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    • 1. Presentation to Television Bureau of Advertising Stephen J. Girsky September 2003
    • 2. Disclosures
      • Analyst Certification
      • The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Stephen J. Girsky.
      • Important US Regulartory Disclosures on Subject Companies
      • The information and opinions in this report were prepared by Morgan Stanley & Co. Incorporated (“Morgan Stanley”).
      • As of July 31, 2003, Morgan Stanley beneficially owned 1% or more of a class of common equity securities of the following companies covered in this report: Delphi, Ford, General Motors, Goodyear Tire & Rubber, Johnson Controls, Magna Intl Inc., TBC and Tower Automotive.
      • Within the last 12 months, Morgan Stanley managed or co-managed a public offering of securities of DaimlerChrysler AG, Delphi, Ford, General Motors, Standard Motor Products and Tenneco.
      • Within the last 12 months, Morgan Stanley, Morgan Stanley or an affiliate has received compensation for investment banking services from Aftermarket Technology, American Axle and Mfg., BorgWarner Inc., DaimlerChrysler AG, Delphi, Ford, General Motors, Standard Motor Products, Superior Industries, Tenneco, Tower Automotive and Visteon Corporation.
      • In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from Aftermarket Technology, American Axle and Mfg., ArvinMeritor, Borg Warner Inc., DaimlerChrysler AG, Dana Corp., Delphi, Ford, General Motors, Genuine Parts Co., Goodyear Tire & Rubber, Johnson Controls, Lear Corp., Magna Intl Inc., Standard Motor Products, Superior Industries, Tenneco, Tower Automotive and Visteon Corporation.
      • The research analysts, strategist, or research associates principally responsible for the preparation of the research report have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and investment banking revenues.
      • Morgan Stanley & Co. Incorporated makes a market in the securities of Aftermarket Technology, Delphi, Dura Automotive, Ford, General Motors, Magna Intl., TBC and Tower Automotive.
      • Global Stock Ratings Distribution
      • (as of May 1, 2003)
      • (Continued)
    • 3. Disclosures
      • Data include common stock and ADRs currently assigned ratings. For disclosure purposes (in accordance with NASD and NYSE requirements), we note that Overweight, our most positive stock rating, most closely corresponds to a buy recommendation; Equal-weight and Underweight most closely correspond to neutral and sell recommendations, respectively. However, Overweight, Equal-weight, and Underweight are not the equivalent of buy, neutral, and sell but represent recommended relative weightings (see definitions below). An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings) and other considerations. Investment Banking Clients are companies from whom Morgan Stanley or an affiliate received investment banking compensation in the last 12 months.
      • Analyst Stock Ratings
      • Overweight (O or Over) - The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis over the next 12-18 months. Equal-weight (E or Equal) - The stock's total return is expected to be in line with the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis over the next 12-18 months. Underweight (U or Under) - The stock's total return is expected to be below the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. More volatile (V) - We estimate that this stock has more than a 25% chance of a price move (up or down) of more than 25% in a month, based on a quantitative assessment of historical data, or in the analyst's view, it is likely to become materially more volatile over the next 1-12 months compared with the past three years. Stocks with less than one year of trading history are automatically rated as more volatile (unless otherwise noted). We note that securities that we do not currently consider "more volatile" can still perform in that manner. Unless otherwise specified, the time frame for price targets included in this report is 12 to 18 months. Ratings prior to March 18, 2002: SB=Strong Buy; OP=Outperform; N=Neutral; UP=Underperform. For definitions, please go to www.morganstanley.com/companycharts.
      • Analyst Industry Views
      • Attractive (A). The analyst expects the performance of his or her industry coverage universe to be attractive vs. the relevant broad market benchmark over the next 12-18 months.
      • In-Line (I). The analyst expects the performance of his or her industry coverage universe to be in line with the relevant broad market benchmark over the next 12-18 months.
      • Cautious (C). The analyst views the performance of his or her industry coverage universe with caution vs. the relevent broad market benchmark over the next 12-18 months.
      • Other Important Disclosures
      • For a discussion, if applicable, of the valuation methods used to determine the price targets included in this summary and the risks related to achieving these targets, please refer to the latest relevant published research on these stocks. Research is available throught your sales representative or on Client Link at www.moganstanley.com and other electronic systems.
      • This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of person who receive it. The securities discussed in this report may be suitable for all investors. Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
      • This report is not an offer to buy or sell any security or to participate in any trading strategy. Morgan Stanley, Morgan Stanley DW Inc., affiliate companies and.or their employees may have investments in securities or derivatives of securities of companies mentioned in this report, and may trade them in ways different from this discussed in this report. Derivatives may be issued by Morgan Stanley or associated persons.
      • (Continued)
    • 4. Disclosures
      • Morgan Stanley is involved in many businesses that may relate to companies mentioned in this report. These businesses include specialized trading, risk arbitrage and other proprietary trading, fund management, investment services and investment banking.
      • Morgan Stanley makes every effort to use reliable, comprehensive information, but we make no representation that it is accurate or complete. We have no obligation to tell you when opinions or information in this report change apart from when we intend to discontinue research coverage of subject company.
      • Reports prepared by Morgan Stanley research personnel are based on public information. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, professionals in other Morgan Stanley business areas, including investment banking personnel.
      • The value of and income from your investments may vary because of changes in interest rates or foreign exchange rates, securities prices or market indexes, operational or financial conditions of companies or other factors. There may be time limitations on the exercise of options or other rights in your securities transactions. Past performance is not necessarily a guide to future performance. Estimates of future performance are based on assumptions that may not be realized.
      • This publication is disseminated in Japan by Morgan Stanley Japan Limited and/or Morgan Stanley Nippon Securities Limited; in Singapore by organ Stanley Dean Witter Asia (Singapore) Pte., regulated by the Monetary Authority of Singapore; in Australia by Morgan Stanley Dean Witter Australia Limited A.B.N. 67 003 734 576, a licensed dealer, which accepts responsibility for its contents; in certain provinces of Canada by Morgan Stanley Canada Limited, which has approved of, and has agreed to take responsibility for, the contents of this publication in Canada; in Spain by Morgan Stanley, S.V.,S.A., a Morgan Stanley group company, which is supervised by the Spanish Securities Markets Commission (CNMV) and states that this document has been written and distributed in accordance with the rules of conduct applicable to financial research as established under Spanish regulations; in the United States by Morgan Stanley & Co. Incorporated and Morgan Stanley DW Inc., which accept responsibility for its contents; and in the United Kingdom, this publication is approved by Morgan Stanley & Co. International Limited, solely for the purposes of section 21 of the Financial Services and Markets Act 2000. Private U.K. investors should obtain the advice of their Morgan Stanley & Co. International Limited representative about the investment concerned.
      • The trademarks and service marks contained herein are the property of their respective owners. Third-party data providers make no warranties or representations of any kind relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages of any kind relating to such data. The Global Industry Classification Standard ("GICS") was developed by and is the exclusive property of MSCI and S&P.
      • This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Morgan Stanley.
      • Additional information on recommended securities is available on request.
    • 5. Overview
      • Auto Outlook: It’s not how many cars you sell, it’s how much money you make
      • Global Dilemma : Most participants spending for growth yet the industry does not grow.
      • Economic & Demographic factors suggest auto sales may bottom this year, but the recovery is likely to be modest.
      • Profit recovery is likely to lag for a variety of reasons:
        • Price pressure remains brutal
        • Market share pressures continue
        • Excess capacity is large & more is on the way
        • Mix covering for price declines, but is hard to sustain
        • Higher interest rates create risk of weaker demand, weaker mix and lower finance company earnings
    • 6. Global Light Vehicle Sales: Slow Growth CAGR 1.2% Source: LMC~J.D. Power & Morgan Stanley Research
    • 7. Excess Capacity at 25%-30% or 20mm units Source: Autofacts & Morgan Stanley Research
    • 8. Global Capital Expenditures to D&A Source: Company data & Morgan Stanley Research *Adjusted to fit scale Assets Being Put in Place Much Faster than They are Being Used Up
    • 9. Conclusion: Zero Sum Game
      • Slow growth and excess capacity suggest deflation/revenue pressures likely to continue.
      • Everybody can’t be a winner.
      • Winners will be low cost producers who deliver a good product that consumers are willing to pay for.
      Source: Morgan Stanley Research
    • 10. State of the NA Industry
      • Demand : Economic and demographic factors suggest auto sales are likely to bottom this year, but recovery is likely to be modest.
      • Pricing : Pricing environment unusually weak despite strong demand. Elasticity of demand is fading.
      • Used car pricing also weak.
      • Competition intensifying : Industry plagued with excess capacity, and more is on the way.
      Source: Morgan Stanley Research
    • 11. North American Sales Sales should bottom this year 16.2mm Units FY03E Source: Autodata & Morgan Stanley Research
    • 12. Economic Conditions Better than they were, but still not robust Source: CPI & Morgan Stanley Research
    • 13. Weighted Median Age of a Vehicle vs. Sales 1 Year Lead Correlation 77.6% Source: Polk & Morgan Stanley Research
    • 14. Off Lease Vehicles Begin to Decline Source: Manheim & Morgan Stanley Research Fewer Consumers Being Forced Back to the Dealerships
    • 15. Taking Longer to Establish Consumer Equity Source: FRB & Morgan Stanley Research
    • 16. Affordability Near 20 Year Best Number of Weeks of Income to Purchase a Vehicle Source: FRB & Morgan Stanley Research
    • 17. Revenue Pressures Worst Since 1970’s New Car CPI vs. Domestic Light Vehicle Sales Source: CPI & Morgan Stanley Research
    • 18. Y/Y Change in Monthly New Car CPI Source: CPI & Morgan Stanley Research
    • 19. Price Reductions Pressure Manufacturers
      • Every 1% Decline in Prices is Worth
        • $1.0bn at GM
        • $850mm at Ford
        • $550mm at DCX
      Source: Morgan Stanley Research
    • 20. Big Three Market Share Continues to Slide 76.0% 60.5% 61.7% Every 1% Point of Share is Worth Roughly $1bn in Profit Source: Autodata & Morgan Stanley Research
    • 21. Market Share Winners / Losers – 2003YTD Source: Autodata & Morgan Stanley Research
    • 22. Big Three Share of Sales by Segment: 2003YTD vs. 2002 FY Source: Autodata & Morgan Stanley Research
    • 23. NA Capacity Additions, Despite Flat Outlook 2005 2003 Ford Nissan Mitsubishi (170) 250 60 140 Ford Hyundai (292) 235 (57) GM Ford DCX Honda Nissan Toyota 125 100 80 180 200 240 925 Net Increase Of 1.2mm Units or Roughly 6.0% of NA sales 2006 Toyota 150 Source: Company data & Morgan Stanley Research 2004 = 100,000 units
    • 24. Excess Capacity & More Is On The Way Every 1% Pt. of Market Share Translates into $1.0bn in Profits 1.2mm Units of Added Capacity is 6.0% of NA Capacity, or $6bn in Pretax Profits NA Pretax Profit Big Three FY03E (in MM) $3,710 Source: Morgan Stanley Research Estimates
    • 25. The Big Three
      • Each Company Faces Unique Challenges:
      • GM has operational momentum, but faces pension and health care issues.
      • Ford share is under attack and Revitalization Plan is just getting out of the gate.
      • DCX continues to struggle.
      Source: Morgan Stanley Research
    • 26. General Motors
      • Significant operational momentum.
      • Balance sheet risks may be out of company’s control.
      • Strategy: GM appears to have a variable cost advantage versus Ford and DCX, which it is using to cut price and drive volume.
      • Strategy has enabled GM to gain share and has put severe pressure on Ford and DCX.
      • This strategy may benefit them in the near term, but poses longer term risks.
      Source: Morgan Stanley Research
    • 27. GM Car / Light Truck / Total Market Share Source: Autodata & Morgan Stanley Research
    • 28. Big Three NAO Profit per Unit FY02 vs. FY01 GM Ford DCX^ GM b/(w)* Ford GM b/(w)* DCX $401 ($143) ($849) $545 $1,250 $352 $775 $1,180 Source: Company data & Morgan Stanley Research *b/(w)=Better or Worse; ^Operating profit/unit incl pension/OPEB expense $753 $632 $331 $121 $422 2002 2001 Change
    • 29. Big Three NAO Profit per Unit FY02 vs. FY01 Excluding U.S. Pension & Healthcare Costs GM Ford DCX^ GM b/(w)* Ford GM b/(w)* DCX $1,158 $246 ($470) $913 $1,628 Adjusted 2001 $1,705 $1,091 $670 $614 $1,035 Adjusted 2002 Source: Company data & Morgan Stanley Research *b/(w)=Better or Worse; ^Operating profit/unit incl pension/OPEB expense
    • 30. U.S. Pension Fund & Healthcare Liabilities Source: Company data & Morgan Stanley Research (In MM) GM Ford DCX U.S. Pension $19,300 $7,300 € 4,250 Healthcare $51,500 $22,741 € 13,701 2002
    • 31. U.S. Pension & OPEB Expenses – 2003E Source: Company data & Morgan Stanley Research (In MM) GM Ford DCX U.S. Pension $2,812 $270 $ 517 OPEB $4,400 $2,500 $1,519 2003E
    • 32. U.S. Healthcare & Pension Cost/Unit FY03 Source: Company data & Morgan Stanley Research $1,134 $601 $1,159 $814 $889 $740 $1,899 $902 $1074 $185 $88
    • 33. Ford Motor Company: Riders On The Storm
      • Ford’s fall from grace is well documented.
        • Costs
        • Quality
        • Market share
        • Profitability
      • Revitalization Plan is starting to help, but is it enough?
      • Ford is spending a lot of money; Will they get bang for their buck?
      Source: Morgan Stanley Research
    • 34. Ford Car / Light Truck / Total Market Share Source: Autodata & Morgan Stanley Research
    • 35. DaimlerChrysler: Struggling to Its Feet
      • Chrysler profitability unstable.
      • Cost performance is fair but revenue performance is lagging.
      • DCX still very exposed to light truck segment. Focus on cars important.
      • New product is critical.
      Source: Morgan Stanley Research
    • 36. DCX Car & Lt. Truck Sales As A % of Parent $1,134 Cars Light Trucks Source: Autodata & Morgan Stanley Research
    • 37. DCX Car / Light Truck / Total Market Share Source: Autodata & Morgan Stanley Research
    • 38. Global Operating Margins FY02 Source: Company data & Morgan Stanley Research *Morgan Stanley Estimates Porsche Nissan BMW Honda Toyota Hyundai Peugeot Kia VW GM Renault DCX Ford Fiat 16.4% 10.6% 8.9% 8.4% 8.1% 6.1% 5.0% 4.7% 4.0% 2.0% 1.7% 3.1% 0.2% -6.2%
    • 39. Global Operating Margins FY02 Source: Company data & Morgan Stanley Research *Morgan Stanley Estimates Excluding Pension & OPEB Expense for the Big Three Porsche Nissan BMW Honda Toyota Hyundai GM Peugeot Kia VW DCX Renault Ford Fiat 16.4% 10.6% 8.9% 8.4% 8.1% 6.1% 5.7% 5.0% 4.7% 4.0% 3.8% 1.7% 1.8% -6.2%
    • 40. Implications
      • GM will continue to pursue its “grow our way out” strategy.
      • DCX improved cost structure is keeping it in the game. New product is critical to alleviating revenue pressure.
      • Foreign OEMs are likely to continue to add capacity in NA. Imports are likely to rise.
      • Ford remains the odd man out in a zero sum game. If the company does not execute, another crisis may be on the horizon. Q1 results may be a start.
      • On the bright side, the Big Three product is the best its ever been.
      Source: Morgan Stanley Research
    • 41. [email_address]

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