TECHNICAL ECONOMIC MARKET Management ANALYSIS DECISIONS Robert Eller Associates LLC CONSULTANTS TO THE PLASTICS AND RUBBER INDUSTRIES AUTOMOTIVE INTERIORS TECHNOLOGY RESPONSES TO ECONOMIC AND GLOBALIZATION PRESSURES PREPARED FOR: PRESENTED BY: Bob Eller, President Auto Interiors Show Robert Eller Associates LLC Detroit, MI Phone: 330-670-9566 June 5, 2008 E-mail: bobeller@robertellerassoc.com R/mydox/papers/ATI 08.ppt 1 Web Site: www.robertellerassoc.com
PRESENTATION OBJECTIVES • IDENTIFY MACRO-ECONOMIC EFFECTS ON AUTOMOTIVE INTERIORS • EXAMINE AUTOMOTIVE SUPPLY CHAIN TURBULENCE EFFECTS • IDENTIFY THE DRIVING FORCES FOR AUTOMOTIVE INTERIORS SUBSTITUTION • PROVIDE AN OVERVIEW OF CURRENT/FUTURE INTERIORS TECHNOLOGIES • EXAMINE THE PLASTIC RESIN FABRICATION TECHNOLOGY COUPLE 2
U.S. REAL GDP GROWTH 5 4 Growth, %/yr. 3 2 1 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 Est. Fcst. SOURCE: ROBERT ELLER ASSOCIATES LLC, 2008 b/mydox/Auto Industry/US Vehicle Sales.xls 3
U.S. DOLLAR DECLINE TRADE-WEIGHTED VALUE OF U.S DOLLAR 110 105 100 Exch. Value, USD 95 90 85 80 75 70 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 9 9 9 9 0 0 0 0 0 0 0 0 0 9 9 9 9 9 0 0 0 0 0 0 0 0 0 1 1 1 1 1 2 2 2 2 2 2 2 2 2 March 1973 = 100 4 SOURCE: FEDERAL RESERVE BOARD SOURCE: FEDERAL RESERVE BOARD R/mydox/papers/ATI 08.ppt r/mydox/papers/ACS08-Global Ind Vol.xls
GLOBAL VEHICLE SALES OUTLOOK 90 Annual Growth 80 1990-2000 2.3% 2000-2006 2.8% 70 2006-2012 3.8% 2012: 85 60 2007: Veh. Sales, MM Units 71 50 40 2000: 57 30 20 10 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2012 GENERAL MOTORS SOURCE: GENERAL MOTORS 5 R/mydox/papers/ati 08.PPT r/mydox/papers/ACS08-Global Ind Vol.xls
U.S. GDP GROWTH RATE & VEHICLE PRODUCTION YEAR GDP N. AMERICAN Y/Y NOTE/EXAMPLE PROD'N. GROWTH VEHICLE DECLINE/ RATE, PROD'N., GAIN, % % MM UNITS 2001 0.8 9/11 attack 2002 1.7 2003 2.4 16.3 41.2 2004 3.7 16.3 0.0 2005 3.1 16.4 0.6 Profitability decline 2006 2.9 15.9 -3.0 Profitability decline, bailouts, consolidation 2007 2.2 15.5 -2.5 Profitability decline, bailouts, consolidation 2008 1.5 14.5 -6.9 Profitability decline, credit difficult to obtain, further acq’ns. of distressed suppliers 2012 16.3? 6 SOURCES: IMF, WARD'S, ROBERT ELLER ASSOCIATES LLC, 2008
REGIONAL AUTO MARKET GROWTH VEHICLE SALES HISTORY BY REGION, 2000-2007 80 CAGR 3% 1.9% 6.9% -0.6% 10.4% 21.3% 13.2% 70 60 Veh. Sls., MM Unit 50 40 2000 2007 30 20 10 0 Global Tot. Tot. AP Tot. NA Tot. LA China India Europe SOURCE: ROBERT ELLER ASSOCIATES LLC, 2008 7 SOURCE: ROBERT ELLER ASSOCIATES LLC, 2008 R/mydox/papers/ATI 08.ppt b/mydox/papers/ACS08-Global Ind Vol.xls
PROJECTED AUTO PROD'N. IN ASIA: 2005-2012 JAPAN 0.4 CHINA 4.6 KOREA 1.0 INDIA 1.4 THAILAND 0.9 0.2 INDONESIA MALAYSIA 0.1 TAIWAN 0.0 2005 AUSTRALIA 0.0 2012 PHILLIPPINES 0.2 VIETNAM 0.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 VEHICLE PRODUCTION, ASIA (MM UNITS) 7MM NEW VEHICLES ARE EXPECTED TO COME FROM CHINA, INDIA AND THAILAND BY 2012. 8 SOURCES: CSM; ROBERT ELLER ASSOCIATES LLC, 2008
FUEL EFFICIENCY REQUIREMENTS WILL DRIVE SUBSTITUTION GAS PRICES vs. FUEL EFFICIENCY (2007) $7 $6.14/gal Taxes Added $6 Core Gasoline $5 $4.24/gal USD/Gal. $4 $3.11/gal $3 $0.40 tx $1.88 tx $4.11 tx 21 36 MPG MPG $2 $2.71 $2.36 $2.03 $1 $0 U.S. JAPAN EUROPE 9 SOURCE: AUTO NATION r/mydox/papers/ATI08-FUEL.xls
U.S. VEHICLE FUEL EFFICIENCY N. AMERICAN VEHICLES HAVE GAINED WEIGHT, INCREASED HORSEPOWER, AND NOT IMPROVED FUEL EFFICIENCY (MPG) OVER THE LAST 20 YEARS 4,500 300 4,000 250 3,500 FUEL EFFICIENCY OR HP VEH. WT., LBS OR HORSEPOWER 3,000 200 FUEL EFFICIENCY 2,500 150 2,000 Vehicle Weight 1,500 100 Adj. Fuel Efficiency 1,000 Horsepower 50 500 0 0 1987 1997 2007 10 SOURCE: EPA SOURCE: EPA r/mydox/papers/ACS08-FUEL.xls R/mydox/papers/ATI 08.ppt
U.S. VEHICLE FLEET COMPOSITION SHIFT, CHANGE IN US VEHICLE SALES VOLUME 2006-2007 2006-2007 FULL-SIZE SUV, -15% STD FULL-SIZE CAR, -24% FULL-SIZE MPV, -18% MID-SIZE PICKUP, -16% STD SPECIALTY, -11% COMPACT, +4% FULL-SIZE CROSSOVER, +69% MID-SIZE CROSSOVER, +74% STD MID-SIZE, +8% COMPACT SUV, +24% -400 -300 -200 -100 0 100 200 UNITS (THOUSANDS) SOURCE: ROBERT ELLER ASSOCIATES LLC, 2008 b/mydox/Auto Industry/US Vehicle Sales 11
FLEET TRENDS: AUTOPLASTICS IMPACTS “In Geneva, the focus was on “As automakers feel heat from the U.S. – how to cope with environmental movement, the currency crunch and adapt engineers find solutions that Europe’s green technology in are quick, clean and cheap.” a country headed for $4 AUTO NEWS, 3-10-2008 gasoline.” AUTO NEWS 3-10-2008 “U.S. Auto Makers Show European Flair” WSJ 3-25-2008 “As dollar dives, automakers “Cheaper small cars are juggle global strategies.” part of VW’s U.S. plan.” AUTO NEWS, 3-10-2008 AUTO NEWS, 3-10-2008 SOURCE: ROBERT ELLER ASSOCIATES LLC, 2008 12 b/mydox/SPE TPO 08/Headlines R/mydox/papers/AutoInteriors08.ppt
EUROPEAN SMALL CARS ARE PP INTENSIVE VEHICLE PP PP/PLASTICS (kg) (%) Citroen C4 90 56 Toyota Aygo 47 52 Toyota Auris 71 51 Toyota Yaris 64 47 Opel Corsa 65 44 Ford Mondeo 72 41 Fiat 500 60 49 Mercedes C-Class 72 34 13 Source: Mavel
KEY AUTOMOTIVE TRENDS & DRIVING FORCES TREND AUTOPLASTICS IMPACT Dollar weakness - Foreign investment in N. America (state wealth, plastics fabricators) - Increased U.S. vehicle exports Stagnant Western - Investment in non-Western regions by U.S. Tier 1s auto growth/rapid - Reluctant U.S. capex by U.S. Tier 1s non-West. auto growth - Plastics suppliers invest in non-Western regions Raw material price - Tier 1/compounder profitability squeeze increase - TPO preference - Optimize material efficient solutions - Fabrication technology optimization trend (reduced unit operations, scrap reduction) - Petrochem investment shift to monomer-rich regions (asset light strategies) - Autoplastics supply chain consolidation Fuel efficiency - U.S. fleet shift toward PP intensive vehicles pressures - Light-weight solutions gain share Cont’d. U.S. domestic - Japanese/European/Korean Tier 1 and TPE OEM share loss compounder share gain 14 SOURCE: ROBERT ELLER ASSOCIATES LLC, 2008
AUTOPLASTIC SUPPLY CHAIN IMPLOSION PETROCHEM PRICE HARDBALL PURCHASING VEHICLE PRICE LEGACY COSTS, INCREASES PRESSURES DECREASES LABOR PRESSURES GLOBAL OFFSHORE IMPORTED RAW MATERIAL FUEL COSTS COMPETITION COMPETITION COMPETITORS PRICE INCREASES (PROD. LINE FIT) RAW MATERIALS COMPOUNDER TIER 1 FABRICATOR ASSEMBLY MATERIALS PROCESS LEGACY MKT. SHARE OVER PRICE TIER 2, 3 TECHNOLOGY TECHNOLOGY COSTS LOSS CAPACITY COMMODITIZATION SUPPLIERS LAG LAG PROD'N. STOCKHOLDER DECLINE PRESSURES SHIFT TO MORE ELIMINATION OF PRESSURES PASSED DOWN ATTRACTIVE MARKETS EXTRA STEPS THE SUPPLY CHAIN: PRICING PRESSURES ELIMINATE/REDUCE THE INEFFICIENCIES: - MULTIPLE STEPS SUPPLY CHAIN "MANAGEMENT" - EXCESSIVE LOGISTICS - SCRAP GENERATION - INEFFICIENT PROCESS TECHNOLOGIES DEMAND SLOWDOWN - SALES/MARKETING COSTS - EXCESS LABOR COSTS REVISED SPECIFICATIONS - OVER-GLOBALIZATION? GLOBALIZATION PRESSURES SOURCE: ROBERT ELLER ASSOCIATES LLC, 2008 SOURCE: ROBERT ELLER ASSOCIATES LLC, 2008 15 r/mydox/papers/ACS08-Implosion2008.vsd // lg/myfiles/Visio/ACS-08Implosion2008.vsd R/mydox/papers/ATI 08.ppt
SUPPLY CHAIN SHIFT/ FLEET COMPOSITION EFFECTS • Supply chain implosion drives resin/compound/ fabrication/technical innovation (restraining effect of cash/profitability crunch) • Resin suppliers forward integration to compounding? • Tier 1s shifting to in-line compounding • Expanding resin property envelopes • Strengthening of Japanese resin suppliers/ compounders in N. America and Europe • Renewed growth of European compounders in N. America ($ weakness driver?) 16
EXAMPLE TECHNOLOGY SHIFTS IN AUTO INTERIORS • Multi-component molding (several processes) • In-line compounding (ILC, DLFRT, IMC) • Interior semi-structural substitutions • Elimination of IP cross-car beam? • Thermoplastic elastomer (TPE) growth (olefinic and styrenic) - Styrenic TPE vs. olefinic TPE for airbag doors - Body seal substitution for EPDM rubber • Growth of injection molded foams • Increased use of single compound for multiple interior and exterior components (Fiat 500 example) • Innovation in rear storage area • Continued substitution for thermoset rubbers • Lighting innovation 17 • Plastic glazing effects
NEW HIGH GROWTH TPE FABRICATION TECH.: LARGE-PART, 2-SHOT MOLDING CURRENT PROCESS 2-SHOT SUBSTRATE TPE COMPOUND COMPOUNDING RESIN (CAN BE FOAMABLE) MAKE SKIN SHOT 1 TRIM SKIN SCRAP SHOT 2 TRIMMED SKIN PU FOAM BACK- SUB- MOLD 3-LAYER FORMULATION FOAM STRATE SUBSTRATE DOOR TRIM OR TRIM NON-RECYCLABLE SCRAP INSTRUMENT PANEL DOOR TRIM OR INSTRUMENT PANEL ASSEMBLY ASSEMBLY - 1-2 CLOSELY RELATED - LABOR INTENSIVE - MULTI MATERIAL - LOW LABOR MATERIAL FAMILIES - HIGH SCRAP - NON-RECYCLABLE - LOW SCRAP - MULTI STEP - DIFFICULT CRAFTSMANSHIP - SINGLE STEP - EASILY RECYCLED - HIGH CRAFTSMANSHIP 18 SOURCE: ROBERT ELLER ASSOCIATES LLC, 2008 SOURCE: ROBERT ELLER ASSOCIATES LLC, 2008 r/mydox/papers/ACS08-LgPt2Shot08.vsd // lg/myfiles/Visio/ACS08-LgPt2Shot08.vsd R/mydox/papers/ATI 08.ppt
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