0 Miller Buckfire & Co. Presentation Presented by: Durc A. Savini, Managing Director May 15, 2007 1 1
Automotive Parts Supplier Industry Structure North American Parts Supplier Industry North American Parts Supplier Industry North American Supplier Industry Parts Supplier Endmarkets Parts Supplier Endmarkets Supplier Endmarkets Tier Three Tier Three Tier Two Tier Two Tier One Tier One Suppliers Suppliers Suppliers Suppliers Suppliers Suppliers Original Equipment Original Equipment Original Equipment � Raw � Raw � Parts / � Parts / � Supply � Supply Manufacturers (“OEMs”) Manufacturers (“OEMs”) Manufacturers (“OEMs”) Material Material Components Components Chain Chain Providers Providers Manufactu- Manufactu- Managers Managers (“D3”) � Domestic (“Big 3”): � Domestic (“Big 3”): � Domestic (“Big 3”): � Commodity � Commodity rers rers � Systems � Systems − GM, Ford, Chrysler (1) − GM, Ford, Chrysler (1) − GM, Ford, Chrysler (1) sub- sub- Integrators Integrators � Japanese � Japanese � Japanese component component − Toyota, Honda, Mazda, − Toyota, Honda, Mazda, − Toyota, Honda, Mazda, providers providers Mitsubishi, Isuzu, Nissan, Mitsubishi, Isuzu, Nissan, Mitsubishi, Isuzu, Nissan, Subaru Subaru Subaru � German � German � German − Mercedes, BMW − Mercedes, BMW − Mercedes, BMW � Korean � Korean � Korean − Hyundai − Hyundai − Hyundai , Kia Aftermarket Aftermarket Aftermarket � � � OE Service Parts OE Service Parts OE Service Parts Organizations Organizations Organizations Retail Channel and Retail Channel and Retail Channel and � � � Repair Shops (“Jobbers”) Repair Shops (“Jobbers”) Repair Shops (“Jobbers”) ___________________________________ 2 (1) Refers to the Chrysler Group, a reporting segment of DaimlerChrysler AG. D3 Market Share Decline Trend Continues D3 OEMs vs. Foreign-based OEMs U.S Market Share (1999 – 2006) (1) 100% % US Auto Market Share 90% 80% Foreign-based OEMs 70% 60% 50% 40% D3 OEMs 30% 20% 10% 0% 1999 2000 2001 2002 2003 2004 2005 2006 ___________________________________ 3 (1) Source: Automotive News Industry Report. 2
Accelerating Rate of New Model Launches… New Model Launches (1987-2011E) (1) # of New Models Launched 60 56 55 51 Average = 37 (1987-2007) 48 50 44 42 42 41 41 39 39 38 38 40 38 36 35 35 35 34 34 32 31 30 26 21 21 20 10 0 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 E E E E 8 8 8 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 8 9 0 1 9 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 0 0 0 0 2 2 2 2 ___________________________________ 4 (1) Source: Merrill Lynch. …Will Result in Above Trend Annual Product Replacement in the Near Term Replacement Rate (1992-2011E) (1) Replacement Rate 25% Average = 14% (1992-2007) 20% 19% 19% 17% 16% 16% 16% 16% 15% 15% 15% 14% 14% 13% 13% 12% 12% 11% 11% 11% 11% 10% 9% 5% 0% 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 E E E E 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 8 9 0 1 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 0 0 0 0 2 2 2 2 ___________________________________ 5 (1) Source: Merrill Lynch. 3
Cumulative Five Year Replacement Rates by OEM Five Year Replacement Rates by OEM (1) Honda 85% European 78% DaimlerChrysler 73% Industry 67% Toyota 67% GM 66% Nissan 63% 57% Ford Korean 39% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% ___________________________________ 6 (1) Source: Merrill Lynch. D3 Market Share Cession Expected to Continue, Albeit at a Declining Rate D3 OEMs vs. Foreign-based OEMs U.S Market Share (1999 – 2011E) (1) 100% 90% % US Auto Market Share 80% Foreign-based 70% OEMs 60% 50% 40% 30% D3 OEMs 20% 10% 0% 1999 2000 2001 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E ___________________________________ 7 (1) Source: Automotive News Industry Report. 4
Relative Customer Exposure Determines “Haves and Have-Nots” Among Suppliers US Light Vehicle Sales (% Change 2005 vs. 2006) (1) % Increase in OEM Sales 2005 vs. 2006 100% 84.2% 80% 70.8% 60% 51.6% 34.2% 33.2% 40% 32.7% 31.6% 30.9% 26.6% 24.4% 20% 0% -20% -20.0% -20.0% -21.7% -22.2% -22.3% -23.1% -25.8% -26.0% U.S. Light Vehicle Sales = -2.6% -40% -60% -52.9% -57.3% -80% . . . c . . . . . a A . s . G . . . . . . p c c c p c p i c m p p c p c c p r n n n n r n r c S n r A r n r n n r o I I I I o I o e U I e o o I o I I o C C C r t C C C C a a s a a u a s l r e a c s c c c f c y a e v c a i U n i i A r i a a o i S n n t X h g i i n c r r b F r y n t r o i e o e S e u . e e e P c i o e r m n r m U m p m v d n i t r m m e e n t s r l i S P u t m A c A A M i o A t i a t t o A s a e N C o t n e c V i A h m l h h h m e o g l a t h E T n M C f u o t r t N r t o r t a u A r t r a e r a y o E d o K v o o c o o t n r o n N N N r i N u a e N t i K A M w a o e M a e r m n o n l m s e i n . o e l o h A l a S T H o r c e i . g t t B a h d U u p c i n A i r i s M e k r M l i n e P o b E m r O ___________________________________ 8 (1) Source: Automotive News. Vehicle Mix Moving in a Disadvan- tageous Direction. Secular or Cyclical? % Shift in Mix (2005 vs. 2006) (1) CUV CUV Small Car Small Car Large Car Large Car Middle Car Middle Car Luxury Car Luxury Car Van Van Pickup Pickup SUV SUV -15% -10% -5% 0% 5% 10% 15% ___________________________________ 9 (1) Source: Automotive News. 5
D3 Making Move From Position of Relative Weakness in CUV Segment CUV Segment Share (1) New Model Introductions by Segment (1) 100% 5% 12% 16% 19% 9% 19% Korean 1% European 32% DaimlerChrysler 33% 6% 8% 80% 7% 6% 11% 4% 14% 16% 6% 22% 4% 7% 38% Ford 12% 60% 17% 17% 21% 6% 47% 17% 40% Japanese 52% 21% 64% GM 57% 36% 50% 42% 20% 23% 13% 10% 0% y M d X n e n r r a s a t G o C e e e s p n r u F D o d o a n r p K u a I J E Light Truck Crossover Small Car Mid/Large Car ___________________________________ 10 (1) Source: Merrill Lynch. Contractual Price Downs Exacerbate Volume Challenges D3-exposed Suppliers Face Annual Percentage Price Reductions Sought by OEMs (1) 10% 8% 6.4% 6.3% 6.2% 6% 5.4% 4.8% 3.8% 4% 2% 0% 1997 1999 2001 2003 2005 2006 ___________________________________ 11 (1) Source: Accenture. 6
Unrecovered Commodity Cost Increases Effectively Become Incremental OEM Price Downs Five Year CRB Spot Commodity Index History (1) 410 390 370 350 330 310 290 270 250 230 210 5/10/2002 11/22/2002 6/6/2003 12/19/2003 7/2/2004 1/14/2005 7/29/2005 2/10/2006 8/25/2006 3/9/2007 CRB Spot Comm odity Index Weekly Pricing ___________________________________ 12 (1) Source: Bloomberg. Cumulative Effect of Volume, Price, Commodity and Mix Challenges is Weakened Profit Margins for D3-Exposed Suppliers EBIT Margin for OEM Suppliers (1) 10.0% 8.0% 6.7% 6.0% 5.2% 5.1% 4.0% 3.0% 2.9% 2.0% 0.0% 2002 2003 2004 2005 2006 ___________________________________ 13 (1) Source: Company filings including AXL, ARM, BWA, DCM, DPH, DRRA, JCI, LEA, TRW, VC. 7
Consolidation Activity is on the Rise Again… M&A Activity in the Automotive Supplier Sector 1998-2006 50 350 320 300 284 282 272 274 40 280 250 250 Transaction Value ($ Billion) Transaciton Volume 30 221 200 211 150 20 100 10 50 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 Value Volume 14 …Perhaps Improved Industrial Logic Informing Current M&A Activity Will Support Leverage This Time Recent Lending Terms for Automotive Supplier Transactions (1998 – 2006) Total Debt/LTM EBITDA (EBITDA-CapEx)/Interest 10.0x 3.5x 3.1x 3.0x 2.7x 2.7x 8.0x 2.6x 2.5x 2.2x 2.2x 2.1x 6.0x 1.9x 2.0x 1.8x 4.7x 4.5x 4.6x 4.5x 4.4x 4.1x 1.5x 3.9x 4.0x 3.7x 3.4x 1.0x 2.0x 0.5x 0.0x 0.0x 1998 1999 2000 2001 2002 2003 2004 2005 2006 15 8
Selected Automotive Supplier Bankruptcies (1999-2006) Selected Automotive Supplier Bankruptcies (1999-2006) Intermet ___________________________________ 16 Source: Cross Industrial Research Taken Together, Risks in the Supplier Industry Clearly Outweigh Opportunities For a Large Number of D3-Exposed Suppliers Market Growth Opportunities Margin Improvement Opportunities Financial Risk New Program Opportunities Operational Risk Integration Risk Industry Risk 17 9
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