Challenges/Opportunities in the Global Auto Industry/media/others/events/...Total Vehicle* Entries – Selected Markets Source: Historical Counts from GSRA applying .01% cutoff Forecast

Challenges/Opportunities in the Global Auto Industry

Paul BallewSenior Vice President, Customer InsightsNationwide

November 30, 2007

212/4/2007

OverviewGlobal auto industry continues to expand and post record sales and revenue. Gains in 2007 have exceeded the outlook at the start of the year despite the underperformance in the US.

Unfortunately for domestic OEMs, pressures remain substantial due to three sets of factors:

Slump in the US – down 2 million units from the peak in CY 2000Intense competitive pressures and the structural shift of the last two decadesImpact and risk of governmental policies

In response, the industry is focused on a couple of key business strategies that will continue to impact the Midwest and the long term viability of the industry:

Rapid expansion outside of developed markets

Aggressive cost reduction and the corresponding shifting of footprint and operating structure

An even more aggressive push on the product side – in terms of price, features, performance and content

312/4/2007

Economic OutlookReal GDP Growth (%)

Region '95-'04 2005 2006 2007 2008 '09-'12

World 2.7% 3.1% 3.4% 3.0% 3.0% 3.1%

NA 3.1% 3.1% 3.0% 2.0% 2.7% 3.1%

Europe 2.3% 2.3% 3.3% 3.0% 2.7% 2.6%

AP 2.8% 3.9% 3.8% 3.9% 3.7% 3.6%

LAAM 3.1% 5.0% 4.9% 4.5% 4.0% 3.5%

412/4/2007

Global GDP and Industry Sales (1980 – 2006)

R2 = 0.9759

30,000

35,000

40,000

45,000

50,000

55,000

60,000

65,000

70,000

20000 25000 30000 35000 40000 45000 50000

GDP (billions of 2005 USD)

Vehi

cle

sale

s (0

00)

512/4/2007

473 467 463 484 512 543 577 613

373 401 452 497 528 554 573 590227 251

277309

335362

393425

89100

111120

122125

135135

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2005 2006 2007 2008 2009 2010 2011 2012

LAAM

AP

Europe

NA

1,163

1,584

1,2201,302

1,4101,497

1,6771,763

Global Auto Revenue* by Region($B)

*OEM revenue; excludes taxes, dealer gross margins, logistics and other costs on new vehicles

Sales and Mix Shifts Impact Global Auto Revenues

612/4/2007

1996

Mature Market

40.878%

Other3.47%

Emerging 117.515%51.7 mil.

2016Other

9.210%

Mature Market

48.051%

Emerging 11

37.139%

94.3 mil.

2006Other

6.39%

Emerging 11

17.125%

Mature Market

44.066%

67.4 mil.

A Substantial Re-Alignment of Global Sales

712/4/2007

22.7

25.5

37.1

9.1

0.0

10.0

20.0

30.0

40.019

80

1985

1990

1995

2000

2005

2010

2015

Realignment Should Continue Through the Next DecadeMillions – New Vehicle Sales by Region

Forecast

AP

NA

Europe

LAAM

Source: GMIA; GSRA, July 2007 Short-term Forecast, Prelim BP08

Avg. Annual GDP Change

(2007-2012)

AP 4.8%

Europe 2.7%

LAAM 3.8%

NA 2.8%

812/4/2007

US Economic and Industry OutlookThe US economy is expected to remain in a slow growth phase through 2008.

Employment and income growth are offsets but the headwinds are substantial.

The housing market is likely to deteriorate further and energy prices remain a concern.

Home construction activities have not bottomed out.

Vehicle market will struggle to stay around 16 million units in the near term–likely more risk on mix and perhaps a third consecutive year of falling revenue.

912/4/2007

05009590Source: Bureau of Labor Stat ist ics /Haver Analyt ics

600

400

200

0

-200

-400

600

400

200

0

-200

-400

Nonfarm payroll employment increased by 166,000 in October but the pace of expansion is slowing down

Nonfarm Payroll EmploymentMonthly Change, Thousands

1012/4/2007

Wages & Salaries versus Disposable Personal IncomeYear-Over-Year Percentage Change, Chained 2000$

-4

-2

0

2

4

6

8

10

89 91 93 95 97 99 01 03 05 07

Wage and Salary Disbursements Disposable Personal Income Y/Y% Change, Chained 2000$ Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07Wage and Salary Disbursements 1.8% 3.2% 4.2% 4.6% 4.1% 3.4% 3.2% 3.7% 3.9% 4.8% 4.4% 4.9% 5.3% 4.6%

Disposable Personal Income 5.3% 3.7% 4.2% 3.2% 2.9% 3.0% 3.3% 3.7% 3.4% 3.6% 3.3% 4.0% 4.4% 3.9%

1112/4/2007

New 1-Family Houses Sold: United StatesSAAR, Thous

Existing 1-Family Home Sales: United StatesSAAR, Thous

050095Sources: Census Bureau, Nat ional Associat ion of Realtors /Haver Analyt ics

1400

1200

1000

800

600

400

6750

6000

5250

4500

3750

3000

2250

New and Existing Single-Unit Home Sales

New home sales increased from 0.735 to 0.77 million in September but the increase was because August sales was revised down.

During the month, existing home sales dropped m-o-m from 4.79 to a 4.38 million annualized rate.

1212/4/2007

Domestic Spot Market Pr ice: Light Sweet Crude Oil, WTI, CushingEOP, $/Barrel

U.S. Retail Gasoline Pr ice: Regular GradeAvg, US$/Gallon

0706050403020100Sources: WSJ, EIA/DOE /Haver

100

80

60

40

20

0

3.5

3.0

2.5

2.0

1.5

1.0

Crude Oil Price v.s. U.S. Retail Gas Price

1312/4/2007

Cur rent Conditions for Buying Vehicles: Bad: Pr ice of Fuel%

U.S. Retail Gasoline Pr ice: Regular GradeAvg, US$/Gallon

0706050403Sources: UMICH, EIA/DOE /Haver

25

20

15

10

5

0

3.6

3.2

2.8

2.4

2.0

1.6

1.2

Deteriorating buying attitude following gas prices back above $3

With gas prices climbing back above $3, buying attitude deteriorates

1412/4/2007

Lower income households are hurt moredue to run-up gas prices and food prices

Consumer Sentiment: Families with Income Greater than $50,000/Year % Change - Year to Year Q1-66=100

Consumer Sentiment: Families with Income Less than $50,000/Year % Change - Year to Year Q1-66=100

07060504030201Source: University of Michigan /Haver Analyt ics

40

20

0

-20

-40

30

20

10

0

-10

-20

-30

1512/4/2007

New vehicle buyers by annual household income

0%

10%

20%

30%

40%

50%

2004 2005 2006 2007

Less than 74.9k 75k to 124.9k 125k to 200k 200k and above

1612/4/2007

(CDVH / GDPH)

05009590Source: Haver Analyt ics

0.050

0.045

0.040

0.035

0.030

0.050

0.045

0.040

0.035

0.030

Motor vehicle and parts purchase as a % of GDP

1712/4/2007

Despite high gas prices, vehicle transaction prices continue to rise

$22,500

$23,000

$23,500

$24,000

$24,500

$25,000

$25,500

$26,000

$26,500

$27,000

$27,500

Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07

1812/4/2007

10

12

14

16

18

20

22

Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08

Million

2008 Forecast

US Industry Annual Rates (SAAR)

1912/4/2007

Upside/Downside Risks

Upside Factors•Easing monetary policy

•Contained Inflation risks

•Resilient manufacturing investment

•Solid job market

Downside Factors•Deeper and prolonged housing correction

•Tightened credit market

•Dampened consumer confidence

•Weaker labor market

•Oil/gas prices remain high on a persistent basis

2012/4/2007

Impact of $100 Oil on US Economy and Industry

• $100 Oil could drag GDP growth from 2.3% to 2.1% in 2008

• Unemployment rate is expected to creep up from 5.1% to 5.3%

• Headline inflation may increase from 2.8% to 3.4%

• Vehicle sales would be reduced by about 100 - 150 thousand units

2112/4/2007

Car Market Share versus Gas Prices

0.60

1.10

1.60

2.10

2.60

3.10

3.60

Jan-04 Jun-04 Nov-04 Apr-05 Sep-05 Feb-06 Jul-06 Dec-06 May-07 Oct-0735%

40%

45%

50%

Gas Prices ($/gal)Car Market Share

Gas prices Car Share

2212/4/2007

Supply-Side Dynamics is Really About Reshaping the Competitive Landscape, Implications for OEMs are at Times Overwhelming

From the product perspective

Increased competitive pressure

Significant upgrading of product

Aggressive cost reduction and price restraints

Pressure to increase productivity

Platform consolidation

Global manufacturing and supply-chain optimization

Pressure on margins

Profitable niches have to be constantly defended

Increasing emphasis on strong brands, QRD, product differentiation

Divergence of winners and losers

2312/4/2007

Total Vehicle* Entries – Selected Markets

Source: Historical Counts from GSRA applying .01% cutoffForecast from Global Insight

Australia

JapanC/W. Europe

Major Emerging MarketsMajor Emerging Markets

Major Mature MarketsMajor Mature Markets

Thailand

China

75207

245

204 249 249

110 115149

Brazil S. Africa

India

Mexico

1995 2006 2011**

Russia

1995 2006 2011**

U.S.

*Non*Non--CommercialCommercial** 2011 ** 2011 –– forecastforecast

289394 442

283346 384

142 217 235

60199

256

79231

352

1953

96

73 188 221

8565 105

Increased Competition Evident Across the Globe

2412/4/2007

Jul-07, 0.655

Nov-86, 1.024

0.5

0.6

0.7

0.8

0.9

1.0

1.1

Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06

U.S. - Real New Vehicle Price Developments (Inf lat ion & Equip. Adjusted, All Makes)

Real new vehicle prices (CPI-new vehicle / CPI-overall)

-9.9% change (Nov-86 to Dec-95) -28.8% change (Jan-96 to Jul-07)

Increasing Price Pressure Reflects Competitive Intensity

2512/4/2007

Price Pressure is Not Just a U.S. Issue

Jun-07, 0.763

0.789

0.893

0.844

0.7

0.8

0.9

1.0

Jan-04 Jan-05 Jan-06 Jan-07

China Passenger Car Pricing Index

Prices down ~ 25% in 3 years

Source: www.cheshi.com

2612/4/2007

Big Three US Market Share

50%

55%

60%

65%

70%

75%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: GSRA

2712/4/2007

Government and OEM Demands for Regulation

• Governments will increasingly look to control pollution, congestion, and develop appropriate infrastructure and regulatory processes

• Scope of regulatory issues is broad

Vehicle use requirements

Facilities and production controls

End-of-Life vehicles

Distorting tax regimes

Trade agreements

Capacity and export controls

JV controls

Safety Standards

• OEMs will seek competitive advantages through regulations

Minimize cost of regulation for production

Access to markets