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1

Global Automotive Supplier Study 2008

August 2008

A guide through turbulent waters

CONTENTS PAGE

The challenge – Pressure on automotive suppliers has further increasedover the past months

Looking back – Despite a challenging environment, automotive supplierprofitability has further improved

A

B4

8

2

This document was created for the exclusive use of our clients. It is not complete unless supported by the underlying detailed analyses and oral presentation. It must notbe passed on to third parties except with the explicit prior consent of Rothschild and Roland Berger Strategy Consultants.

p y p

Looking ahead – Suppliers need to master 15 main levers in order to reachand secure above-average profitabilityC

D Definitions and Contacts

8

20

46

Management Summary

• Automotive suppliers are facing one of the most competitiveenviron-ments ever (increasing raw material prices, low cost competition,…) – and pressure will further increase

• Nevertheless global profitability continued to improve further in 2007

33Source: Roland Berger/Rothschild

Nevertheless, global profitability continued to improve further in 2007(average EBIT margin 2007: 5.4%, average ROCE margin: 11.9%)

• Mid-sized and large suppliers based in Europe, Japan and India havebeen particularly successful

• We identified 15 main levers for the future success of automotivesuppliers

• Overall, many suppliers are not prepared well enough for the upcomingchallenges

4

AThe challenge –Pressure on automotive suppliers has further increasedover the past months

The pressure on automotive suppliers has further increased –Suppliers are in a "sandwich" position

The automotive powerplay

S li• Stagnating

demand in triad• Shift of investment

focus to emerging• Drastic raw material

price increases

Raw material markets/Financial markets

Consumers OEMs


Suppliers

Furtherincreased

marginpressure

demand in triadmarkets

• Reduced brandloyalty

• Increasing pricesensitiveness

• Increasingenvironmentalawareness

focus to emergingmarkets• Structural overcapa-

cities• Growing trend to

low cost/low techconcepts

• Large purchasingcost reductionprograms

• Pressure on "green"innovations

price increases

• High bargainingpower (consolidation)

• Supply shortages

• Financial marketcrisis

• Shareholder returnexpectations

Given this environment, we have taken a closer look at historicalfinancial performance and future success factors for suppliers

LOOKING AHEADLOOKING BACK

• Success factors for future supplierperformance (revenue structure, coststructure, balance sheet structure)

• Strategic readiness check


How has your company performed compared to its peer group – and is it wellenough prepared for the future?

• Historic supplier profitability• Profitability trends by region, company

size, product focus and business model• Top and low performing suppliers

8% 4%5%

32%

Our study results are based on the largest automotive supplierbenchmarking database worldwide

• Analysis of financial and operationaldata of >400 automotive suppliersbetween 2001 and 2007

DATA BASIS – split by region1)STUDY APPROACH

Western EuropeAsia other

ChinaOther1)

7

8%

14%

29%

32%

Source: Roland Berger/ Rothschild

1) Based on location of headquarter

• Interviews with ~100 supplierexecutives

• Desk research

• Incorporation of Roland Berger andRothschild project experience

Japan

NorthAmerica

Korea

∑ = 410suppliersglobally

8

BLooking back –Despite a challenging environment, automotivesupplier profitability has further improved

Profitability of the global automotive supplier industry has furtherimproved in 2007

Profitability of automotive suppliers 2001-2007 [%]

12 2 11 9

EBIT margin ROCE

9Source: Roland Berger/Rothschild Supplier Database 2008

Basis: Revenue-weighted average of performance-rated suppliers

'01 '02 '03 '04 '05 '06 '07 '01 '02 '03 '04 '05 '06 '07

5.44.64.7

3.75.1 5.44.8

7.9

11.312.2

10.610.9 10.711.9

Also compared to other industry sectors, automotive suppliersgenerate an attractive Return on Capital Employed

Global profitability of industry sectors, 2007 [%]

13.114.4

12 4

EBIT margin ROCE

10Source: Bloomberg; Roland Berger/Rothschild

5.47.1

9.7

17.1

23.1

10.4

OEMsSuppliers Telco Pharma HightechConsumer

11.9

9.310.0

12.4

OEMsSuppliers Telco Pharma HightechConsumer

However, not all automotive suppliers benefited from the positivetrend in the same way

Analysis of global supplier profitability

1 2 3

Region Size Product focus Business model

4


WINNERS(> averageROCE)

LOOSERS(< averageROCE)

1 2 3• Western Europe• Japan• India

• North America• China• Korea

• 2.5-10 bn EURrevenues

• <2.5 bn EURrevenues

• >10 bn EURrevenues

• Powertrain• Chassis

• Exterior• Tires

• Suppliers focusedon modules

• Suppliers focusedon innovativeproducts

• Suppliers focusedon systemsintegration

• Suppliers focusedon commodities

4

Profitability varies strongly across regions – European andJapanese suppliers are in pole position

10.37.3

12.89.0

12.7

6 5

Key performance indicators by region – ROCE 2001-2007 [%]

North America Western Europe Japan

1 REGION



7.3

2007 2007

6.5

20072001 2001 2001

6.1

15.7

2007

11.015.7

2007

13.3

6.1

20072001 2001 2001

China Korea Rest of Asia (esp. India)

German suppliers clearly outperformed global competitionregarding profitability

Key performance indicators 2001-2007 – German suppliers

Revenue growth [2001=100] EBIT margin [%] ROCE [%]

5 76.0

5.8 5.8 13.8 13.7 13.5 13 1 13.3 13.9

1 REGION


Basis: Revenue-weighted average of performance-rated suppliers (subset of 21 Germany-based suppliers)

'01 '02 '03 '04 '05 '06 '07 '01 '02 '03 '04 '05 '06 '07 '01 '02 '03 '04 '05 '06 '07

142

110

100107

120

128

137

2.9

4.2 4.4

5.7 5.8

9.6

13.1 13.3

Industry average

We identified strong differences regarding company size as well:The smaller the company, the less profitable

14 5

Revenue growth2001-2007 [CAGR %]

ROCE change vs.2001 [%-pts.]

6.8 9.8 7.2 7.9 5.7 7.3

-0.6 +4.1 +0.5 +4.1 +8.2 +3.6

Key performance indicators by company size – ROCE 2007 [%]

2 SIZE

14

Ø = 11.9

Source: Roland Berger/Rothschild Supplier Database 2008

11.311.1

14.5

10.2

13.1

8.6

1,000-2,500 2,500-5,000 >10,0005,000-10,000<500 500-1,000


2007 Revenue[EUR m]

Suppliers with a business focus on Powertrain, Chassis andInterior achieved above-average profitability in 2007

Key performance indicators by domain1) – ROCE 2007 [%]

3 PRODUCT FOCUS

16.5

Revenue growth2001-2007 [CAGR %]

ROCE change vs.2001 [%-pts.]

4.8 4.3 8.8 7.3 7.1 9.3

-1.3 +4.8 +5.7 +5.1 +7.4 +6.7

15

Ø = 11.9


Basis: Revenue-weighted average of performance-rated suppliers (subset of 204 suppliers); excl. domain “Others”, e.g. engineering services1) Allocation of companies based on domain with highest revenue share in product portfolio; total company revenue allocated to that domain

11.110.4

7.1

14.513.1

InteriorElectrics/Infotainment

Exterior Tires PowertrainChassis

Module suppliers have been more successful than systemsintegrators – and a high degree of innovation pays off

Key performance indicators by business model – ROCE 2007 [%]

CAGR 5.7%

12 413.5

12 5

System/Module vs. component focus Innovation vs. Commodity

CAGR 6.9% CAGR 7.5%CAGR 6.3%CAGR 9.1%

4 BUSINESS MODEL



Systemfocus

8.2

10.9

2001 2007Component

focusModulefocus

8.0

12.4

7.4

2001 2007 2001 2007

Revenue growth

7.1

11.7

8.9

12.5

2001 2007 2001 2007Commoditysuppliers

Innovationsuppliers

Across the automotive supplier industry, we have identified groupsof ~50 top performers and ~50 low performers

Key performance indicators by supplier 2001-2007

TOP performers

30354045

Ø = 10.5

17

Basis: Revenue-weighted average of performance-rated suppliers 1) Additional criterion: above-average ROCE in 2007


Revenuegrowth2001-2007[CAGR %]

Average ROCE 2001-20071) [%]

LOW performers-15-10-505

10152025

-15 -10 -5 0 5 10 15 20 25 30 35 40

Ø = 7.1

The gap between top and low performers is permanently widening

Key performance indicators by supplier 2001-2007

Revenue growth [2001=100] Return on capital employed (ROCE) [%]

16 4 17.5 17.919.2

205 TOP

18



Industry average

10.7

3.3

14.3

5.9

15.2

3.9

16.4

7.5

4.1

0.82.9

3.3x

6.6x

186166

145123

111100

110109109108103101100

TOP

LOW

LOW

'01 '02 '03 '04 '05 '06 '07 '01 '02 '03 '04 '05 '06 '07

Most top and low performers stay in their performance group overa longer period of time

Development of top and low performers 2004 vs. 2007 [# companies]

TOPperformer

2004 2007

74%

Rising suppliers1):

• Aisin Seiki• Brembo

Continental


LOWperformer

performer

Averageperformer

24%

52%45%

76%15%

9%

• Continental• Cummins• Denso• ElringKlinger• Fuyao• Keihin• Leoni• Mann+Hummel• Toyoda Gosei• Yutaka Giken• ZF• ...

Basis: Revenue-weighted average of performance-rated suppliers 1) Medium/Low performers 2004 who achieved top performance in 2007

2%

3%

20

Looking ahead –Suppliers need to master 15 main levers in order to reachand secure above-average profitabilityC

Automotive suppliers need to master 15 levers to reach/secureabove-average profitability

Levers to maximizesupplier value

Revenue structure Cost structure Financial structure

1 Focus on profitable and growingsegments/customers 6 Globally optimized footprint 11 Optimized working capital

management


g

2 Focused product portfolio

3 Diversified customerportfolio (globally)

4 High share of innovativeproducts/solutions

5 Customer focused salesorganization

7 Lean overhead structures

8 Strong and global Purchasing

9 Effective R&D spending

g

13 Adequate leverage

14 Optimal use of capitalsources

Revenue growth Cost leadership Financial sustainability

10 Process excellence

15 Attracting and retaining excellent people (enabled by company culture, management style, incentive systems, …)

12 Efficient asset management

2530354045

Measured against this set of 15 strategic levers, many suppliersare not prepared well enough for the challenges ahead

Revenuestructure

High Future TOPperformers

Strategic assessment of future supplier performance

22

-15-10-505

10152025

-15 -10 -5 0 5 10 15 20 25 30 35 40


Source: Roland Berger/Rothschild

structure• Segments• Focus• Client base• Organization• Innovation

Cost structure• Footprint• SG&A

• Purchasing• R&D

Low

Low High

Europeansuppliers Japanese

suppliers

Rising starsuppliers

North Americansuppliers

Future LOWperformers

• Processes

23

C.1 Revenue structure

Automotive suppliers need to be present in future growthsegments like Powertrain, Electronics, or low cost cars

1

Global parts sales by productgroups [EUR bn]

Global part sales by OEMgroups [EUR bn]

Global parts sales by vehiclesegments [EUR bn]

Products Customers Segments

591 591

CAGR [%] CAGR [%] CAGR [%]

591

SEGMENTS/CUSTOMERS

24

Chassis

Exterior

Interior

Power-train

RisingStarsEuropeanPremiumEuropeanVolume

Detroit 3

Japanese/KoreanOEMs

77

8218

115

121

162

49330

135

143

201

2008

Areas with above-average growth rates

2020

Elec-tronics

78

95

87

16

147

165

49331

104

155

206

4.30.5

1.4

1.4

1.8

5.61.7

1.5

0.4

1.8

4.61.1

1.8

1.2

Low costPremium

Low end

Volume

2008 2020

63

7219

103

308

49335

127

357

2008 2020


Four main activities required in order to optimize the product/customer portfolio over the long term

1 SEGMENTS/CUSTOMERS

Recommendations for suppliers

1 Assess portfolio: Systematically screen product/customer portfolio and simulateimpact of different long-term growth assumptions


2 Manage opportunities: Identify potential growth areas to be further exploited anddesign/implement/monitor dedicated growth initiatives (e.g. focused on low costcars or focused on Asian Rising Star customers)

3 Manage risks: Identify main risks caused by structural industry changes anddevelop defensive strategies

4 Evaluate financial impact: Aggregate financial implications of required actionsand identify potential financing gaps

The future development of Powertrain is driven by mainly threefactors: customers, legislation and enabling technologies

Overview of key drivers and their impact on Powertrain development

Customers

• Increasing focus on total cost of ownershipd t i i f l i b t t t i

1 • Ongoing optimization of ICE• Enhancement of gearboxes

( DCT 8 t t ti )

Future development of POWERTRAIN

tiona

ry

1 DEEP-DIVE POWERTRAIN

26Source: Roland Berger

due to rising fuel prices – but at a certaincomfort sensitivity

Legislation

• Legislative frameworks enforcing fuelefficiency and limiting toxic gas emissions

• Country, regional and local actions e.g.,con-gestion charges, tax incentives orpenalties

Enabling technologies

• Recent achievements in base technologies(e.g., Li-Ion batteries) enable new technicalsolutions

2

3

• Usage of alternative fuels(e.g,. bio fuel, syn fuel, CNG/LPG)

(e.g., DCT, 8 stage automatic)

• Increasing electrification androllout of Hybrid Powertrains

• Emergence and spread ofelectric vehicles

• Continued research on fuel cells(esp. for heavy duty vehicles)

• Improvement of exhaust gasaftertreatment systems

Rev

olut

iona

ryEv

olut

iona

ry

Conventional ICE technology will be further improved over thenext 15 years – Some examples

Diesel common rail (<2000 bar)

HCCI / CAI

SYSTEM Serial stage Prototype stage1) Concept stage

High pressure CR diesel (>2000 bar)Combustionprocess

Gasoline DI (homogeneous) Gasoline DI stratified (lean)

Powertrain technology roadmap (Extract)


27

VTG turbo diesel

Exhaustaftertreatment

DPF with regeneration

SCR (w urea)2)

HC-CO absorber

NOx trap 2nd genNOx trap 1st gen

Muffler integrated catalyst

Turbo charger

SCR integrated with cat

Camless / electric valvetrainContinous variable valve lift

Dual stage turbo diesel

Dual stage turbo gasoline

VTG gasoline

E-Drive Turbo

SCR (w/o urea)

Source: Roland Berger

1) First niche applications 2) Passenger cars

Electric Powertrain components differ substantially fromconventional ICE technology – and are much more expensive

Cost breakdown of EV and conventional Powertrain in 2010 [EUR]

Electric POWERTRAIN Conventional POWERTRAIN1)

2 000

1.20015.200

12 000



2.00012.000

Battery Electricmotor

Powerelectronics

Total

2.860

1.550

Engine

370

E/E

430

Exhaust

510

Trans-mission

Total

1) Average Powertrain in Western Europe

But significant improvements in battery technology will result inincreasing battery power available at declining cost

Development of battery energy density and battery cost

Battery energy density [Wh/kg] Battery cost [EUR/kWh]1) Levers to achieve costreduction:

• Optimized product design• Less complex battery

400180+80% -50%



1) Assumption: 100 k units p.a.; min. capacity 15 kWh

• Less complex batterymanagement

• Material substitution byusage of less expensivematerials (e.g., iron) –However, partly off-set byincreasing prices for majormaterials (e.g., lithium)

• Scale effects in purchasing,production and SG&A

200

300

2010 2015 2020

125

100

202020152010

Electric vehicles are therefore expected to have a lower lifecyclecost than a conventional ICE powered car in 2020

2010

47.7

ICE – EV lifecycle cost comparison1) 2010/2020 ['000 EUR]

2020

+2.3 -9.5


30

3.30.0

17.6

38.6

ICE

5.75.6

12.0

17.6

17.7

40.9

EV

Consumption

VATBattery

Vehicle Vehicle

0.0

17.6

ICE

26.8

3.3

10.1

4.56.0

17.6

38.2

EV

Consumption

VATBattery

Powertrain share 1) 12 years NPV perspective; discount rate: 6%; mileage of 180,000 km; vehiclepurchase price remains constant; increasing gasoline and electricity price with 6% p.a.


This will result in imbalanced growth opportunities for Powertrainsuppliers

Impact of "the future drives electric" scenario on selected Powertrain modules

E-components/batteries(enabling hybrids and EVs)Sensors



(new functionalities)

Exhaust gas aftertreatment &EGR (particle absorption andDeNox solutions)

Turbo chargers(variable systems, high volume)

Ignition & cold start(commodization, less volume)

Drivetrain(commodization)

Engine(downsizing, less volume)

Crank system(downsizing, less volume)

Clutch & gearbox(DCT, new designs e.g. 8 speed)

Valve train (variablilization)

Fuel injection(injection pressure, stratified)

Air intake system(stratified)

Suppliers have to focus their product offering and broaden theircustomer portfolio. Objective: global market share of >20%

2/3 PRODUCT/CLIENT PORTFOLIO

Focused product portfolio Broad customer base

6054

46

32

Low performersTop performers

43

Revenue share of Top 3customers [%]

Global market share in 1-2 relevant segments: ~20-30%

46

Revenue share of Topproduct group [%]


Only innovative products will allow above-average margins. A widerange of new technologies plays a key role in the next few years

4 INNOVATION

Main automotive innovations in the next yearsEntire vehicle concepts

• Low cost cars• New crossover

vehicles Exterior• Lightweight body

Powertrain• New combustion engine

technologies• Hybrid drives• HCCI engine

33

g g yconstruction

• Plastics doors/closures

• LED front lights

Interior• Individual/ exchangeable

interiors• Variable instrument

cluster/HMIs• Advanced seat

climatization• Carbon dioxide HVAC

Electronics/ safety• Driver assistance

systems• Wireless communication• Li-ion batteries

Chassis• Fully integrated active

chassis• Electro magnetic suspension• Steer-by-wire• Electric brake/ brake-

by-wire

HCCI engine• Alternative propulsion

(fuel cell, e-car)• Electrification of auxiliary

drives


Automotive suppliers should implement customer focused salesorganizations with a high degree of back-end standardization

5 SALES ORGANIZATION

Characteristics of successful supplier salesorganizations

1 Global Key Account Management teamsat high hierarchical level (CSO – ChiefSales Officer – typically at Board level)

Benchmarks for top performing salesorganizations

[m EUR revenue per sales employee]

~20

34

2 Sales approach has to differ stronglydepending on customer needs (e.g. Europeanvs. Japanese OEM) and portfolio status ofcustomer (growth, stable, declining)

3 High degree of standardization ofback-end processes (e.g. offermanagement, sales controlling, …)

4 Effective link between sales and othercustomer relevant functions (e.g. applicationengineering, quality, logistics, …)

~5

12-15

Growthcustomer(>3-4%revenue

growth p.a.)

Averageacross entire

customerportfolio

Stablecustomer(<3-4%revenue

growth p.a.)


35

C.2 Cost structure

Supplier footprints have already changed significantly over thepast years

6 FOOTPRINT

Supplier footprint [% of all locations] Key driver: Personal cost reduction [EUR m]

Asia other/ROWChina 11%

3%11%

100%

13%

9%

100%

Delta [%]

+2SouthAmerica

30%39% +6 Others

1835

10031

114

Delta [%]

-12

36

Japan

USA/Canada

WesternEurope

11%5%8%

29%

33%

9%

9%

8%

10%

20%

31%

2000 2006

CEEAmerica 39% 6

-2± 0

+2

-20

-2

Logistics

Personnel

Material 5454

23

38

53

2

1) Incl. capital cost for increased stock 2) E.g. increased coordination and management cost, additional depreciation, increased scrap

Annual costat existinglocation

(Germany)

Reducedpersonnel

cost

Increasedlogistics

cost1)

Increasedother cost

items2)

Annual costat newlocation

(Romania)

+9

+4-79

± 0


But suppliers need to do more than just relocate products –Target: globally optimized footprint

6 FOOTPRINT

Characteristics of globally optimized footprint

1 Clear vision on future value add per mainprocess (based on make-or-buycalculations)

Example for supplier footprint

2 Cost/capex optimized plant/product

Components hub• Production of

components with lowcomplexity

• Supply of assemblysatellites

Assembly satellites with leadfunction• Launch of complex programs• Advanced manufacturing

engineering• Know-how transfer to

bl t llit

37

2 Cost/capex optimized plant/productallocation plan for the next 10 years

3 Each plant/R&D location with clear rolewithin footprint (e.g. component hub in LCCof each region, hub for aftermarket parts)

4 Precise implementation plans for locationsto be closed/to be opened

5 Central organizational unit in charge ofproduction planning (esp. plant/productallocation decisions)

assembly satellites

Assembly satellites• Customer oriented and

flexible final assembly/-inspection

• Production of complexcomponents

Engineering hub• Basic development• Know-how transfer to

engineering satellites

Engineering satellite• Localization• Application development

Concentrationsoftwaredevelopment


Overhead margins have slightly decreased – But there is still highpotential

7 OVERHEAD

Global SG&A1) ratio 2001-2007 [% of revenues] Main levers to reduce overhead cost

1 Increase efficiency in servicesthrough optimized processes (e.g.standardization) and optimalallocation of tasks and responsibilities

6.7 6.7 6 7 6.8 6.8 6 7 6 6

38

2 Reduce services along all dimen-sions: quantity, quality, frequency,complexity, response time, …

3 Turn fixed costs into variable coststhrough outsourcing, cost sharing andmake-or-buy

4 Systematically revise underlyingpractices and procedures for indirectcost, e.g. site management, IT,security, training, etc.

1) Selling, General and Administration

4.5

6.7

5.5

6.7

5.6

6.7

5.35.1 5.1

6.7

5.0

6.6

Industry average

TOP

LOW

Source: Bloomberg; Roland Berger/Rothschild

'02 '03 '04 '05 '06 '07'01

Dramatic raw material price increases require new activities onthe purchasing side

8

Price development of selected raw materials1)

[USD/mt]Levers to reduce raw material cost

1 Reduce usage of raw materials(change of product specification,waste avoidance, recycling)

PURCHASING

June ’08June ’05 +146%

39

2 Systematically hedge all raw materialcontracts

3 Ask own suppliers of sub-components to carry burden

5 Ask OEMs to share cost increase(at least 50:50); train sales force innegotiation techniques

Source: Bloomberg; Datastream; Roland Berger

Steel Aluminum Copper Magnesium

5581,134

1,703

3,0653,540

8,693

1,555

5,700

+103%

+80%

+267%

1) MB Steel HR Coil EU Domestic, LME Aluminum Spot Price, LME Copper Spot Price, MB Magnesium

4 Bundle purchasing volume with othersuppliers

Other important Purchasing levers include material groupstrategies, design-to-cost, and stricter negotiation management

8 PURCHASING

Procurement survey results and design-to-cost example

Levers Priority of suppliers

Material groupstrategy 69%

Example: Impact of Design-to-cost approach

Passive safety product: Driver airbag for Western OEM

29 08 16%

40

"High"/"very high" in % of all respondents 1) Not included in survey (derived from project experience)

Design-to-cost(D-2-C)

Negotiationmanagement

Suppliermanagement

Organization/processes1) 28%

42%

47%

53%

58%

Sourcingstrategy Main cost cutting levers:

• different cushion folding• low cost contact unit of

supplier• different assembly, less

material

Part costdevelopment[EUR]:

Serial cost "savings": EUR 5.9 m

General success factors:• Involve strategic

suppliers• Start at ~SOP-24• D-2-C management/

monitoring

29.0824.47

Initial SOP -24 Final SOP

-16%


R&D efficiency has – on average – increased, but with largedifferences across suppliers

9 R&D

Global R&D margin 2001-2007 [% of revenues] Levers to optimize R&D cost

1 Strict R&D portfolio management(project simulation, evaluation,planning)

3 4 3 4 3 4 3 5 3 4 2 Implement lean standardized

41

3.4 3.4 3.4 3.5 3.43.3

3.1

'02 '03 '04 '05 '06 '07'01

2 Implement lean standardizedengineering processes and projectmanagement (e.g. removal of admintasks, leveling of workloads …)

3 Improve resource planning andallocation

4 Install transparent performancemanagement system (KPIs)

5 Manage product complexity throughbetter definition of product variants


42

C.3 Financial structure

Top performing suppliers are characterized by constantexcellence in working capital management

11 WORKING CAPITAL

Net working capital [% of revenues] Comments/recent developments

14.5

12 9

13.913.5

14.114.3 1 Expanded manufacturing presence ofsuppliers close to the OEM’s internationalproduction locations boosts local storage costs


12.2 12.0

11.4

12.9

11.211.7

12.2

11.611.8

3Restrictive changes in payment termsproposed by strained OEMs drive receivablesposition of suppliers

2 Inventories are minimized by just-in-timebusiness models

5 Regarding payables, the extension of creditperiods and a strict usage of discountsreduces the cash flow needs for suppliers

4Factoring is more commonly used and helpsto stabilize cash flows and cut short-termfinancing costs

'02 '03 '04 '05 '06 '07'01

TOPLOW

Continuous decrease in average industry leverage as a result ofrestrictive bank financing

13 LEVERAGE

Leverage 2001-2007 [Net Debt/EBITDA]

1 Some suppliers have used the period of highcredit market liquidity to extend maturities,reduce interest costs and improve terms

2 Lenders now increasingly evaluate the1.9

4.8

1.5

4.5

1.4

5.4

1 1

4.0

1 1

5.7

1 1

4.9

1.6

3.3

Banks' view on leverage capacity

TOP

LOW

44

2 environment for suppliers as critical

3 A diversified customer portfolio, a low-costproduction base and capex flexibly adjustable to arecession/ sales drop scenario are regarded ascrucial factors for the future perspective ofsuppliers by their banks

4 Banks are cautious on automotive assetsfollowing a large amount of credits coming to themarket over past 12 months; leverage levelsreduced by ~1.0x EBITDA; stricter credit controlmechanisms

5 Lenders strictly separate between high-margin(EBITDA >15%)/technology-driven and commoditysuppliers

1.1 1.1 1.1

Credit rating of European suppliers

02468

AA A BBB BB B CCC2002 2004 2006

Source: Standard & Poors’s; Roland Berger/Rothschild Supplier Database 2008

Industry average

TOP

'02 '03 '04 '05 '06 '07'01

2008

The conditions for equity financing have become more difficult –Nonetheless, top performers maintain a high equity ratio

14 CAPITAL SOURCES

Equity ratio [%] Comments/recent developments

1 Investment volumes of private equity firmshave declined since 2003 – attracting privateequity as a source of equity has become morediffi lt

30.532.831.735.2

69.767.367.163.160.757.657.040.035.2

44.1TOP

LOW

45

difficult

2 Public equity markets coming underpressure over the last 12 months have madeequity raisings more difficult for suppliers

3 In addition, since the credit market crisis,markets appear reluctant towards mezzaninefinancing for automotive suppliers

4 Equity ratio of top performers has constantlybeen approx. 20% higher than of lowperformers over the last years

5.9

1.61.21.9 1.4

3.94.5

Source: Thomson SDC; Roland Berger/Rothschild Supplier Database 2008

'02 '03 '04 '05 '06 '07'01

Private equity transactions [USD bn]

'02 '03 '04 '05 '06 '07'01

46

Definitions and ContactsD

Definitions of key financial ratios and terms

Capital employed Short term debt + Long term debt + minorities + pension provisions + book equity – cash &equivalents

Days sales Accounts receivable / revenues * 360

Days payables Accounts payable / Cost of sales * 360

RATIO/TERM DEFINITION


EBIT margin EBIT/revenues

Interest cover EBIT/net interest

Leverage Net debt/EBITDA

Net debt Short term debt + Long term dept – cash & equivalents + minorities + pension provisions

Net gearing Net debt/book equity

Performance ratedsuppliers

Performance rated suppliers are defined as suppliers rated according to the criteria averagerevenue growth 2000-2007 (CAGR), average ROCE 2000-2007 and ROCE 2007. In the casefinancials for financial year 2000 were not available, the relevant time frame was reduced to2001-2007, and to 2000-2006, if 2007 financials were not available. In other cases, thecompany was not performance rated

ROCE EBIT / Capital employed

Revenue growth Revenuest / revenuest-1 -1

Abbreviations

bn – BillionCAGR – Compound annual

growth rateCAI – Controlled auto-ignitionCEE – Central and Eastern

EuropeCNG – Compressed natural gasD 2 C D i t t

Excl. – ExcludingHCCI – Homogeneous charge

compression ignitionHMI – Human machine

interfaceHVAC – Heating, ventilation and

air conditioningICE – Internal combustion

PHEV – Plug-in hybrid electricvehicle

pts. – PointsR&D – Research and

developmentROCE – Return on capital

employedRoW – Rest of world

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D-2-C – Design to costDCT – Double clutch

transmissionDeNox – Reduction of nitro oxidesDetroit 3 – GM, Ford and ChryslerDI – Direct injectionDPF – Diesel particulate filterEBIT – Earnings before interest

and taxEBITDA – Earnings before interest,

tax, depreciation andamortization

e.g. – For exampleEUR – EuroEV – Electric vehicle


ICE – Internal combustionengine

Incl. – IncludingKPI – Key performance

indicatorKwh – Kilo watt per hourLCC – Low cost countryLED – Light emitting diodeLi-Ion – Lithium ionLPG – Liquified petroleum gasm – Millionn/a – Not availableOEM – Original equipment

manufacturerp.a. – Per annum

RoW – Rest of worldSCR – Selective catalytic

reductionSG&A – Selling, general &

administrative expensesSOP – Start of productionSyn fuel – Synthetic fuelTriad – US, Japan, Western

Europevs. – VersusVAT – Value added taxVTG – Variable turbine

geometryWh – Watt hour

Authors of this study

Marcus BerretPARTNER

+49 89 [email protected]

Thomas KästeleMANAGING DIRECTOR


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Sebastian ReineckeANALYST


Felix MoggePROJECT MANAGER


Victor Silveira CamargosSENIOR CONSULTANT


Svyatoslav LyepyeninANALYST


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