China’s Automotive Aftermarket: Making Sense of the Data

1. China’s Automotive Aftermarket: Making Sense of the Data China Aftermarket Forum Shanghai June 13, 2008 Technomic Asia China Office Room 502, Jin Tai Building 58 Mao Ming Road (South), Shanghai 200020, China Tel: +86-21-6473-2588 www.technomicasia.com Kent D. Kedl, General Manager kkedl@technomicasia.com

2. Today’s Agenda • Data in China… • Who are we? • China Parc update • Defining addressable market • Review of Growth options • Expand vehicle coverage • Widen geographic distribution • Deepen product price tier coverage

3. About Data in China 道 可 道 非 常 道 • “Accurate China Data” is impossible – China is too big, too complex and too fragmented to fit neatly into categories • Data is only useful insofar is it enables you to make critical decisions • “Opportunistic strategies” are still too often the norm here • Data makes sense within the story of the market as told from the perspective of your products as the leading actor • “The number of cars on the road in China” is not useful!! • “The number of vehicles of a certain type, a specific age owned by a particular person” might be useful

4. Who we are and what we do… Technomic Asia assists US & European firms to understand their China / Asia opportunities, put their strategy together and then execute it: • Growth Strategy • Market assessment • Growth strategy • Competitive analysis & benchmarking • Distribution & value chain assessment • M&A (target search, due diligence, negotiations) • Global Supply Chain • Supply chain optimization • Strategic sourcing • Supplier Improvement Program • Warehousing/DC planning Expansion Exploration “Asia Growth Cycle” Full-Scale Operation Opportunity Assessment Strategy Development Start-Up

5. Regional focus… Since 1978 — and from multiple locations in Asia — Technomic Asia has supported hundreds of multinational companies, including:

6. Overall Vehicle Parc China’s overall on the road, 4 wheel vehicle parc totaled an estimated 43 million in 2007… China’s 4 Wheel Parc – Estimated 2007 (mln vehicles) Note: sedans include SUV/MPV; LCV comprise lite/mini truck and lite and mini bus; HCV comprise medium/large trucks and buses. Source: CBU Autostats; Technomic interviews and analysis

7. Chery QQ Honda Fit Santana 2000 = Small = Mid-sized = High End = Luxury BMW Sedan Parc Sedan Parc exceeds 24 million… Source: CBU Autostats; Technomic interviews and analysis

8. Parc by Age Based on continued rapid new vehicle sales, China’s parc continues to be relatively young with over half the parc 3 years old or less. 2007 China Sedan Parc by Age Total Market Units = 24.5 million 2007 China Small Bus Parc by Age Total Market Units = 7.9 million Source: Technomic interviews and analysis

9. Parc (Sedan) Forecast Mid sized sedans will show the greatest growth over the period, growing at 26% per annum to over 37 million vehicles, and will remain the largest segment. Forecast of China’s Sedan Parc by Vehicle Type (units ‘000 - rounded) Units Source: Technomic interviews and analysis

10. Defining Your Addressable Market It is critical to consider multiple variables when determining addressable market… this is the setting of your “story”. • Vehicle type • Vehicle group (European, local, etc.) • Parts per vehicle • Incidence • Replacement frequency • Price point/supplier group • Age • Current and forecast With good data, effective market targeting can be done.

11. Defining Your Addressable Market For example, in the AM, you can refine your addressable market by… …first determining replacement activity… …then incidence.

12. Defining Your Addressable Market Understanding parts pricing tiers is critical… Higher quality and price • Active in OEM market • Dominate foreign and more expensive cars • Recognized domestic brands • Mid-high price • Some OEM business • Pressing Int’l brands for share • Varying quality and price • IAM focused • Largely serves local vehicles • Fragmented base • Very low price/quality • Imitate both int’l and local brands Int’l Brands High End Local Brands Low End Local Brands Imitation/Fake 12

13. = Strong Involvement = Limited presence Defining Your Addressable Market Representative market shares…

14. Defining Your Addressable Market Typical Brand Shares by vehicle segment…(Value basis)

15. Defining Your Addressable Market Using rough benchmarks, an illustrative Part A opportunity by vehicle maker group can be estimated… *Based on adjusted average Part A price

16. Growth Potential – Vehicle Coverage The market’s share of global vehicle suppliers is shifting… Easy Penetrability Hard Significant Niche Basis Size of Car Parc

17. Growth Potential – Vehicle Coverage • US Car • GM as the major player today • Ford growing • Chrysler? • Domestic China Car • Consolidation occurring • Increasing desire for sophisticated performance • But price sensitivity • Korean Car • Price competitive • Smaller scale operations • Japanese • Strong protection of home country suppliers • Rapidly growing manufacturing presence • European Car • A priority market for all suppliers • Branded locals very active • Increasing price pressure Segment size is illustrative

18. Distribution Models China’s aftermarket distribution remains highly fragmented and unorganized, enabling value to be created through streamlining and consolidation… Garages Local Manufacturers Retailers 1st Tier Distributors Importers/ Agents Foreign Manufacturers 2nd Tier Distributors/ Intermediaries Consumers Auto. OEMs 4S/3S Shops- Conventional Flow of Goods Alternative Flow of Goods

19. Distribution Models Explore all of your distribution options (don’t just stick with the model that brought you here or the one you use in your home markets).

20. Price/Brand Positioning Aftermarket segmentation by Brand suggests a large market among high end locals which could represent a diversification opportunity. Estimated Share of Part A Aftermarket by Brand By Value… By Volume… 20

21. Price/Brand Positioning The high end local brand share can often represent about over 30% of market value and is likely to grow in position in the near future… • Difficult for foreign supplier to penetrate as a foreign brand • Participating in this segment suggests many challenges for to consider… • Dual or hybrid brand approach? • Cannibalization issues • Dilution in current margin level • Product source • Offensive versus defensive rationale • Organic versus acquisition (more likely) entry • This strategy clearly is a long-term move which requires detailed consideration. • Initial comments on potential acquisition targets follow….

22. Questions & Comments Issues addressed today… • China Parc update • Defining addressable market • Review of Growth options • Expand vehicle coverage • Widen geographic distribution • Deepen product price tier coverage For more information, please contact: Kent Kedl, General Manager kkedl@technomicasia.com or +86-136-0191-3061