Content

‘STRATEGY ANS GUSINESS IMPROVEMENT CONSULTING

Automotive Industry Overview 3-18

| Changing Value Proposition 19-26

“fhe Automotive Suppliers: Overview and Trends 27-36
Asaha Automotive Suppliers: Growth Opportunities 37-41
Group Minority Suppliers Positioning In Value Chain 42-46
Minority Suppliers: Growth Opportunities 47-55

Business Case for Investing in Minority Suppliers 56-65

Appendix 66-71


| New Channels: [Geant cG Presents Significant
Growth Opportunity

Electronic and Electrical products are the high-growth segment ~

Worldwide Auto Aftermarket Growth

1995-2005 _ Favorable Trends .
$180, CAGR
Billion 1989-2004. Strong growth rate due to increase in
1604 $1586 7.3% average automobile life
Electrical e 100 million cars between 3 and 7
140) Se 78% years old
~ Period when most repairs are
120 4 performed
9 Electronic a . . _ .
100 saa S398 Ei e Provides diversification from OEM
business
80 Electronic A on .
Electrical e Provides ability to build customer
60 | $18B connection and branding
Electronic
40 4 Mechanical 3 e Demographic shifts to minorities with
$848 6.3% the prime Do-It-Yourself (DIY)
segment
20, — Median age younger than
general population
0

— Minority population forecasted to
2004 be a dominant share

SOURCE: Freedonia Group, Packaged Facts


Tier,4 Suppliers Have Begun Supplier Base
Consolidation Programs
eee eee ener eee eee ee nS 35

Delphi Automotive plan to cut more than 2,000 of 4,500 North American suppliers

“We’ve asked our purchasing teams to reduce our supply base by 50%.”
— Ray Campbell
Delphi VP Global Purchasing

Meritor Automotive Inc. has begun a massive reduction of suppliers

“Plans to cut down from 2,000 direct suppliers to between 600 and 800 over next 3 years”
— Carl Soderstrom
Sr. VP Engineering Quality
& Procurement

American Axle and Manufacturing plan to cut 100 to 150 suppliers from a
base of 300
“Once the large Tier One suppliers make the cuts, they’d like to negotiate longer contracts.”
- David Demos
VP Procurement

Tier il and II! Suppliers Must Compete on Price, Quality,
Engineering and Geographic Reach or Risk Being Slashed



Production Suppliers Must View Growth by
Strategic Role in the Supply Chain

The New Extended Enterprise

Component\ Systems \ Technology Ps Marketing Brand Customer

aay Manu- Manu- and intogeanen veaiey & Distri- Manage- ) Relation-
facturing / facturing / Engineerin: bution ment ships
j

1
« Tierl « Automotive Manufacturers
= « Mega-supplier « Big 3/Global Six
uti « Module/System
- « Full Service Integrators
Tier Ill Suppliers
e Increasingly
Fragmented

Concentration of
Minority Suppliers

| How Should Minority Suppliers Think About Growth?



Tile ltl im it Minorities Becoming Larger

Share,of Population
Reena reer ee eee eee ee ee 12

Resident 350 5 % Change
Population Soom from 1995
(Millions)

300 4 298MM

263MM
250 4

General
22.8%
200 4 General 208MM
203MM

General

193MM
150 5
100 5

Minori
50 J Minority 118MM. ae
Minority 95MM
70MM
0 ; :
1995 2010 2020

Auto Manufacturers Focusing on Minority Consumers
As Next Entry Level Car Buyers

SOURCE: U.S. Gensus


Keys, to Success for Minority Suppliers
eee eeeeeee eee e renee eee ee 54

e Focused development of products with superior market potential

— Safety-enhancing products, products
— Lightweight advanced materials
— Electronic/electrical components and systems

e Excellent inventory management
e Continuous productivity improvement

e Activity-Based-Costing will be critical for suppliers below the module
integrator level

— These suppliers are driven more to commodity-type
products; pricing and margin pressure will intensi

e Excellence in acquisition and especially in post-merger integration


Required Capabilities Will Depend on Strategic

Focus
ES

COMPONENT FULL SERVICE

e Low Cost e Innovate Constantly to Raise

: A Switching Barriers
Value « Highest Quality al nap Design, Engineer
Proposition e Build to Specification OWE » Besign, Engineering
To + Regional Operations « Anticipate/lead Customer
Customer « Build Capacity Globally

+ Geographic Scope « Supply Chain Integration and

¢ Cost Reduction Management

» Operational Excellence ¢ Product Development

e Working Capital Management « Complexity Management / Reduction
* Total Cost Management (TCM) + Globalization

+ Activity Based Costing (ABC) + Portfolio Strategy
e Module integration

e Post Merger Integration

Required
Strategi



U.S..Corporations Increasing Purchases With
Minority Suppliers
Ceeeeeeeeeeeeeeeeeeeeeeeeeeeeeee eee ee eee ee eee eee 55

Billions

1 NMSDC Corporate Members Only
2 Year 2000 Asaba Group estimates
SOURCE: NMSDC

60 -

204

10 4

0

a P 5
Minority Sourcing Dollars CAGE
1992-1998
$50B 11.8%
$41B
$36.1B
$33.4B
$30B
$27.3B
$23.2B
$21B
1992 1993 1994 1995 1996 1997 1998 2000E


Bargaining Power of Automotive Suppliers Improving

Minority Sourcing is a Key Component
io _~*~s 62

Modularization Module/System Globalization Consolidation
Integration

Design &
Engineering

Innovative Responsibility

And
Proprietary
Technolo

Improved
Bargaining
Power
with
Auto Makers

MINORITY SUPPLIER
SOURCING


Electrical and

Electronic Segments Are Attractive
a _

$45 OEM Automotive Electronics Market
Malad CAGR
40 4 39.5 1992-2002
10.5%
354
Comfort 3.7 5.6%
304
25 + Comfort 2.9
Safety Security 13.2%
ky 16.6
20 + =
Comfort 2.4 Safety Security
. 11.6
15 4
108 Safety Security
10 SSS Navigatio
Comfort 1.6 Drive Train 6.6%
Safety Security 14.2
54 ‘ Drive Train ee
Drive Train 97 a
5.5
0 r r

1992 1997 2007


Entry-Level Buyer Demographics Is Changing

Minorities account for 90% of growth in this segment
RY

200 + Under Age 35 Population’ % Change
35%
182MM
180 +
160 Non Minority (11%)
82MM
140 | 135MM
120 4
100 + Non Minority
92MM
Minorit
“00MM 139%
40 +
4 Minority
-° 48MM
UV) r
1995 2050

| Entry-level Buyer Will Be More Multicultural Than in the Past

1 Proxy for entry-level car buyer.
SOURCE: U.S. Censts, MBDA documentation


elie rhirecio Gin Suppliers Understand That
Minority Sourcing Is Strategic To OEM’s
Tier! Supp iers view minority sourcing as key in growing business 7

Johnson Controls sourced $235MM in 1999 from minority suppliers. Expected to
grow to $317MM in 2000

“Our company is committed to providing diversity, building strong partnerships with minority
firms, and expanding minority supplier development efforts in the years to come.”

— Johnson Controls

“..Our customers [OEMs] are asking for it. The minority population is growing and automakers

want them as customers.” — Foamex Automotive

3M Automotive has begun a minority sourcing program with a 5% goal by 2002

“The industry has recognized the demographics of their customer base.” — 3M Automotive

SOURCE: Company reports, Fortune Magazine, Automotive Industries


MINORITY BUSINESS DEVELOPMENT AGENCY

CONTACT

This report was prepared by

the ASABA Group funded by the
Minority Business Development Agency,
U.S. Department of Commerce.

For Further information and additional
copies, contact:

Kwame R. Brown

Senior Advisor to the Director

Room 5055

Minority Business Development Agency
U.S. Department of Commerce
Washington, DC 20230

202/482.5061

kbrown@mbda.gov

or visit MBDA's website at:
www.mbda.gov



Market Pressures on Auto Manufacturers
ee reer eee eee ee a 3

Excess capacity in American and Western European market
e Particularly prevalent in Western Europe and North America’

Global demand for cars increasing
e Largely driven by developing nations and emerging markets

Increased competition in domestic markets
e U.S. market mature, but experiencing increased competition from foreign manufacturers

Consumer tastes and sophistication of the buying process increasing

e Auto manufacturers focusing on consumer total experience; building capabilities to ensure lifetime
customer value

e Consumers are more informed than ever before

Changing demographics in U.S. market
e Profile of entry level car buyer evolving

e Minority population growing in size and income. Projected to represent significant
share of entry level consumer

Internet revolution shifting power of purchase decisions to the consumer
e Blurring the role of dealerships and intermediaries in the purchase decision process

1 Autofacts Intemational


Full, Service Capabilities Involves the Ability To:
eee eee eee errr rere reer eee eee eee 33

e Translate end-consumer needs to product requirements

e Manage product development across the supply chain

e Take responsibility for product design, engineering, quality, and manufacturing
e Share the risks and cost of product defects

e Drive technology development and integration into new products

e Process discipline and execution excellence

e Have relentless focus on cost containment and reduction

Suppliers Must Build R&D, Engineering, and Manufacturing Capabilities



Automotive Manufacturers Reshaping Their
Value)Proposition

19

Focusing on marketing, distribution, vehicle design and integration

| Yesterday | terda, | Yesterday |

Value proposition developed around
Component \Components, Module eetead estes) wee product specific strategies
Manufacturing R&D Design

Assembly / bution ment Suppliers role was “Build to Print”

« Value proposition lies in brand

| Future | Future e management and control of customer
life time value
Marketing Costone e Increasing reliance on automotive
Vehicle and FSiaoaeht suppliers to design, engineer and
Design Brand _/ Manageme Pp manufacture systems
Managemen
e Brand management developed around

consumer segments and lifestyles

e Leveraging consumer insights and
participating in downstream profit pools

Control of End-Consumer Automotive Experience
Is a Strategic Imperative
— Also adapting to changing demographics



Automotive Manufacturers Making Commitments
To Minority Sourcing

And encouraging Tier | suppliers to source from minority businesses
25

Automotive Estimated U.S. 1999
Manufacturer | Purchasing Spend | Minority Purchases Tier il Comments
Ford $50B $3.3 Billion $1.1 ¢ Committed to $3.5 B by 2004
Billion
General $70B $2.2 Billion $1.1 e Tier Il program is 5% of GM
Motors Billion business
¢ 2000 target at 5.5% of total
purchases
Daimler $40B $2.1 Billion N/A ¢ Committed to $2.7 B by 2000
Chrysler
Toyota $8B $350 Million N/A e 2002 target for Tier
e Target 5% of Toyota's business for
Tier Il
Mitsubishi $60 Million N/A © Currently at 3.7% > Goal is 5%
e Actively encourages Tier II
participation
Honda N/A N/A e
Nissan N/A N/A e
Mercedes- N/A N/A e
Benz

SOURCE: Asaba|Group estimates


TwoaKey Segments are Strategically Important

In Building Brand Loyalty .

These segments account for a larger share of vehicle sales compared to
population share

e Vehicle buyers with incomes over $75,000

— Represents 34% of new car buying populations
— Buys more expensive and profitable vehicle
Most profitable customer set

e Vehicle buyers under 35 years old
— Represents 21% of new car buying populations
— Typically the entry-level buyers
— Loyal customers likely to stay with brand when making next vehicle purchase
Segment represents the future car buyers and important for revenue growth

| Ability to Capture Entry-level Buyer Necessary to Build Brand Loyalty |



Manufacturers Want Suppliers With Full Service
Capabilities

LY

Percentage of Suppliers with Full Service Capabilities
Sport Utility Vehicle (U.S. OEM)

% 70% 5
Full Service 65%
Suppliers

60% +

50%

16%

10% +

<1%

1990 1995 2001

SOURCE: Asaba Group Estimates


Technology Integration and EnhancementL@‘agr)

Product Differentiation
eee eee ee ee eee ee 16

Actual and Projected Average Semiconductor Actual and Projected In-Vehicle Computing
Content per Light Vehicle 1993-2001 (U.S.) Systems Market (1994-2004-Global)®)
$400 5 $9 5
$350 + 350 $8 |
$300 + s7
=
$250 | 2%
S $200 ‘93-'01 o
. CAGR Es
$150 | 15.6% B og
150 150 2
100 + 125 =)
Y 110 $2}
$50 5 $1
‘93 '94 '95 ‘96 '97 ‘98 '99 ‘00 ‘01 ‘94 '96 ‘98 ‘00 ‘02 ‘04
Years Years

Opportunities for Automotive Suppliers Expected To Drive Technology Integration

SOURCE (1) Motofola, The Hansen Report, McKinsey Quarterly (2) Frost & Sullivan, Auto & Transportation Interiors, McKinsey Quarterly


Minority Sourcing Programs are Strategic, With
Senior Management Commitment
eeeeeeeeeeeeeeeeeeeeeeeeeeeeee ener eee e cere ee eS 6)

“[We are] determined to build strong long-term relationships with [minority] suppliers to
form a ‘partnership’.” — Thomas J. Stalkamp
Daimler Chrysler

“They [OEMs] are doing it because when the population shifts only those who have
committed themselves to including minorities are going to get loyalty.”
~— Minority Supplier

“GM is committed to supplier diversity because it not only makes good business sense, the
more we spend, the better we enable [minorities] to purchase our products.”
— Harold R. Kutner
Group Vice President
General Motors

“24% of our cars were purchased by minorities. Minority supplier development is a key
strategic initiative.” — Mitsubishi Motor Manufacturing

“Tn 1999 about 30% of our vehicles customers were minorities. The minority consumer is
very important to our success in the U.S.” — Nissan USA


Globalization Growth Drivers
eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee eee eee 3
Rising incomes in developing countries enabling sectors of the population to

afford owning a car for the first time

Increased exposure to western media and culture; helping create demand for
vehicle ownership

Infrastructure development by developing nations driving increases in vehicle
demand

e For example: North-South Highway project across the Malaysian Peninsula

Increased sophistication of consumers in developing nations, demanding car
products on par in quality and design to western consumers

| U.S. Automotive Manufacturers Expanding Operations to These Markets |



Recent Mergers and Acquisition Deals
eee ee renee erence eee eee eS 31

Year Acquirer Target Deal Size Activities

1999 TRW Inc. Lucas Varity PLC $6.53 Billion Brakes, Electrical and
Injection Systems

1999 Lear Corp. UT Automotive $2.3 Billion Interior, Electrical,
Electronics and Motors

1999 Eaton Aeroquip $1.7 Billion Hydrators

1999 | Goodyear Sumitomo Rubber $0.9 Billion Tires

1999 Hayes-Lemmerz CMI $0.6 Billion Wheels

1999 {TI Group Walboro $0.6 Billion Fuel Systems

1999 Visteon Plastic Ominium $0.5 Billion Interior Components

1999 Dura Automotive | Excel $0.5 Billion Window Systems

1999 Dura Automotive | Advest $0.3 Billion Control Cables and

Mechanism

SOURCE: Price Waterhouse Coopers, The Economist


A Development Plan Must Contain These Strategic
Elements

Strategic Elements

v
Profitability Corporate Structures

e Market Growth
e Product Share Penetration
e Geographic Expansion

e Supply Chain Integration
e Cost and Cash Flow Management
e Operational Performance

e Ownership Structure

e Management/Employee Incentives
e Capital Structure

|Growth Plan Operating Plan Transaction Structures

e Technology « Activity Based Costing e Joint Ventures
e Consolidation e Sourcing e Partnerships
e Acquisitions

e Warranty Risk Management e Alliances


Incremental Value Created Is Linked To Potential
Synergies And Operating Leverage

illustrative Example

Revenue
Cost Savings Enhancement
< > + >
20 ios 65 150
20_.
BB cesass
7 eae.
6 ote
|
29 cassssss
kee
14
Manu- Pur- G&A R&D Product Ration- Uplift of New Selling Total Total
facturing chasing force ration- line alization existing products tonew revenue incre-
rational- ®cono- rational- aliza- consoli- of fixed savings products/ customers — enhance- mental
ization mies ization tion dation assets portfolio ment value of
enhance- synergies

ment


Must Understand the Supplier Base Rationalization Process

Illustrative Example

70

Starting Point Phase One Phase Two Phase Three
330 Suppliers 80 Suppliers 130 Suppliers 120 Suppliers
Removed Removed Remain

¢ Noted for low quality

« Geographically
depressed

e Multiple suppliers per
part family

e Decreasing volumes of
parts

Eliminate companies with:

e Poor quality

e Lack engineering/
design capability

e Not financially sound to
take on warranty risks

e Lack Just-In-Time (JIT)
capabilities

¢ Quality certification
— Iso/aQs

e Full service capability
screening

— Engineering

— Technology

— Consumer insights
Sharing warranty risks
JIT/global scope

— Deliveries

— Inventory
management

Long-term agreement
Global reach

Modularity/system
integration

Continuous quality
improvement targets

Pushing new technology
envelop

Integration with
extended enterprise



Automotive Suppliers Are Fragmented And

Undergoing Consolidation

Top) 10:Suppliers Are Driving the Consolidation
Renner eee renee ener eee eee ee eS 25

Top 150 N.A. Automotive Suppliers

150
146-78) Average

Size

100% 4
90% +
80% 4

0.6B

70% +

60% +4
140

Other
50% 4 Suppliers

30% 4
6.7B

20% +

10% +
TM% Top 10 Suppliers

0%

#of Suppliers 1998 North American OEM Revenue

SOURCE: Asaba Group Analysis


U.S.'Market Has Witnessed Modest Growth

a 5
U.S. Car and Light Truck Market

Millions 18 CAGR ‘97- ‘99
Units 5.5%
15.5MM Other 1.0
16
Other! 0.8
rf Nissan 1.4
124 Nissan 1.2
Honda 0.9
Daimler/Chrysler
4 Daimler/Chrysler
to 2.4 u Daimler/Chrysler ae
2.7
84
Ford
64
44
GM
GM
27 45 5.0
0 T 7
1997 1998 1999E

| U.S. Automotive Market Increasingly Competitive |

1 Volkswagen and ather foreign manufacturers
SOURCE: Salomon Smith Barney


Global Automotive Industry Estimated At
»Million Vehicles
DO

Global Market for Cars and Light Trucks (1999)

45.4MM
100% 5
90%
80% +
70% +
60% +
50% 4
40% +
Volkswagen (incl. ‘Audi, Skoda, Seat)
30% + B%
20% 4 Ford (inet adazea: Volvo)
10% 4 GM (incl. Saab, Isuzu)
15%
0% 1

By Auto Manufacturer

The Economist
iat, Honda, Peugeot, Hyundai, Mitsubishi


od (XT) emer) More important
Today Then In The Past

7

Automotive manufacturers are redefining themselves into consumer
products companies

Example Soni glor Company,
vorve @mama fiincoin Gig @Mercury pore LO

The world’s leading consumer company for automotive products and services.

“| would absolutely love to get into the mind of the
consumer. | meanynot what the consumer is telling us
through focus: groups or market research. But to really
absolutely understand:—.viscerally understand, intuitively
understand — what is happening in terms of the future
requirements of customers’ all over the world. That to: me
is just an incredible. competitive advantage. How can |
do that?”

Mr. Jacques Nasser, CEO
Ford Motor Company
USA Today, 9/26/98


Key Trends Driving Change

Cee ener ener a 7

Globalization

Internet

Excess Capacity

Demographic Shifts


Auto Manufacturers Leveraging Minority
Sourcing Programs

Building Customer Loyalty with Minority Consumers .

Added benefits derived from minority sourcing
e Build corporate links with minority communities
— Necessary in building brand awareness with minority consumers

e Develop understanding of cultural differences
— Enhances internal corporate diversity efforts

e Contribute to the economic growth of minority communities
e Provide an environment for corporate manager to learn the art of bridging

Cultural divides
— Accritical skill for success in emerging markets

| Minority Sourcing Becoming a Strategic Imperative |



U.S. DEPARTMENT OF COMMERCE

iVIBDA-

MINORITY BUSINESS DEVELOPMENT AGENCY

US Departinent of Commerce
New Realities for Minority Business:
Automotive Industry =)

oes

ey
U.S. Deparment of Commerce
William M. Daley, secretary
Robert L. Mallett, Deputy Secretary
Minority Business

Development Agency
Courtland Cox, Director

Issucd May 2000



“The
Asaha

Content

Automotive Industry Overview 3-18
Changing Value Proposition 19-26
Automotive Suppliers: Overview and Trends 27-36
Automotive Suppliers: Growth Opportunities 37-41
Minority Suppliers Positioning In Value Chain 42-46

Minority Suppliers: Growth Opportunities 47-55

Business Case for Investing in Minority Suppliers 56-65

Appendix 66-71


The Net Imperative
The Web Changes Customer’s Expectations About Convenience, Speed,

Price, Compara ility and Service
10

jet 95 CAGR%
ut . =
Ontine oun = 50% of new car purchases in five
Buyi 7 i i
etd 9% years will be influenced by the web
74 e Information
64 e Pricing
e Financing
54
e Trade-in
4) e Ordering
34
2MM
24
14
0 T
1998 2003

| The Role of Vehicle Dealership Is Changing

SOURCE: Forrester Research, Fortune


ot SE Ureliciy Growth Largely in Emerging

Markets
TT 9

Estimated Production Volume in 2001 and % Change from 1 995

Production 18 100% %
Volume Change
(Millions 4 | + 90%

Units)
14 80%
+ 70%
12 4
+ 60%
10 +
+ 50%
84
+ 40%
6-4
+ 30%
4 | 20%
24 + 10%
0+ r 0%
U.S. & Canada Western Japan Asia/Pacific Eastern South America ROW
Europe (not inel. Europe
Japan)

SOURCE: Autofdcts International


History Shows Automotive Manufacturers

Committed to Minority Sourcing

Minority (Purchasing Growing Year-Over-Year Since 1991
eee ee ee eee 55

GM & Ford Minority Supplier Purchases (1991-1999)

Billions CAGR

1991-1
$3.3MM Ford: 21.4%
34
GM: 10.4%
24 $2.2MM
$1.4MM $1.7MM
$1.6MM = $1.6MM
$iMM $1MM $1MM
‘al so.7mm $0.74MM.
0

‘91 ‘92 ‘93 ‘94 "95 96 ‘97 ‘98 ‘99E

Minority Sourcing is a Strategic Imperative



Competitive Profile of Minority Suppliers
Most'fmifiority suppliers in non-production commodities

Production vs. Non-Production'’

Commodity Classification

210 $5.2B 210 $5.2B
Co ction | 5.8%
] Construction 5
won. 25 11.9% industrial | 5.8%
80% | Production 80% 4 11.5%
Non- oon Industrial 7
70% + Production CELINE 70% 49 Professional
143 Servi 15.4%
60% + 68.1% 60% +
50% + 50% 4 Electrical/
Electronics
road 40% ‘Servi $0.58
Power Train
$0.68
30% 4 Production 30%
$2.98B Electrical/ joa 29
57.3% Electronics 11 5.2% .
| Production 20% 4 Power Train Exterior Parts
Gy Materia
4 10% 4 laterial
10% 31.9% ° $1.5B
Number of Suppliers Revenue Number of Suppliers Revenue
What are the Implications with e-Procurement?
° Sample of 210 minority supplier in major OEM, 1997 sales data

Group analysis

42


Top 10 Suppliers Have Grown Annually By 8.5%
Since 1994

Largely'driven by acquisitions
eee e reece eee 30

Top 10 Supplier Sales Top 10 Auto Supplier 1999

CAGR
Sales $90, 1994-1999
(Billions) $81.6B 8.5%

Delphi Automotive
Visteon

Dana

Lear

Johnson Controls
Magna

Bosch

TRW

. Denso

10. Eaton

$54.2B

8 8 8 8 8 3 8
ODPNAARAwWND a

=
o

°
J

1994 1999

| The Big Suppliers Are Getting Bigger! |

SOURCE: Automotive News


Growth Options For Minority Suppliers

Coenen erence eee eee 47

Geographic Consolidation/ New Commodity Forward

Expansion Categories | Integration



Suppliers Consolidating at a Rapid Pace

In 1986; 30,000 suppliers in a $250 billion industry; by 2003, 5,000

suppliers in a $800 billion industry

Dollars
(Billions)

SOURCE: Economist Intelligence Unit

cr

Bees

30,000 25,000 20,000 15,000 10,000 5,000

Number of Suppliers

Consolidation Drivers

e The race to become system
integrators

e Acquiring key capabilities
— Technology

— Manufacturing
— Geographic reach

e Divestitures of non-core
businesses

e Quest to achieve optimal
economies of scale/critical mass

29


Key Elements For High Level Strategic Plan


U.S.,Automotive Sales Forecasted to Grow by
1 Million Vehicles in 2000
TT OED
U.S. Auto Sales 1997 - 2000

Million 20 5 SAGA ‘S7-"00
Units 5.9%
184 17.8MM
16.8MM
16 4 15.1MM 15.5MM
144
12 4
10 +
84
6 4
44
24
0 T T T
1997 1998 1999 2000E
Growth in the U.S. Market Will Come From Niche Segments

SOURCE: Salomon Smith Bamey


Downstream Participation Is Key To Future Growth

20

Revenue $70,000 5 Examples of Ford Motor Company Downstream Participation

62,052 5.100
$

$60,000 4 14,090 Coo

$50,000 ; Outside

Initial 1,000
Purchase BSI0 a
$40,000 + Price 2,900
2,676 Pe
$30,000 | |
$20,000 +
29,676
$10,000 +
$0 5 : r 7 7 7 7
Purchase _ First Finance Second Insurance Aftermarket Maintenance Telematics
Price Finance Repair
Service Tires
Participation « Manufacture + Ford Motor « Ford Motor « Co-branded « Ford « Dealerships + Cell Phone
5 credit credit Insurance Motorcraft + Radio
Approach: « Dealer - The Hartford
+ Insurance
Holding of
America

Successful Downstream Participation Requires Building Customer Loyalty to Brand



Minority Populations Growing Faster with

Increasing Purchase Power
EY

Buying Power Population Growth Rate
CAGR
1990-1999
a : 150 5
Biljons 1200 $1,144B gg, —¢— Anglo
O Black 1462
1000 4 &~ Hispanic
a
125 —@ Asian 129
800 Hispanic A
$383B 113.8
$628B hk
600 | Asian 100} = 1008760. tate
$113B
4 Hispanic
00) $207B
African 75 4
American
200 + $532B
0 50 T T
1990 1995 2000

Minority Suppliers Provide Investors an Avenue
To Profit from Favorable Demographic Trends


Examples of Recent Transactions Involving
Financial Investors
eee eeeeeeereeeeeeeeeeeeeeeeeeeeeeee reer reer eee eee 64

Financial Investor* Company Activities

Venture Holding Trust

UBS Capital

TSG Capital

Palladium Equity
Partners

Investor Group
investor Group
Little John & Levy
Aurora Capital

*Majority Investor

Peguform

Valfond

Obrseal

Delphi - Automotive
Systems Division

Aeroquip - Vicker Inc.

Enviro Service Inc.
Hayes Lemmerz
Auto Cam

Bumper and interior Trim

Castings and Precision

Automotive sealants and
adhesives

Lighting business

Hoses and Hydraulic Systems
Automotive Parts

Wheels

Precisioned Machined Parts


Future Growth Will Come From Three Key Areas

37

| New Products New Channels Organic Growth
Technology After Market Consistent
Integration & Products Performance
Enhancement Minority

Sourcing


New-Products: Automotive Electronics Growing
Faster Than Vehicle Sales
Caen ener eee e rere errr 35

North American Production Forecast OEM Automotive Electronic Market
Vehicle 20,000 5 19,125 CAGR Electronic 45 ; CAGR
Production 1992-2007 Market 39.5 1992-2007
(000) 18,000 iz20 ($B) 40 :
15,670 2.9% 9.1%
16,000 35 |
4 7
14,000 12,474 30 29.
12,000 +
25
10,000 + 21
20 5
8,000 +
15 4
6,000 4 10.8
4,000 | uw
2,000 + 54
0 : r 1 . 0 7 : +
1992 1997 2002 2007 1992 1997 2002 2007

[Technology Integration and Enhancement Provides Growth Opportunities|

SOURCES: (1) Motorola, The Hansen Report, McKinsey Quarterly (2) Frost & Sullivan, Auto & Transportation Interiors, McKinsey Quarterly


Operational

Excellence in Acquisitions and Post-Merger
Integration Will Become Critical

53

Identification

Transactional

Search Of Synergy Plan Post
& And Due Diligence Post-Merger Merger
Screen Restructuring Management Integration
Opportunities
Negotiations Negotiate
Initial & Due Diligence Final eiose
Contact Preimnery Contract Deal

Need to Build the Right Capabilities or
Pick Experienced Partners


“The
Asaha

Content

Automotive Industry Overview 3-18
Changing Value Proposition 19-26
Automotive Suppliers: Overview and Trends 27-36
Automotive Suppliers: Growth Opportunities 37-41
Minority Suppliers Positioning In Value Chain 42-46
Minority Suppliers: Growth Opportunities 47-55
Business Case for Investing in Minority Suppliers 56-67
Appendix 68-71



Minority Businesses - Investment Highlights
eeeeeeeeeeeeeeeeeeeeeeeee reer eeeee rere eee ee een eee 56
Minority consumer market is growing faster than the general population
e Minority businesses know these markets and also are among the lowest cost suppliers

Entry level vehicle buyer demographics becoming more minority

With growth in emerging global markets, minority businesses can provide
valuable knowledge and skills

Key allies in developing products for these new markets and building sales and marketing
infrastructures/alliances

e Provide key social and business connections - particular knowledge about foreign cultures
e Prepare OEM managers in developing skills to bridge cultural divides

America’s minority community provides a less-risky ‘emerging market’
environment
e Gaining valuable experiences in learning what works in emerging markets

Automotive suppliers leveraging minority sourcing to improve bargaining power
with OEMs

Minority Businesses Provide Unique Value Propositions
to OEMs and Automotive Suppliers



Content

Automotive Industry Overview 3-18
Changing Value Proposition 19-26
Automotive Suppliers: Overview and Trends 27-36
Automotive Suppliers: Growth Opportunities 37-41
Minority Suppliers Positioning In Value Chain 42-46
Minority Suppliers: Growth Opportunities 47-55
Business Case for Investing in Minority Suppliers 56-65
Appendix 66-71



Content

‘STRATEGY AND BUSIBESS IMPROVEMENT CANSBITING

Automotive Industry Overview

Changing Value Proposition

“fhe Automotive Suppliers: Overview and Trends

Asaha Automotive Suppliers: Growth Opportunities
Group Minority Suppliers Positioning In Value Chain
Minority Suppliers: Growth Opportunities

Business Case for Investing in Minority Suppliers

Appendix

3-18

19-26

27-36

37-41

42-46

47-57

58-67

66-71



Limited Strategic Growth Options for Small
Commodity Players

Large

Size

Small

Commodity Component

Module Systems

>

Degree of Integration

Broad

Geographic
Scope

Narrow|

e Component/raw
material suppliers + System Integrators
— Tier Il and Itt - Tier!
— Lowest cost — Full-Service
producers Supplier
« Niche player
— Weak strategic Unstable
positioning
Minimal/ High’
Component Full-Service
>
Increased
Organizational
Complexity

| Minority Suppliers Must Grow to Ensure Long-term Viability



e-Procurement Exchanges Focus on Reducing Cost in

Non-Production and Commodity Purchases
Cee eee e eee eee e eee eee eS 43

Average % Savings

Commodity Non-Production e-Procurement
Materials Materials Value Proposition
Commodity ° Very little product uniqueness
Product 10% 12% Type * Focus on lowest cost producers
Cost Purchases °° Transaction orientation toward suppliers
= Lower product costing from auctions
Transaction 10% 60% 5 tt ‘i
i () fo Non-production ° Frequent transactions
Cost Savings Related ¢ Disparate users
Purchases ¢ Low transaction size
‘—) Forces compliance to preferred
vendors or vendors with e-Commerce
capabilities
Inventory ° °
Cost Savings 7.5% 12.5%

Non-Production Minority Supplier Must Be Cost
Competitive to Survive in the e-Procurement World

SOURCE: Aberdeen Group, B2B Market Reports, Merrill Lynch & Co, Asaba Group Analysis



Acquisition Planning Must Include These Steps

+

oO
Does the platforms!

Rollup
Concept/ Category

Acquisition
Make Sense?

Acquisitions -_E
In New
Getting the EOS ><
Revenue |_|
Growth
Getting the Potential |
Operational
INCREMENTAL Synergies
VALUE Sequencing (Costipoctts) Ss
CREATED Prioritization “TT
vere The Targets
arg Who's First?
Search CoRee rFe
Due And
Diligence Avallability y-N

CONCEPT BUSINESS RESULTS



Automotive Manufacturers Respond With These
Competitive Initiatives

13



Content

Automotive Industry Overview 3-18
Changing Value Proposition 19-26
Automotive Suppliers: Overview and Trends 27-36
Automotive Suppliers: Growth Opportunities 37-41
Minority Suppliers Positioning In Value Chain 42-46
Minority Suppliers: Growth Opportunities 47-55
Business Case for Investing in Minority Suppliers 56-65
Appendix 66-71



OEMs Encouraging Partnerships Between Minority

Suppliers and Tier I Supp iers :

Automotive
Manufacturer
General Motors © Bridgewater Interiors e Six-year e Joint venture with Johnson
© $900MM Controls
Cadillac Seville seats
Minority led investor group
Joint venture with Walboro
Plastic fuel tanks
Minority supplier:
— Regal Plastics
¢ Dos Manos © $250MM ¢ Joint venture with Cambridge
Industries
¢ Minority supplier:
— Mexican Industries
e ACAP © $300MM ¢ Joint venture with Collins &
Aikmans
¢ Instrument panel assembly
© Minority supplier:
— Mexican Industries
Ford ¢ Satum Electronic © $70MM e Joint venture with UTA
« Battery Cables
© Minority supplier:
= Satu Electronics
Detroit Automotive Interiors | ¢ Joint venture with Lear
¢ Minority supplier:
- Bing Manufacturing
Jupiter Transportation e Syear © $60MM acquisitions
¢ $500MM © Minority supplier:
~ Active Transportation

Joint Venture Contract Size Comments

VITEC e Five-year
° $680MM



SINT) INA T-rom tc hicriirz-licn Key Focus With
Automotive Manufacturers
eee e eee eee eee ee eee eee 15

Ford Daimler Chrysler’
fof 2,500; #of 3,500,
Suppliers 2,300 Suppliers
Di
(Direct) 4 (Direct) 50001 3.000 ,
2,000 +
2,500 4
74% 80%
1,500 Reduction Reduction
1,300 from 1996 2,000 + from 1985
1,000 | as)
600 1,000 + $50
500 + 600
500. 4
0 + r 1 ry 1 +
1996 2000E 2005E 1985 1997E 2000E
250 Tier | suppliers have 80% of 150 Tier | supplier with 90% of
$50 billion parts purchase material purchase
| Fewer Suppliers Now Responsible for Large Share of OEM Purchases |
° Number befqre merger with Daimler-Benz

SOURCE: Memnill Lyneh, Company Reports


Project Approach

eee
Thought Process

Industry/Sector
Attractiveness

What Growth
Opportunities Exist for
Auto Suppliers?

What Added
Opportunities Are
Linked with Minority
Suppliers?

Investment
Attractiveness


“The
Asaba

Content

‘STRATEGY ANH BUSINESS IMPROVEMENT CONSULTING

Automotive Industry Overview 3-18
Changing Value Proposition 19-26
Automotive Suppliers: Overview and Trends 27-36
Automotive Suppliers: Growth Opportunities 37-41 |
Minority Suppliers Positioning In Value Chain 42-46
Minority Suppliers: Growth Opportunities 47-55
Business Case for Investing in Minority Suppliers 56-65
Appendix 66-71


Minority Sourcing Is A Key Strategic Initiative

— “ Minority procurement is no longer an issue of social conscience. Our very
; future depends on capturing and retaining the loyalty of a growing consumer
market audience.” — Thomas Sidlik
EVP Procurement &
Supply General Motors
Small Car Operations

“ The economic strength of the minority community continues to climb, those
that embrace corporate citizenship and diversity within their companies will
have a competitive edge over those that do not.”— Jacques A. Nasser

President and CEO
Ford Motor Company

“ Our commitment to minority business development is having a supply base
which closely reflects the diversity of our customers.”
— Teruyuki Mihoura
President and CEO
Toyota Motor
Manufacturing

“ We believe a long-term purchasing strategy which reflects the diversity of
our customer base makes sense.” — Honda, USA

3) ‘aes a» V
- pee 5)

SOURCE: Company reports, Fortune Magazine

24


Project Definition

The Asaba Group was retained by the Minority Business Development
Agency (MBDA)

Develop a white paper that highlights the growth opportunities for
minority suppliers in the automotive industry to include:

e Growth trends and issues within the industry

Specific growth opportunities for minority suppliers

Critical success factors for minority suppliers

Investment considerations for financial investors

Need private equity community to see minority
suppliers as viable investment vehicles

t')


eT=Tele le Tilo 4 Uliceui Emerging Markets Will

Provide the Long-term Growth
eee eee ener renee reer eee 35

Contribution to Vehicle Production

ta te) _ Growth by Region 1998-2006

Growth
45% |

35% +

25%

18%

15% - 15%

5% | S% 4%

Asia/Pacific East Europe NorthAmerica WestEurope South America Africa/Middle
East

| Minority suppliers must go global to grow |

SOURCE: PriceWaterhouseCoopers



Suppliers Taking On Past Roles of Automotive
Manufacturers

Module/ \ Marketing
&

Previous Role

Auto Manufacturer =

Supplier

Vehicle jomponents\Component osu Module/ Marketing

Design R&D Mfg. wae SEED

Future Role

Auto Manufacturer =*—*-

Supplier

| Suppliers Must Build New Capabilities |


Content

Automotive Industry Overview 3-18

Changing Value Proposition 19-26

"fie Automotive Suppliers: Overview and Trends 27-36
Asaha Automotive Suppliers: Growth Opportunities 37-41
Group Minority Suppliers Positioning In Value Chain 42-46
Minority Suppliers: Growth Opportunities 47-55

Business Case for Investing in Minority Suppliers 56-65

Appendix 66-71


R43 be SL J co co C3 FC) Co ca ¢ a

Automotive Suppliers Face Continuous Challenges
ReSponding to OEM Requirements

27

« OEMs consolidating and increasing
pricing pressures.

« Suppliers competitive for fewer
customers.

¢ OEMs will employ various strategies to keep
suppliers from dictating price and technical
specifications.

¢ Delphi and Visteon growing
non-parent sales
e Each developing systems
_ integration capabilities.
Each has global reach.

« OEMs demand that suppliers
deliver defect-free parts
and systems

« Failure to do so will jeopardize
present and future business.

Suppliers

Shortage of skilled workers.
« UAW works to unionize more suppliers.

« Suppliers pay higher wages, but cannot
charge higher prices.


> Co eer) -F-Telia’4 Driver of Consolidation Among

Manufacturers
DO __

Worldwide Capacity & Demand
Million 70 5
nit Mae Recent Acquisitions
= e Daimler Chrysler and Mitsubishi
oral 45.4 e GM and Subaru
40 | e Volkswagen and Rolls Royce
a e Daimler and Chrysler
e Nissan and Renault
= ¢ Ford and Volvo
Ww « Volkswagen and Skoda
0 : e Toyota and Daihatsu

‘Worldwide Capacity Worldwide Demand

SOURCE: Autopole, The Economist, Asaba Group Estimates


Investment Capital In Minority Suppliers Will
Largely Fund M&A Activities

Strategic Focus Investment Business Intentions
Rationale
| Growth = New capabilities * Stable revenue and = Technologies
switching barriers = Round out full service
capabilities
= Full Product Portfolio ® Minimize revenue risk ® Fill in product gaps for

modularity/system integration

Emerging markets
- §.E. Asia
- Brazil

® Geographic Diversification High growth opportunities

Electronic
Electrical
Safety
Materials

Consolidation/
Rollup * Consolidation * New Category * Acquire smaller companies to

achieve critical mass cost
position

Di on A cee
eee ® Exiting the Industry = Acquire non-minority
businesses

*" eg.:

- Allied Signal divesting ABS
to Bosch

- ITT Electrical Systems to
Valeo

| Minority Supplier Status Reduces Revenue Risks

= New Product Segments Financial arbitrage

= Acquire new revenues



Consolidation/Rollups:
roups with

Opportunity in Commodity
igh Degree of Fragmentation

49

Plastics and metal processing highly fragmented and captive to auto industry

Average pee
vi
100% Lan ID seit $1039 Company
90% +
80% 4
19+
70% | $20.7MM $537MM $28.3MM
60% +
50% |
40% +
Top 3
30% Top 3 $103MM Suppliers $187MM
Suppliers $562MM
20% 4 $310MM 51.2%
42.9%
10% 5
0% aa
Plastic Processing Revenues Metal Works Revenues”
Consolidation/Rollup Opportunity to Attain Required
Critical Mass for Cost Competitiveness

. Includes Injection, Extrusion and Blow Molding Suppliers (2) Includes Machinery, Welding and Stamping Suppliers
Estimated 3997 data


| Forward Integration: Developing Fuil Service
Capabilities Required For Module/System Suppliers

Analysis reveals that size is a key element in building required capabilities
Suppliers With Design/R&D Capability

Average

ee 67 $1,099MM Size

$2.149MM

60% | 72.1%
59 Suppliers

50% 4 Ge

$36.4MM

$103.9MM

8 Suppliers
12%

# of Suppliers Revenues

[ With Shorter Product Development Cycles, Alliances
or Acquisitions Are Quicker Ways to Build Capabilities

1 Identified with “Gradle to Grave” development capability, Asaba Group Analysis

51


Some Recent Actions Around Competitive
Initiatives
Caen e eee e ener eee eee aS | 4

e Announced new operations in:
Globalization — South America, Brazil and Argentina
— Eastern Europe
— India, China and Southeast Asia

e Big Three launched a business-to-business integrated
Internet/E-commerce supplier exchange

e Reducing global platforms

Global Platforms — In 2002 global platforms are predicted to be reduced to 57

from 117 in 1997

Forced Price With increased consolidation, auto manufacturers’ are eliminating
Reductions pricing discrepancies among suppliers

e Using increased volumes to force price reductions

Modularity / Integrating suppliers in the product development process

System Integration. Outsourcing module and systems assembly to co-located
suppliers

SOURCE: Bain Insights, McKinsey Quarterly, Price Waterhouse Coopers, Emst & Young