Roadmap For International Growth Final

Road Map to International Growth

Todd Erwin One Stop Parts SourceJeremy Denton AASAMike McKee Federal-MogulDebbie Vandecaveye Tenneco

Leadership 2.0 (2009-2010)

Agenda

North American Market Overview Key Aftermarket Metrics

Roadmap for International Growth Country Risk Assessment Operational Risk Analysis Evaluation of Market Entry Options Understand Exit Strategies Market Entry

International Crisis

Looking Ahead North American Market Key Points North American aftermarket will face a dramatically

different landscape in the next decade Historically the growing car PARC has been almost automatic; the rate of

growth that we experienced in the past may not return for another decade It is likely that we will not see the previous levels of vehicle usage for many

years to come The average age of vehicles will slowly change as people are keeping their

vehicles longer There is a shift towards smaller, more fuel efficient passenger cars and away

from light trucks The vehicle population is becoming fragmented with many different OEM

brands and orphaned older car makes North American aftermarket should remain stable for next decade at around

$210 billion annually (No collision) To achieve top lines sales growth, many companies will and have made the

decision to enter into emerging markets like China, India and Mexico

North American Market

North America GDP (per capita) down 4% since 2007 VIO ~ 242 Million Light Vehicle Sales down 38% since 2005

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

SAAR

North American Market Miles Driven

Annual Miles Driven - U.S.

2,800

2,850

2,900

2,950

3,000

3,050

2007 2008 2009 SAAR

Billi

ons

of M

iles

Single most important factor for our sector in the short-term

Annual growth in vehicle usage has stopped Vehicle usage now 200 billion lower than peak

Source: U.S. Dept. of Transportation; Federal Hwy. Admin.; Office of Hwy. Policy, May 2009

Projected Aftermarket Growth Trends By Vehicle Age

Source: IMR and RL Polk

Age Sweet Spot Flattens Out

Average age of vehicles is increasing Consumers are keeping car longer Aftermarket Sweet Spot for repairs is flattening out

U.S. Average Age of Light Vehicles

Source: RL Polk

The average age of light vehicles in the US is predicted to continue to grow for a few more years

North American Vehicles in Operation VIO

Detroit manufacturers are losing market share to foreign competitors

Source: Desrosiers Automotive Consultants, Wards Automotive, RL Polk

% Vehicles in Operation - North America

26.0%

74.0%

31.0%

69.0%

37.0%

63.0%

43.0%

57.0%

0%

20%

40%

60%

80%

Foreign Nameplate Detroit 31998 2003 2008 2013(f)

Looking Ahead Key Markets China

GDP (per capita) up 16% since 2007 Light Vehicle Sales up 150% since 2005 VIO ~ 40 Million

India GDP (per capita) up 11% since 2007 Light Vehicle Sales up 60% since 2005 VIO ~ 11 Million

Mexico GDP (per capita) down 6% since 2007 Light Vehicle Sales down 15% since 2005 VIO ~ 13.6 Million

North America GDP (per capita) down 4% since 2007 Light Vehicle Sales down 38% since 2005 VIO ~ 242 Million

Agenda

North American Market Overview Key Aftermarket Metrics

ROADMAP FOR INTERNATIONAL GROWTH Country Risk Assessment Operational Risk Analysis Evaluation of Market Entry Options Understand Exit Strategies Market Entry

Roadmap for International Growth

COUNTRY RISK ASSESSMENT Operational Risk Analysis Evaluation of Market Entry Options Understand Exit Strategies Market Entry

Road Map for International

GrowthCountry Risk Assessment

Operational Risk Analysis

Evaluation of Market Entry

Options

Understand Exit

StrategiesMarket Entry

Country Risk Assessment

Country Risk Assessment Natural Resources & Physical Infrastructure STEP Analysis

Socio/cultural/demographic Technical Economic Political

Competition Analysis

Country Risk

Assessment

Natural Resources &

Physical Infrastructure

STEP Analysis Competition Analysis


CountryIndicator China India Mexico

Natural Resource

Endowments

coal, iron ore, petroleum, natural gas, mercury, tin,

tungsten, antimony, manganese, molybdenum,

vanadium, magnetite, aluminum, lead, zinc, uranium,

hydropower potential (world's largest)

coal (fourth-largest reserves in the world), iron ore, manganese,

mica, bauxite, titanium ore, chromite, natural

gas, diamonds, petroleum, limestone,

arable land

petroleum, silver, copper, gold, lead,

zinc, natural gas, timber

Self-sufficiency in Raw

Materials(ranking)

Renewable Water 2,829.6 cu km 1,907.8 cu km 457.2 cu km

Proven Oil Reserves 15.55 billion bbls (13) 5.625 billion bbls (21) 10.5 billion bbls (17)Proven Natural Gas

Reserves 2.46 trillion cu m (13) 1.08 trillion cu m (26) 372.7 billion cu m (35)

Infrastructure (ranking)

Airports 482 (15) 349 (23) 1,744 (3)

Ports 8 9 7

Railways 77,834 km (3) 63,327 km (4) 17,516 km (16)

Roadways 3,583,715 km (2) 3,316,452 km (3) 356,945 km (19)

Sources: CIA World Factbook; World Bank Development Diamond


A farmer sits on the bed of the dried Niujiehe reservoir in Jiulong town, Luoping county, Yunnan province. Since September, the region has been gripped by the worst drought in 100 years.

Water, water, everywhere but

With about 1,000 rivers and lakes, Yunnan ranks third in China when it comes to water resources. It also wins bronze for its annual average rainfall. So in a region with such natural abundance, why are millions continuing to thirst as the southwest suffers its worst drought in 100 years?

China Daily UpdatesMarch 30, 2010


CountryIndicator China India Mexico

Social,Cultural, &

DemographicIndicators

Life Expectancy 71 years 66 years 76 years

Access to Safe Water 88% 89% 90%Education Spend/%GDP (year, ranking) 1.9 (1999, 170) 3.2% (2005, 140) 5.5% (2005, 49)

School Life Expectancy 11 years 10 years 13 yearsPopulation in Millions, 2009(ranking) 1.339 (1) 1.157 (2) 111 (11)

Adult Literacy 91% 61% 91%

Sources: CIA World Fact book; World Bank Development Diamond


Country

Indicator China India Mexico

Technological Indicators

Internet Users in Millions, 2008 (ranking) 298 (1) 81 (4) 23 (16)

Mobile Phones in Millions 634 (2008) 545 (2010) 75 (2008)Energy Consumption per Person (in Million BTU) 56.2 15.9 68.5

E-Readiness Rankings 56 58 40

Sources: CIA World Fact book; World Bank Development Diamond, The Economist, Energy Information Administration


Country


Economic Indicators

GDP in $US Trillions, 2009 (ranking) $8.791 (3) $3.561 (5) $1,473 (12)

GDP Real Growth Rate, 2009 est. 8.7% 6.5% -7.1%Manufacturing Percent of GDP 27.2% 20% 34.5%Percent Employment in Industry 48.1% (2006) 14% 25.70%

Investment % of GDP, 2009 est. 42.6% (3) 32.1% (17) 20.8% (79)Unemployment, 2009 est. (ranking) 4.3% (38) 10.7% (119) 6.2% (59)Consumer Price Inflation, 2009 est. (ranking) -0.8% (9) 10.7% (194) 5.3% (146)Average Annual Inflation (ranking) 2.78% (131) 9.05% (192) 5.3% (148)

Operational Risk Index (1=low risk) 47 51 44

Sources: CIA World Fact book; World Bank Development Diamond, The Economist


Country


Political Indicators

"Corruption Perceptions Index (ranking) 3.6 (72) 3.4 (85) 3.6 (72)

Political Instability Index (1=low risk) 124 135 79

Sources: The Economist, Transparency International


Competition Analysis Determine What Customers in the Country Need

What Vehicles Do They Drive? How Old is the Average Vehicle?

Research Competitors in the Market Quality, Price, Availability and Service Learn Who is Successful, Who is Failing, and Why

Determine if There is Room in the Market Based on Your Competitive Strategy


Country Risk Assessment OPERATIONAL RISK ANALYSIS Evaluation of Market Entry Options Understand Exit Strategies Market Entry





Options

Understand Exit



Managing Ongoing Operations Set up risk management policies

Facilities and IT risk management Political risk insurance Currency hedging strategies

On-going monitoring country risks

Operational Risk

Analysis

Physical Facilities &

IT RiskPolitical

RiskCurrency

Risk


Physical Facilities & IT Risk Physical Security

Natural Disaster Terrorism Theft

IT Security Virus Protection Hackers Data Theft

Intellectual Property Copyrights, Trademarks, Patents, Domain Names


Political Risk Currency Inconvertibility Expropriation Political Violence Terrorism

Coverage Options Overseas Private Investment Corporation

No OPIC Agreement with China Coverage Options Available in India, Mexico

Export Import Bank of the US Multilateral Investment Guarantee Agency (Miga) World

Bank


Currency Risk Risk identification

Translation Risk Transaction Risk Competitor Pricing

Hedging Techniques Forward Contracts Speculation Currency Investments or Borrowing Call or Put Options


Country Risk Assessment Operational Risk Analysis EVALUATION OF MARKET ENTRY OPTIONS Understand Exit Strategies Market Entry





Options

Understand Exit


Market Entry Options

Evaluating Market Entry Strategies Exporting Licensing/Franchising Joint venture Wholly-owned subsidiary

Evaluate Market Entry

OptionsExporting Licensing Joint Venture

Wholly-Owned

Subsidiary

Risk Analysis Matrix

Country Risks Favorable for Success

Country Risks Moderate Country Risks Unreasonable

Operational Risks Favorable

for Success

Consider All Market Entry Strategies Available

If Competitive Strategy is Favorable Consider All Market

Entry Strategies Available

Direct Exporting Should Limit Risk; Review Insurance Optionsfor a Wholly Owned Subsidiary;2

JVs and Franchises Remain Viable Options1

Operational Risks Moderate

Review Operational Insurance Options for a Wholly Owned

Subsidiary; JVs, Franchises and Exporting Remain Viable Options1

If Competitive Strategy is Favorable, Review Operational Insurance Options for a Wholly

Owned Subsidiary; JVs, Franchises and Exporting Remain Viable

Options1

Exporting Recommended

Operational Risks

Unreasonable

JV with an Established Presence in the Market may Enhance Chances

of Success while Limiting Operational Liabilities;1

Operational Risk Insurance Imperative for Wholly Owned

Subsidiary; Franchises and Exporting Viable Options.

ExportingRecommended

Exporting Recommended

1 JVs and possibly Franchises can increase your operational risks by opening up IP intelligence to other entities. Be sure you trust any potential partners.2 Consider a subsidiary in a friendly, neighboring country (if possible) for quick access to the market and IP protection.


Country Risk Assessment Operational Risk Analysis Evaluation of Market Entry Options UNDERSTAND EXIT STRATEGIES Market Entry





Options

Understand Exit


Understand Exit Strategies

Exporting Stop Exporting

Licensing

Sell Licenses or Business Unit

Joint Venture

Disengage from Partners

Wholly-Owned

Subsidiary

IPO or Seek Buyer


Country Risk Assessment Operational Risk Analysis Evaluation of Market Entry Options Understand Exit Strategies MARKET ENTRY





Options

Understand Exit


Market Entry

Keys to Success Research, Research, Research

Country-Based Research Competitive Market Research Pricing, Competitors Define Your Long and Short Term Strategies Learn Local Laws Concerning General Operations Understand Your Ongoing Operational Management Risks

Choose the Appropriate Market Entry Strategy Choose Trusted Partners (If Applicable)

Build Relationships With Partners Prior to Engagement Determine if Locals or Expatriates Should Manage

Operations

Conclusion

Perform Country Risk Assessment Perform Operational Risk Analysis Evaluate Market Entry Options Understand Your Potential Exit Strategies Use Insight Gleaned to Enter the Market

Wisely

Thomas Friedman

There was a time when America's semiconductors industry dominated the world, but then companies from other countries came along and gobbled up the low end of the market. Some even moved into the higher end. American companies were then forced to find newer, deeper specialties in the expanded market. If that weren't happening, Intel would be out of business today. Instead, it is thriving.

-Thomas Friedman, The World is Flat

References Automotive Aftermarket Suppliers Association, 2009-2010 Automotive Aftermarket Status

Report & World Motor Vehicle Market Report China Daily Updates CIA World Fact book Desrosiers Automotive Consultants The Economist Energy Information Administration Export Import Bank of the USA Friedman, Thomas. The World is Flat, 2005 Ginn, Dr. Jane. Global Business Strategies, Presentation for the Filter Manufacturers Council,

September 2008 Miga-EIU Political Risk Survey, December 2009 Overseas Private Investment Corporation R.L. Polk Transparency International U.S. Dept. of Transportation; Federal Highway Administration; Office of Highway Policy Wards Automotive Weckesser, Dr. Tim. Doing Business in China, Presentation at AAPEX, November, 2010 World Bank Development Diamond

Road Map to International GrowthAgendaInternational CrisisLooking Ahead North American Market Key PointsNorth American MarketNorth American Market Miles DrivenProjected Aftermarket Growth Trends By Vehicle AgeU.S. Average Age of Light VehiclesNorth American Vehicles in Operation VIOLooking Ahead Key Markets AgendaRoadmap for International GrowthCountry Risk AssessmentCountry Risk AssessmentCountry Risk AssessmentCountry Risk AssessmentCountry Risk AssessmentCountry Risk AssessmentCountry Risk AssessmentCountry Risk AssessmentRoadmap for International GrowthOperational Risk AnalysisOperational Risk AnalysisOperational Risk AnalysisOperational Risk AnalysisOperational Risk AnalysisOperational Risk AnalysisRoadmap for International GrowthMarket Entry OptionsRisk Analysis MatrixRoadmap for International GrowthUnderstand Exit StrategiesRoadmap for International GrowthMarket EntryConclusionThomas FriedmanReferences

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Roadmap For International Growth Final