

Customer networks and relationships Strategic intent / investment direction

Competitor View M&A / JV View

Note: these analyses should be done with two ‘views’, China market and global

market (depending on your intent)

Page 38: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu42

Analytic Framework for Strategy Development

Internal Analysis

Capabilities Product R&D and technology Production R&D and technology Supply chain Sales and service, complex customer relationship

management Information systems and controls, governance Global experience Supplier network (tier 2-n) M&A experience, JV management Management People

PerformanceUnderstand your current performance and

performance management, identify gaps versus strategic objectives.

• Product technology• Production technology• Production cost and quality• Overall cost• Customer satisfaction• Management systems and controls• Financial performance – margins, operating income,

net income, ROCE, ROA, etc.• Performance management systems Ch

ina

Glo

bal

Relationship / Network Assessment of current JV’s / other relationships

‒ Competitive position: product, quality, cost, service, customer / OEM relationships

‒ Technology capabilities‒ Geographic footprint‒ Strategic importance

Portfolio analysis Product / market / alliance – JV map

‒ Existing coverage‒ Precluded areas (contractual / non-competes)‒ Open areas

Note: 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.

Page 39: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu43

Analytic Framework for Strategy Development

Synthesis

Opportunities Product segments Technologies Customers / segments Geographic markets Supplier market – acquisition / partnering Fit with strategic intent

Strategy Document Strategic intent Target markets – customer, geographic Target product segments Portfolio Investment requirements and priorities

‒ Capabilities‒ Technologies‒ Production capacity‒ Investments for strategic options (vs. full scale

commitment) Targets / expected outcomes Organization and accountability

Business Case Sales and market share projections Investment and resource details Financial targets and projections Tax impacts Qualitative targets and benefits Risks Contingencies

Challenges / Risks Dependencies on externalities Capability gaps / dependencies Competitor response Impact on existing network / business

Strategic IntentClear statement of your strategic objectives for the

parts business Market positioning Relationship to your OEM business Financial returns

Scenario AnalysisCreate hypotheses, evaluate under different

environmental scenarios, e.g.: Energy / oil cost scenarios Environmental regulation scenarios Powertrain technology disruption scenarios Market access disruption scenarios Industry reconfiguration scenarios

Page 40: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu44

Analytic Framework for Strategy Development

Action

Internal Development Plan Investments Assets Technology / R&D People and management – recruiting, training, etc. Capabilities

Implementation Roadmap Graphical sequence of all major activities Detailed workplans Resource plans Responsibilities Time line and dependencies Milestones and measurement points Execution threads:

‒ Project management‒ Change management and communication

Organization Plan Targeted end state Change plan Communication plan Roles and responsibilities

M&A Plan Objectives and priorities Secure advisors Target screening Deal parameters and negotiations Due diligence Integration

Risk Management Plan Major / identified risks Mitigation plan Measurement and reporting Responsibility matrix

Page 41: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu45

No 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 Analysis

Michael E. RaynorDeloitte Consulting LLPDistinguished Fellow, Deloitte Research

Synthesis

Page 42: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu46

Scenario Analysis: basic steps

Key Idea – Invest to Create Options

Anticipate• Identify drivers of change• Define the range of possible

futures• Determine which are truly

plausible

Formulate• Develop an optimal strategy

for each scenario• Compare optimal strategies to

define “core” and “contingent”elements

Accumulate• Acquire those capabilities needed to

implement the core strategy• Take options on capabilities needed

for contingent strategies

Operate• Execute the core strategy• Monitor the environment• Exercise or abandon options as

appropriate

Page 43: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu47

Example scenario analysis framework

Tech

nology

Reg

ulat

ion

Macro-economy

Each vertex could bea plausible scenario

Continued Recession / Slow Growth

Recovery / Return to

Higher Growth

New Carbon Limits

Current C Limits, Growth

Incentives

Electric

Advances

Gasoline

Advances

How to create capability options?

• Partial / seed investment

• Pilot projects• JV’s• Academic R&D• Development rights• Licensing – inbound

and outbound• Etc.

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).

Page 44: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu48

Example (from Deloitte work with another OEM)

Fuel Prices

Regulatory Environment

Infrastructure to Support Engine Technology

Consumer Appetite for Debt

Lifestyle Choices

Emerging Market Geopolitical Stability

Wor

st C

ase

Best

Cas

eM

ost

Pro

babl

e C

ase

Scenario 1: Car-mageddonMacroeconomic slide leaving automotive in an extended recessionary limbo

Scenario 2: Status QuoNo significant change in the situation from the current state

Scenario 3: Shifting GearsWe emerge from the current recession and largely shift back to pre-recessionary days

Scenario 4: Consumer’s Paradise The economy not only fully recovers but is now on the fast track, with fast adoption of new technologies

What are the key external drivers of uncertainty in the industry?

What are the range of scenarios that these drivers point to in the industry?

Anticipating the market

Illustrative

There is no significant change in the situation from the current state

Auto lenders and banks keep tight strings on financing

Limited demand for luxury cars, SUVs and crossovers

Limited investment in new technologies

Consumers are averse to take on debt

Low capacity utilization in the industry

There is considerable deterioration in the macro-economic environment

Auto industry struggles with margin pressures and domestic competition

Consumers prefer basic transportation such as telecommuting and mass transit systems

New category of “bare bone” vehicles that cater to basic transportation needs, e.g. Tata Motors’ Magic and Ace

We largely shift back to pre-recession days – consumer outlook is brighter and engine technology begins a gradual transition

Internal combustion engines still dominate in the short term but technologies such as all-electric vehicles gain traction

Automakers invest in new technologies due to high fuel prices

Prices stabilize and efficiency improvements lead to improved profits

Economic growth and an regulatory environment advantageous to consumers mean innovation advances quickly

Increased proliferation of new technologies, including an array of options as well as fuel cells and electric vehicles

Regulatory environment is favorable for new players as barriers to entry fall

Innovative business models crop up for cars, e.g. fractional ownership

Car-mageddon Status Quo Shifting Gears Consumer’s Paradise

Negative Impact Positive Impact

Range of Possible Scenarios* for the Automotive Industry

1. Determine external factors shaping the industry’s future.

2. Define a manageable number of planning scenarios

EngineTechnology

Internal combustion (IC)

Hybrid (H)

All-electric (E)

Hydrogen fuel cell (HF)

What is the continuum of strategic options that exist for the business?

Which is the right set of core commitments (and contingent options) based on common elements across all scenarios?

Developing and executing a strategy

IC H E HF

IC E HF

IC H E HF

IC H E

Car-mageddon

Status Quo

Shifting Gears

Consumer’s Paradise

IC H E HFOverall Strategy

Core Commitments

Contingent Options(trigger-dependent)

ObservationsInvest in improving fuel efficiency of internal combustion engine

Take options on hybrid and all-electric technologies

Keep an eye on hydrogen fuel cells as it becomes commercially viable

HF

Example

Green indicates level of investment

H

All electric (E)

3. Assess the impact of each scenario on different technology / product segment options. Develop investment strategy: commitments, options, defer / exit.

Page 45: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu49

As 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

questions…

Assessing emerging technologies External Analysis / Synthesis

Likelihood of Adoption?

Advantages

Maturity

Disadvantages

Infrastructure Requirements

Government Support

Competitive Intensity / Profit

Potential?

Concentration

Current Players

Level of Commitment

Exit Costs

Sources of Advantage (IP, manufacturing, customer intimacy…)

Required Capabilities?

Manufacturing

R&D / IP

Sales & Service

Supply Chain

Investment Options?

People / Talent

IP

Physical Assets

Network / Infrastructure

Ubiquity (e.g., supports many other technologies)

Fit with strategic intent and current capabilities

Page 46: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu50

Base Technology VariationsGasoline Gasoline – advanced technologies

Flex Fuel (ethanol blends)Multi Fuel (gasoline plus other hydrocarbon fuel)

Diesel Diesel – advanced technologiesBiofuels

Gasoline – Electric Hybrid Parallel (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)

Electric Plug In BatteryFuel Cell / Battery

Alternate Fuel Internal Combustion

Natural GasLPGHydrogen

Example: powertrain alternatives (cont.)

Page 47: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu51

Technology Description Supporting Technologies

Advantages Dis-advantages

Players (Examples)

Prospects (Deloitte Point

of View)

Gasoline Continuing improvements to conventional gasoline engines to improve efficiency and mileage

• Variable valve actuation

• Multiple displacement

• Turbo / supercharging

• Fuel stratified injection

• HCCI• CVT• DCT• Advanced

electronic engine controls

• Builds on existing technologies

• No major new infrastructure investment

• More certain / positive economics

• Continued reliance on fossil fuels / vulnerability to oil prices

• Continued CO2 emissions

• Trade-offs around complexity, reliability, certain emissions

• All OEM’s• Aisin• Bosch• Borg Warner• Continental• Magneti Marelli• Eaton• Honeywell • 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.

Diesel Continuing improvements to conventional diesel engines to improve efficiency and mileage

• Piezoelectric injectors

• Variable geometry turbochargers

• Exhaust scrubbing

• HCCI• CVT• DCT• Advanced

electronic engine controls

• Higher level of efficiency compared to gasoline

• Builds on existing technologies

• No major new infrastructure investment

• More certain / positive economics

• Higher build cost than gasoline

• Continued reliance on fossil fuels / vulnerability to oil prices

• Continued CO2 emissions

• Trade-offs around complexity, reliability, certain emissions

• Automobile Manufacturer #1, Daimler, BMW, Peugeot, etc.

• Bosch• Continental• Valeo• BorgWarner• Tenneco• Etc.

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.)

Page 48: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu52

Technology Description Supporting Technologies

Advantages Dis-advantages

Players (Examples)

Prospects (Deloitte Point of

View)

Gasoline Plus Other Hydrocarbon Fuels

Burn gasoline and other fuels in same engine.

• Flex fuel – gasoline / ethanol blend

• Multi fuel – burn gasoline or natural gas / LPG / other (separate tanks and feeds).

• Engine control systems

• Emissions control systems – sensors, catalytic converters

• Extension 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.

• Bosch• Etc.

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 Biofuels

Burn crop-derived or other organic fuels with petroleum-based diesel.

• Injectors• Engine control

systems• Catalytic

converters / scrubbers, sensors

• Extension of existing technologies.

• Reduce dependence on imported oil.

• Reduced emissions (with some exceptions).

• Leverage existing infrastructure

• Limits on the mix % (currently 5% in most engines).

• Potential impact on engine wear and performance.

• Most / all diesel OEM’s 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.)

Page 49: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu53

Technology Description Supporting Technologies

Advantages Dis-advantages

Players (Examples)

Prospects (Deloitte Point

of View)

Gasoline – Electric Hybrids

Gasoline 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.

• Batteries• Electric motors• Regenerative

braking• High current

electrical systems

• Drive controls• Auto 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 suppliers

• Electric 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.)

Page 50: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu54

Technology Description Supporting Technologies

Advantages Dis-advantages

Players (Examples)

Prospects (Deloitte Point

of View)

Electric Electric 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.)

• Batteries• Electric motors• Regenerative

braking• CVT• Drive controls• Power

management systems

• High current electrical systems

• Zero vehicle emissions.

• Reduced dependence on oil.

• Vehicle performance – range, driving

• Charge time.• Battery life,

replacement costs

• High cost, economics.

• Infrastructure investments

• Impact on power grid.

• Battery disposal.

• LI sources.

• Automobile Manufacturer/Renault (with Better Place)

• Aptera• BYD• Commuter Cars• Dynasty Electric

Car (Canada)• ElBil Norge

(Norway)• Fly Bo (China)• Fisker (US)• Lightning Car

Co. (UK)• Miles Electric

Vehicles (China mfg)

• Myers Motors• Reva (India)• Think (Norway)• Twike (Switz)• Tesla (US)• Zap (US)• Battery makers• Electric motor

manufacturers• PE / 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.)

Page 51: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu55

Base Technology

Variations Power-train

Chassis Interior Exterior Electronics

Climate

Gasoline Gasoline (advanced)

Flex Fuel Multi Fuel

Diesel Diesel (advanced)Biofuels

Gasoline – Electric Hybrid

Parallel

Serial

Diesel – Electric Hybrid

Parallel

Serial

Electric Plug In BatteryFuel Cell / Battery

Alternate Fuel Internal Combustion

Natural GasLPGHydrogen

In scenario planning we consider cross-impactsDisruption Potential on Current Technologies & Segments

Changes in base powertrain technology will impact other auto systems. Understanding these correlations is important in crafting your overall growth / investment strategy for parts.

Page 52: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu56

Lead Acid Battery

NiMH Battery

Li Ion Battery

H2 Hydride

H2 Gas

Natural Gas

LPG

Ethanol

Diesel

Gasoline

0 10 20 30 40 50 60

0.15

0.25

0.600000000000001

1

120

54

49

32

47

47.5

0.36

0.5

1

4

0.25

10

26

24

36

34

Energy Density

VolumeWeight

MJ / kg or L

Fundamental physics will affect technology evolution

Electric - Battery

Fuel Cell

Diesel

Gasoline

0% 10% 20% 30% 40% 50% 60% 70% 80%

Engine Efficiency

Today

Improvements w/ Existing Technologies

Physical factors suggest the continued dominance of fossil fuels for the next 10+ years.

Page 53: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu57

Technology Example: maturity analysis

Relative Technology Maturity

Bus

ines

s an

d Te

chni

cal R

isk

Fuel Cell / H2

Electric Steering

Regener-ative

Braking

Venture Capital Development Partnership Supplier Acquisition

Typical Sources of Leading Technologies

New Battery

Technol-ogies

Li-ion BatteriesOrganic

Batteries

New Combus-

tion Technol-

ogies

Different technologies at different stages of maturity carry different risks and investment requirements. New technologies may require different approaches to building or acquiring capabilities .

“Traditional”“Non-Traditional”

Page 54: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu58

Table of contents

1 The Global Automotive Industry – Our Point of View

2 Creating Growth Strategy

3 M&A Considerations

4 Acquisition Integration

5 Supplier Network Development

6 Next Steps

Page 55: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu59

Opportunities to create value via M&A – OEM level

Many OEM cross-border acquisitions of brands have been unsuccessful

Buyer Acquisition Date Current Status AssessmentSuccessful Acquisitions

Automobile Manufacturer #1

Acquired Company...

19XX Integrated into Automobile Manufacturer #1 Group

Highly successful, Acquired Company... retains own HQ and identity but shares product platforms with Automobile Manufacturer #1

BMW Mini (part of Rover Group)

1994 Integrated into BMW in 2000 and operated as a sister brand

Became successful after the brand was brought into the BMW engineering and management processes

Daimler smart 1994 Integrated into Mercedes Car Group Started as a standalone JV with swatch; not successful until integrated into Mercedes in 2006

Renault Dacia 1999 Integrated into Renault Maintains own HQ and identity, but shares Logan platform globally with RenaultGM/ SAIC/ Suzuki

Daewoo Auto 2002 Integrated into GM Asia-Pacific Integral to GM global product development and production networks; Daewoo brand generally discontinued outside Korea

Mixed Success or UnsuccessfulAutomobile Manufacturer #1

Acquired Company...

19XX Integrated into Automobile Manufacturer #1 Group

Difficulty establishing brand outside Spain, relatively high cost base

GM Saab 1989 Insolvent; agreement to sell Maintains own HQ and identify, shares platforms with GM/Opel, but cost structure/ exchange rate has limited success

BMW Rover Group 1994 Sold Land Rover to Ford and MG Rover to investors in 2000

BMW was not able to overcome past brand problems and did not integrate Rover

Daimler Chrysler 1998 Chrysler sold to Cerberus in 2007 Never achieved synergies due to limited shared platforms or functionsFord Volvo Cars 1999 Attempting to sell Maintains own HQ and identify, shares platform with Ford, but cost structure/

exchange rate has limited profitability

SAIC Ssangyong 2004 Insolvent; plant closed due to strike After initial turnaround success, limited product range of large vehicles and poor labor relations have caused major disruption

Too Soon to TellNanjing MG Rover 2005 MG production re-started; Rover

platform basis for Roewe brandSAIC appears to be using MG Rover to expand internationally

Tata Jaguar/Land Rover

2008 Operating as an independent subsidiary

Difficult timing for Tata with the downturn, but brands may strengthen with new products and technology transfer may be valuable

Fiat Chrysler 2009 Fiat acquired a 35% ownership Fiat and Chrysler intend to introduce Fiat platforms and products into NAFTA as soon as possible

Koenigsegg Saab 2009 Transaction being finalized Business plans not known

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© 2009 Deloitte Touche Tohmatsu60

Opportunities to create value - OEMs

Cross-border brand acquisitions have typically fulfilled one or more of four strategic objectives for the buyer

AccessNew Market

AcquireTechnology

Acquire aStrong Brand

Build Scale

“Cleansed ECC Client”

• GM/ Suzuki/ SAIC – Daewoo Auto: low-cost small car design• Tata – Jaguar/Land Rover: premium vehicle design• SAIC – Ssangyong: SUV and premium car design• Nanjing – MG Rover: volume vehicle design

• Tata – Jaguar/Land Rover: luxury car and SUV brands• Automobile Manufacturer #5 – Acquired Company...: premium brand• GM – Saab: premium brand

• Automobile Manufacturer #1 – Acquired Company...: add volume to existing platforms• Renault – Dacia: build volume for a new low-cost platform• Fiat – Chrysler: bring Chrysler products onto Fiat platforms

Strategic Objective Transaction Examples

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© 2009 Deloitte Touche Tohmatsu61

Opportunities to create value - OEMs

There have been some general patterns of success and failure in the examples of cross-border automotive brand acquisitions

Success patterns Failure patterns

Effectively shared product platforms and leveraged procurement across brands

Maintained a high cost structure relative to brand price positioning

Maintained sufficient brand uniqueness and a strong identity with the acquired brand

Were unable to build upon and strengthen the brand

Were able to leverage the acquired brand into new markets

Exposure to currency fluctuations for high proportion of exports eroded margins for extended periods

Developed a cost structure which supported brand price positioning

Cultural challenges limited ability to work together and achieve synergies

Successfully matched leadership and management style and structure to the culture and needs of the business

Were unsuccessful in developing a management structure and process which achieved objectives

Page 58: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu62

Opportunities to create value - OEMsToday, there are three primary alternatives for building a global automotive brand – they will all require significant investment and risk, and acquisition success is unknown

Acquire Standalone OEM (e.g., Acquired Company...)

Acquire Dependent Brand (e.g., Hummer) Build New Global Brand

• Consolidate position in existing markets

• Introduce/grow brand in China market

• Develop low-cost production footprint

• Extend brand into new markets

• Secure transition production support from seller

• Acquire technology and hire/ contract product development capabilities

• Develop models and prepare production for export

• Develop low-cost production footprint

• Extend brand into new markets

• Acquire technology and hire/ contract product development capabilities

• Establish/grow brand in China market

• Contract with distributors for export markets

• Develop models and prepare production for export

• Develop low-cost production footprint

• Extend brand into new markets

Pros

• Fastest route to growth• Brand and products are known

quantities

• Faster entry into existing markets• Brand is known and established

• Can “design” brand and image

Cons

• Could be prohibitively expensive• Potential cultural/political issues• Acquire legacy problems (e.g.,

contingent liabilities, image issues)

• Need to develop vehicles• Requires investment in brand,

engineering and facilities• Potential cultural/political issues

• Will take significant time to grow• May not own distribution channels• Requires investment in brand,

engineering, facilities

Page 59: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu63

Opportunities to create value - OEMs

There are a very limited number of OEMs or brands which can be considered as potential targets for acquisition

Potential Target

Stand-alone

Market Cap($US billion)

Geographic Breadth

2007 Vehicle Sales (Mils)

Holden Partial NA Australia 0.2

Hummer* No NA NAFTA 0.1

Automobile Manufacturer #7

Yes $3.7 Global 1.3

Mitsubishi Yes $10.7 Global 1.3

Opel (Europe)* Yes NA EU 1.3

Saturn* No NA US/Canada 0.3

Acquired Company...

Partial NA EU 0.4

Subaru Yes NA Global 0.6

Suzuki Yes $11.4 Global 2.4

Acquired Company...*

Partial NA Global 0.5*Deal announced or pending

Page 60: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu64

Evaluation and prioritization of external market opportunities should consider each product segment and balance potential value creation with your company’s needs

Developing a parts investment / acquisition strategy

• Segment-Based Strategy Questions‒ 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? 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)o Access to new or expanded markets through your

existing channels – U.S./Europe/ Latin America/Asia

‒ Importing and integrating technology (e.g. transmissions) back to Chinese market – your current R&D efforts / know-how vs. future technology directions

‒ How to most efficiently capitalize on your China labor force and home market position

‒ Your exposure to / ability to manage currency risks

‒ Your capabilities to integrate acquisitions, manage offshore entities / facilities

Page 61: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu65

Growth Opportunities

Consolidation Potential

Proprietary Technology Positions

Relative Market

Valuations

Powertrain Chassis/

Mechanical Exteriors Interiors Climate Control

Electronics/ Electrical

= High = Low= Medium

Growth-by-acquisition (roll-up) strategies should focus on one or two product families and consider long-term prospects

Assessing 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?

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© 2009 Deloitte Touche Tohmatsu66

Value Drivers

Technology/Innovation• Unique product or technology positioning

• Overall product segment growth potential

There can be multiple sources of value creation – this should be a key foundation for the overall business development strategy

Assessing the market (cont.)

Capacity Utilization/Scale• Facility consolidation potential

• Product design commonization

Pricing Leverage• Ability to maintain/improve customer pricing

• Improved sourcing leverage

Market & Customer Access• Ability to more rapidly enter new markets

• Potential to leverage existing products to new customers

• 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?

Page 63: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu

For most components, there will be a limited number of dominant suppliers, each with global coverage and the ability to invest in technology development

Assessing the market (cont.)

Production Scale

Market Share

Geographic Coverage

R&D Scale

Single Line Multiple Plants

Smallest Largest

Local Market All Markets

Single Application Multiple Technologies

Supplier A = Supplier B = Supplier C =

67

• 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?

Page 64: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu68

The optimal global, regional and local footprint will be determined primarily by the type of product produced and the customer portfolio

Assessing the market (cont.)

Asia EU NAFTA ROW

Product transportability

Customer locations

Production cost structure

Local supply base capabilities

Political stability

Cultural fit

Example Footprint Evaluation Criteria• 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?

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© 2009 Deloitte Touche Tohmatsu69

Stronger suppliers are gaining business at the expense of weaker competitors; it is critical to understand the competitive positioning of a potential acquisition target

Assessing the market (cont.)

Powertrain Supplier Profiles

SupplierFinancial

RatingStrategic

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 5 100 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

• 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?

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© 2009 Deloitte Touche Tohmatsu70

One strategy could be to acquire an existing strong supplier as the roll-up platform; however, banks and private equity investors (PEIs) are also possible partners

Assessing the market (cont.)

Exhaust Manifold Supplier Profiles

Supplier Country HQ Owner-ship Major Shareholders Market Cap ($M)

Supplier A Japan Public Automobile Manufacturer (47%) $168

Supplier B Japan Public Automobile Manufacturer #6 (22%) $4,040

Supplier C USA JV Emcon (50%)/Sango (50%) -

Supplier D Germany Private Family owned -

Supplier E Japan Public Automobile Manufacturer (42%) $285

Supplier F China Public   $145

Supplier G Germany Private Family owned -

Supplier H USA PEI One Equity Partners -Supplier I France Public PSA (72%) $321

Supplier J China JV Lioho (55%)/Sumitomo (45%) -

Supplier K Portugal Private Fiat/Teksid (84%) -Supplier L USA Public   $12

Supplier M Japan Public Hitachi Ltd. (54%) $9,780

Supplier N Japan/USA PEI Asahi Tec - 100% $155

Supplier O France PEI Zen Group (Italy) -

Supplier P USA Private Wescast (49%) (minority bus) -

Supplier Q Canada Public LeVan family (majority) $11

Banks

PEIs

Strong Supplier

Potential Partners

?

• 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? Is a JV preferable to an acquisition?

Page 67: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu71

There is an enormous range of uncertainty and choicesin today’s parts market

Passenger / Light Vehicle

Chassis

Brake Assembly

Brake Controls

Control Arms

Damper

Fuel Tank

Steering Gear

Steering Wheel

Climate

Ducting

Heat Exchanger

HVAC Compressor

HVAC Condenser

HVAC Controls

HVAC System

Electronics

Adaptive Cruise Control

Airbag ECU

Brake Lighting

CHMSL

Forward Lighting

Front Entertainment System

Junction Box

Keyless Entry Control Unit

Keyless Entry Transmitter

Navigation System

Occupant Classification Sensor

Rear Entertainment System

Tire Pressure Monitoring System

Wire Harness

Exterior

Bumper Fascia

Convertible Top Assembly

Door Hardware Module

Exterior Mirror

Sunroof

Vehicle Structure

Window Regulator

Interior

Airbag Cushion

Airbag Inflator

Airbag Module

Door Trim Panel

Floor Console

Floor System

Headliner

Instrument Cluster

Instrument Panel

Package Tray

Seat Adjuster

Seat Assembly

Seat Backrest Frame

Seat Belt

Seat Cover

Seat Cushion Frame

Seat Recliner

Trunk Liner

Powertrain

Camshaft

Catalytic Converter

Crankshaft

Cylinder Block

Cylinder Head

Drive Axle

Drive Shaft

Engine ECU

Exhaust Manifold

Fuel Injector

Hybrid System

Intake Manifold

Throttle Body

Torque Transfer

Transmission ECU

Turbo/Supercharger

Variable Valve Timing

Base Technology VariationsGasoline Gasoline – advanced

Flex Fuel Multi Fuel

Diesel Diesel – advanced Biofuels

Gasoline – Electric Hybrid

Parallel Serial

Diesel – Electric Hybrid

Parallel Serial

Electric Plug In BatteryFuel Cell / Battery

Alternate Fuel Internal Combustion

Natural GasLPGHydrogen

Direction of base fuel and powertrain technology

Impact on other part families / vehicle systems

Changes in powertrain and other technologies will create opportunities in many different auto systems / parts families.

Page 68: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu72

Table of contents

1 The Global Automotive Industry – Our Point of View

2 Creating Growth Strategy

3 M&A Considerations

4 Acquisition Integration

5 Supplier Network Development

6 Next Steps

Page 69: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu73

Our insights come from assisting clients in over 600 post-merger integration and separation situations

Auto & Manufacturing Hi Tech & Finance Process & Life Science China & Consumer Products

Automobile Manufacturer #5 HP acq. of Compaq Dow acq. of Union Carbide Nanjing Auto acq. of MG Rover

Automobile Manufacturer #5 HP div. of Agilent Exxon merger with Mobil Lenovo acq. of IBM PC business

General Motors div. of Delphi Sprint acq. of Nextel Chevron acq. of Texaco J&J acq. of Dabao

General Motors acq. of Daewoo Agilent Technologies div.of Avago Pharmacia acq. of Monsanto Pharmaceutical Preparation

Manufacturer #2

DaimlerChrysler div. of MTU Brocade acq. of McData BP acq. of Amoco Bayer div. of medical diagnostics business to Siemens

Mitsubishi div. of Fuso Sun Microsystems acq. of StorageTek Monsanto div. of Solutia

J&J acq. of Pharmaceutical Preparation Manufacturer #2

consumer business

Goodyear div. of Engineered Products business

Activision acq. of Vivendi games business

Domtar acq. of Weyerhaeuser paper business

Nomura acq. of Lehman Bros. Asia

Hill-Rom div. of Hillenbrand Adobe acq. of Macromedia Cargill acq. of Degussa Huls PetroChina acq. of PetroKazakhstan

Arcelor acq. of Corus JP Morgan acq. of Chase Bayer AG acq. of Schering AG Unilever acq. div. of BirdsEye

Boeing acq. of McDonnell Douglas

First Data Corp. acq. of Western Union

Bayer acq. of Roche consumer health business

Kraft acq. of Danone biscuit business

Rockwell Collins acq. Of Kaiser Aerospace

Credit Suisse acq. of First Boston

Philips Medical acq. of Agilent Technologies Nestle acq. of Dreyers

Auto Significant China component

EXAMPLES

Page 70: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu74

The 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 capabilities

Synergies, 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 platform…

New customer value proposition

New processes New organization

How do you deliverbenefits…..

Personnel reduction Sourcing/Purchasing Facilities consolidation

Whileintegrating…….

Systems Customers Management Channels Processes Employees

Without negativelyimpacting…..

Customers Channels Employees Shareholders Financial performance

Source: *Deloitte Consulting M&A survey; DC analysis

The Principal Challenge Areas Impacted Desired Outcomes* Typical Results

Our perspectives on acquisition integration

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© 2009 Deloitte Touche Tohmatsu75

PMO Launch

2 to 4weeks

8 to 26weeks

1 to 4weeks

Phase 1Integration Blueprint

Strategic imperative for integration delineated

Integration structure and management processes implemented

Day 1 priorities identified and successful launch defined

Cost and headcount baseline for synergy review and budgeting completed

Level 1 organization design and Level 1 leadership defined

Establish location consolidation decision framework

Customer integration approach

End-state guiding principles

Top - down functional synergy targets

“Adopt and Go” decisions

Brand and product plans for launch

Level 2 and 3 functional leadership assigned

Day 1 policies, initiatives and processes (customer, R&D, finance)

Functional integration plans

Synergy initiatives and integration costs

Compensation, titles and benefit rationalization

Product roadmap

Brand initiatives

External and internal communication

Economic development incentive negotiations

Customer facing resource training

Customer and employee retention initiatives

Rapid customer team integration

Successful Day 1

End-state planning integrated with synergy plans and integration costs

Financial plan integrated with synergies and integration costs

Financial process controls implemented

IT integration and rationalization

Real Estate consolidation

Integrated HR model

Rationalized product portfolio

Headcount targets achieved

Sourcing benefits achieved

BLUEPRINT

CLOSE

LA UNCH

Phase 2Detailed Planning

Phase 3Implementation

Phase 4End-State

12 – 18months

Key to success – follow a structured processThe typical integration roadmap has four phases

Our perspectives on acquisition integration

Day 1

Page 72: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu

Carve-out transactions offer a unique set of opportunities and risks Carve-outs represent a different risk profile than other types of M&A transactions

• Identification and understanding of shared functional support is required to develop standalone requirements• Transition periods during which the two entities transition to standalone operations often involve complex and

far reaching functional activity• Creation 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 parent

Carve-out risks• Insufficient pre-deal diligence• Underestimating complexity, cost, and timing of separation, and establishing stand alone infrastructure and

capabilities• Over- or under-reliance on transition service agreements (TSAs) or insufficient TSA drafting attention• Building standalone capabilities appropriate to the carve-out entity

Carve-outs create opportunities to significantly improve financial and operational performance for the new stand-alone company• Buyer can optimize tax and legal entity structure tailored to the operating model of the stand-alone entity• Buyer 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 units

Our 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.”

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© 2009 Deloitte Touche Tohmatsu77

Deloitte has identified six leading practices for post-acquisition planning

Outcomes Integration Challenges Leading Practices

Start with the End in Mind

Blueprint for the future– Establishing a common understanding of integration

objectives among stakeholders– Energy consumed on positioning and politics

Upfront 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 protocol

Launch “Command and Control” Integration

Program

Who is doing what with whom– Maintaining current momentum, Day 1 needs, synergy

capture and longer term migration– Co-chief Integration Officers; two in a box– Capitalizing on best practices of both companies

Centralized 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 PMO

Focus on an Issue-Free

Day 1

Some assembly required– Distinguishing mandatory and nice-to-haves– Preventing market disruption– Balancing a multi-year transition with Day 1

Identified list of “must-have” requirements for Day 1 from a customer, employee, back office perspective

Bifurcated integration effort to focus first on Day 1 and then longer term integration

Expand and Front-Load Synergies

Synergies Matter– Jump starting synergy capture within regulatory constraints – Identifying “who owns what and how is it measured”– Managing synergy leakage

Targeted 30% to 50% above expectationsDocumented and managed top-down/bottom-up

synergy targetsRigorously managed synergy tracking

Plan Customer Strategies

Before Day 1

Hearing the voice of the customer– Preventing customer attrition (consumer and dealer)– Meeting customer requirements Day 1– Disparate sales approaches and products

Integrated 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 approach

Retain Key Talent

It’s always personal– Stabilizing the workforce segments– Retaining key personnel– Creating 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 stakeholders

1

2

3

4

5

6

Our perspectives on acquisition integration

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© 2009 Deloitte Touche Tohmatsu78

Degree Of Integration &

Control

Key Principles

Vision & Strategy

Risks & Issues

Program Managemen

t

Synergy Benefits

Key Milestones

Integration Blueprint

At the heart of the merger

blueprint is an agreed end state view

1. Start with the End in Mind: Integration Blueprint: The integration blueprint defines the overall integration strategy and scope for Day 1 and End State

Why 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 for

Day 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

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© 2009 Deloitte Touche Tohmatsu79

2. Launch Command and Control Integration Program (Integration Team Structure): A focused integration team structure and approach is critical to manage the effort

– Coordinate integration of individual functions

– Drive savings identification, business design, and implementation planning

– Focus on operating issues and concerns

– Coordinate all integration activities across functions

– Drive savings identification and capture

– Resolve transaction specific issues

– Set direction – integration strategy, priorities, synergy mergers and timing

– Resolve major issues, identify and address risks

– Sign-off on major decisions and communications

Cross-Functional Teams

Finance and Tax

Functional Integration Streams

Manufacturing andOperations

HumanResources Other…Information

Technology

SalesandMarketing

Chief Integration Officer

CIMO

Steering Committee

Day 1 Readiness

Synergy Capture(including Clean Room)

Other …Transaction Support (legal, regulatory, etc.)

Organization Development and Selection

Change, Communication and Culture

Overall ResponsibilitiesIntegration Team Structure

Our perspectives on acquisition integration

Chairman, CEO, Top Management

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© 2009 Deloitte Touche Tohmatsu80

Day 1

Day 1 Vision(set out in the Blueprint)

Day 1 Checklist (by Workstream)

BusinessUnitDay 1 Plans

FunctionDay 1 Plans

Mandatory

Nice to Have

Defer

The 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 level

Establish integration team structure Manage internal and external

communications Manage execution of prioritized Day 1

activities Transition to post Day 1 ‘business as

usual’ activities

Key marketing processes that will be affected by the merger are identified: Pricing, Promotion planning, Product/brand management, Marketing program management

Existing levels of autonomy between sales and marketing identified.

High level strategy for brand integration / management

Key messages to all stakeholders Retention plan agreed and messages

formed Payroll transfer in place Severance policy agreed Retention and incentive plans in place Knowledge transfer processes in

place Definition of total rewards and HR

policy integration plan Initial choreographed employee

experience activities

Clear cut-over plan in place Month-end financial and management

reporting process in place Day 1 organization roles and

responsibilities defined Delegated authorities agreed Disbursements and Receivables

integrated at macro level Regulatory and SOX and tax

requirements complete Compliance requirements complete

Link inter-company firewalls, access controls, email, and website

Telephony and data networks integrated

Administration and application support processes in place with proper controls

Define help procedures and linkages Link email and other employee

systems

Corporate

Sales and Marketing

HR Finance Technology

Supply chain priorities and key levers for Detailed Planning and Quick Win Execution timeframes

“Quick hit” plan for sourcing and procurement synergies

Pre-integration supply chain operating procedure (high level playbook)

Synergy plans and operating strategy for sourcing, operations, and distribution.

Manufacturing and Operations Rollout of customer and partner “Question

and Answer” document/webpage Customer 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 network

Sales summit conducted with sales force Immediate customer service level

requirements and issues identified Web sites linked and re-branded

accordingly

Customer Experience Real Estate / Facilities Obtain buy-in from real estate and facilities

stakeholders for the initial 3 week plan Gather internal data through interviews

and workshopo Develop real estate portfolio databaseo Inventory any real estate transactions

and capital projects in processo Inventory facilities and site services

vendors Develop baseline cost Define Day 1/Day 2 priorities of business

requirements Identify implementation options

Our perspectives on acquisition integration

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© 2009 Deloitte Touche Tohmatsu81

4. 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)

Pur

chas

ed G

oods

& S

ervi

ces

(~30

%)

Facilities (~20% )

Staff Functions (~10%)

HR Finance IT

Sales and Marketing

Business processes within BUs (~40%)

Manufacturing and Operations

Information Technology

Human Resources

1. Organization SimplificationReduce headcount by simplifying and streamlining the organizationTypical Savings: 10~25%

2. External Spend ReductionEmploy demand management, sourcing and tax strategies to reduce procurement costsTypical Savings: 5~15%

3. Business Process OptimizationReduce process-based costs via “adopt and go”, streamlining, automation, outsourcing and redesignTypical Savings: 5~20%

4. Infrastructure RationalizationRationalize projects, platforms, space and associated supportTypical Savings: 10~20%

Marketing (Other…)

Our perspectives on acquisition integration

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© 2009 Deloitte Touche Tohmatsu82

5. Plan Customer Strategies Before Day 1: Protecting and growing the customer base is critical to delivering the business value promised

Plan Stabilize Grow

When Immediately Prior to and through Day 1 During integration period and

beyond

What

Analyze customer base and create profiles:– Products/services bought– History and relationship– Geographies– Revenue and margin realized– Issues and risks– Switching costs and competitive

plays– Deal benefits

Develop “playbook” per profile

Implement retention playbook for each profile– Frequent and consistent communication

to customers– Nerve center to coordinate, track and

refine messaging, monitor and respond to competitor initiatives

– Resources prioritized to match customer value/risk profile

– Prepared positions to respond to anticipated situations (e.g., pricing arbitrage) depending on client profile

Identify and prioritize specific cross-sell opportunities

Create incentives for cross product line cooperation

Track and publicly reward desired behaviors

Migrate to cross product line client relationship teams for most significant customers and targets

How

Business leads drive profile development

Subset of “clean teams” handle customer data, with firewalls as needed

Use existing sales/relationship teams as much as possible, but deal with competing teams immediately at close

Create mechanism for senior management support as specific flight risk issues arise

Post close, move as quickly as possible to a unified syntax and approach to customer management, encoding best practices from each organization

Our perspectives on acquisition integration

For automotive deals, these strategies should include dealers and service networks as well as consumers in different markets.

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© 2009 Deloitte Touche Tohmatsu83

6. 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 workforce

Inputs End-state org vision,

including financial and operational goals

Guiding principles for integration

Synergy targets Two separate

organizations, cultures, operating models, and geographic footprints

Baseline headcounts, HR policies, and compensation/benefits programs

Regulatory constraints and notice period requirements by location

Outputs Streamlined, integrated

organization Redundant positions

released Clear responsibilities

and reporting lines Retention and effective

deployment of top talent

Organization Design Define end-state org

structures Set staffing levels by LOB/

function and geography Develop position

descriptions

Critical Talent Retention Develop short, medium,

and long-term retention strategy

Develop criteria for identifying top talent

Establish and manage talent lists

Create financial and non-financial retention programs

Selection/Deselection Determine selection

approach Identify

– Unaffected positions– Affected: work

elimination, staff reduction, job restructuring

Develop assessment approach and tools

Draft candidate slates Fill slots Notify employees of

individual status Track outcomes Develop training plans

to support transition

Separation Develop severance

packages Transition work to

remaining employees Prepare systems to

process increased separation volume

Deployment Confirm reporting and

stakeholder relations Relocate departments/

individuals as needed Confirm overall

resource deployment

HR Policies and Programs

Communication

Integrate comp/benefits programs (including titling/leveling) Standardize performance/career management

Communicate openly and promptly on selection processand progress

Speed 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 unit Frequent and transparent communications around staffing process are critical for remaining employees to commit to the new

organization

Management of People Transition

Key Considerations

Our perspectives on acquisition integration

Page 80: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu

• Launching a stand-alone Opel presents both opportunities and risks

• Deloitte is uniquely positioned to assist in this endeavor

Potential Opportunities• Ability to rapidly leverage and develop leading product

development capabilities and technology into your company

• Platform to build a major new brand in the China market and throughout Asia

• Ability to reshape and grow a major European icon into a more global brand

• Opportunity to create a more competitive player in the European automotive marketplace

Potential Risks• Maintaining focus on ongoing operations during the transition• Aligning people to the future operating vision• Developing a comprehensive understanding of Day 1 transition

items to prevent risk of business interruption• Retaining key talent, establishing appropriate controls over

acquired operations• Properly structuring and managing post-closing arrangements with

General Motors (engines, common parts, intellectual property, transition services, others)

Significant Automotive Experience• Over 2,000 industry-focused resources world-wide• Extensive functional depth and expertise, including global

network of specialists• Experience in divestitures to both Strategic and Private

Equity Investors• Supported the separation of Jaguar and Land Rover,

Automobile Manufacturer #5’s acquisition of ACH plants from Visteon, as well as many other carveouts

Leading Carve Out Practice• Over 700 previous transaction experiences• Recognized divestiture market leader• Global network of experienced resources• ‘Battle Tested’ divestiture toolset, accelerators and project

management capabilities• Integrated change management (World’s 2nd largest Human

Capital practice)

The separation of Opel into a stand-alone entity brings both significant opportunities and risks

Our perspectives on acquisition integration

Page 81: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu

Separation will raise operational transition questions in nearly every functional area

Product Development• How 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?

Finance• Which Finance services will be provided to Opel

during the transition? • How will Opel’s payables be isolated within

payments made to a common supplier?• Will Opel have to recreate some of GM’s

Finance systems and processes (stand-alone controls, policies and compliance requirements for the new organization)

Systems and IT• How 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 Logistics• Will 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 & Quality• What restrictions on use of IP may prevent

future/geographic development?• How will supplier quality tracking and

evaluations be done for shared suppliers?

Purchasing• How 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 Service• What 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?

Credit• How will ongoing retail financing for vehicles

work? • Should Opel make changes to the wholesale

financing structure?

Facilities and Property• What 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 Resources• How 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?

Aftermarket• How 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 Regulatory• What are the lobbying and regulatory services

that Opel participates in with GM? Saab? How will Opel ensure it’s 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

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© 2009 Deloitte Touche Tohmatsu

Deloitte has significant large-scale carve-out experience and is prepared to assist with the Opel acquisition

Sample Clients Highlights Issue Free Day 1

Automobile Manufacturer #5 and Jaguar Land Rover

• Supported in the creation of a standalone entity over an 11 month period• Enabled a successful Day 1 and launch. Provided continued support with the separation

projects to exit TSAs.

Automobile Manufacturer #5 and Automotive Components Holdings

• Supported 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 divestitures

General Motors and Delphi

• Enabled successful IPO by achieving divestiture milestones ahead of schedule• Developed and supported work plans to guide design, modification, testing, and installation of

information systems and data modified to support standalone Organisation

DaimlerChrysler and MTU • Developed an integrated separation work plan, including prioritization, cross-functional linkages and key milestones, for the sale of a $2B company to Private Equity Investors

• Mapped the manufacturing order-to-delivery supply chain process improvements into the post-separation environment

Agilent Technologies and Avago

• Accelerated 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 Investors

• Led the carve out and selective outsourcing across 40+ countries and legal entities

IBM and Lenovo • Supported the $10B carve-out and integration of IBM’s PC business to Lenovo• Established a global operating model in 66 countries• Created a new finance and accounting organisation and supported change readiness

Bayer Healthcare and Siemens

• Led 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, Procurement

Our perspectives on acquisition integration

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© 2009 Deloitte Touche Tohmatsu

Transaction Summary Transition 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 activities• Developed and supported work plans to guide design, modification, testing, and installation of

information systems and data modified or cloned to support standalone organization• Developed the Day 1 validation process, across functions for 8 business process scenarios

and 3 different business units across all geographies• Led end-to-end Global validation workshops with over 100 participants testing critical Day 1

validation scenarios and operated Global Day 1 Launch Centre• Executive Team fully engaged in transition efforts with direct reports on a weekly basis to the

Board

Applicability to Opel• Many of the challenges of separating

JLR from Automobile Manufacturer #5 are very similar to those which will occur with Opel

• Deep 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 transition

Selected results

Deloitte 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

Page 84: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

1 Our Understanding

2 The Global Automotive Industry – Our Point of View

3 Our Perspectives on Acquisition Integration

4 Supplier Network Development

5 N. American Market

6 Next Steps

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© 2009 Deloitte Touche Tohmatsu89

Assuring overall competitiveness of the network, now and in the future

• Technology and product development direction

• Cost• Financial health• Innovation

Assuring appropriate supplier base diversity and balance of power

• Concentration• Pricing

Assuring appropriate relationship with suppliers • Investment of time and effort• Joint development• Information sharing• Avoiding network conflicts

Measuring and managing supplier performance • Different expectations and metrics• Different rewards and incentives

Organizing the internal sourcing and procurement function for the best results

• Global• Focused supplier contacts• Leveraging volumes

Managing time and priorities • Spending time with the right suppliers• Spending time on the right things

Challenges in developing the supplier network

There are never enough time or resources to spend with all suppliers – by necessity OEMs must prioritize.

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© 2009 Deloitte Touche Tohmatsu90

1. Clear strategy and priorities for supplier network

2. Structured approach

3. Appropriate organization structure

4. Capable people

5. Supplier categorization, different levels of engagement and investment

6. Comprehensive, tailored performance measures and supporting IT systems

7. Communication, internally and externally

8. Commitment to the program and to strategic relationships

Keys to success

Developing a world-class supplier network takes time. Commitment and building trust with key suppliers are important requirements

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© 2009 Deloitte Touche Tohmatsu91

Developing and managing an automotive supplier network requires a structured approach

Foundation: Design and Build

Define Supplier Categories

Define Supplier Engagement Model

Design and Build Procurement Organization

Design Supplier Management

Processes

Design Sourcing & Procurement Technologies

Execute

Define Supplier Performance Metrics

Categorize Suppliers

Develop a Transformation

Roadmap

Change Organization, Assign

Responsibility

Develop Talent

Measure Supplier Performance

Engage Suppliers, Manage Individual

Supplier Performance

Review and Manage Supplier Portfolio

Page 88: Global Automotive Market Growth Opportunity & Strategy  Discussion With China OEMs

© 2009 Deloitte Touche Tohmatsu92

Define supplier categories

Strategic Importanceof Product or Service

Mar

ket

Conc

entr

atio

n /

Com

plex

ity

Group 2

Group 1

Group 3 Level 3

Level 2

Level 1

Level 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.

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© 2009 Deloitte Touche Tohmatsu93

Define supplier engagement model

Business Relationship

Complete Ownership (Vertical Integration)

Partial Ownership (Keiretsu)

Joint Ventures / Partnering

Exclusive, Long Term Contracts

Transactional

Automobile Manufacturer #5 1914

Automobile Manufacturer #6

Automobile Manufacturer, Mercedes

Automobile Manufacturer #5

Chrysler 1970

Relentless focus on cost.Broadly diversified supply base.Internal technology / product development

Balanced performance measures.Focused supply base.

Shared technology / product development

Engagement Dimensions• Technology development• Joint product development• Joint marketing• Facility planning / location• Value add

• Component design• Supplier manufacturing

process• Logistics integration / JIT

• Cost management• Delivery performance• Quality

OEM’s typically use a mix of engagement models for different component categories. The trend is toward the middle of the spectrum.

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© 2009 Deloitte Touche Tohmatsu94

Define performance measures for each supplier category

35%

30%

Estimated costs are equal or below market or benchmark pricing Historic “supplier bid evaluations” demonstrate competitive pricing practices Pricing remains competitive vs. the market over time Demonstrated investment in being cost competitive

20%

Continuous process improvement and development of leading edge ideas, concepts or technologies

Contributes to development of competitive advantage for Company Contributes to new products / services / innovative solutions through collaborative

development and problem solving

Demonstrated corporate responsibility that reflects Company’s core values Overall corporate citizenship (e.g., environmental, social, etc.) Adherence to environmental, health and safety regulations Exceptional industrial relations Alignment with Procurement diversity objectives (US & PR suppliers only)

5%

Non-Supply

50%

25%

15%

Supply

Quality

Service

Ongoing Cost Competitivenes

s

Process Innovation

Corporate Responsibility

Assigned WeightMetric Group Description

10% 5%

Materials / services meet or exceed expectations Materials / services are within regulatory compliance and Company specifications

and acceptable quality levels Operational 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 expectations Delivery of products and services within agreed time window Operational activities (e.g., billing, reporting, etc.) are timely Adequate system and process redundancies and up-times Measured in terms of degree of proactive responsiveness and adherence to

agreed upon timings / processes

Example (Life Sciences)

Performance measures will differ by supplier and component category. It is important that the measures are clearly communicated to suppliers.

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© 2009 Deloitte Touche Tohmatsu

Design and build procurement organization

Optimal Balance of Governance / Control and Responsiveness

Continuous Improvement In Cost Of Purchased Goods and Services

Internal Process Efficiencies and Savings

Competitive Advantage – Cost, Technology, Features, Vehicle

World-Class Procurement

2. Organization

4. Technology

Obj

ectiv

es

3. Processes

Enhanced Supplier Management Capabilities

Center-Led Procurement Strategy & Operation

Systematic Buying and Fulfillment Processes

Integrated Procurement Information System

Integrated Measurement, Tracking, & Reporting Infrastructure

Change Leadership / Knowledge Management & Training

Infr

astr

uctu

re

Institutionalize Change & Sustainability of Results

1. People

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© 2009 Deloitte Touche Tohmatsu

Center-Led CentralizedDecentralized

Description Sourcing and procurement activities occur in various regional and/or functional areas

Part-time responsibilities for sourcing and procurement activities occur within each of the functions and businesses

Sourcing and supplier management are center-led for most categories and decentralized for only localized buys

All procurement and strategic sourcing activities/decisions are made within a centralized procurement organization

Benefits

Maximum use of local suppliers

Strategic purchasing/ sourcing decisions are made by businesses

Formalized interaction between divisions

Greater capability to leverage purchasing across the organization

Business area experts still own requirements but “non-core” purchasing activities are off-loaded to experts

Ability to enforce commonality and standards

Commonality/alignment across divisions

Uniform approach to suppliers Ability to focus on leverage with

suppliers Improved control (quality and

standards)

Risks

Little to no cross-divisional leverage exists for pricing/volume discounts

Supplier base is large and hard to manage (minimal formal agreements)

Duplication of efforts is likely to occur

No full-time focus on procurement/sourcing

No efficient focal point for executive and cross-process communication

Difficult to maintain a degree of commonality/ standardization

To avoid conflicts around sourcing strategy and vendor selection, goals/incentives between procurement and business areas must be aligned and active executive leadership must exist

Often requires great organizational changes

Cultural resistance to “VP of Procurement” and line organization concept

Weakened link to field operations

Slower response time Fewer “local suppliers”

Distributed Governance

The leading practice for procurement organizations is to progress toward a center-led or centralized governance model

Trending

Design and build the procurement organization (cont.)

Organizational

Dimensions

Process

Commodity / Service

Business Unit / Vehicle Model

Geography / Region

Assembly Factory

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© 2009 Deloitte Touche Tohmatsu97

Design supplier management processes

Supplier Performance & Development Process - Draft Version 5.0

Supp

ly C

hain

Hub

(SC

H)

Sou

rcin

g (P

SM

)PS

Sup

plie

rA

ccre

dita

tion

Sup

pli e

r Per

f orm

anc e

& D

evel

opm

ent

SCH 3.0 - IdentifyBenchmarkmeasures

SA 2.0 - Audit andapprove suppliers

PSM 4.0 - Developcontracts

SCH 11.0 - Obtain suppliercommitment to performance and

development process

SPD 1.0 - Defineperformance

metrics

SPD 2.0 - Definemetric data

collection process

SCH 13.0 -Aggregate

performance datafor suppliers within

a SCH

SPD 9.0 -Produce supplier

scorecards

SPD 12.0 -Produce reports

SPD 13.0 -Communicate

performance tostakeholders

SPD 8.0 - Assignownership for

SCH relationships

SA 1.0 - Developsupplier profiles

SPD 10.0 -Assess supplierperformance and

relationship

SCH 4.0 - Definegoals with

suppliers anddevelop plans

SA 3.0 - Conductongoing compliance

audits

SPD 3.0 - Definerecognition or non-

performancecategories and

criteria

SPD 11.0 -Nominate supplierfor recognition ornon-performance

SPD 14.0 - InitiateSuppliers

recognition based onperformance

PSM 3.0 -Negotiate

agreements

SCH 7.0 -Categorisesuppliers

SCH 5.0 - Assesscurrent service

categories

SCH 6.0 - Defineservice vision and

goals

SCH 2.0 - Definespecifications and

requirements

PSM 5.0 - Selectsuppliers and

award contract

PSM 1.0 -Develop and issue

RFI, RFQ, andRFP

PSM 2.0 -Evaluate supplier

proposals

SPD 15.0 - InitiateSupplier corrective

action for non-performance

SCH 12.0

SCH 12.0 - Assistend user withcompletion of

supplierperformanceevaluation

SPD 4.0 - Communicateand train stakeholders on

supplier evaluationscorecard and datacollection process

SCH 14.0 - Senddata to SP&D

team

SCH1.0 - AssessSCH business

needs

SCH 9.0 - Implementand execute Supplier

recognition orcorrective action

SPD 6.0 - ValidateAggregated

Performance Data

SPD 5.0 -Aggregate Data

for Supplierproviding Services

Across SCHs

SPD 7.0 - Collectand Aggregate

Data for Suppliernot Linked to a

SCH

SCH 8.0 -Participate in

SupplierPerformanceEvaluation

SCH 10.0 -Communicate

Performance toSuppliers

Start

End

Example (Oil and Gas)

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© 2009 Deloitte Touche Tohmatsu98

Design sourcing & procurement technology architecture

Suppliers

EDIEDIEDI

XMLXMLXML

FAXFAXFAX

EMAILEMAILEMAIL

HTMLHTMLHTML

Suppliers

EDIEDIEDI

XMLXMLXML

FAXFAXFAX

EMAILEMAILEMAIL

HTMLHTMLHTML

EDIEDIEDIEDIEDIEDI

XMLXMLXMLXMLXMLXML

FAXFAXFAXFAXFAXFAX

EMAILEMAILEMAILEMAILEMAILEMAIL

HTMLHTMLHTMLHTMLHTMLHTML

Supplier Network

TxnRouting

TxnRouting

cXMLcXMLEDIEDI

HTMLHTMLFAXFAX

EmailEmail

Supplier / BuyerReg / Acct AdminSupplier / Buyer

Reg / Acct Admin

ContentManagement

ContentManagement

SupplierDiscovery & Sync

SupplierDiscovery & Sync

InvoicingPO/Non-POInvoicing

PO/Non-PO

SupplierDoc & Training

SupplierDoc & Training

BUYER

SUPPLIER

- XML- HTTPS

- Master data

- Business documents

-Accounting- Business documents

CORPORATESYSTEMS

ERP / MRP

GL

AP/AR

Inventory

AssetMgmt

Mfg

Projects

HR

Security

CORPORATESYSTEMS

ERP / MRP

GL

AP/AR

Inventory

AssetMgmt

Mfg

Projects

HR

Security

ARIBASPEND

MANAGEMENT

Analysis

CategoryManagement

Procurement

EnterpriseSourcing

SPENDMANAGEMENT

AnalysisAnalysisAnalysis

CategoryManagement

CategoryManagement

CategoryManagement

ProcurementProcurementProcurement

EnterpriseSourcing

EnterpriseSourcing

EnterpriseSourcing

-Content- POs- Invoices- Timesheets- Sourcing- Status- OCs, ASNs- Public RFx-Collaboration

CorporateNetwork Internet

Public RFxPublic RFx

CollaborationCollaboration

SOURCING & PROCUREMENT IT ARCHITECTURE COMPONENTS • Spend data and spend management• Category management• Supplier performance reporting• Transaction support• Communications• Document management• Integration with corporate systems• Analytics• Etc.

Example

Technology design should follow organization and process design.

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© 2009 Deloitte Touche Tohmatsu

Develop a transformation roadmap

A procurement transformation roadmap defines the spend management, process, organization and technology initiatives to capture and sustain value from procurement.

---Illustrative---

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© 2009 Deloitte Touche Tohmatsu100

Categorize suppliers

Rank suppliers in order of total score

Top 5 suppliers identified as Level 1 suppliers. All remaining suppliers categorised as Level 2

Review / Refresh periodically (e.g. every 6 months) or when a trigger factor instigates a change (e.g. when spend with a supplier significantly increases

Calculate 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 supplier

Review 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

supplier

Assess if spend >£1m p.a.

Is the supplier a sole supplier for a category?

Supplier categorised as Level 1 or Level 2

Supplier categorised as Level 3

NO NO NO

YES YES YES

5

6

7 8 9 10 11

2 3 4

12

Company XYZSupplier

Management Manual

2009

Example

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© 2009 Deloitte Touche Tohmatsu101

Measure supplier performance

SPD 1.0 - Define performance

metrics

SPD 2.0 - Define metric data

collection process

SPD 5.0 – Aggregate data for Supplier providing services across

Categories

SPD 12.0 – Produce Reports

SPD 13.0 – Communicate

supplier performance to

Category Manager

SPD 5.0 – Communicate and

Train stakeholders on

supplier evaluation and data collection

process

SPD 9.0 – Produce supplier

scorecards

SPD 3.0 - Define recognition or

non-performance categories &

criteria

SPD 6.0 – Validate aggregated

performance data

DefinePerformance

Measurements

Collect and Aggregate

Data

ReportSupplier

Performance

Perf

orm

ance

Mea

sure

men

t

SPD 8.0 – Assign ownership for

supplier relationship

SPD 10.0 – Access supplier performance and

relationship

SPD 7.0 – Collect and Aggregate

data for suppliers not linked to a

Category Manager

Example

Supplier Management Scorecard

Fiscal Year 02/03 Quarterly Update April 1, 2003 Supplier Background Objective Results Products Currently Supplied: Bag-in-box bags with valves

Manufacturing Locations: Northlake, IL*; Merced, CA; Rancho Dominguez, CA; Chilhowie, VA; England, Netherlands; Australia; Canada - Scholle Corporation Brazil to open 5/2002 – See attached

JD Annual Spend FY99/00:

Global SCJ Spend FY99/00:

Supplier status as SC Johnson Customer: Purchase limited amounts of plant cleaning and air freshener products for operations

Number of exclusivity arrangements Purchase orders only

Growth Opportunities: Additional N. American business;

Comments:

Cost Objective Results Cost Reduction FY99/00: Negotiated cost savings only

Cost Reduction FY00/01 YTD: Working towards nylon-free wax bag

Cost Reduction Ideas Generated: IPN “Clean-Clic” valve and fitment technology (available 6/01)

Nylon-free wax bag Low-cost fitment for waxes

Ideas Implemented:

Savings due to supply chain integration

Technology Objective Results Technical Seminars Conducted: 1/01 – Northlake plant tour for Waxdale

associates; JWP personnel not allowed to see bag forming equipment

Sales of new products with supplier technology

Number of ideas generated High-barrier bag structure for cleaners. Number of patents due to supplier technology Quality Objective Results Variance from Established Metrics 1% tolerance

Service Objective Results Roll in JDE Scorecard (on-time delivery, cycle time)

Comments on sales representation, environmental reporting, invoice discrepancies

Customer service issues in 99/00; lack of technical support; “Can’t Do” attitude towards new technology and cost-savings ideas.

N. American contract fillers for BIBs, 2/01.

New Business Development Objective Results Access to new customers/new markets Selling Through Introductions to Clients Sales of new products as a result of supplier’s ”green technology”

Supplier Scorecard

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© 2009 Deloitte Touche Tohmatsu102

Engage suppliers and manage performance

SPD 11.0 Nominate suppliers for

recognition or non-performance

SPD 14.0 - Initiate Supplier Recognition

based on performance

SPD 15.0 - Initiate Supplier corrective

action for non-performance

Initiate Development Intervention

s

Initi

ate

Dev

elop

men

t

Example

Improvement Areas / Initiatives

Cost• Supplier mfg

process improvement

• Joint material sourcing

• DFM

Quality• Defect root

cause analysis• 6 sigma / other

programs• Product/process

redesign

Delivery Performance

• Exception reporting and root cause analysis

• JIT program

Technology• Maturing

assessment & benchmarking

• Joint development

Innovation• Evaluation• Process reviews• Network

development

Joint Value

• Joint evaluation• Early vehicle life

cycle engagement

The 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.

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© 2009 Deloitte Touche Tohmatsu103

Review and Manage Supplier Portfolio

KeyIndirect supplier with no contractDirect supplier with no contractDirect supplier with valid contract

Passenger / Light Vehicle

Chassis

Brake Assembly

Brake Controls

Control Arms

Damper

Fuel Tank

Steering Gear

Steering Wheel

Climate

Ducting

Heat Exchanger

HVAC Compressor

HVAC Condenser

HVAC Controls

HVAC System

Electronics

Adaptive Cruise Control

Airbag ECU

Brake Lighting

CHMSL

Forward Lighting

Front Entertainment System

Junction Box

Keyless Entry Control Unit

Keyless Entry Transmitter

Navigation System

Occupant Classification Sensor

Rear Entertainment System

Tire Pressure Monitoring System

Wire Harness

Exterior

Bumper Fascia

Convertible Top Assembly

Door Hardware Module

Exterior Mirror

Sunroof

Vehicle Structure

Window Regulator

Interior

Airbag Cushion

Airbag Inflator

Airbag Module

Door Trim Panel

Floor Console

Floor System

Headliner

Instrument Cluster

Instrument Panel

Package Tray

Seat Adjuster

Seat Assembly

Seat Backrest Frame

Seat Belt

Seat Cover

Seat Cushion Frame

Seat Recliner

Trunk Liner

Powertrain

Camshaft

Catalytic Converter

Crankshaft

Cylinder Block

Cylinder Head

Drive Axle

Drive Shaft

Engine ECU

Exhaust Manifold

Fuel Injector

Hybrid System

Intake Manifold

Throttle Body

Torque Transfer

Transmission ECU

Turbo/Supercharger

Variable Valve Timing

Perform an annual review of the overall supplier portfolio:• Update portfolio map and matrix of supplier / product family

• Review product family coverage

• Review supplier category / level assignments

• Identify concentration gaps vs. targets (too few or many suppliers in a category)

• Identify risk areas based on individual supplier performance and health

Supplier Portfolio Map

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AB C

DE

F GH

I

J

K

L

MO P

Q

R

S

TU

V

W

Y

Z

A1

B1

C1

D1 G1

H1

I1

J1

L1

N1

O1

P1

T1

M

X

E1

F1

K1

M1

Q1R1

S1

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

0 1 2 3 4 5 6 7 8 9 10

Market Complexity

Identify supplier portfolio initiatives:• Product families to add or reduce suppliers

• Suppliers that are candidates for level upgrade or downgrade

• Suppliers that are candidates for removal

• New suppliers to approach• Verify responsibilities for actions (by supplier)

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1 Our Understanding

2 The Global Automotive Industry – Our Point of View

3 Our Perspectives on Acquisition Integration

4 Supplier Network Development

5 N. American and Europe Supplier Markets

6 Next Steps

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© 2009 Deloitte Touche Tohmatsu105

• The global automotive market faces a period of unprecedented change.‒ Restructuring and failures‒ Shifting demand‒ Technology and regulatory disruptions

• There 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 takeaways

While 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.

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• Confirm your strategic intent (1st strategic question)

• Review analyses that have been completed, determine what remains to be done

• Complete analyses – answer the remaining strategic questions

• Complete strategy articulation and business case

• Secure board / executive management approval on strategy and business case

• Complete implementation roadmap

• Launch development and M&A activities

Next StepsExternal Analysis

Internal Analysis

Synthesis Action

OEM / Customer Market

Supplier Market

Product Segments

Technologies

Regulatory / Externalities

Chin

a

Glob

al

Capabilities

Relationships / Network

Project Management

People and Change Management

Strategic Intent

Opportunities

Challenges / Risks

Financials / Business Case

M&A Plan

Internal Development Plan

Risk Management Plan

Implementation RoadmapStrategy Document

Organization Change Plan

Performance

Scenario Analysis

1. What is your company’s strategic intent?

2. Where to compete?

3. How to compete?

4. When and how to invest?

5. How to align existing relationships?

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Given 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.)

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Appendix – Deloitte Automotive Experience

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© 2009 Deloitte Touche Tohmatsu

• We know the automotive industry and serve the entire automotive value chain, including OEMs, suppliers, distributors and retailers

• Deloitte 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 services

• Client 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 specialization

• Our client service approach integrates our broad service capabilities, including audit, tax, financial advisory, risk management, and management consulting

• Deloitte serves 88% of the manufacturing companies on the Fortune Global 500®

Deloitte has extensive global automotive experience

For more information visit our web site: www.deloitte.com/manufacturing

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Our experience encompasses OEM’s, suppliers, finance companies, dealerships, and other segments

OEMs

• BMW• Brilliance• Chrysler• Daimler• FAW• Fiat

• Automobile Manufacturer #5• General Motors• Geely• Honda• Automobile Manufacturer #3• Jaguar/Land Rover

• Kia• Mitsubishi• Automobile Manufacturer• PSA Peugeot/Citröen• Porsche

• Renault• SAIC• Tata• Automobile Manufacturer #6• Automobile Manufacturer #1

Off Highway/Trucks/Recreation OEMs

• Bombardier• Case New Holland• Construction Machinery

Manufacturer #1• Club Car (Ingersoll-Rand)

• Daimler Trucks• Deere• Fuso• Harley Davidson

• J. B. Poindexter• Komatsu• Navistar

• Scania• Acquired Company...• Yamaha

Captive Finance Companies

• BMW Financial Services• Chrysler Financial Services• Daimler Financial Services

• Automobile Manufacturer #5 Motor Credit

• GMAC• John Deere Credit

• Automobile Manufacturer Acceptance

• Renault Credit International

• Automobile Manufacturer #6 Motor Credit

• Acquired Company... Commercial Finance

Suppliers

• Aisin• American Axle• ArvinMeritor• BorgWarner• Bosch• Bridgestone/Firestone

• Continental/Schaeffler• Dana• Delphi• Denso• Eaton• Federal-Mogul

• GKN• Keihin• Lear• Linamar• Automobile Parts Manufacturer

#1• Mahle

• Michelin• ThyssenKrupp• Timken• TRW• Valeo• ZF

Dealerships, Distribution and Support

• Allied Holdings• AutoNation

• Construction Machinery Manufacturer #1 Logistics

• CN Rail

• OnStar• MBCL (China)

• Vector

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Our global automotive network of 2,500 professionals covers all major markets, including:

We have a large, global network of professionals serving the industry

Europe, Middle East and Africa Region

• Belgium• Czech Republic• Finland• France• Germany• Hungary• Ireland• Italy• Netherlands• Norway• Poland• Romania• Russia• Slovak Republic• Spain• South Africa• Sweden• Turkey• United Kingdom

Asia Pacific Region

• Australia• Cambodia• China• India• Indonesia• Korea• Japan• Malaysia• New Zealand• Singapore• Philippines• Taiwan• Thailand• Vietnam

Americas Region

• Argentina• Brazil• Canada• Chile• Colombia• Mexico • United States• Venezuela

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Asia Pacific regional automotive profile

• Large footprint in the Asia Pacific region to match that of our automotive clients

• Regional 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 companies

• Experience assisting state and national governments with automotive industry assessments

• Multidisciplinary skills to deliver audit, consulting, financial advisory and tax services to the automotive industry

Asia Pacific Region• Australia• China• India• Indonesia• Korea• Japan• Malaysia• New Zealand• Singapore• Philippines• Taiwan• Thailand• Vietnam

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We have perspective and analyses which your team can leverage

• Evaluate potential roll-up strategies and consolidation alternatives‒ Supplier assessments‒ Stakeholder analysis – customers, banks, potential investors ‒ Roll-up scenario modeling/planning‒ Industry intelligence – suppliers and OEMs‒ Risk assessment

• Potential partner strategies‒ Partner strategy alternatives development‒ Alternative investor financial modeling and scenario development

• Acquisition and/or divestiture planning and execution‒ Buy-side planning and due diligence‒ Integration planning and execution‒ Sell-side planning and due diligence‒ Carve-out divestiture planning and execution

Deloitte helps automotive clients define and execute their growth and M&A strategies

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Deloitte has global experience in automotive M&A

Approach Execution

• Supported US Private Equity firms’ evaluation of various potential targets, including Global Auto OEM’s, Tier 1,2 & 3 Suppliers, Aftermarket Distributors and Remanufacturers, Commercial Vehicles

• Led post-close separation activities (operational support and transition to buyers) for the finance function of a $10+B supplier divesting multiple manufacturing facilities

• Led development of TSAs covering $200M+ per annum in transition services for divestiture of a global OEM

• Led 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 transition

• Supported transition associated with divisional divestiture and stand-up of a $1.5B automotive supplier

• Assisted private equity buyer in development of future state processes, SAP reconfiguration/ roll-out and coordinated training efforts for financial processes of auto supplier acquisition

• Supported IT Testing, program management, process documentation and multi-country transition in South America for business unit divestiture of Tier 1 automotive supplier

• Established and supported ongoing transition governance process for divestiture planning of global Tier 1 automotive supplier

• Strategic assessment of hold, sell, or restructure alternatives for various assets of a Global Auto supplier

• Assisted Chinese automotive OEM with strategy development for North American market entry including potential M&A alternatives

• Led global OEM client team through validation and finalization Purchase and Transition Service Agreements for $12B acquisition

• Supported the validation of Day 1 requirements and established a Day 1 issues resolution and support center for acquisition of NA-based Tier 1 supplier

• Established Project Management and supported functional planning efforts for the integration of an acquired $2B business unit into an global automotive OEM

• Supported $8B Tier 1 manufacturer in post-close stabilization and ongoing management of a $1B/yr transition services arrangement

• Supported Tier 1 supplier post-transaction in developing multiple cross-functional resolutions required to mitigate operational issues not fully contemplated in the transactional documentation

• Assisted large US supplier in separation efforts required to exit post-close transition service arrangements

• Assisted global OEM in defining post-transaction Target Operating Model for network of 25 National Sales Companies

• Led 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 company

• Conducted 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 subsidiary

• Analyzed 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 terms

• Led functional separation and Transition Services definition for carve-out of off-highway diesel engine business from major diesel engine manufacturer to a Private Equity firm

• Supported Tier 1 Supplier in development of draft Transition Service Statements of Work (SOWs) by function in support of manufacturing facilities sold to another Tier 1

• Assembled 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.

OverviewDeloitte’s 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-announcement CloseAnnouncement

M&A Strategy Target Screening Due

DiligenceTransaction Execution DivestitureIntegration

Deloitte Automotive M&A Lifecycle Experience - Examples

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Deloitte 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

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© 2009 Deloitte Touche Tohmatsu117

• Transforming the Automotive Industry: The Road To Recovery • Transforming the Automotive Industry – SG&A Savings Can Put

Cash Back in Your Business• Fast tracking Indian automotive logistics• Convergence in the automotive sector• Innovation in emerging markets. 2008 Annual study. • Ladies and gentlemen. Start your service engines.• Managing strategic risks in China’s 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 recording

• Prospering from the automotive service revolution.• Creating the “Wholly Sustainable Enterprise” A Practical Guide to

Driving Shareholder Value Through - - Enterprise Sustainability• Automotive Update. Quarterly News and Analysis of the European

Automotive Market• Great 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 vehicles

• Driving Value: 2006 Asian Automotive Tax Survey.• Collaborative Commerce In the Automotive Industry• IT Trends in Automotive (survey with OESA) Demand-Driven

Automotive Sales and Distribution - Asian Automotive Performance in the U.S. Market

• Besonderheiten der Rechnungslegung in der Automobilzulieferindustrie (specific features of the accounting in the automotive supplier industry - Germany)

• Innovation in Emerging Markets. 2007 Annual Study• Automotive manufacturers seek revenue growth in emerging markets. • Innovation in Emerging Markets. Strategies for Achieving Commercial

Success• Laboratories of Innovation. Leveraging Emerging Markets for

Commercial Success• The Service Revolution in Global Manufacturing Industries• Unlocking the Value of Globalisation: Profiting from Continuous

Optimisation• Mastering Innovation: Exploiting Ideas for Profitable Growth• Growing the Global Corporation: Global Investment Trends of U.S.

Manufacturers• Mastering Complexity in Global Manufacturing: Driving Profits and

Growth through Value Chain Synchronization• Reducing Earnings Volatility: A Short Course in Energy Cost

Management• RFID: Critical Considerations for Manufacturers

A 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: www.deloitte.com/manufacturing

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Appendix – Resumes

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© 2009 Deloitte Touche Tohmatsu

Your Deloitte Team – Head of Global Automotive

119

Dr. Martin HölzPartnerHead of Global Automotive Deloitte Consulting GmbH

Löffelstraße 4270597 StuttgartGermany

Dr. Martin HölzHead of Global AutomotivePartner

Tel: +49 711 16554 [email protected]

Professional 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-Benz• Automobile Manufacturer #1• Automobile Manufacturer #5• Acquired Company...

• Bosch• Automobile Parts Manufacturer #1• Acquired Company...• SAS Automotive Systems• ZF Friedrichshafen

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Your Deloitte Team – Automotive Consulting Leader

120

Randy MillerPrincipleDeloitte Consulting Deloitte Consulting LLP

600 Renaissance Center,Detroit, MI 48243USA

Randy MillerDeloitte ConsultingPrinciple

Tel: (313) [email protected] www.deloitte.com

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:

• Chrysler• Daimler• Detroit Diesel• Automobile Manufacturer #5• Automobile Manufacturer #3• Linamar

• ThyssenKrupp• TRW• Valeo• Visteon• Automobile Manufacturer #1

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Your Deloitte Team – Asia / Pacific Manufacturing Leader

121

Kevin GromleyPrincipleDeloitte ConsultingAsia / Pacific Manufacturing

Kevin GromleyDeloitte ConsultingPrinciple

Deloitte Consulting LLP600 Renaissance Center,Detroit, MI 48243USA

Detroit, USA &Shanghai, China

Tel: (313) [email protected] www.deloitte.com

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 integration• Reengineering and lean manufacturing• Manufacturing supply chain redesign and optimization• Growth and China market entry strategies• Finance transformation, business and financial planning

Kevin also practiced Japan for 3 years, during which he acted as the Asia manufacturing lead for Deloitte Consulting.

Representative clients served:

• GM• Chrysler• Automobile Manufacturer #6• Mitsubishi Motors and Fuso• FAW-Automobile Manufacturer #1• Geely• Delphi• Zexel - Valeo

• Armco Steel• Dow Chemical• Owens-Corning• Wheeling-Pittsburgh Steel• Rhodia• Ingersoll-Rand• Applied Materials• Network Equipment Manufacturer #1

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Your Deloitte Team – Automotive M&A Transaction Services

122

Andrew WilsonPartnerM&A Transaction Services Deloitte & Touche LLP

111 South Wacker DriveChicago, IL 60606 USA

Andrew WilsonM&A Transaction Services Accounting Partner

Tel: (312) [email protected]

Professional 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, Andy’s 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

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