Huron Consulting Group Presentation Presented by : John DiDonato, Huron Consulting Group Tom Evans, Huron Consulting Group May 16, 2007 1
Automotive Industry Overview Global Market Forecasts call for continued growth in the automotive sector, as emerging markets with developing middle-classes turn to automobiles for transportation. Forecasted 2006 Market Size 2006-2013 (Light Vehicles by Production, Millions) CAGR Asia 24.3 4.1% Europe 20.4 2.0% North America 15.3 1.2% South America 3.0 4.9% Middle East 1.0 4.4% Africa 0.6 1.6% Source: CSM Worldwide Report 2007 2
North American Market The North American market is one of the world’s largest but demand levels have remained fairly constant, ranging from 16 to 17 million units annually. U.S. Motor Vehicle Sales Trends (1) North American Light Vehicle Production (2) (Units in Millions) (Units in Millions) 18.0 18.0 16.8 16.7 16.7 17.0 17.3 16.3 15.6 15.3 15.4 15.5 16.0 17.0 17.0 16.9 17.0 16.8 15.0 16.6 16.6 16.6 14.0 16.7 16.7 13.0 16.5 11.6 11.7 11.6 12.0 11.4 10.9 10.9 10.9 10.9 16.0 11.0 10.0 9.0 8.0 15.0 2001 2003 2005 2007F 2009F 2011F 2006 2007F 2008F 2009F 2010F 2011F 2012F 2013F United States North America Source: (1) 2007 Automotive News Market Data North American Sales (2) CSM Worldwide Report 2007 Share Trends As widely reported, the “Big 3” are experiencing declining market shares, driven by declines in SUV sales and mixed consumer response to current vehicles. Market Share Comparison 2001 vs. 2006 Select North American OEM Market Share (% of U.S. Car and Light Truck Sales) (1)(2) as a Percent of 2006 Unit Sales (3) 2001 15% Chrysler 14% 2006 Brand Brand Market Share % Market Share % 23% Ford BMW BMW 2% 2% 18% Losing Share Hyundai-Kia Hyundai-Kia 5% 5% 29% GM 25% Lexus Lexus 2% 2% 67% Big 3 Total Mazda Mazda 2% 2% 57% Mercedes Benz Mercedes Benz 2% 2% 0% 10% 20% 30% 40% 50% 60% 70% Mitsubishi Mitsubishi 1% 1% Nissan Nissan 6% 6% 7% Honda 2001 9% Volkswagen Volkswagen 2% 2% 2006 4% Nissan 6% Gaining Share 10% Toyota 15% Source: (1) Automotive News Data Center, 12 month sales for 2001 22% (2) Automotive News Data Center, 12 months sales for 2006. Big 3 Total (2) Automotive News Data Center, December 2006. 31% 0% 10% 20% 30% 40% 3
U.S. Demand Market Share Change in Demand Market Share - Top Volume Brands From 2006 vs. 2013 Chevrolet -1% Ford -11% Toyota 15% Honda 11% Dodge 16% Nissan 18% Chrysler -5% Jeep -4% GMC 4% Hyundai 27% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30% 2006 vs. 2013 Source: J.D. Power & Associates – North American Automotive Forecasting N.A. Production by Brand Origin European Brand Production Stable; Asian Brands Grow; Traditionals Contract 2000 European 17.2 Million 3.0% 2007 Asian 15.1 Million European 19.8% 3.9% Domestic 77.2% 2013 Vol European 16.5 Million -26% 4.4% Domestic Asian 63.2% 32.9% Vol Vol 3% Vol +45% Asian +45% Domestic 35.9% 59.7% Vol Vol +19% +19% Source: J.D. Power & Associates – North American Automotive Forecasting 4
Demand Fragmentation While constant in size, demand in the North American market fragmented as consumers shifted to light trucks and OEMs pursued niche vehicles as a way to reach specific consumer groups. 2001 – 2006 Light Truck Share Trends Best Selling Cars and Light Duty Trucks in 2006 (Percent of Units Sales) (Units in Thousands) 60.0 Nameplate Nameplate 2001 Units 2001 Units 2006 Units 2006 Units Ford F-Series Ford F-Series 911.6 911.6 796.0 796.0 GM Silverado GM Silverado 716.1 716.1 636.0 636.0 54.0 55.0 Toyota Camry Toyota Camry 390.4 390.4 448.5 448.5 53.1 53.0 Dodge Ram Dodge Ram 344.5 344.5 364.2 364.2 51.0 Honda Accord Honda Accord 350.1 350.1 354.4 354.4 50.9 50.0 49.0 Total Nameplates 171 327 45.0 Top 10 as % of 2001 2002 2003 2004 2005 2006 26% 24% Industry Volume Source: (1) Automotive News Data Center, December 2006. Share Trends Ward’s 2007 and 2008 truck production forecasts indicate that Toyota and Honda plan to increase truck production in 2007 and 2008 as they attack Ford and GM’s lucrative truck franchise. Share of Estimated North American Production Unit Change Trucks 2005 2006E 2007E 2008E 2006E/2005 2007E/2006E 2008E/2007E DCX 23.5% 23.8% 23.1% 23.1% (175,770) 14,123 136,391 Ford 24.3% 21.6% 21.4% 18.9% (438,287) 56,732 (118,953) GM 29.9% 30.8% 28.3% 27.2% (181,240) (121,100) 68,323 Big 3 77.7% 76.2% 72.7% 69.2% (795,297) (50,245) 85,761 Honda 6.0% 6.6% 7.2% 7.6% 2,493 69,291 83,910 Nissan 5.4% 5.3% 5.0% 5.5% (54,798) (8,514) 82,671 Toyota 5.0% 5.3% 7.5% 8.9% (20,893) 209,621 178,962 A housing slowdown could further weaken demand for pickup trucks. Source: Ward’s Automotive 5
Share Trends (cont.) U.S. Light vehicle sales and market share in February 2007 (in 1,000 units) Feb-06 Feb-07 Absolute '06 YTD '07 YTD Absolute Market Share Month YTD Actual Actual y/y % chg actual actual y/y % chg Feb-06 Feb-07 y/y y/y GM 297.6 308.5 3.7% 590.9 553.3 -6.4% 23.7% 24.7% 100 bp -100 bp Ford 239.6 204.5 -14.6% 441.2 366.8 -16.8% 19.0% 16.4% -270 bp -270 bp Chrysler 190.4 174.5 -8.3% 345.8 330.8 -4.3% 15.1% 14.0% -120 bp -30 bp -5.5% -9.2% Big 3 727.6 687.5 1,377.9 1,250.9 57.8% 55.0% -280 bp -390 bp Toyota 166.9 187.3 12.2% 327.6 363.2 10.9% 13.3% 15.0% 170 bp 190 bp Honda 106.6 110.0 3.2% 205.0 210.8 2.8% 8.5% 8.8% 30 bp 50 bp Nissan 84.3 85.2 1.2% 160.2 167.9 4.8% 6.7% 6.8% 10 bp 50 bp Japan 3 357.8 382.6 6.9% 692.8 741.9 7.1% 28.5% 30.6% 220 bp 290 bp Hyundai / Kia 54.7 58.0 6.0% 103.1 108.3 5.1% 4.4% 4.6% 20 bp 30 bp VW / Audi 21.1 23.0 8.7% 43.5 46.0 5.8% 1.7% 1.8% 10 bp 20 bp Mitsubishi 8.0 9.7 21.6% 15.5 19.1 23.4% 0.6% 0.8% 10 bp 20 bp Mazda 23.6 22.1 -6.4% 41.8 41.3 -1.0% 1.9% 1.8% -10 bp 0 bp BMW 22.0 24.6 11.9% 44.2 46.5 5.0% 1.8% 2.0% 20 bp 10 bp Porshe 2.7 2.0 -27.1% 5.9 5.0 -16.5% 0.2% 0.2% 0 bp 0 bp Others 40.5 39.6 -2.3% 73.5 77.6 5.6% 3.1% 3.2% 10 bp 30 bp Ex Big 3 530.5 561.6 5.9% 1,020.2 1,085.6 6.4% Industry 1,258.1 1,249.1 -0.7% 2,398.1 2,336.5 -2.6% Source: Ward’s AutoInfoBank and UBS Investment Research Shakeout in the North American Supply Industry 6
Reliance on the “Big 3” While the North American market is critical, suppliers rely heavily on domestic OEMs that are losing share. Big 3 Revenue Concentrations 100% Big 3 89% Other 76% 80% 70% 68% 64% 62% 62% 59% 60% 54% 53% 47% 46% 41% 38% 38% 36% 40% 32% 30% 24% 20% 11% 0% American ArvinMeritor Cooper- Dura Lear Metaldyne Stoneridge Tenneco TRW Visteon Axle Standard Automotive Are company revenues highly dependent on domestic OEMs or have you penetrated transplant accounts? Sources: (1) UBS High Yield Auto Parts Research - Feb. 26, 2007 (2) Company financial reports Capital Structure Importantly, a supplier’s financial structure can limit its flexibility to respond to market changes and consolidation opportunities. Comparison of Financial Flexibility Among Suppliers Leverage (1) Interest Coverage (2) Liquidity (3) Visteon 18.9% TRW 2.7x Remy 0.7x Lear 3.1x Exide ArvinMeritor 17.0% 1.5x ArvinMeritor 3.5x Lear 15.7% Metaldyne 1.8x Tenneco 3.8x Hayes Lemmerz 2.3x TRW 14.7% Affinia 4.7x Tenneco 14.0% Visteon 2.5x Metaldyne 5.4x Metaldyne 9.9% Tenneco 2.9x Exide 5.7x ArvinMeritor 3.3x Affinia 9.3% Visteon 5.8x Remy 8.5% Lear 4.2x Keystone 6.1x TRW 4.6x Hayes Lemmerz 6.9% Remy 13.9x American Axle 6.6x Exide 4.4% Average Among High- Average Among High- Average Among High Yield Auto Parts Issuers 5.7X Yield Auto Parts Issuers 2.7X Yield Auto Parts Issuers 15.7% Does the financial structure compound risks related to changing market conditions? Notes: (1) Total Debt / EBITDA (2) EBITDA / Interest (3) Total liquidity as % of Sales; Total liquidity equals cash & equivalents, credit facility availability and A/R facility availability 7
Degree of Fragmentation The automotive supply industry encompasses thousands of companies and a wide range of components. Fragmentation varies significantly across segments. Automotive Supply Product Segments (1) (Number of Companies) 900 835 800 704 666 700 600 500 433 400 287 300 207 196 200 113 88 100 24 0 Air Brake Carbureators, Engine Electrical and Lighting Seating Stamping Steering/ Transmission Conditioning Systems Valves and Componenets Electronics Suspension Powertrain Pistons Source: (1) U.S. Census Bureau, industry reports, December 2004 Supply Base While OEMs have tremendous leverage over their suppliers, the assemblers still rely on a sizeable network of suppliers to produce the roughly 14,000 parts that exist in an average vehicle. Suppliers to the 2006 Ford Fushion (1) – Total Suppliers 41 Source: (1) Automotive News. 8
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