The document discusses upheaval in the auto industry. It provides background on the firm presenting, then discusses the root causes of problems for Detroit automakers, including consolidation that resulted in resistance to change. It outlines declining operating margins and depleted balance sheets for Detroit automakers over decades. The presentation notes the auto industry downturn is catalyzing massive restructuring across the entire value chain and consequences include widespread consolidation and government intervention.

1. Upheaval in the Auto Industry
Upheaval in the Auto Industry
AutoThink 2009, Birmingham
Casesa Shapiro Group
April 23, 2009 prepared for

2. Casesa Shapiro Group
Agenda
g
 About our firm
Ab t fi
 Upheaval in the auto industry
 The US market today
The US market today
 Changes ahead
April 23, 2009 2

3. Casesa Shapiro Group
Casesa Shapiro Group
Profile of Our Firm
 I d
Independent advisory firm specializing in the auto industry
d t d i fi i li i i th t i d t
 Combine strategic thinking and financial perspective
 Scope is global and comprehends entire value chain
 OEMs , suppliers, dealers, aftermarket, green technology and more
 Retained by major corporations, investors and governments
 Advise on strategy and transactions
 Assist clients in achieving specific business objectives
April 23, 2009 3

4. Casesa Shapiro Group
Upheaval in the Auto Industry
April 23, 2009 4

5. Casesa Shapiro Group
Root Causes: Success Spoiled Detroit
p
“When you get too big a majority, you’re immediately in trouble”
– Sam Rayburn
 Consolidation in 1930’s resulted in
Consolidation in 1930 s resulted in
concentration of power in GM and National Labor Relations
Ford Act (1935)
 Abusive practices against labor and
dealers resulted in protective
legislation, creating barriers to
change
State franchise laws (1937)
 Generations of financially driven
Generations of financially‐driven and Automobile Dealers
and Automobile Dealers’
management accepted creating Day in Court Act (1956)
calcified Detroit culture
Source: Casesa Shapiro Group
S C Sh i G
April 23, 2009 5

6. S
O
Operating Margin
-11%
10%
13%
16%
19%
-8%
-5%
-2%
1%
4%
7%
1961 12.8%
M d ’ C
April 23, 2009
1962 16.0%
1963 16.1%
1964 15
5.0%
R
1965 1
15.4%
1966 12.7%
1967 9.8%
t C
1968 12.5%
1969 10.5%
1970 4.8%
1971 10.2%
1972 10.8%
1973 9.8%
Sh i G
1974 4.0%
1975 4.7%
Detroit Three Operating Margin
1976 9.2%
1977 9.3%
1978 8.2%
1979 %
5.2%
1980 -3.4%
Big Three Operating Margin, 1961‐2008E
1981 0.4%
1982 2.6%
6
1983 8.5%
1984 9.8%
1985 7.5%
1986 4.9%
1987 8.6%
ti t f 2007 d 2008 Ch l
1988 9.2%
1989 7.9%
1990 1.7%
lt
1991 -3.2%
Source: Moody’s, Company Reports; Casesa Shapiro Group estimates for 2007 and 2008 Chrysler results 1992 1.8%
1993 3.9%
1994 9.0%
Results: Five Decades of Falling Margins
1995 7.6%
1996 2%
6.2
1997 6
6.9%
1998 6.22%
1999 7.6%
2000 5.6%
%
2001 0.2%
2002 2.9%
2003 3.7%
2004 4.2%
2005 -0.8%
2006 -2.0%
2007 -1.1%
2008 -8.5%
Casesa Shapiro Group

7. Casesa Shapiro Group
Results: Depleted Balance Sheets
Non‐Financial Debt per Unit Produced, 2008
$5,000
$5,000 $4,859
$4,000
$3,544
$4,000
$3,000
$3,000
$2,000
$2,000
$1,000
, $1,000
$119 $119
$- $-
Ford Honda GM Honda
Source: Casesa Shapiro Group, Company Reports
S C Sh i G C R t
April 23, 2009 7

8. Casesa Shapiro Group
Results: Underinvestment in Product
30%
25%
nt Rate, 1998‐2008
25%
21%
20%
18%
Volume Replacemen
15% 15%
15%
11%
Average Annual V
10%
5%
0%
Korean Japanese European Chrysler GM Ford
Source: Merrill Lynch
S M ill L h
April 23, 2009 8

9. Casesa Shapiro Group
Parallels: Other US Industries Have Been Transformed
1980’s 1990’s 2000’s
Textiles Steel Airlines
Legacy New
Business Resize Restructure Reinvest Business
Model Model
Source: Casesa Shapiro Group
S C Sh i G
April 23, 2009 9

10. Casesa Shapiro Group
Transformation Underway, but Much More to Do
y,
WE ARE HERE
WE ARE HERE
Legacy New
Business Resize Restructure Reinvest Business
Model Model
Reduce Capacity Recapitalize Balance Sheets Strengthen Product Pipeline
Reduce Employment
p y Secure Auto Financing Sources
g Fund R&D for New Technology
gy
Reduce Dealer Count Redefine Labor Relationship Integrate Global Operations
Divest Non‐Core Assets Rationalize Brand Portfolios Pursue Growth Markets
Source: Casesa Shapiro Group
S C Sh i G
April 23, 2009 10

11. Casesa Shapiro Group
Consequences of Upheaval
Downturn is Catalyst for Massive Change
 Crisis occurring on a global scale, although most acute in the US
g g , g
 Restructuring across all links in value chain almost a foregone conclusion given
excess capacity among OEMs, suppliers and dealers
 Consolidation will be both opportunistic (strong companies as acquirers) and
pp ( g p q )
unintentional (business failures)
 Emerging competitors are buyers of depreciated legacy assets; Chinese especially
ambitious
 Widespread government intervention around the world will impact nature and
speed of restructuring
 Regulatory push and consumer pull for sustainability will continue to drive
innovation in auto technology
 Electrification of the car an increasingly possible disruptive development
Source: Casesa Shapiro Group
S C Sh i G
April 23, 2009 11

12. Casesa Shapiro Group
The US Market Today
April 23, 2009 12

13. Casesa Shapiro Group
US LV Sales vs. Consumer Confidence
19 1.2
Consumer Confidence, LTM Trend
U.S. Light Vehicle Sales, LTM Trend
U.S. Light Vehicle Sales, LTM Trend
17 1.1
ales (mils)
nsumer Confidence
15
15 0.9
09
ht Vehicle Sa
13 0.8
March = .573
U.S. Ligh
Con
11 0.6
9 0.5
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
Source: U. of Michigan Survey Research
S U f Mi hi S R h
April 23, 2009 13

14. Casesa Shapiro Group
Demand Contraction Greatest in Postwar Era
US Light Vehicle Sales, 1950‐2020E
18,000,000
17,000,000
16,000,000
15,000,000
14,000,000
13,000,000
12,000,000
1986‐1991
11,000,000
‐23%
10,000,000 1973‐ Gulf War
1978
1978‐
9,000,000 1975 1982 2000‐2009E
‐23% ‐31% ‐42%
8,000,000
OPEC I OPEC II
7,000,000
6,000,000
5,000,000
4,000,000
50
52
54
56
58
60
62
64
66
68
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10E
12E
14E
16E
18E
20E
Source: Ward’s AutoInfobank, CS estimates.
S W d’ A t I f b k CS ti t
April 23, 2009 14

15. S
Auto Expenditures %
% of GDP
0%
1%
2%
3%
4%
5%
6%
1967‐IV
D t fC
1969‐II
April 23, 2009
4.5%
1970‐IV
p
B
1972‐II
1973‐IV
4.3% 4.1%
fE
1975‐II
3.3%
3 3%
1976‐IV
1978‐II
Government
4.7%
1979‐IV
i A l i
Source: Dept. of Commerce, Bureau of Economic Analysis
1981‐II
1982‐IV
3.1%
1984‐II
1985‐IV
15
Auto Expenditures % of GDP
1987‐II
Business
1988‐IV
Consumer
4.5%
1990‐II
1991‐IV
3.4%
1993‐II
1994‐IV
4.0%
1996‐II
e age
1997‐IV
1999‐II
4.0%
2000‐IV
%
Average = 4.1%
2002‐II
4.2%
2003‐IV
2005‐II
2006‐IV
2008‐II
2.0%
Casesa Shapiro Group

16. Casesa Shapiro Group
YOY % Change in Volume
g
10%
2%
0%
‐10% ‐7%
‐9%
‐12%
‐15%
20%
‐20% ‐18%
18%
‐19% ‐19% ‐19%
‐22%
‐25%
‐30% ‐28% ‐27%
‐29%
‐32% ‐31%
‐33%
35%
‐35% ‐36%
36%
‐40% ‐37%
‐50%
‐49%
Source: Ward’s AutoInfobank
S W d’ A t I f b k
April 23, 2009 16

17. Casesa Shapiro Group
US Market Share Trends
45%
GM Ford Chrysler Korean European Toyota Honda
40%
35%
30%
25%
20%
15%
10%
5%
0%
1985
5
1986
6
1987
7
1988
8
1989
9
1990
0
1991
1
1992
2
1993
3
1994
4
1995
5
1996
6
1997
7
1998
8
1999
9
2000
0
2001
1
2002
2
2003
3
2004
4
2005
5
2006
6
2007
7
2008
8
YTD 2009
Source: Ward’s AutoInfobank
S W d’ A t I f b k
April 23, 2009 17

18. Casesa Shapiro Group
US Market Share Trends
3.6%
6.2% 10.5%
18.7% GM
5.4%
Ford
40.9%
40 9% 16.3%
16 3% Chrysler
9.8%
Other Japanese
14.1% Korean
12.0% 8.2% European
Toyota
7.5% 11.2% Honda
22.1% 13.6%
1985 YTD 2009
YTD 2009
Source: Ward’s AutoInfobank
S W d’ A t I f b k
April 23, 2009 18

19. Casesa Shapiro Group
Segment Shifts in the US Light Vehicle Market
g g
100%
14.7% 16.6% 14.8% 13.6%
90% 18.4%
3.4% 6.4% 6.4%
80% 1.8%
4.7% 9.5%
10.3% 8.1%
8.8%
70% 10.4% 6.7% Pickup
9.1% 17.2% 21.7%
21 7% Van
60% 18.3%
18 3%
6.3% SUV
3.1%
50% 7.8% CUV
39.8% 8.7% 7.8%
40% 3.6% 3.5% 3.4% Luxury & Sports Cars
29.4%
29 4%
Large Car
30% 21.3% 20.2% Middle Car
23.5%
20% Small Car
25.1%
25 1% 22.4%
22 4%
10% 19.1% 18.7%
15.2%
0%
1980 1990 2000 2008 2009 YTD
Source: Ward’s AutoInfobank
S W d’ A t I f b k
April 23, 2009 19

20. Casesa Shapiro Group
Small Car Demand vs. Gasoline Prices
$3.30
$3 30 $3.50
22%
Small Car Share Annual Retail gas price per gallon $3.00
20% $2.84
$2.57 19.1% $2.50
18.7%
$2.27
18% $2.00
$1.94
$1.85
$1.48 $1.42 $1.56 $1.50
16% $1.14 15.8%
15.2% $1.34 15.3%
15.1%
14.7% $1.00
$1.03 14.2% 14.2%
14% 13.6%
13.0% $0.50
12.6%
%
12% $0.00
Source: Ward’s AutoInfobank, EIA
S W d’ A t I f b k EIA
April 23, 2009 20

21. Casesa Shapiro Group
Luxury % of Light Vehicle Market
y g
14%
12.2%
11.7%
11 7% 11.8%
11 8%
12%
10% 9.6%
8%
6%
4.8%
4%
2%
0%
1980 1990 2000 2008 2009 YTD
Source: Ward’s AutoInfobank
S W d’ A t I f b k
April 23, 2009 21

22. Casesa Shapiro Group
Luxury % of Light Vehicle Market vs. Dow Jones Industrials
16%
14,000
Luxury % of US LV Market
14%
DJIA 12,000
12% 10,000
8,000
10%
6,000
8%
4,000
6%
2,000
4% 0
1/1980
9/1981
7/1982
5/1983
3/1984
1/1985
9/1986
7/1987
5/1988
3/1989
1/1990
9/1991
7/1992
5/1993
3/1994
1/1995
9/1996
7/1997
5/1998
3/1999
1/2000
9/2001
7/2002
5/2003
3/2004
1/2005
9/2006
7/2007
5/2008
3/2009
11/1980
11/1985
11/1990
11/1995
11/2000
11/2005
Source: Ward’s AutoInfobank, Google Finance
S W d’ A t I f b k G l Fi
April 23, 2009 22

23. Casesa Shapiro Group
US Luxury Market by Brand
y y
100% 2.5% 1.0% 1.6% 1.8% 2.0%
8.6%
90% 12.6% 14.9% 15.9% 16.6%
80% 7.6% Porsche
15.4% 25.4% 14.0% 7.9%
Mercedes‐Benz
70% 0.7%
18.3% 17.4% Lincoln
7.0% 15.0%
60% 0.5% Lexus
2.1% 2.1% 2.4%
2.6% 2.0% 1.0% 1.1% Land Rover
50% 3.2% 8.0%
5.7% 8.5%
50.0% Jaguar
40% 28.3%
28 3% 11.4% 9.8% Infiniti
13.7%
13 7%
30% Cadillac
17.6% 17.6% BMW
13.7%
20% 7.0%
Audi
8.7% 2.3%
5.8%
5 8% 6.2%
6 2% 6.5%
6 5% Acura
A
10%
15.2%
10.0% 10.4% 10.2% 10.1%
0%
1980 1990 2000 2008 2009 YTD
Source: Ward’s AutoInfobank
S W d’ A t I f b k
April 23, 2009 23

24. Casesa Shapiro Group
Sales Volume Replacement Rates, 2009‐2012
p ,
Nissan
Ni 80%
Korean 74%
Honda 72%
Toyota 71%
GM 70%
European 70%
Industry 67%
Ford 66%
y
Chrysler 5 %
51%
0% 20% 40% 60% 80% 100%
Source: Merrill Lynch
S M ill L h
April 23, 2009 24

25. Casesa Shapiro Group
Dealership Economics
p
Unit Sales per Dealership
 Store size and profitability are highly Brand 2007 2002 % Change
Toyota Division 1,869 1,267 48%
correlated Honda Division 1,343 1,079 24%
 Health of distribution network integral to
Health of distribution network integral to Nissan Division
Nissan Division 880
880 609
609 44%
health of brand BMW 869 683 27%
Industry Average 758 785 ‐3%
 Declining sales per dealership (‘throughput’) Hyundai 605 636 ‐5%
forcing rapid store and brand consolidation Ford Division 570 762 ‐25%
Chevrolet 559 628 ‐11%
Saturn 553 637 ‐13%
Estimated Pretax ROE by Store Size Mazda 438 365 20%
35% VW Division 390 558 ‐30%
31.2% Dodge 378 420 ‐10%
30%
Subaru 312 307 2%
24.3%
25% GMC 219 244 ‐10%
20% 19.3% Suzuki 201 155 30%
Chrysler Division 193 167 16%
15%
Jeep 174 163 7%
10.6%
10% Cadillac 147 134 10%
Pontiac 130 184 ‐29%
5%
Lincoln 99 107 ‐7%
0% Mercury 88 129 ‐32%
Very Small Small Midsize Large
Buick 68 156 ‐56%
Source: NADA, Wards, Casesa Shapiro Group
S NADA W d C Sh i G Source: Automotive News
S A i
April 23, 2009 25

26. Casesa Shapiro Group
US Market Observations
 GM ward of the state and will shrink dramatically – in or out of bankruptcy
 Chrysler/Fiat combination has conceptual appeal but high execution risk
y / p pp g
 Brands at risk represent 14.7% of the US market (Buick, GMC, Pontiac, Hummer,
Saturn, Saab, Chrysler and Dodge), suggesting substantial conquest opportunity for
stronger OEMs
 Hyundai, Kia and Subaru achieving extraordinary performance in terrible market
 Hyundai (#7) close to passing Nissan, and should Chrysler fail, could move to #5
behind Honda
behind Honda
 Accelerating consolidation of franchise network will eventually make for a
healthier industry structure
 New entrants may sense opportunity for traditional distribution (Saturn?)
 Electric vehicles suggest possibility for new channels of distribution
April 23, 2009 26

27. Casesa Shapiro Group
Changes Ahead
April 23, 2009 27

28. Casesa Shapiro Group
20th Century Transformation
y
Technological Explosion
Cadillac offers first self starter in 1912
Cadillac offers first self starter in 1912
Ford assembly line begins at Highland Park in 1913
GM introduces fast drying Duco paint in 1924
Motorola invents car radio in 1924
Economic Expansion
US GDP
$120
$100
$80
Billions
$60
$40
$20
$0
1912 1914 1916 1918 1920 1922 1924 1926 1928
Source: Casesa Shapiro Group, Louis D. Johnston and Samuel H. Williamson, "What Was the U.S. GDP Then?“, 2008
S C Sh i G L i D J h t dS l H Willi "Wh t W th U S GDP Th ?“ 2008
April 23, 2009 28

29. Casesa Shapiro Group
21st Century Transformation
y
Technological Explosion
Electric car commercialized with GM’s EV1
Electric car commercialized with GM’s EV1
Hybrid vehicle popularized by Toyota’s Prius
Low‐cost Tata Nano creates new product category
Battery breakthrough makes electric car practical?
y g p
Economic Expansion
BRIC Vehicle Sales
35,000
30,000
25,000
?
('000 Units)
20,000
15,000
10,000
10 000
5,000
0
2007 2008 2009 2010 2011 2012 2013 2018 2023
Source: Casesa Shapiro Group, JD Power LMC 3Q 2008 Forecast
S C Sh i G JD P LMC 3Q 2008 F t
April 23, 2009 29

30. Casesa Shapiro Group
Development of the Auto Industry?
Today Tomorrow ?
Tier 3+ Tier 3+
10,000s 10,000s
Tier 2 Tier 2
Suppliers
pp 1,000s
1 000s 1,000s
1 000s
Tier 1 Tier 1
100s 100s
OEMs
Traditional OEM Traditional OEM New Manufacturers
Distribution 10,000?
20,000 Dealers 20,000 Dealers Big Box Online Channel
Technology
ICE Hybrid ICE Hybrid Plug‐in Electric
Energy
Infrastructure
116,855 Gas Stations 116,855? Gas Stations 1,000,000s Charging Stations
Source: Casesa Shapiro Group
S C Sh i G
April 23, 2009 30

31. Casesa Shapiro Group
Ten Long‐Term Expectations
g p
1. Detroit, its dealers and suppliers, undergo radical surgery
2. Emerging automakers buy more legacy assets
g g y g y
3. Consolidation is offset by new entrants
4. OEMs becomes less capital intensive as suppliers grow
5. Global tastes converge, but trend to build where you sell continues
6. Regulatory push and consumer pull for sustainability sustained
7. Profit potential drives new era of innovation in auto technology
8. Traditional reasons for purchase endure
9.
9 Electrification means less about the car, more about the system
El t ifi ti l b t th b t th t
10. Concept of personal mobility changes
Source: Casesa Shapiro Group
S C Sh i G
April 23, 2009 31

32. Casesa Shapiro Group
John A. Casesa
Prior to co-founding Casesa Shapiro Group in 2006, John Casesa was one of Wall Street’s leading
auto analysts, serving as Global Coordinator for Automotive Research and Managing Director at
Merrill Lynch & Co. He was responsible for coordinating the efforts of the firm’s auto analysts in
North America, Europe and Asia who produced research on OEMs, suppliers, tire manufacturers,
parts retailers and wholesales, vehicle auctions and franchised auto dealers. Mr. Casesa was
ranked as an All-Star analyst 11 times in Institutional Investor magazine’s influential annual survey.
Mr. Casesa joined Merrill Lynch in 1999. From 1989 to 1999, he built his reputation at the research-
driven investment bank, Wertheim Schroder & Co., where he was a Managing Director and member
of the Investment Committee. From 1986 to 1989, Mr. Casesa was a member of the Marketing and
Product Planning Staff at General Motors Corporation in Detroit.
Mr. Casesa is a past member of the Financial Accounting Standards Board’s (FASB) User Advisor
Council, the New York Stock Exchange’s (NYSE) Research Analyst Qualification Exam Committee,
, g ( ) y Q ,
and is a past president of the Automotive Analysts of New York (AANY).
He holds a B.S. from St. John’s University and an M.B.A. from the Amos Tuck School at Dartmouth
College.
April 23, 2009 32

33. CS
Casesa Shapiro Group
1230 Avenue of the Americas, New York, NY 10020
212.618.6373 Tel 212.618.6309 Fax www.casesashapiro.com