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Eastern Automotive Summit October 19, 2006 The Global Automotive Outlook: Strategic Trends & Implications

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Page 1: Mazda Eas Presentation

Eastern Automotive SummitOctober 19, 2006

The Global Automotive Outlook:Strategic Trends & Implications

Page 2: Mazda Eas Presentation

Presentation Outline

• The automotive outlook– North America– Global– Strategic and tactical issues

• Shifts: OEMs and segments– Winners and losers

• Contribution to growth• Key drivers, enablers and constraints

– Brand positioning and momentum– Energy– Strategic investment– The path to growth/recovery

• Other issues– Alliances– Delphi

• Summary, conclusions and implications

Page 3: Mazda Eas Presentation

North American Automotive OutlookNorth American Automotive Outlook

Page 4: Mazda Eas Presentation

Outlook Scorecard*Key NAFTA Drivers

2006-2007

• Business environment – Economic growth 2.5-3.0%/yr. overall

– Employment growth slow pickup; productivity growth

– Inflation increasing pressure – 2.7-3.1%

– Interest rates slow adjustments

– Energy improvement but risk remains

– Government regulations emphasis on fuel economy, emissions

• Automotive environment– Ownership & operating cost incentives slow

– Vehicle demand moderately high volume withouteconomic, energy, political crises

* Expected performance by factor assessed by color and time of evaluation: GREEN (good); YELLOW (moderate); RED (bad)

Source: AutomotiveCompass

Page 5: Mazda Eas Presentation

Mid-term North American Auto Outlook: Light Vehicle Production Volume

Mid-term, 2010-12• 17.2-17.5 million planning volume range, reflecting ….

1. Healthy economic growth in the mid-term• Real GDP up 3.0-3.5%/yr

– Supporting employment and income growth

• Inflation advancing at 2.7-3.3%/yr

2. Growth in driving age population• Immigration driven• US and Canada driving age population growing at 1.0-1.5%/yr

3. Substitution effects: imports replaced by domestic production• Europe - Euro pressure• Asia - domestic content; credibility; political support; labor stability• North America gaining an export base - BMW, VW, Mercedes-Benz

Source: AutomotiveCompass

Page 6: Mazda Eas Presentation

Oil Prices – 12 months tracking

Updated 10/11/06

• 2006-07 planning range $60-80/bbl• Risks: supply disruptions - hurricanes, war, terrorism

Page 7: Mazda Eas Presentation

NAFTA Auto Outlook: ProductionLight Vehicle Production Volume in 000s, 2002-2010

2002 2003 2004 2005 2006 2010

2010 %Chg

vs. 2005

2010 %Chg

vs. 2002Industry OverviewCar 7,220 6,474 6,257 6,431 6,790 7,045 9.5 (2.4)Light Truck 9,216 9,454 9,543 9,374 8,785 10,155 8.3 10.2Total 16,436 15,928 15,800 15,806 15,575 17,200 8.8 4.6

Manufacturer SourceBig 3 12,264 11,517 11,054 10,358 9,876 10,718 3.5 (12.6)European NAM 555 538 443 518 627 717 38.5 29.3Japanese NAM 3,617 3,873 4,303 4,838 4,840 5,399 11.6 49.2Korean NAM 0 0 0 91 233 366 + +Total 16,436 15,928 15,800 15,806 15,575 17,200 8.8 4.6

Production OriginCanada 2,599 2,521 2,663 2,623 2,545 2,690 2.5 3.5Mexico 1,770 1,531 1,492 1,607 1,928 2,297 42.9 29.7United States 12,067 11,877 11,646 11,576 11,102 12,214 5.5 1.2Total 16,436 15,928 15,800 15,806 15,575 17,200 8.8 4.6

Source: AutomotiveCompass

Page 8: Mazda Eas Presentation

NAFTA Auto Outlook: ProductionLight Vehicle Production Share (%), 2002-2010

2002 2003 2004 2005 2006 2010

2010 Chg vs.

2005

2010 %Share vs. 2002

Industry OverviewCar 43.9% 40.6% 39.6% 40.7% 43.6% 41.0% 0.3 (3.0)Light Truck 56.1% 59.4% 60.4% 59.3% 56.4% 59.0% (0.3) 3.0Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 0.0 0.0

Manufacturer SourceBig 3 74.6% 72.3% 70.0% 65.5% 63.4% 62.3% (3.2) (12.3)European NAM 3.4% 3.4% 2.8% 3.3% 4.0% 4.2% 0.9 0.8Japanese NAM 22.0% 24.3% 27.2% 30.6% 31.1% 31.4% 0.8 9.4Korean NAM 0.0% 0.0% 0.0% 0.6% 1.5% 2.1% 1.6 2.1Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 0.0 0.0

Production OriginCanada 15.8% 15.8% 16.9% 16.6% 16.3% 15.6% (1.0) (0.2)Mexico 10.8% 9.6% 9.4% 10.2% 12.4% 13.4% 3.2 2.6United States 73.4% 74.6% 73.7% 73.2% 71.3% 71.0% (2.2) (2.4)Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 0.0 0.0

Source: AutomotiveCompass

Page 9: Mazda Eas Presentation

Segment Definitions: Cars and Light Trucks

Cargo vehicle over 6,000lbs GVWRLVN

Usually car-based and FWD vanMVN

Primarily American, SUV over 6,000lbs GVWRLSV

Truck-based SUV under 6,000lbs GVWRMSV

Usually car-based (FWD-based) SUVSSV

Primarily American, pickup over 6,000lbs GVWRLPU

Truck-based pickup under 6,000lbs GVWRMPU

Sporty vehicle not meeting "F" category definitionS

Exotic and ultra-luxury cars, regardless of size. Chiefly a pricing categoryF

"Near luxury" or "large car"E

"Executive car," known as "mid-sized" in the U.S.D

Typical "compact" vehicles, principally family cars in Europe and AsiaC

"Supermini" classification, regarded as "minicompacts" in the USB

DescriptionSegment

Source: AutomotiveCompass

Page 10: Mazda Eas Presentation

Segment Shift: Cars

0% 5% 10% 15% 20%

S

F

E

D

C

B

2005

2010

Source: AutomotiveCompass

North American Market Share by Product Segment

Page 11: Mazda Eas Presentation

Segment Shift: Light Trucks

0% 5% 10% 15% 20%

LSV

MSV

SSV

MCU

SCU

LPU

MPU

LVN

MVN

2005

2010

North American Market Share by Product Segment

Source: AutomotiveCompass

Page 12: Mazda Eas Presentation

Segment Shift: Big Pickups & Small Cars

12%

13%

14%

15%

16%

17%

18%

19%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

C-Segment Car Full-Sized Pickup• Pickups stabilize

– Functionality and competitiveness

– Added PU capacity & products will drive a content and price war

• Small cars grow– Energy pressure and

competitiveness– Strong entries battle it

out with content and price … European-type market development

North American Market Share

Source: AutomotiveCompass

Page 13: Mazda Eas Presentation

Segment Shift: SUVs vs Crossovers

0%

2%

4%

6%

8%

10%

12%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

MSV SCU MCU

North American Market Share by Product Segment

Source: AutomotiveCompass

Page 14: Mazda Eas Presentation

Market Share shift in 2001-2012: Big 3 Domestics

14%

16%

18%

20%

22%

24%

26%

28%

30%

32%

34%

36%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Ford Motor General Motors DaimlerChrysler

North American Market Share by OEM Brands

Source: AutomotiveCompass

Page 15: Mazda Eas Presentation

Market Share shift in 2001-2012: Big 3 Transplants

0%

2%

4%

6%

8%

10%

12%

14%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Honda Renault/Nissan Toyota

North American Market Share by OEM Brands

Source: AutomotiveCompass

Page 16: Mazda Eas Presentation

GM Overview

• The sleeping giant is awake– Period of denial over?– Gaining momentum– Needs sustained positive results to maintain credibility and control– Stock price up sharply… up almost 75% since April 2006

• Gaining traction– New products

• 2 strong products in the global top ten (GMT900, Delta2)• Other strong platforms: Epsilon2, Theta, Lambda, Zeta• Strongest product line-up in decades emerging

– Improving cost structure– Delphi situation improving

• Risks– Cash squeeze– Proxy fight for control– Union cooperation– Delphi– Execution - sustained speed and agility

Page 17: Mazda Eas Presentation

GM Stock Price

Up almost 75%since April!

Oct `04 Feb ‘05 Jun ‘05 Oct ‘05 Feb ‘06 Jun ‘06

40

30

20

Oct ‘06

Page 18: Mazda Eas Presentation

Delphi Update

• Delphi & GM near a pact to avoid strike– GM to subsidize Delphi wages

– GM to guarantee business to Delphi

– Supply disruptions likely to be avoided

• Risks– Creditors fear their claims will be swamped by those from GM

– Terms for capital infusion from investors

– Struggle for control: strategic investors vs. financial investors

Page 19: Mazda Eas Presentation

Threats of Private Capital

• Financial investors have much to gain– Where business are drastically reorganized (pensions, health care,

underperforming assets) AND someone else pays the bill• BUT, some of the driving factors in other industries (for example, steel) are

not present in the auto industry

– Tactical advantage?• Capturing low-cost control of re-emerging businesses may have a relatively

quick payback for financial investors

• Strategic investors vs. financial investors– Potential difficulty for OEMs, and ultimately for suppliers, concerned

about stability and long-term investing in the business– Funding of strategic investment (= long-term commitment)

• New products (to sell more cars) vs. new processes (to increase productivity, quality and lower cost)

– At odds with goals and needs of financial investors (= short-term gains)– Holding OEMs hostage?

Page 20: Mazda Eas Presentation

Global Automotive OutlookGlobal Automotive Outlook

Page 21: Mazda Eas Presentation

Global Overview

• The global automotive outlook– Global automotive production expected to grow by almost 20% to

approx. 72 million light vehicles in 2010

– Toyota emerges as the largest OEM, passing GM in 2008• Product, manufacturing, cost, branding strengths• Increased global competition

– Some traditional OEMs are trailing … losing share• Product, manufacturing, cost weaknesses• But some level of recovery is expected

– Asia (China, S.Korea, Thailand, India) and Eastern Europe will account for 75% of the growth in automotive production

– Excess capacity remains a serious concern (Asia, Western Europe)

Page 22: Mazda Eas Presentation

GM 7.93 8.82 13.06% 12.32% -0.74

TOYOTA 7.79 9.18 12.83% 12.82% 0.00

FORD 6.63 7.52 10.92% 10.50% -0.41

REN/NISS 5.89 7.00 9.70% 9.78% 0.08

VW 5.18 6.45 8.53% 9.01% 0.48

DCX 4.18 5.07 6.88% 7.08% 0.20

HYUNDAI 3.76 4.61 6.19% 6.44% 0.25

PSA 3.66 3.95 6.03% 5.52% -0.51

HONDA 3.27 3.75 5.38% 5.24% -0.15

FIAT 1.96 2.19 3.23% 3.06% -0.17

BMW 1.33 1.54 2.19% 2.15% -0.04

OTHER 9.15 11.51 15.07% 16.08% 1.01

TOTAL 60.73 71.59 100.00% 100.00% 0.00

(millions of units)Production

Light Vehicle

20102005

Light Vehicle Market Share

(%) (% Pt. Chg)Vehicle

Manufacturer 201020052010 O/U

2005

Market Share Change

Winners & Losers: 2005-2010

Mid-termScorecard

Results

Source: AutomotiveCompass

Page 23: Mazda Eas Presentation

0.0 0.5 1.0 1.5 2.0 2.5 3.0

Renault/ Nissan [B/ X57: Nissan Micra, Renault Clio]

Toyota [MC/ 300N: Camry, Highlander, Lexus RX330]

Volkswagen [PQ36/ PQ35: Golf, J etta, Skoda Octavia]

Ford [C1/ C170: Focus, C-Max, Volvo S40]

Volkswagen [PQ25/ PQ24: Fox, Skoda Fabio, Audi A2]

General Motors [Delta2/ Delta: Chevrolet Cobalt, Opel/ VauxhallAstra]

PSA [PF2: Peugeot 307, Citroen C4]

General Motors [GMT900/ GMT800: Chevrolet Silverado, ChevroletTahoe]

Renault/ Nissan [C/ MS/ X64: Nissan Sentra, Renault Megane]

Hyundai [J 4/ J 3: Hyundai Elantra, Kia Cerato]

Production in Millions

2005

2010

Top 10 Global Platforms 2005-2010

NOTE: For comparison purposes the previous generation platform information is also provided

Source: AutomotiveCompass

Page 24: Mazda Eas Presentation

GM

Toyota

Ford

Renault/Nissan

VW

DCX

Hyundai

PSA

Honda

Fiat BMW

-1%

0%

1%

-3% -2% -1% 0% 1% 2% 3%

HISTORY: 1995-2005

FO

RE

CA

ST

: 20

05-2

011

Improving

SlippingTrailing

Leading

Top 11 OEMs represent almost 90% of the global market

Global Market Clusters: OEMsChange in Market Share (% pts.), History and Forecast

Source: AutomotiveCompass

Page 25: Mazda Eas Presentation

Global Production by Region: 2002Global Light Vehicle Production (units, % of total)

17,885,12332%3,158,536

6%

15,708,45828%

16,432,72529%

2,087,2384%

836,7281%

Asia-Pacific East Europe West Europe

North America South America Middle East/Africa

Global Volume: 56.1 mil

Page 26: Mazda Eas Presentation

Global Production by Region: 2010Global Light Vehicle Production (units, % of total)

27,084,00037%

6,407,0009%

16,254,00022%

17,202,00024%

3,403,0005%

2,049,0003%

Asia-Pacific East Europe West Europe

North America South America Middle East/Africa

Global Volume: 72.4 mil

Page 27: Mazda Eas Presentation

Global Production by Region: 2002 - 2010Units as % of total growth over 2002 Global Production

9,191,08657%

3,244,19920% 1,217,188

7%

1,312,3538%

540,1653%

763,9985%

Asia-Pacific East Europe West Europe

North America South America Middle East/Africa

Global Volume Growth: 16.3 mil

Page 28: Mazda Eas Presentation

Light Vehicle Production by Country

2000

1. US

2. Japan

3. Germany

4. France

5. Spain

6. South Korea

7. Canada

8. China

9. Mexico

10. UK

11.2 M

10.1 M

5.5 M

3.4 M

3.0 M

2.9 M

2.5 M

2.0 M

1.8 M

1.8 M

Ranking of light vehicle production volume by country

2005

1. US

2. Japan

3. German

4. China

5. France

6. South Korea

7. Canada

8. Spain

9. Brazil

10. UK

12.0 M

9.5 M

5.2 M

4.8 M

3.6 M

3.4 M

2.7 M

2.6 M

2.3 M

1.7 M

2010

1. US

2. Japan

3. China

4. Germany

5. South Korea

6. France

7. Brazil

8. Canada

9. India

10. Spain

12.2 M

8.6 M

8.5 M

5.9 M

3.6 M

3.5 M

2.8 M

2.7 M

2.6 M

2.6 M

Source: AutomotiveCompass

Page 29: Mazda Eas Presentation

Key Global Issues

• Growing global excess capacity– As major Asian OEMs substitute home market production with local

production in North America and Europe– China – supply growing faster then demand; export concerns in an

increasingly hostile trading environment; investment slowdown likely

• Alliances… Do they help or distract?– Renault-Nissan (+)– GM – Fiat, Isuzu, Suzuki, Subaru, AutoVaz, SAIC (+), Toyota (+)– Ford – Mazda (+), Volvo (+), Land Rover, Jaguar, Aston Martin– DCX – Mitsubishi, Hyundai– Toyota – PSA (+), GM (+)

• Investment substitution– Growing evidence that scarce investment funding is shifting from Asia to

Eastern Europe• Asia – higher then expect costs, growing excess capacity, declining margins• Eastern Europe – market access (Russia), low-cost production

Page 30: Mazda Eas Presentation

GM - Renault Nissan Alliance – Chronology

• May 4, 2005: Kerkorian seeks to boost his GM stake to 9 percent.• Nov. 21, 2005: GM lays out plan to cut 30,000 jobs, reduce capacity by 1 million

vehicles and close 12 plants in North America to restore profits.• Jan. 10, 2006: In a speech in Detroit, longtime Kerkorian adviser Jerry York calls on

GM to cut brands, dividends and executive pay.• Feb. 6: York named to GM board.• June 30: Kerkorian calls for GM board to immediately study a three-way alliance with

Renault and Nissan. GM board calls an emergency meeting to discuss Kerkorian's actions. Directors agree to study the situation.

• July 7: GM board agrees to have company management team, led by Rick Wagoner, open talks with Renault-Nissan.

• Sept. 27: Carlos Ghosn, CEO of Renault and Nissan, meets with Wagoner in Paris as a deal appears increasingly unlikely.

• Sept. 28: Kerkorian tells GM he wants to buy up to 12 million more shares, increasing his stake in the company to about 12 percent. He again calls for GM board to examine the deal, including hiring independent adviser.

• Oct. 3: GM board convenes regularly scheduled meeting and discusses widely different analyses of the benefits of a tie-up. While Renault-Nissan has estimated the eventual potential annual savings to GM at $10 billion, GM puts the savings closer to $3 billion a year.

• Oct. 4: Companies announce that they've ended talks because they could not reach an agreement on the value generated by the proposed alliance.

Page 31: Mazda Eas Presentation

Conclusions & ImplicationsConclusions & Implications

Page 32: Mazda Eas Presentation

North American Trends

• North American automotive outlook– Recession likely to be avoided for 2007

– Moderately strong mid-term• Economic growth, driving age population growth, import substitution• Automotive industry risks: energy, cost of regulations, ability to withstand

shocks, profitability needed to fund investment growth and replacement, the Asia factor

– Price and content war in full-size pickups likely for 2008-09• Domestics dig-in as NAMs add capacity/products and attempt to extend

momentum – Toyota, Nissan and possibly Hyundai

– Cross-overs and small cars will gain volume and share

– NAMs expected to gain over 3 share points (550,000 units) at the expense of the traditional domestics

– Mexico will gain approx. 3 share points

Page 33: Mazda Eas Presentation

Global Trends

• Global automotive outlook– Global automotive production expected to grow by almost 20% to

approx. 72 million light vehicles in 2010

– Toyota emerges as the largest OEM, passing GM in 2008• Product, manufacturing, cost, branding strengths• Increased global competition

– Some traditional OEMs are trailing … losing share• Product, manufacturing, cost weaknesses• But some level of recovery is expected

– Asia (China, S.Korea, Thailand, India) and Eastern Europe will account for 75% of the growth in automotive production

– Excess capacity remains a serious concern (Asia, Western Europe)

Page 34: Mazda Eas Presentation

Pervasive Global Change

• Kondratiev (1920s) predicted the fall of communism because it could not generate the investment to drive invention, while capitalism rewarded invention– 11/9/89, the Berlin Wall came down

• Spiraling fuel prices– Escalating fuel prices from very low cost to an expensive, essential

commodity in 50 years

• The growth of Asian auto OEMs– Gaining 25+ share points (globally) in 50 years, from nothing to

dominance

Page 35: Mazda Eas Presentation

Business Models in Conflict

• The traditionalists (Mass Production)– Resistant to change … reactive, slow, legacy restrictions, decisions

short-term oriented, less focus on innovation, business as usual.

• The change specialists (Lean System)– Proactive, agile … anticipate and thrive on change

… long-term planning point-of-view … understand that growth favours the prepared … crisis-driven and enabled: energy, financial, brand image

Page 36: Mazda Eas Presentation

The Lean Model – Critical Elements

• The Lean Model has 5 essential elements:

1. A Product Development Process

2. A Supplier Management Process

3. A Customer Management Process

4. An Overarching Enterprise Management Process

5. A Production Process From Order to Fulfillment

Page 37: Mazda Eas Presentation

Special Issues: Opportunities/Threats

• An energy crisis favours agile OEMs with advanced powertrain technology– Toyota, Honda, Nissan– DCX (diesel)

• Hyper-competition favours low-cost OEMs– Asia– Eastern Europe

• Financial crisis favours deep pockets to fund technology and innovation– Toyota

Page 38: Mazda Eas Presentation

Conclusions and Implications

• Building a successful future – for shareholders and the workforce – depends on building and sustaining a competitive advantage– Adopting the “change specialist” business model– New and better products– New and better processes– Collaborative relationships (partnerships)– Customer-facing interaction– An innovative point of view– Turning threats into opportunities

Page 39: Mazda Eas Presentation

Eastern Automotive SummitOctober 19, 2006

The Global Automotive Outlook:Strategic Trends & Implications