The Automotive Industry

Minority Business Development:Economic Value And BenefitsMED Week 2001
This Report Was Written And Produce

By:

The Asaba Group, Inc.Lakeview Office Park ww214 North Main Street, Suite 207 TeNatick, MA 01760 Fa

U.S. Department of Commerce Minority Business Development AgencyRonald N. LangstonNational Director

This analysis on the economic value and benefits of the automotive industry was prepared by The Asaba Group and is the Group’s interpretation automotive industry. The study is not a Commerce Department report, but was developed for the sole purpose of discussion amongst industry eanalysis of the report do not necessarily reflect the views of the U.S. government. 
Express Gratitude And Acknowledgem

Contributions To The Project:

Minority BusinessDevelopment AgencyRonald N. LangstonGeneral MotorsDavid AllenBob KuftaGarrett QuarlesDaimler ChryslerJethro JosephFord Motor CompanyRenaldo JensenElliot Hall 

Johnson Controls, IBarima Opong-OwusReginald LaytonBridgewater InteriorRon HallVitecBill PickardSaturn Electronics aWally TsuhaPiston AutomotiveVinnie Johnson
Content

Project Overview Industry Overview/Trends Automotive Manufacturers Realities Minority Automotive Markets Minority Business Value Proposition State of Minority Business Development 
The Asaba Group Retained To Assist In 

Building the Business Case

Project Charter

Business case should place emphasis on the following

 Focus on business imperatives and free market forces Leverage minority demographic shifts and emerging purchasin Ensure alignment with current industry trends and strategies o Drive increased Fortune 500 participation in minority business 

Develop A Report That Shows The Economic Value Of Doing Business With Minority-Owned Companies
Project Approach

• Macroeconomic / Market Forces• Supply Chain Realities• Major Players’ Response• Shareholder Value Created• Market / Customer Opportunities• Revenue Expansion Opportuniti• Channel / Market Access• Brand Differentiation• Supply Chain Flexibility• Current State• Issues / Challenges• Future Perspective

Industry Trends/

Dynamics

Minority Market

Assessment

Minority Business

Value Proposition

Minority Sourcing

and Partnerships
Executive Summary

Long-term competitiveness of a corporation lies in developing buwhich create both shareholder and stakeholder value

 Minority Business Development initiatives create value for both shareholde

stakeholders

 Automotive Manufacturers realize the strategic value of Minority Businesse

Automotive Manufacturers are in search for new market revenue 

 Minority Automotive markets are estimated at $112 Billion and growing Minority consumers will account for significant share of future revenues

Positive correlation exists between market share gains and minoand dealers development

 Minority suppliers and dealers contribute to Automotive Revenues

Minority suppliers weak value chain positioning largely a function metrics and measurement

 Focuses on “quantity of spend” rather than “quality of spend” Metrics not reflective of industry realities – Supply Chain transformation an

dynamics
Executive Summary

Positive correlation between “Doing Business With Minority Enteand above-average Market shareWhat we observe in analysis of Top 15 Minority States (78% of tominority population)

• In states with high concentration of Domestic minority suppliers

– Total Big 3 automotive market share is greater than Big 3 national ave

• In states where Big 3 minority dealers are under-represented (compared to 

average) versus import minority dealerships

– Big 3 automotive market share is lower than national average

• States with both high concentration of Big 3 minority suppliers and equal o

Big 3 minority dealership representation

– Big 3 market share much greater than national average
Content

Project Overview Industry Overview/Trends Auto Manufacturers Realities Minority Automotive Markets Minority Business Value Proposition State of Minority Business Development 
Automotive Sales On A Downward Trend After Record Year In 2000

6.06.57.07.58.0

2000 2001

January to May Sales

Units

(MM)

SOURCE: Automotive News, Asaba Group Analysis, Autopolis, Merrill Lynch

14.015.016.017.018.0

2000 

Units

(MM)

Annua

% Change

(5.6%)

17.4 MM

7.1 MM

7.5 MM

Strong Impact On Industry Performance
Automotive Future Sales Likely To Continue On Downward Trend

15.1

16.1

14.5

12.2

14.7

17.4

1

1012141618

1985 1986 1989 1991 1995 2000 20

SOURCE: PricewaterhouseCoopers, Salomon Smith Barney, Asaba Group Analysis

U.S. Light Vehicle Sales

Vehicle

Units

(MM)
While Sales Have Soared In Prior Years, New Vehicle Profits Have Been Flat

SOURCE: National Automobile Dealers Association (NADA), Automotive News

21.9

22.6

23.6

24.4

24.9

202122232425

1996 1997 1998 1999 2000

Average New Vehicle Price

$

(000)

6.4% 6.4%

6.5%

5%

5.5%

6%

6.5%

7%

1996 1997 1998 

Gross

Profit

New Vehicle Retail 

CAGR

96-00

3.26%

Expect Declining Profits With Slowdown
Industry Players Feeling The Pain From Slowdo

General Motors first quarter profits down 88%

 General Motors cutting 10,000 jobs and ditching the Oldsmobile b

DaimlerChrysler announces widespread restructuring of U

 Chrysler Group cuts production by 15% and plans to cut workers b Total restructuring costs estimated at $5 Billion

Ford Motor Company has:

 First quarter production down 16% from 2000 levels Second and third quarter production rate expected at 14% and 10

production rate in second and third quarter of 2000, respectively
Content

Project Overview Industry Overview/Trends Auto Manufacturers Realities Minority Automotive Markets Minority Business Value Proposition State of Minority Business Development 
Key Highlights

Consumers view cars to be similar in quality and features 

 Brand differentiation not as distinct 

– Reflected in consumer willingness to pay a price premium

Automotive manufacturers have achieved competitive convergenproduct category

 e.g. Luxury cars: Ford (Jaguar/Lincoln), GM (Cadillac), Toyota (Lexus), Da

(Mercedes-Benz)

Declining profitability driving Automotive Manufacturers (OEM’s) profitable revenue segment

 After sales revenues more profitable and experiencing strong growth

Large automotive suppliers gaining more influence on product at(quality, differentiation, etc.)

 New core technologies rapidly diffused among OEM customers to leverage 

investments
Key Highlights (cont’d)

After-sales revenue sources concentrated with category competi(non-automotive) and automotive dealers

• Retailers and dealers consolidating and becoming multi-franchised

– Reducing dependence on any one auto manufacturer

• After-sales revenue concentrated with dominant customer-focused compe

Automotive manufacturers desire to increase shareholder value on consumer

• Product-life management new mantra with automotive manufacturers
65%

25

0%

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

Agree Disa

Product-Based Differentiation Declining Among Automotive Manufacturers

150480

150

100

810

120

90

180

110

0

100200300400500600700800900

1980 1990 1995

Defects 

Per 100 

Cars

Vehicle Quality Convergence (U.S.)

SOURCE: J.D. Powers, McKinsey & Company, Asaba Group Analysis

%

Respondents

+1 S.D.

Mean-1 S.D.

“Cars seem in terms of than they w

OEM's Seek New Ways To Build Differentiation
Declining Profitability Margins Driving OEM’sTo Search For New Profits

28

24

7

0

20406080

100120140160

Suppliers OEMs Reta

2.2%3.0%

5.7%

3.9%3.4% 3.5%

2.0%

4.5%

3.6% 3.6%

1.5%2.5%3.5%4.5%5.5%6.5%

1997 2000

DCXToyotaGMFordHonda

Ne

$ Billions

Net Profit Margin % Industry Pr

SOURCE: Valueline Investment Survey, McKinsey & Company, Asaba Group Analysis

After-Sales Revenues Is New OEM Focus
$97 B

Financing

$104 B

Financing

$102 B

Insurance

$119 B

Insurance

$70 B

Lease/Rental

$119 B

Lease/Rental

$86 B

Service/Repairs

$106 B

$28 B DIY Service/Repair

$36 B DIY

0

100200300400500

1995 2000

Strong Growth In After-Sales

$ Billions

SOURCE: CNW Marketing/Research, Piper Jaffray Equity Research, Asaba Group Analysis

$ 383 B

$ 483 B

Automotive After-Sales Revenues
After-Sales Revenues Provide Profitable

Growth Opportunities

Challenges Exist With Dominant Category Competitors

FinancingRental/Leasing

Service & RepairInsurance

DIY Aftermarket

Multiple Channel Options • Independe

• Auto Servic

Local Banks/Credit Unions • Fleet/Come

• Employee 

Retail/Leasing Companies • Dealers focused on individual • Finance Cosegments/nichesLocal Neighborhood Rep • State FarmLow Cost Channels • GEICODominant Category Killers • PepBoys

• AutoZone

OEM’s Can Leverage Minority Business To Access Mino
In The Dealer Channel, Big Dealers Are Getting 

8.6%

10.2%

11.1%

12.3%

14.9%

6.0%

11.0%16.0%

1996 1997 1998 1999 2000E

% of 

Sales

Top 100 Dealers Percent Of Total Sales

SOURCE: Automotive News Market Data Book, National Automobile Dealers Association (NADA)

Increasing Their Leverage With Automotive Manufac
Multi-Franchised Dealer Sales Also Increasing

9.2%

4.2%

0%5%

10%

1996 1999

% of Total 

New Car Sales

SOURCE: National Automobile Dealers Association (NADA), Asaba Group Analysis

Top 20 Multi-Franchised Dealerships

Reducing Dependence On Any One Automotive Br
Automotive Manufacturers Realize The Need To Focus On Consumers

Huge emphasis and investment in brand and product line managSaturn has built its brand on consumer buying and lifecycle autoexperience

 Early pioneer in building customer relationships as a competitive advanta

Ford Motor Company vision changed to reflect consumer focus

 “To become the world’s leading Consumer Company for automotive prod

General Motors recently appointed brand managers for its produ

 Created marketing positions for minority segments

DaimlerChrysler, while striving for cost saving among platformsstrict rules to prevent dilution of Mercedes-Benz image

Minority Business Development Is An Avenue 

To Access Minority Consumers
Content

Project Overview Industry Overview/Trends Auto Manufacturers Realities Minority Automotive Markets Minority Business Value Proposition State of Minority Business Development 
Minority Consumers Are An Attractive Market For Automotive Manufacturers 

Automotive-related market spending in 2000 estimated at $112 B

 New and Used Cars Sales estimated at $67 Billion

Top 10 Minority Concentrated States account for 50% of new car 

 Minority consumers have strong impact on automotive revenues 

Minority Consumers will account for significant share of entry-lein the future

 Entry-level car buyers possess no legacy knowledge of past quality gaps 

and domestic brands

 Top 10 Minority States account for 63% of Minority entry-level car buyers

Over-Index in used car purchases compared to general market c

 Opportunity to capture more purchases through franchise dealer channels 

revenues

 Opportunity to migrate minority consumers to situation where OEM’s beg

the sales

– Sales and profits currently captured at dealer level
$26.6 B

New Car

$40.9 B

Used Car

$6.6 B Financing

$9.5 B 

Rental/Leasing

$12.7 B

Service/Repair

$15.3 B

Insurance

0

255075

100125

2000

$ Billions $111.6 B

SOURCE: Minority Business Development Agency (MBDA), Bureau of Labor Statistics Consumer Expenditure Surveys, Asaba G

Minority Automotive Spending

Minority Automotive Spending Estimated At $112 BillionMinority Businesses Are Vital Links To An Ever-Expanding Minority Co
Top Ten Minority Concentrated States Account For 50% Of Total Automotive SalesAlso Account For Greater Share Of Minority Population And Purchasing 

Top 10 Minorit

1. California 2. Texas 3. New York 4. Florida 5. Illinois 6. Georgia 7. New Jerse8. North Caro9. Virginia 10. Michigan 

Top 10 

States

66.8% 

Top 10 

States

63.9%

Top 10 States

50.4% 

Others

49.6%

Others

33.2%

Others

36.1%

0%

25%50%75%

100%

New Vehicle

Sales 2000

Minority

Population

Minority

Purchasing

Power

Top 10 Minority States Share

SOURCE: Ward’s Motor Vehicle Facts & Figures, U.S. Census, Selig Institute, Asaba Group Analysis

17.4 MM 82.4 MM $1.3 T (Ranked by Popu

Strong Impact On OEM’s Sales In These States
Early opportunity to build brand loyalty

Minority Consumers Account For Significant ShOf Entry-Level Car BuyersAuto Manufacturers View Capturing Entry-Level Car Buyers As Strateg

Minority13.7 MM

45.1%

Minority11.4 MM

37.8%

Minority

9.1 MM

34.2%

NonMinority

16.6 MM

NonMinority

18.8 MM

NonMinority

17.5 MM

07

14212835

2000 2010 2025

% C

00-10 13.5% 

7.4% 

25.3% 

Population 

(MM)

Entry-Level Car Buyer1

1. Represents 18 to 24 years Age Group or ProxySOURCE: U.S. Census 2000, Asaba Group Analysis

Minorities Are The Growth In This Segment

26.6 MM

30.2 MM 30.3 MM
Top Ten Minority States Represent Significant Share Of Minority Entry-Level BuyerAnd Most Of Future Growth

Top 10

States

67.0%

7.6 MM

Top 10

States

63.3%

5.8 MM

Others

33.0%

3.8 MM

Others

36.7%

3.3 MM

0%

25%50%75%

100%

2000 2010

% C

00

251531

9.1 MM 11.4 MM

Minority Entry-Level Car Buyers

SOURCE: U.S. Census 2000, Asaba Group Analysis

Capturing Minority Car Buyer Is Essential For Future Reve
Minority Consumers Have A Higher Incidence Of Used Car Purchases

5.4%

5.9%

4.3%

0%3%6%

African

American

Hispanic White

% Share of Used Car Purchases 

% Share of

Expenditures

Less T

Of Used C

and Do

Reven

Cap

Franchi

Most sales captured in the retail channel by non-franchised dealers

Auto Manufacturers Must Leverage Minority Dealer Rela
Minorities Make A Difference In Auto Manufacturers Performance

Domestic

Share

73.4%

10.8 MM

Domestic

Share

66.0%

11.5 MM

Market

Share

Points

7.4%

Imports

34.0%

5.9 MM

Imports

26.6%

3.9MM

0%

25%50%75%

100%

1995 2000 LOST Share

14.7 MM 17.4 MM 1.3 MM

SOURCE: Merrill Lynch, Automotive News, Asaba Group Analysis

Vehicle

Units Poten

to 26% 

Au

Purch

Illustrative Example
Content

Project Overview Industry Overview/Trends Auto Manufacturers Realities Minority Automotive Markets Minority Business Value Proposition State of Minority Business Development 
Value Propositions For Doing Business With Minority-Owned Enterprises

Provides access to new growth and strategically importansegment or consumers.e.g. Alliances that enable entry into International emerging Enables increased and sustained profitability from existinProvides opportunities for new revenue sources – IncreasWallet (SOW) e.g., Loyalty drives down cost associated with customer reacquisition.Provides second sourcing alternative in Supply Chain

– Reduces supplier concentration risks

Satisfy needs of key StakeholdersDevelop and Enhance Citizen Image

– Environmental Coalitions/Organizations

Enhances ability to meet government mandate/compliance sacrificing profits or increasing cost e.g. CAFÉ standards Regulatory Value

Market 

Access

Increase 

Customer 

Loyalty

Supply 

Chain 

Flexibility

Stakeholder 

Satisfaction

Most Business Relationships Develop Value Proposition Around T
Minority Business Enterprises Value Propositio

Minority Business Value Proposition 

(OEM's/Large Suppliers)

• Minority dealerships provide access to 

important minority dominant markets

• Brand differentiation from Minority Sourcing 

(Think “Intel Inside” approach)

• Tier One suppliers access to aftermarket 

segment

• Ability to capture after-sales revenue 

potential/licensing revenues

– Less dependent on automotive product 

attributes

• Minority consumers more brand loyal than 

general market

– Reward manufacturers who contribute to 

community well being

• Minority Channel partners critical in building 

loyalty for Auto Manufacturers

• OEM’s reward Tier One suppliers with more 

sourcing opportunities

• Minority business 

in key markets

• Not effectively ut

Automotive Manu

• Not effectively ca

market potential

• Minority consume

purchases of afteproducts

• Big 3 minority loy

States with signifsuppliers

• Need to build loy

minority states

• OEM’s selection 

suppliers to incluobjectives

Market 

Access

Consumer 

Loyalty

Benefits Implication

Minority Business Value Proposition (OEM’s/Large Suppliers)
Benefits Implication

Minority Business Enterprises Value Propositio

• MBE lower operating cost provides ability to reduce total delivered system costs to OEM’s• Potentially can provide second source alternative (to certain commodities)

– Lower sourcing risks and provides 

category competitiveness

• Large Tier One Suppliers can leverage MBE's 

lower cost structure in Supply Chain

• Alternative source for technology and global 

competition 

• Meet needs for special interest consumer

advocacy groups

• Satisfy generally accepted diversity inclusion

best practices

• Assists OEM’s to meet government contract / 

sourcing requirements

• Enhances relationship with government 

entities

• MBE are lower co

certain internal bu

– Outsourcing p

commodity m

• MBE Tier One Jo

alternative low cocommodities

• MBE tend to have 

compared to large 

• Diversity in the w

– Minorities gro

employees 

• Diversity related • Loss of Governm

– Annual spend 

$1 Billion

• Minorities voting • Decision makers 

minorities

Supply 

Chain 

Flexibility

Stakeholder 

Satisfaction

Minority Business Value Proposition

(OEM’s/Large Suppliers)

Regulatory 

Value
Domestic Automotive Manufacturers CommitteTo Minority Sourcing And Dealers

1,000

GM

2,300

GM

700 Ford

3,500

Ford

360 DCX

1,197

DCX

0

2,0004,0006,0008,000

1991 2000

Spending 

($ MM) $6,997 MM

$2,060 MM

187

0

100200300400

1993 

Minority Suppliers Minority 

1. GM as growth proxySOURCE: Company Reports

GM

# of 

Dealers

CAGR

91-00

14.6%

Clearly Understand The Benefits Of Doing Business Wi
Automotive Manufacturers Commitment To Minority Sourcing

“ ...The inclusion of minority suppliers into our supply base contributes to lo

economic, political, and social stability of our industry by including importcustomers in its economic activity.”

- Jacques A. Nasser

President and CEOFord Motor Company

“ Minority procurement is no longer an issue of social conscience. Our very f

capturing and retaining the loyalty of a growing consumer market audience

- Thomas Sidlik

EVP ProcurementDaimlerChrysler

“ Our primary focus is to develop strong and viable minority suppliers as we

business growth of our minority joint venture partners...”

- Harold R. Kutner

Group VP Worldwide PGeneral Motors

SOURCE: Company Reports/Interviews
53.2% 21.6% 9.5% 5.0% 4.5% 3.7% 

Big 3 Minority Suppliers’ Employees Buy Big 3 Products In States With High Concentration Of Minority Suppliers’ Employees, BManufacturers Have Higher Than Average Market Share 

6.3% 5.6%

14.1%

4.6%

7.4%

23.0%

05

10152025

MI OH KY IN IL MS 

Market Share %

Above Big 3

National Average 

Big 3 Market Share % Above U.S. Average By State1

Corre

Minority Supplier 

Employee 

Concentration2

1. States also have high concentration of Big 3 facilities 2. Approximately 300 Minority SuppliersSOURCE: Asaba Group Analysis, Automotive News

Positive Correlation Between Big 3 Market Share And Mino
Minority Dealers Play A Role In Automotive Market Performance

14.0%

6.3%

2.6% 2.3%

22.0%

23.0%

6.0%

14.0%

1.4%

(12.4%)

(3.5%)

(8.8%)

(4.3%)

23.0%

7.4%

4.6%

5.6%

14.0%

5.0%

9.0%

5.0%

(2.0%) (1.

(21.0%)

(6.0%)

1.0%

-25-20-15-10

-5

05

10152025

CA FL NJ VA

MI OH KY IN IL MS GA AL PA

Co

In Top 15 minority markets, some correlation between Big 3 market share minority dealers

SOURCE: Ward’s, Asaba Group Analysis

Big 3 Market ShareOver U.S. AverageBig 3 Minority Dealers Share OverU.S. Average

Share (%)

Over U.S.

Average

Big 3 Market Share and Minority Dealer Share
Content

Project Overview Industry Overview/Trends Auto Manufacturers Realities Minority Automotive Markets Minority Business Value Proposition State of Minority Business Development 
Key Observations

1. Under-capitalized—Working 

capital/cash flow issues

 Increase 

cost

– Technic– Short-te– Procure– Quality 

 Financial institution investment 

attractiveness

 Capital structure constraints Weak management/operations

2. Presence in low threshold 

commodities

– Low margin, volume sensitive

 Sensitive 

– Increa

 Impaired 

productiv

 Bid comp

 Weak value chain positioning Corporate buyer procurement mindset

– Unwillingness to take risks– Direct sourcing dollars with low risks

3. Procurement mindset vs. 

“Strategic Sourcing”

– “Chasing next contract/part”

 Increased 

fragment

 Unsustai

– Impai– Reduc

attrac

 Corporate buyer procurement mindset

– Implicitly defines market opportunity/space– Individual buyers with minority supplier 

objectives making low-risk procurement decisions

 Minority business economic model

– High volume/high profit dollar

Observations Problem Drivers/Issues Key 
Key Observations

4. Focus on reporting “size of 

Minority dollars”

– Little emphasis on quality of 

spending

 Forced to 

small sup

– High pr

supplie

 Increase

fragment

 Government and advocacy groups 

metric/performance definition

– Not reflective of industry 

realities/dynamics

5. Significant top line operating 

risks

– Concentrated sales/revenues

 Risks to 

– Supplie

sensitiv

– Supplie

higher cprovide

 Lack of diversified revenue streams

– By OEM/Platform/Industry

 Minority companies downplay 

emphasis/need for strategy development and planning

6. Corporate organization buy-in

– Lack of clear business benefits

 Lower m

minority c

– Not leve

advantaof build

 Articulation of program rationale

– Clouded with social/community benefits– No clear tie-in to economic value added

 Corporate marketing operations not 

leveraging MBE supply chain program for consumer differentiation

Observations Problem Drivers/Issues Key 
Disparities Exist With Share Of Minority-Owned Dealerships Among Manufacturers

3.4%

4.5%

7.9%

4.5%

3.0%

0.0%3.0%6.0%9.0%

Ford GM Chrysler Toyota Nissan 

% Share of 

Minority 

Dealerships

* GM, Ford,Chrysler exclude European luxury makes: Nissan, Toyota, Honda includ

SOURCE: Automotive News Data Center

% of Minority Dealerships*
Minority Dealers Under-Represented In The IndCompared With Automotive Purchases

7,481 4,275 4,232 1,327 1,221 1,184

368 350 63 133 34 42 0%

50%

100%

GM Ford Daimler

Chrysler

Toyota Honda Nissan

Minority Share Of Auto Dealerships

7,831 4,643 4,365 1,390 1,255 1,226

Number

of 

Dealerships

0%

50%

100%

$ Billion

SOURCE: National Automobile Dealers Association (NADA), Automotive News, Asaba Group Analysis, Bureau of Labor Statistics 

Non-Minority

Minority

19.1%
Does Minority Ownership Capital Structure/Investment Attractiveness Affect Growth?

1. Burt Aut2. Ancira E3. Elder Au4. Lloyd W5. Tara Fo

Total 

Top Five Dealership Groups Top Five African American Dealerships Top Five H

1. Prestige Automotive $657.7 MM2. March-Hodge Holding $324.5 MM3. Mel Farr Automotive $298.5 MM4. Ray Wilkinson $268.6 MM5. The Harrell Companies $268.5 MM

Total Top 5 $1.82 B

1. Auto Nation Inc* $19.6 B2. Sonic Automotive* $5.6 B3. United Auto Group* $4.9 B4. Asbury Automotive $4.5 B5. V.T. Inc. $4.3 B

Total Top 5 $38.9 B

* Publicly held companiesSOURCE: Automotive News, Black Enterprise, Hispanic Business

Challenge Is How To Drive Growth
Total Number Of Dealerships Declining, But The Large Dealerships Have Grown!

SOURCE: Automotive News Data Center

22,597

21,674

20,00021,00022,00023,000

1996 2000

# of US Auto Dealerships 

# of 

Dealers

8.6%

8.0%

12.0%16.0%

1996 

% of 

Sales

Top 100 Dealers % 

CAGR

96-00

(1.0%)

How Can We Drive Minority Dealership Growth In This En
Minority Spending By Automotive ManufacturerIn 2000 Shows Broad Commodity Participation 

65%

Production

30%

Interior

32%

Logistics

35%

Non

Production

24%Raw

Materials

26%

Services

22%

Exterior

14%

Parts

3% Chairs

0%

50%

100%

Total Production Non-Production Mi

SOURCE: Company Reports

Spending By Commodity

Issues Around Size/Scale And Value Chain Positio

12% 

Powertrain

$5.6 B $3.6 B $1.9 B 

19%

Building 

Services

(M&T)

9% 

Indirect 9% 

Electrical
Auto Manufacturer Attempt To Grow With Fewe(Selected) Minority Suppliers Responding To Supply Chain Realities

Assembly/

Manufacturing

23

Steel Processing 

and Machining

21

Logistics

15

Non Production

19

0

306090

Selected Suppliers

Selected Suppliers

SOURCE: Company Reports

Few in high value-added activities

Emphasis Should Be On “How Much Value Is Add

4 Plastic Processing 1 Electronic

83 Number of

Minority

Suppliers
100%

Commodity B

100%

Commodity C

100%

Commodity D

The Problem With Cascading Minority Sourcing ObjectivesFocuses On “Quantity of Spend” Versus “Quality of Spend”

VP Sourcing/

Purchasing • Set goal for 5% of total purchases for m

• Cascade 5% objective to commodity bu

Chassis

Commodity Buyers

Interiors Non- Production Electrical

• N

mob

• Al

acwanch

100%

Commodity A

Danger Exists That Buyer May Source to Minority Suppliers

Their Low Value\Margin Products

Leads To High Fragmentation And Weak Value Chain Po

Illustrative 

Example
Minority Procurement Spending Typically Very Fragmented

0%

50%

100%

Total Procurement Dollars Minority Spending

SOURCE: Asaba Group Analysis, Industry Interviews

Non-Production

800 MBE

Production

90 MBE

Big/Major Suppliers

20 

Others

$100 Billion $5 Billion

MBE Spending

Illustrative Example

Incurring Significant Costs In Supplier 

Management And Commodity Savings
Widespread Consensus On The Need To ChangCurrent MBE Spending Metrics

“We deal with bigger suppliers who can do more and build total modules 

It takes a lot for Minority Suppliers to do this and remain Tier One Supp

“People have to understand our industry better... Maintaining small suppl

One is very difficult and adds cost.”

“It’s the metric... stupid. It only recognizes Tier One minority dollars.”“Not all MBE's can JV with big suppliers so as to maintain Tier One statu

to change the metrics and recognize Lower Tier spending.”

SOURCE: Industry Interviews
Proposed New Methods/Framework To MeasureMBE Spending

Places new emphasis on measuring “Quality of Spending”Asaba Group Quality Index (AGQITM)

Functions of the following

• Total Minority Spending (% of Total Purchases)• Weighted average commodity category margin• Weighted average category growth factor (0.1 = Low, 0.5 = Mid, 1 = H

• AGQI solves the issues of MBE Concentration in weak v

positions

Forces Commodity Buyers to provide higher quality opportunitie

• AGQI enables better recognition of Lower Tier minority 

Reflects Industry Supply Chain Realities

Without Compromising Inclusion
Asaba Group Quality Index (AGQITM) – IllustrativExample

200

Fuel 

Delivery

100 

Safety

250

Trim

250

Plastic 

Molding/

Foam

500

NonProduction

Margin % Growth Rate

3% L6% M6% M

10% H10% H

$2 B $2 B M

Two companies with $2 Billion in MBE spending (10% of total purchases

Company A Company B

AGQI Rating:

10% * 8.1% * .62

0.5

AGQI Rating:

10% * 3.0% * 0.10

0.0

$ B MBESpending

$ B MBESpending

300

Navigation

300

Electronic

Manufacturing

100

Non-Production
A Multi-Tiered Approach To Minority Supplier Development Is Required

Level I

Level II

Level III

Revenues

Thresholds

10 MM75 MM

Different issues, different metrics, and different solutions!

Small Business Issues

• Capital Access• Growth Issues• Management Issues

• Global Growth• Institutional Fin• Capital Structur• Partnerships
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