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Retooling For Growth in a Dynamic Market CAR MANAGEMENT BRIEFING SEMINARS August 1, 2017

Mike Jackson Executive Director, Strategy and Research Original Equipment Suppliers Association [email protected] +1-248-430-5954

Retooling for Growth in a Dynamic Market

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Championing the business interests of the automotive OE supplier community: Founded in 1998, the Original Equipment Suppliers Association (OESA), serves as the voice of the automotive supplier and a valuable resource for member organizations. Throughout the supply chain and on legislative and regulatory issues, OESA represents the collective voice of suppliers.

Exclusively for automotive suppliers: Supplier membership is exclusive to original equipment automotive suppliers that directly provide components, tools, materials and services to the OE light vehicle industry.

Strength in numbers: Membership is comprised of approximately 375 Tier 1,2, and 3 automotive suppliers with North American OE sales that range from $10 million to $5+ billion. Affiliate members support the supplier community with thought leadership, industry analysis and other key information.

LED By supplier industry executives: OESA’s interests are guided by a board of directors consisting of CEOs from member companies of all sizes.

Staff that works for members: Members enjoy direct access to a staff of dedicated association employees in Detroit and Washington, D.C.

Retooling for Growth in a Dynamic Market

AGENDA • Vehicle Sales Dynamics

• Production Outlook • Supplier Implications • Summary

Retooling for Growth in a Dynamic Market

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US: New Light Vehicle Sales Pace has slowed since late 2015, but still on pace for a strong year Monthly Sales (SAAR, millions) “Keep America Rolling”

22

“Employee Pricing For All”

20 18

“Cash For Clunkers”

16 14 12 10 8 6

Total

Car

2016

2014

2012

2010

2008

2006

2004

2002

2000

1998

1996

4

Light Truck

Source: Wards, US Bureau of Economic Analysis

Retooling for Growth in a Dynamic Market

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US Light Vehicle Incentives and Inventory Vehicle Inventory (millions)

Vehicle Incentive Spending (thousands)

25%

4.0

15%

3.5

5%

0% 3.0 -25% -50%

Y/Y (%)

US Inventory

$4.0

$3.0 -5%

2.5

-15%

2.0

-25%

Thousands

25%

4.5

Millions

50%

$2.0

Y/Y (%)

US Incentive/Unit

Source: Automotive News Data Center, Autodata

Retooling for Growth in a Dynamic Market

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US: Light Vehicle Sales Outlook Forecasts vary among firms – impact of sales taper is key assumption Annual Sales (millions) 18 17 16 15 Trend: 1968-2008 Rising 125K/year

14 13

12 11

History

PWC-Autofacts

IHS-Markit

LMC

2018

2016

2014

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

1968

10

Wards Auto Intel

Source: PWC-Autofacts, IHS Markit, LMC Automotive, Wards Auto Intelligence – June 2017

Retooling for Growth in a Dynamic Market

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Lease and Fleet Share Retail Slowing, Industry Reverting to Bad Habits? Current Strength Borrows from Tomorrow Lease and Fleet Share of New LV Registrations

Lease Originations (millions) 5.0

26%

4.5 24%

4.0

3.5

22%

3.0 2.5

20%

2.0 18%

1.5 1.0

16%

0.5 14%

0.0 2010 2011 2012 2013 2014 2015 2016 2017 Lease Share

1996

2000

2004

2008

2012

2016

Fleet Share

Source: Cox Automotive, IHS Markit, Manheim Consulting

Retooling for Growth in a Dynamic Market

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Manheim Used Vehicle Value Index Industry Holds Positive Momentum, yet segments reflect dramatic divergence Manheim Index (Jan 1995=100)

Change in Wholesale Auction Price (YTD, YOY)

130

35%

30%

125

1 my old

25% 120 20%

2 my old 3 my old 4 my old

115

15%

110

10%

105

5% 0%

100 -5% 95

-10%

90

2017

2015

2013

2011

2009

2007

2005

2003

2001

1999

1997

1995

-15% Industry Compact cars

Midsize cars

Luxury cars

Pickups

SUV/ CUV

Vans

Source: Manheim, monthly, Adjusted for mix, mileage and seasonality

Retooling for Growth in a Dynamic Market

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Fleet Sales Boom Can Leave Extended Impact Unique OEM Strategies Top Fleet Shares Change in Fleet Sales (Year over Year)

+17% +400K

35%

15%

5%

-5%

-15% GM

FCA

Nissan Hyundai- Toyota Kia

Honda

27%

11% 8% 8%

30%

8% 11% 17%

DAILY RENTAL

2015 vs '14

COMMERICAL

25%

GOVERNMENT

2016 - 2.8M 2015 - 2.6M 2014 - 2.5M 2013 - 2.4M

2016 vs '15

Ford

8%

28%

2013 2014 20%

22%

2015 2016

Source: Automotive News Data Center

Retooling for Growth in a Dynamic Market

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Millions

US Light Vehicle Sales Outlook By Type 2016 - ∆ 2024

20 18 16 14 12 10 8 6 4 2 0

17.5

16.6

-5% (865K) No Change

(6K)

+16% 1,180K

Car Utility

-30%

Truck

(2,039K)

2005

2010

2015

2020

Source: Wards Auto Intelligence

Retooling for Growth in a Dynamic Market

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AGENDA • Vehicle Sales Dynamics

• Production Outlook • Supplier Implications • Summary

Retooling for Growth in a Dynamic Market

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OESA Supplier Barometer Index: SBI Score = 40 Inventories, production volumes and the political environment drive sentiment down Describe the general twelve month outlook for your business. Over the past three months, has your opinion become…?

Supplier Barometer Index: (SBI 6m Average)

Current Supplier Outlook (Share of Respondents)

80

Q2 2017

60%

Q3 2017

70 40%

Lehman Collapse

60 50

20%

40

40 Significantly more pessimistic

Somewhat more pessimistic

Jan-2017

Jan-2016

Jan-2015

Jan-2014

Jan-2013

Jan-2012

Jan-2011

Jan-2010

Jan-2009

Jan-2008

20

Unchanged

0%

Somewhat more optimistic

30

US Fiscal Cliff

Significantly more optimistic

Japan Tsunami/ Grexit Crisis

Euro Crisis Begins

Source: OESA Supplier Barometer 3Q 2017

Retooling for Growth in a Dynamic Market

OESA Automotive Supplier Barometer- July 2017

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OESA Supplier Barometer: Threats to the 2017-2018 Outlook Rate the possible threats being considered in your current outlook over the next 12-18 months, 0%

20%

40%

60%

80%

100%

Average Rating

3.9

Changes in government trade policy Poor sales of vehicles in programs supplied

3.9

Weakness in the U.S. Economy

4.5

Implementation of new government regulations

5.4

Likelihood of higher interst rates

5.5

Terrorism or some type of international event

6.2

Inability to address internal labor constraints

6.7

Inability to fulfill customer volumes

7.7 1=Greatest threat

2

3

4

5

6

7

8

9

10=Smallest threat

Source: OESA Supplier Barometer 3Q 2017

Retooling for Growth in a Dynamic Market

OESA Automotive Supplier Barometer- July 2017

14

NORTH AMERICA 2017-2019 Production Forecast Comparison (VOLUMES REPRESENT NA CAR, LT TRUCK CLASS 1-5)

2017

(in millions)

Forecast Average

1Q Actual

4.47

4.49 ↓0.06

4.21 ↓0.06

4.30 ↓0.12

17.47 ↓0.29

17.97 ↓0.22

18.65 ↓0.27

4.53

4.53 ↓0.08

4.20 ↑0.02

4.29 ↑0.06

17.56 Δ0

17.72 ↓0.19

17.90 ↓0.27

4.56

4.54 ↓0.18

4.24 ↓0.04

4.44 ↓0.01

17.78 ↓0.21

17.88 ↓0.46

18.02 ↓0.42

4.52

4.52

4.22

4.34

17.60

17.86

18.19

0.05

0.04

0.15

0.31

0.25

0.75

4.61

4.39

4.34

17.81

Forecast Spread 2016 Average

2018 2019 Forecast Forecast 2Q 3Q 4Q 2017 Forecast Forecast Forecast Forecast

4.47

Source: OESA Forecast Snapshot – June 2017

Retooling for Growth in a Dynamic Market

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North America – Industry Production Cycles

20

-26%

-42%

-19%

-10%

-48%

-2.2%

-3.8M

-6.4M

-2.6M

-1.7M

-7.8M

-385K

18

Millions

16

? Stress testing

14 12

-10%?

10 8

-20%?

6 4

NA Production Recession Linear (NA Production)

2

-30%?

0 1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

Source: Wards Auto Intelligence

Retooling for Growth in a Dynamic Market

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North American Production Demand Drives Divergent Growth

21

Millions

18 15

3.8

3.5

4.1

12 9

7.2 5.1

+1.3M 8.5

+19%

1.8

6 3

-271K -7%

2.7 6.9

6.5

4.0

6.0

-878K -13%

0 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Car

Source: IHS Markit

Retooling for Growth in a Dynamic Market

Utilities

Truck 17

Vehicle Production Categories – Winners & Losers Small +528K

3.2 0.7 2.0

1.5

3.5 2.5

+371K

-719K

3.1

2016

-0.5

2.7

Car Utility Truck

0.5

0.4

0.4

-0.5

2.5 1.5

2.8

0.5 Car Utility Truck

3.5

1.5

3.2

0.5 -0.5

0.8

3.5 2.5

Fullsize

Midsize

Car Utility Truck

∆ 2024

Source: IHS Markit

Retooling for Growth in a Dynamic Market

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AGENDA • Vehicle Sales Dynamics

• Production Outlook • Supplier Implications • Summary

Retooling for Growth in a Dynamic Market

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Future Launch Activity Average Transaction Price By Segment ($) – June 2017

50

Vehicles Cars Trucks

40

33 30

D-Segment

+46%

C-Segment

+39%

B-Segment

Utility +51% Car

29

25

20

13

34 10

19 19

25

16

16

20

Thousands

24 19 20 10

17

12 14

8

0

10

20

30

40

9

0

Source: IHS Markit, Kelly Blue Book

Retooling for Growth in a Dynamic Market

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Priorities & Positioning for Profitability

$17,250 profit/unit

~$10,000 profit/unit

.24 Million units sold - 2016

2.28 Million units sold - 2016

$4.1 Billion

$22.8 Billion

MARGIN COMPETENCY Retooling for Growth in a Dynamic Market

MARKET SCALE 21

Production Portfolio Comparison - 2016 OEM

Units

Car

SUV

Truck

General Motors Ford FCA

3,647 3,068 2,516

32% 25% 13%

34% 36% 61%

34% 39% 27%

Toyota Honda

2,125 1,957

47% 47%

36% 51%

17% 2%

Renault-Nissan Hyundai

1,846 859

56% 66%

28% 34%

16% 0%

411 354 517

0% 20% 98%

100% 69% 2%

0% 11% 0%

95% 6,866 39%

5% 7,130 40%

0% 3,829 21%

BMW Daimler Volkswagen Other Unit volume NA average

524 17,825

$

Source: IHS Markit

Retooling for Growth in a Dynamic Market

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Mexican Production Profile 2.5

30% 27%

1.5

24%

1.0

21%

0.5

18%

0.0

15% 2014 2016 2018 2020 2022 2024 NA Share

Car

Utility

Truck

Millions

Millions

2.0

5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

0.2 0.2 0.1

1.8

1.8

1.3 1.7

1.9

1.5 0.4

0.8

0.9

2016 2018 2020 2022 2024 Other A4 US3 G3

Source: LMC Automotive

Retooling for Growth in a Dynamic Market

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Passenger Cars: Under Pressure Steady March To Reduce US3 Car Portfolios and Utilize Global Sourcing

Segment

A/B Fiesta

Sonic

C Dart

Volt?

Focus

Verano

Cruze?

D 200 Taurus

LaCrosse?

Impala?

CT6?

E Retooling for Growth in a Dynamic Market

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Top Automotive States Top 20 - Supplier Employment (000s) Michigan Ohio Indiana Tennessee Kentucky Alabama Illinois North Carolina South Carolina Texas California Pennsylvania Georgia New York Wisconsin Missouri Iowa Virginia

Regional Share % 5% 6% 32%

8%

0

50

Source: 2017 MEMA Economic Study – 2015CY ; Share of total direct employment

Retooling for Growth in a Dynamic Market

49%

100

US Vehicle Output - 2016 (Millions) Michigan Ohio Indiana Kentucky Alabama Tennessee Missouri Illinois Texas Mississippi South Carolina Georgia Kansas California

TRUCK

CAR

Regional Share % 5% 1%

S-East, 38% Midwest, 56%

0

1

2 Source: LMC Automotive, OESA Analysis

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OESA Supplier Barometer Survey: HR & Talent Focus SKILLS + CULTURE

∆ SKILL SETS

ACTION PLANS:

GAP

•SPECIALIZED •AUTONOMOUS •COLLABORATIVE

CROSS FUNCTIONAL TRAINING

63%

MODERATE TO WIDE

APPRENTICESHIPS

TALENT SCARCITY

NEW VALUES:

CHANGE ROLES TO FIT SKILLS

TIME FLEXIBILITY

Retooling for Growth in a Dynamic Market

• ENGINEERS • TECHNICIANS • HOURLY SKILLED

NEW HIRING PRACTICES 26

AGENDA • Vehicle Sales Dynamics

• Production Outlook • Supplier Implications • Summary

Retooling for Growth in a Dynamic Market

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Summary • Market: US demand slowing, divergent performance • Strategy: Cycle requires dramatic reboot, ‘engaged’ planning • Offense: SUV growth/Truck peak—bring opportunities and risks • Defense: Growing scope of passenger car dislocation, turbulence • Flexibility: Liquidity is key; vital to balance ‘Core’ vs Emerging • Stretch: Build on strong foundation, adapt to grow – reach higher

Retooling for Growth in a Dynamic Market

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Thank You... CAR MANAGEMENT BRIEFING SEMINARS August 1, 2017 FOR QUESTIONS OR ASSISTANCE, PLEASE FEEL FREE CONTACT ME:

Mike Jackson Executive Director, Strategy and Research Original Equipment Suppliers Association [email protected] +1-248-430-5954

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Retooling For Growth - Center for Automotive Research

Retooling For Growth in a Dynamic Market CAR MANAGEMENT BRIEFING SEMINARS August 1, 2017 Mike Jackson Executive Director, Strategy and Research Origi...

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