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United States

Automotive

Customized Market Reportsm

Due Diligence Report

1999 Market Report

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Report Contents

[CMRauto#001]

Section A – U.S. Automotive – General

I. INDUSTRY ENVIRONMENT 4

II. INDUSTRY ISSUES 5

III. INDUSTRY TRENDS 6

IV. INTERNATIONAL ENVIRONMENT 8

V. ENVIRONMENTAL ISSUES 8

VI. INDUSTRY CHARACTERISTICS 10

VII. FEATURED COMPANIES & CHARTS 10

- Delphi Automotive 11

- Daimler-Chrysler 12

- Ford Motor Company 13

- General Motors Corporation 14

Report Contents

[CMRauto#001]

Section B – U.S. Automotive – Parts & Suppliers

VIII. INDUSTRY ENVIRONMENT 15

IX. INDUSTRY TRENDS 16

X. INDUSTRY ISSUES 17

XI. INTERNATIONAL OUTLOOK 17

XII. INDUSTRY CHARACTERISTICS 18

XIV. FEATURED COMPANY & PRODUCTS 19

- Profile 20

- Introduction 21

- Organization 21

- Major Customers 23

- Sector Overview 24

- products 24

- suppliers 28

- supplier manuals 29

- regulations & standards 29

- new development (technology) 29

- other 30

Attachment A – featured product(s) 31

Section A – U.S. Automotive – General

INDUSTRY ENVIRONMENT

U.S. Automobile Sales Steaming Up.

The U.S. automobile industry set an all time record by recording sales of 16.9 automobile units in 1999. This figure beat the previous record of 16.0 million in 1986. The rise was almost exclusively due to a robust U.S. economy, higher personal income growth, and enhanced consumer confidence. Top line revenue growth should continue due to these same factors. U.S. automobile manufacturers have continued to emphasize profitability over market share. Indeed, this objective is met by focusing on more profitable product lines such as sport utility vehicle (SUV) segments.

The major automobile manufactures have excess cash as a result of the positive macroeconomic environment. We expect some companies will use cash for research and development purposes to develop more fuel-efficient cars, alternative fuel vehicles, and hybrid-powered vehicles to meet strict new federal government regulations.
Auto Industry Consolidation Continues.

Typical of most mature industries, the automobile industry will continue to consolidate operations among the largest manufacturers as we approach the turn of the century. The latest acquisition occurred in February 1999 when Ford Motor Company purchased Volvo’s passenger car division for approximately $6 billion dollars. This is the latest merger but it clearly is not the end. Recent speculation has suggested that Daimler-Chrysler could have acquired Nissan Motor Company as early as March of 1999.

These acquisitions offer additional opportunities but also problems for the acquiring companies. First, with a shrinking world auto market, the acquiring company has additional production capacity from the acquired company. The acquiring company may need to dispose of many of those fixed assets. Finally, it’s often difficult to integrate an additional automobile line into an established company. This can be costly since there often are duplications in marketing, sales, and production.

The U.S. automobile market is the world’s largest consumer market for passenger vehicles. In 1999, U.S. domestic vehicle sales totaled 16.9 million units that encompassed 8.3 million passenger cars, 6.9 trucks, and 370,000 medium to heavy trucks. However, they still dominate the market for light truck sales that includes SUVs. U.S. transplants (Foreign automakers with U.S. assembly operations) are taking a much bigger share of the domestic U.S. auto market.

The big three automakers will face heavy competitive pressure as a result of unfavorable currency translations in world markets. The greatest uncertainty is the impact of the new Euro currency. This is not expected to have much impact over the next 18 months. However, there is considerable uncertainty regarding currency swings and translations. Another issue that U.S. automakers will face is the uncertainty in the South American economies, particularly Brazil. The region has slowed down tremendously and additional sales growth may be extremely difficult.

Japanese currency strengthened to an all-time record of 80 yen to the dollar in mid-1995. U.S. automakers benefited because Japanese imports became more expensive because of currency translations. As of January 2000, the yen continued to be strong which will put more pressure on Japanese exporters. We estimate that both Toyota and Honda cannot generate sufficient earnings at 105 to 110 to the dollar to maintain their market share in the United States. However, domestic automakers are not expected to raise prices as a result because of additional competition from European automakers.

All three domestic U.S. automakers are well positioned to weather a downturn in the U.S. economy. Ford Motor Company has approximately $21 billion dollars in cash and General Motors has approximately $13 billion dollars. However, with such high balances, both may seek to acquire smaller automakers around the world to solidify their competitive position.

INDUSTRY ISSUES

The U.S. market for new passenger cars and light trucks is essentially saturated. There’s little prospect that annual growth on a long-term basis will be more than 1 or 2 percent. By the year 2002, automakers will have a capacity to produce 80 million vehicles with demand of only 60 million units. This figure suggests significant industry consolidation in the next few years. Competition in the United States among foreign and U.S. manufacturers is growing even more intense. In fact, the entire world is increasingly faced with the problem of overcapacity. All manufacturers are fighting for a much smaller share of the global automobile business. Auto companies are turning to developing companies for additional growth. These countries include China. Malaysia, Indonesia, and India as large markets, but incomes are low which will pre-empt sales penetration in the short run.

In 1997, U.S. purchasers could choose from among 31 major domestic and foreign manufacturers offering 337 separate car and 143 separate light truck models, almost all of them superior in most respects to previous models.

All competitive, high-volume vehicle and parts manufacturers worldwide have become significant players in the U.S. market, and more are coming. BMW and Mercedes-Benz announced in 1993 that they would operate vehicle assembly plants in the United States in 1995 and 1997.

U.S.-owned firms have not been the only casualties of the U.S. market wars. Faced with fierce competition from Japanese vehicle producers, Sterling, a unit of the British Rover Group, and the French firm, Peugeot, withdrew completely from the United States in 1991. Yugo, which supplied the “entry level” small car market, ceased operations in 1992. Daihatsu, a small Japanese producer of entry-level cars and sport-utility vehicles, also left.

The automobile industry faces tougher emissions standards by the EPA. Light duty and SUV’s must adhere to requirements as passenger cars. These new regulations may reduce automaker profits especially for GM and Ford since they generate substantial profits from these product segments. However, these new regulations will not take effect until the year 2004 and 2009 to meet the requirement.

Big Three Divest Non Core Assets.

In recent years, the Big Three U.S. automakers have been pruning their non-core business units to raise cash, boost stock valuations, and focus on their core business.

Ford Motor Company sold their First Nationwide Financial unit in 1994 and their USL Capital division in 1996. Ford also spun off 19 % of Hertz rent a car. General Motors sold EDS (Electronic Data Systems) for $500 million in June 1996. In December 1997, GM spun off Hughes Electronics unit and subsequently sold to Raytheon for about $9.8 billion. GM also transferred Hughes Automotive Electronics subsidiary, called Delco Electronics, to Delphi Automotive Systems. Chrysler Motors sold Electrospace in June 1996 for $475 million.

Consumer Installment Debt.

Consumer installment debt is extremely high despite the good overall economy. Consumer income levels will not support additional vehicle sales because of the high cost of new vehicles and low to moderate consumer income increases from year-to-year. Low interest rates have no effect at this stage because there are other factors that pre-empt further growth in vehicle sales.

INDUSTRY TRENDS

Internet Changes Consumer Buying Behavior.

The Internet as much as any other industry may impact the automobile business. Consumers are increasingly using information from the Internet to determine such things as features, specifications, styles, and designs of different makes and models. This behavior is further complemented by specific web sites such as Autoweb and Microsoft CarPoint that offer consumers detailed information on specific models. However, the industry may one day be able to circumvent the middleman and deal directly with the purchaser. Consumers may be able to order a car over the Internet with various features and specification. The request could then be sent directly to the factory where it could manufacture and thus, reduce the automakers inventory carrying costs.

Industry Consolidation

The global automobile industry has become very saturated. With industry overcapacity, many automobile manufacturers will either merge with other auto companies, become acquired, or go out of business. This fact came to light last spring when Daimler-Benz acquired Chrysler Motor Company for $56 billion. The acquisition gives Daimler-Benz (now Daimler-Chrysler) access to a broader worldwide distribution network. Both companies are weak in Pacific Rim countries but the merger should mean enhanced market penetration into this region. In addition, the acquisition reduces fixed costs and allows the combined entity to expand much faster rather than from internal development.

In January 1999, Volvo agreed to sell its passenger automobile business to Ford Motor Company. The deal gives Ford Motor Company increased penetration into the European market. In addition, it adds another luxury brand to its portfolio of car models.

More and more automakers from around the world will need to address global overcapacity within the automobile industry and make strategic partnerships or mergers with other industry players.

Truck /SUV Segment is Growing.

More and more consumers have a preference for trucks and SUV’s (Sport utility vehicles). This has contributed to market share gains by the Big Three automakers. In fact, U.S. automakers virtually created this market several years ago. This segment encompasses light trucks (i.e. sport/utility vehicles and minivans). It has outpaced traditional passenger vehicles that should continue to decline as a percentage of total vehicle sales. However, the success of the light truck segment has spurred foreign manufacturers to develop similar vehicles to compete with U.S. manufacturers.

Transplants impacted by Currency Swings.

Negative currency fluctuations encourage foreign automakers to manufacture automobiles in the United States. Long term appreciation of the yen will encourage even more Japanese automakers to develop cars on U.S. soil to maintain competitive prices without losing market share. Eventually, all Japanese automobiles that are sold in the U.S. will be made in North America as well. European automakers have begun manufacturing operations in the U.S. also. BMW assembles automobiles in South Carolina and Mercedes-Benz (now Daimler-Chrysler) assembles products in Alabama.

Increased Emphasis on Leasing Vehicles.

With the expense of new vehicles, many consumers have opted to lease vehicles rather than purchase new vehicles. The average new vehicle is $22,500 and consumer incomes have not kept pace with vehicle price increases. Therefore, leasing vehicles gives consumers access to vehicles without the added expense of finance charges and depreciation. However, in the long run, leasing is more expensive than buying.

Automobile Dealerships are Joining National Chains.

Many new automobile dealerships are being acquired and or joining national automobile chains. These chains offer substantially lower prices to consumers because of their greater buying economies. Many of these chains do not even carry any inventory because the cars are kept in a centralized location for the dealer to order from. One chain, AutoNation offers consumers the ability to buy a completely refurbished used automobile at a substantially lower prices than an independent used car dealership could or would offer to a consumer.

Many consumers are also seeking the assistance of the Internet for automobile information on different makes and models. This is a growing trend for sales leads to connect the consumers’ needs with the manufacture during the entire search -shop-finance -purchase process for car buyers. This could also be a threat to some automobile dealerships since consumers could request certain trim line features directly to the factory floor.

Consumer Trends.

Consumers have kept their current cars an estimated 8.5 years, which is the highest in 40 years. One possible reason for the length of time between new car purchases is the cost and expense of new cars. The average expenditure for a new car in 1997 was $20,384– an increase of 21 % since 1991. The average expenditure for new car purchases by consumers was $22,243– an increase of 16.3% since 1993. This may be one reason that more consumers take the option to lease their cars rather than buy a new car even though, in the long run, leasing is a more expensive option. Another reason for leasing may be that consumer disposable income increase does not fully offset the increase in new car prices. More government regulation that forces manufacturers to invest in research and development to meet emissions standards may also play a role.

INTERNATIONAL ENVIRONMENT

As has been the case for many years, most of the auto deficit is the result of trade with Canada and Mexico, where GM, Ford, and Chrysler operate plants producing vehicles for the U.S. market, and with Japan. The United States had an estimated trade deficit in motor vehicles of $43 billion in 1993, 12 percent higher than in 1992.

ENVIRONMENTAL ISSUES

While a market niche is emerging on its own in the United States for environmentally friendly, “green” vehicles, much of the auto industry’s current interest in environmental research has been stimulated by the stringent new clean air standards that California introduced in 1990. The regulations require that, beginning with the 1998 model year (generally the fall of 1997), 2 percent of all new vehicles sold there must emit no harmful particulates. By 2001, 5 percent must be zero emission vehicles (ZEVs) and by 2003, 10 percent. Other states are free to adopt California’s stringent air pollution regulations, which are more restrictive than those of the U.S. Environmental Protection Agency (EPA).

The only feasible way to meet California’s requirements is apparently with electric vehicles. This has led the Big Three and the U.S. Department of Energy (DOE) to form the U.S. Advanced Battery Consortium to develop new battery storage technology. The private sector and DOE each contributed $130 million to fund the consortium’s efforts. The industry is beginning to fear, however, that the first vehicles brought to market could be much too expensive for volume sales, costing from $6,000 to $10,000 more than comparable gasoline engine vehicles. Operating costs will be comparable, but the need to replace the battery storage system at the end of 3 to 4 years could add another $5,000 or more to the cost. Federal regulations now require that each manufacturer’s fleet of new passenger cars sold in the United States average 27.5 miles per gallon (mpg). Light truck fleets must average 20.4 mpg. Manufacturers of noncomplying fleets are subject to penalties, while individual models are assessed “gas guzzler” taxes of as much as $7,700 per vehicle. According to EPA data reported by the National Highway Traffic Safety Administration, domestic passenger cars averaged 27.7 mpg in 1993, and imported cars averaged 29.3 mpg. Domestic light trucks produced 20.4 mpg, while imported light trucks averaged 22.8 mpg. The automakers’ quest for environmentally friendly vehicles with improved fuel economy and lower pollutants has led to the development of production materials that are significantly lighter and recyclable. Automotive products now account for a substantial share of the consumption of basic materials: steel (20 percent of total U.S. consumption), lead and cast iron (50 percent), and zinc (33 percent). More efficient and more environmentally friendly use of these materials will generate major savings for the auto industry, and improve the efficiency of the whole economy.

Lower Cost Materials

Automakers also are pursuing development of aluminum vehicles. According to the Aluminum Association, a mid-size sedan using 1,000 pounds of aluminum would be 25 percent lighter and 20 percent more fuel efficient than an all-steel car. It could save 770 gallons of gas over 100,000 miles of service and emit 6.5 fewer tons of carbon dioxide. The aluminum content of vehicles has increased since the early 1970’s, when an average car contained 78 pounds of aluminum, to 191 pounds today. Ford leads the way in aluminum uses; on average, each of its cars contains 219 pounds. The demand for aluminum-based transportation equipment is expected to grow 7 percent annually through 1997, according to one industry study. Engineers maintain that aluminum can be just as safe as steel, with much less weight. Questions remain about repair, formability, assembly, corrosion, and metal fatigue. Cost is another problem; while aluminum sheet costs $1.50 per pound, steel sheet is 30 cents. However, the lower lifetime costs of using aluminum, in terms of less gasoline consumption and pollution emissions and recyclables, make it increasingly competitive. The majority of the 1.8 billion pounds of

aluminum used each year by the North American automotive industry is employed to make engines. Most auto engines introduced in the last few years have an aluminum block.

INDUSTRY CHARACTERISTICS

The automobile industry is one of the most important industries in the U.S. economy. In fact, one out of every seven jobs is related directly or indirectly to the automobile industry. The industry is composed of several large manufacturers where scale and efficiency are extremely important to keep costs down and enhance profit margins.

Wholesale factory sales are recorded when automakers ship vehicles to dealerships. The most important characteristics consist of financing, leasing, and gross margin relationships.

Financing is an important sales tool. Automobile manufacturers receive revenue from dealer inventories and retail customer sales. The automobile cost is largely subsidized by rebates and below market interest rates. This encourages dealers to keep larger inventories of new automobiles. Auto companies also build profit margins by selling customers extended service contracts to customers.

Leasing is another tool that automobile companies have used in recent years. In fact, 25% of all vehicle sales are through leasing contracts. Typically, automobiles not purchased at the leases’ end are sold at auction to used car dealers.

Gross margins fluctuate dramatically with production volume. Many costs related to vehicle production are fixed. Auto companies must sustain high production levels to break even. The automobile industry is extremely capital intensive, which entails large investments in equipment and facilities. The larger the production level, the more fixed costs are spread over more units. New model changes occur once per year in September and October. This can cause severe disruptions in production, sales, and inventory. Automobile manufacturers sometimes offer reduced financing costs to sell old models to make room for new model. New model changes usually take 2 to 4 weeks.

Featured Companies

Delphi Automotive Systems

Daimler-Chrysler

Ford Motors Corporation

General Motors Corporation

Section B – U.S. Automotive – Parts & Suppliers

INDUSTRY ENVIRONMENT

Automakers Shedding Parts Subsidiaries.

Domestic automakers have begun shedding their parts manufacturing assets in an attempt to lower costs and focus on principal activities such as design, assembly , and marketing. These activities add value to their product offerings and would tend to distinguish one maker from another. General Motors’ recent spin-off of Delphi Auto Systems will create a significant new competitor for original equipment manufacturers of automobile parts. This will not be good news for current players but the industry is consolidating. Delphi will supply not only General Motors but also all global automobile makers with parts.

Emerging Markets and Consolidation Pose Opportunities and Havoc for Industry.

Emerging markets should provide new business opportunities for auto parts manufacturers. However, survival for many companies will mean making new investments, expanding product lines, and moving into new markets. To win new supply contracts , auto parts companies will need to keep their costs low.

OEM suppliers benefited from increased U.S. vehicle production, and suppliers to the automotive aftermarket had higher sales as scheduled and discretionary maintenance increased. The U.S. automotive parts industry employment is expected to decline as automobile companies use fewer suppliers, which consolidates the industry into fewer but larger competitors.

Original Equipment Suppliers

Automakers have enacted new procurement and product development strategies in recent years to trim costs and improve quality. Suppliers benefit from increased orders from the big three automakers and also from enhanced productivity. This gain-sharing approach has worked particularly well for Ford Motor Company and Chrysler. However, General Motors has been slow to implement these programs because of their greater reliance on vertical integration. The labor strike by GM workers in the summer of 1998 was largely the purpose of shifting some production off shore for labor-intensive production activities.

This restructuring was sparked by U.S. automakers’ demands for significant cost reductions, as well as their shift to strategic sourcing from “gray box” suppliers that provide engineering, design, prototype, testing, and manufacturing of components as a single source. As automakers worked to lower their production costs, the supply base has absorbed much more of the engineering and systems development work for parts and components. It has been a painful transition for many suppliers, but in general the industry has benefited. GM, the U.S. parts industry’s single biggest customer, recently implemented a radical restructuring plan aimed at totally revamping its supply base, including its in-house parts operations–GM Automotive Components Group (GMACG). GM is demanding significant cost reductions from all its suppliers and is striving for a leaner organization. GM’s restructuring efforts have proven successful so far. The automaker’s components suppliers now deal with one purchasing organization in the United States, rather than with 27 as previously. In addition, GM has obtained significant cost reductions from its suppliers:

The Big Three have recently stepped up efforts to divest themselves of their non-core or unprofitable parts operations. Independent OE suppliers, challenged to meet automakers’ demands, have focused their operations by closing or selling plants or acquiring businesses that complement existing product lines. Automakers are paring down the number of suppliers they contract with to focus on further cost reduction. Remaining suppliers are authorized to make decisions regarding subassemblies and other parts systems they’ve been contracted to manufacture. Ford Motor Company plans to reduce its North American supplier base to about 1,000 in the year 2000. The automaker also is asking its part producers to cut costs by 1 percent annually until 1997.

Automobile parts makers will get a significant boost in sales from the federally mandated air bag legislation. This law , beginning with 1998 cars, requires cars to be equipped with dual airbags. Air bag manufacturers such as TRW are also developing the next generation of traffic safety equipment and devices. They are developing side airbags that protect occupants in side impact collisions.

Aftermarket Suppliers

The U.S. automotive parts aftermarket comprises some 2,000 firms that supply exclusively for the replacement parts market, in addition to OE parts producers that also supply the aftermarket. Aftermarket parts producers, like OE suppliers, have been undergoing a dramatic restructuring as firms regrouped to reduce cost and debt and enhance their competitive positions in the international aftermarket. Competition in the aftermarket has increased in recent years. OE suppliers, squeezed by automakers’ restructuring plans, have begun vying for a share of the lucrative replacement parts market, which they view as a big growth opportunity. Competition from Japanese suppliers in both the United States and Japan also has posed a significant challenge for U.S. aftermarket parts producers. Many U.S. replacement parts manufacturers have found it difficult to supply the increasing number of Japanese imports in the fleet, as the OE suppliers traditionally manufacture replacement parts for Japanese imports. In addition, Japanese suppliers have recognized the after market’s growth and large profit margins, and have made an effort to maintain and enhance their share of the market.

INDUSTRY TRENDS

The U.S. vehicle population is aging as the average car on the road is approximately 8.5 years old. This has been the highest in 25 years. These industry factors should boost the sales of aftermarket parts and supplies for these aging automobiles. Further, there are nearly 101 million passenger vehicles between three and seven years of age when most cars require repairs and maintenance. One potential reason for the aging automobiles on the road is the higher reliability of automobiles from prior years. Further, the quality of original equipment and replacement parts have increased as well. This is particularly evident of U.S. automobile manufacturers who’ve substantially improved quality and reliability.

High Tech Parts.

Auto parts manufacturers are developing a wide variety of electronic components for new automobiles. Many of these parts improve fuel economy, reduce emissions, and improve driver safety and comfort. Many also facilitate the repair and diagnosis of automobiles.

Today, many computerized engine components control fuel economy, reduce emissions, and use anti-lock brake electronic sensors. Many newer automobiles also have memory systems that allow remote keyless entry. In the future , manufacturers will be developing collision avoidance radar systems that sense impending traffic collisions and automatically stop the vehicle. These systems would probably reduce consumers’ insurance rates tremendously.

These high tech parts and systems would probably be standard equipment on luxury cars and optional equipment on standard automobiles until manufacturers realize economies of scale in the production of such components.

INDUSTRY ISSUES

The state of California has one of the strictest emissions standards in the United States. Many analysts predict this may be a potential boon to auto parts makers since vehicle owners will require more maintenance. However, we do not feel this will have a material affect on the level of demand for new aftermarket parts. Aftermarket parts demand should benefit from the Clean Air Act Amendments of 1990. The legislation requires that emission control parts (except catalytic converters and electronic diagnostic gear ) come with a two-year warranty instead of five years as previously required. This legislation should increase the amount of turnover for these types of automobile parts from car owners.

INTERNATIONAL OUTLOOK

German automakers with plants in the United States will continue to outsource many vehicle parts from U.S. auto parts makers. Japanese manufacturers will be buying many value-added autoparts from manufacturers to reduce the high transportation costs from Japan. However, in recent years, many Japanese parts manufacturers have set up shop in the United States to supply Japanese companies. The North American Free Trade Agreement (NAFTA) has afforded U.S. OEM and aftermarket suppliers the chance to expand their trade opportunities in North America. When implemented, NAFTA will provide U.S. suppliers improved access to the growing Mexican market, as well as the opportunity to structure their overall North American manufacturing operations to maximize quality and international cost competitiveness. The agreement calls for a 10-year dismantling of Mexican parts tariffs of 15 to 20 percent; three-fifths will be eliminated within 5 years. NAFTA also requires increasing levels of North American content in parts and would be fixed at 62.5 percent for engines and transmissions of passenger cars and light trucks, and 60 percent for specific parts subject to a value content requirement, at the end of the 8-year phase-in period for rules of origin. Under the agreement, the Mexican value-added content requirement would be cut when the pact is implemented, and then would be gradually eliminated. In addition, NAFTA ensures that North American firms will be able to invest freely in new Mexican plants and to take over joint ventures. Successful completion and implementation of the Uruguay Round of multilateral trade negotiations under the General Agreement on Tariffs and Trade (GATT) would afford U.S. automotive parts suppliers increased market access to about 100 countries that are GATT signatories. The expected accessions of China and Taiwan to the GATT also should help U.S. parts producers gain a stronger foothold in these markets, which are now dominated by the Japanese.

INDUSTRY CHARACTERISTICS

The U.S. automotive parts and accessories industry comprises manufacturers of automotive stampings ; carburetors, pistons, piston rings, and valves ; vehicular lighting equipment ; storage batteries ; engine electrical equipment ; and motor vehicle parts and accessories. The industry has two primary sectors: original equipment (OE) suppliers, which produce parts for automakers; and aftermarket parts manufacturers, which produce replacement parts for vehicles.

The automotive parts industry plays an important role in the U.S. economy. For every $1 directly spent on automotive parts, $2.50 in additional expenditures and income are generated throughout the economy. In 1997, automobile parts makers benefited from increase vehicle demand, which increased demand for original equipment parts. U.S. parts makers are also benefiting from a shift of Japanese branded cars produced in North America, which increases orders of U.S. made parts. In the past, U.S. parts makers had a difficult time securing OEM contracts with Japanese transplants because of quality problems and exchange rate fluctuations.

The market for auto replacement parts generally flourishes during periods of extreme weather because excessive heat and cold put added stress on vehicles. In turn, auto service shops perform an increasing amount of auto servicing during these periods which also demand more replacement parts to service vehicles.

The auto parts industry encompasses four major business segments: original equipment manufacturers, replacement parts. distribution, and rubber fabrication.

The original equipment-manufacturing segment includes companies such as Johnson Controls, TRW, Dana, and Tenneco.

The replacement market consists of industry players such as Echlin, Federal-Mogul, Arvin Industries, and Cooper Tire & Rubber.

The replacement parts distribution consists of wholesale distributors of automobile parts. Genuine Parts is a leading industry player that owns NAPA auto parts stores.

The rubber fabricating industry sector consists primarily of companies who supply the automakers with rubber tires. The industry is growing at less than 2% per year and has witnessed substantial consolidation over the years. Foreign suppliers supply most U.S. capacity.

SPECIAL – FEATURED COMPANY

Delphi Auto Systems

OTHER RELATED COMPANIES

Autoliv, Inc.
Borg Warner Automotive
Dana Corporation
Eaton Corp.
Federal Mogul
ITT Industries
Rockwell International
SPX Corp.
Tenneco
TRW Corporation
United Technologies

DELPHI AUTOMOTIVE SYSTEMS

Corporate Overview

INTRODUCTION

Delphi Automotive Systems (NYSE: DPH), with headquarters in Troy, Michigan, USA, is a world leader in automotive component and systems technology. Delphi’s three business sectors — Dynamics & Propulsion; Safety, Thermal & Electrical Architecture; and Electronics & Mobile Communication — provide comprehensive product solutions to complex customer needs. Delphi has approximately 213,500 employees and operates 175 wholly-owned manufacturing sites, 41 joint ventures, 51 customer centers and sales offices, and 27 technical centers in 37 countries. Regional headquarters are located in Paris, Tokyo and Sao Paulo.

By leveraging Delphi rich heritage and extensive technical knowledge, Delphi offers a broad range of innovative solutions from components to systems and modules

Delphi’s integrated systems and modules are designed to help simplify vehicle manufacturers’ processes and meet the demands of today’s high-tech vehicles. Delphi main focus is on customer satisfaction through technology leadership, quality, world class cost levels and responsiveness.

Delphi’s global network, combined with Delphi extensive vehicle systems knowledge, allows Delphi to promote that they are then when needed by their customers. For single point solutions, partners are encouraged that success join with Delphi Automotive Systems to meet all automotive challenges in today’s ever-changing global market.

ORGANIZATION

MAJOR CUSTOMERS

As an automotive parts supplier, Delphi manufactures and sells individual components as well as groups of components that are arranged either as modules based on physical proximity within a vehicle (such as an instrument panel), or as integrated systems that operate throughout a vehicle to provide a specific function, such as audio and braking.

Arranging Delphi’s business into three sectors helps to simplify the management of such a diversified enterprise. A strategy board manages each product sector or equivalent managing committee comprised of individuals that have responsibility for the profitability and cash flow of the sector’s various product lines and businesses. Delphi’s three business sectors are managed separately because of differences in the nature of the respective product groupings.

ISM believes Delphi is one of the leading Tier 1 suppliers in each of our major product sectors:

• Electronics & Mobile Communication, which includes our automotive electronics and audio and communications systems
• Safety, Thermal & Electrical Architecture, which includes our interior, thermal and power and signal distribution products
• Dynamics & Propulsion, which includes our energy & engine management, chassis and steering products

PRODUCTS

Delphi designs, engineers and manufactures a wide variety of components, integrated systems and modules on a worldwide basis. As the largest and most diversified supplier of automotive parts, Delphi can provide vehicle manufacturer customers with global, single-point sourcing capability and systems tailored to meet their specific needs. Each of the Delphi product lines include many individual component offerings, most of which can be configured to interact with specific vehicle characteristics to meet the customers’ needs. In addition, since Delphi customers increasingly seek more fully engineered, integrated systems and modules rather than individual components, many of Delphi products combine the expertise and capabilities of more than one product sector.

Delphi’s product offerings are organized in three product sectors made up of seven divisions:

• Electronics & Mobile Communication (Delphi Delco Electronics Systems)
• Safety, Thermal & Electrical Architecture (Delphi Interior Systems, Delphi Packard Electric Systems, Delphi Thermal Systems)
• Dynamics & Propulsion (Delphi Energy & Chassis Systems, Delphi Steering Systems)

Product Overview

Many of Delphi’s product offerings combine the expertise and capabilities of more than one product sector. We believe that electronics integration will drive the next generation of successful products in this industry. All of Delphi’s major vehicle systems and subsystems utilize the electronics integration capabilities of Delphi’s Electronics & Mobile Communication product sector.

Electronics & Mobile Communication
Safety, Thermal & Electrical Architecture
Dynamics & Propulsion

Electronics & Mobile Communication

Delphi’s Electronics & Mobile Communication sector is one of the leading global providers of automotive electronic products and audio and communication systems for vehicles. The automotive electronics capabilities of this sector are leveraged in connection with many of the products offered by Delphi’s other sectors to produce systems, subsystems and modules designed to enhance vehicle safety, comfort, security and efficiency.

The Electronics & Mobile Communication sector is comprised of Delphi Delco Electronics Systems division. Principal product lines include:

• Audio Systems – a wide range of audio systems and components ranging from AM radios to integrated compact disc players that are customized for each vehicle.
• Mobile Multimedia Systems – A wide range of communication and information systems, including the Communiport® Mobile Multimedia and EyeCue® head-up display system and mobile multimedia.
• Advanced Controllers - Microprocessor-based engine management controllers and anti-lock brake controllers.
• Powertrain and Engine Control Modules - Modules designed to optimize engine and transmission performance while improving reliability and cost efficiency.
• Collision Warning Systems - FOREWARN® collision warning systems are microwave-based forward, rear and side object detection systems which present warning signals in a wide range of formats and warning levels.
• Security Systems – Products include sounders, inclination sensors, glass breakage sensors, remote key actuation products and vehicle immobilization products.
• Safety Systems – Products include front inside airbag controllers, occupant positioning, adaptive restraints and rollover sensing.

Safety, Thermal & Electrical Architecture

The Delphi Safety, Thermal & Electrical Architecture sector offers a wide range of products relating to the vehicle interior as well as the expertise to integrate these products into individual vehicle designs to simplify manufacturer assembly and enhance vehicle marketability. Delphi’s thermal products include powertrain cooling systems and climate control systems that meet global mandates for alternative refrigerant capabilities. The sector is also a global leader in the production of wiring harnesses and connectors for electrical power and signal distribution.

The Safety, Thermal & Electrical Architecture sector is comprised of Delphi Interior Systems, Delphi Harrison Thermal Systems and Delphi Packard Electric Systems. Principal product lines include:

• Safety/Airbag Systems – Airbag systems and modules and adaptive restraint technologies, including driver and passenger airbag modules, side airbag modules and integral steering wheels.
• Door Modules - Integrated door hardware systems with various features of power and signal distribution, safety and security, HVAC (heating, ventilation and air conditioning), electronic control and interior trim systems.
• Power Product Systems - Systems include power sliding doors, power lift gates and power deck lids.
• Modular Cockpits - Fully integrated interior systems, featuring electrical/electronic systems, structure and trim systems, steering systems, thermal systems and entertainment and safety systems.
• Thermal Management Systems – Systems designed to optimize total vehicle thermal management functions, efficiently maintaining passenger comfort and powertrain cooling in all climates and driving conditions.
• Climate Control Systems - Systems that include HVAC modules, compressors and condensers and are designed to efficiently maintain passenger comfort in all climates and weather conditions.
• HVAC Systems and Modules – HVAC systems and module regulate airflow, temperature, humidity and air direction and include evaporators, lightweight aluminum heater cores, blower motor fans and compressors.
• Powertrain Cooling Systems - Systems designed to optimize powertrain cooling for various driving conditions, including radiators, fans and hoses.
• Front End Modules – Modules feature a single-part concept, resulting in reduced product weight and size and higher system performance at lower cost.
• Electrical/Electronic (E/E) Centers – A wide range of products and services relating to E/E system design and production, including E/E centers designed in a variety of configurations and tailored to meet customer-specific applications.
• Connection Systems – Wiring connection systems with current-carrying capacity ranging from signal-level to over 300 amps, including the GT Connection Systemsâ„¢, high density, high frequency Gold Dotâ„¢ electronic interconnects and a variety of fiber optic data network and customized multiplex systems and components..
• Advanced Data Communication Systems – Products include an optical start coupler, which distributes data in real time via plastic
  optical fiber throughout an expandable network; and customized multiplex systems and components.
• Fiber Optic Lighting Systems – DELightâ„¢ fiber optic lighting systems utilize centrally located light sources to provide lighting to specialized applications in the vehicle.
• Ignition Wiring Systems – Ignition cable, components, materials and wiring assemblies providing superior energy delivery and electromagnetic suppression.
• Sensors - A wide range of temperature sensors and multi-function sensors that integrate electronics into the packaging. These sensors are sold under the brand name INTELLEKâ„¢.
• Switch Products – Products including hidden switches (door ajar, brake light), decorative functional switches (steering wheel, door modules) and integrated electronics switches (transmission gearshift modules, memory seats).

Dynamics & Propulsion

The Delphi Dynamics & Propulsion sector offers a wide range of energy & engine management systems designed to optimize engine performance and emissions control and all major chassis control systems — steering, braking, suspension and engine. The sector’s steering products feature vehicle control and driveline technologies and advanced electronic controls to improve performance. The Dynamics & Propulsion sector is comprised of Delphi Energy & Chassis Systems and Delphi Steering Systems. Principal product lines include:

• Air/Fuel Management – This subsystem measures, controls, manages and delivers a precise combustible mixture of fuel and air to the combustion chamber.
• Energy Storage and Conversion – A generator and battery comprise the principal electrical system in the vehicle. The battery stores energy for transfer to the starter during engine start-up; once the engine is running, the generator supplies the vehicle’s electrical power requirements.
• Valve Train - These systems manage engine timing and performance to improve fuel economy, reduce emissions and increase torque and power.
• Exhaust Aftertreatment – This subsystem carries gas away from the engine and removes harmful chemical compounds through catalytic reaction of contaminants.
• Sensors and Solenoids – Sensors, including our INTELLEKâ„¢ brand sensors, monitor conditions such as presence, speed and chemical content within the vehicle. Solenoids are actuators that control mechanical movement and the flow of fluids within the vehicle.
• Ignition - This subsystem provides spark energy for precise and robust combustion initiation of the air/fuel mixture. Coils, electronics, wires/boots and spark plugs generate and deliver a high voltage charge to the combustion chamber.
• Fuel Handling – This subsystem contains and delivers fuel to the air/fuel architecture and controls evaporative emissions.
• Controls – A controls subsystem consists of the electronic control module and related software and algorithms that are customized to meet the vehicle manufacturers’ needs.
• Advanced Propulsion Systems – New propulsion technologies include different vehicle system approaches – from powertrain integration to advanced electro-chemical fuel cell engines.
• Intelligent Chassis Controls – Our TraXXarâ„¢ vehicle stability enhancement system integrates all major chassis control systems to provide optimum ride and handling performance. The Delphi GALILEOâ„¢ intelligent brake-by-wire control system combines power assist, anti-lock braking functions, traction control and tunable pedal feel in a modular design to deliver high-quality brake balance regardless of vehicle loading or brake pad wear.
• Advanced Ride Control Suspension Systems – Includes our Manual Selectable Ride System which is a controlled suspension system designed with two independent driver-selectable levels of damping and the Continuously Variable Real-Time Damping System which provides full car modal control with continuously variable independent damping control at each corner.
• Chassis Systems and Modules – Includes complete wheel-to-wheel modules, chassis corner modules, brake corner modules, damper modules and bearings.
• Brake Systems – Anti-lock brake systems featuring precision solenoid technology and can accommodate traction control, variable effort steering and other vehicle enhancements.
• Suspension and Brake Components – Including calipers, rotors, drums, master cylinders, boosters, drum brake assemblies, shock absorbers and leveling height sensors.
• Steering Systems - A wide range of steering components and fully integrated systems. Components include hydraulic pumps, steering gears and steering hoses.
• Columns and Intermediate Shafts – A wide range of steering columns, including TILT WHEELâ„¢, LUXURY-TILTâ„¢ power adjustable wheel function and manual tilt and telescope. Intermediate shaft offerings include cardan joint, flexible couplings, pot-style joint, spline shaft and concentric isolator.
• Driveline Systems – Halfshafts that transmit the power of the vehicle’s engine to the wheels. Integrated halfshaft designs available in a wide variety of joint types and sizes.
• Fuel Efficiency and Performance Steering Systems – These include E-STEERâ„¢ Electric Power Steering, E-H-STEERâ„¢ Electro-Hydraulic Power, QUADRASTEERâ„¢ Four Wheel Steering, and MAGNASTEERâ„¢ Magnetic Variable Assist Steering.

Featured Product

“Intermediate Shafts – Cardan Joints”

SEE Attachment A

As the world’s largest, most diversified automotive systems and components supplier, Delphi spends approximately U.S. $13 billion annually on outside global purchases. The products bought are categorized into four commodity groups: Chemical, Electrical, Metallic, and Indirect/Machinery & Equipment.

The Chemical commodity includes:
Plastic components and assemblies manufactured from a variety of molding processes (injection, compression, insert, and blow mold) for a broad range of functional, precision, and decorative applications; rubber and foam parts (seals, boots, gaskets, bushings, hoses, mounts); raw materials (adhesives, coatings, lubricants, paint, paper) and plastic resins; airbag modules and components; outside processing; and packaging materials.

The Electrical commodity includes:
Motors, sensors, solenoids, coils, wiring harnesses, switches, electronic assemblies, electronic components (integrated circuits, resistors, diodes, capacitors) and audio components (CD and tape decks, speakers), and bearings.

The Metallic commodity includes:
Castings, forgings, fasteners, stampings, cable, tubing, machined parts, powder metal, springs, and raw materials (steel and non-ferrous metals).

Indirect/Machinery & Equipment includes:
Support for the manufacturing process — they are not directly assembled onto a car or truck. These products include: industrial, building, janitorial and business supplies; spare parts; construction services; mobile equipment; machine presses; dies; corporate services; health care; and sales and marketing services and agencies.

Contact Information at Delphi for Suppliers

Delphi Supplier Manuals

All Supplier Manuals housed are provided by Delphi in Adobe Acrobat PDF format. Delphi Global Supplier Packaging Manual (New Supplier Manual will be issued this year)

Regulations & Standards

Chrysler, Delco Electronics and Ford established the Automotive Electronics Council (AEC) for the purpose of establishing common part-qualification and quality-system standards. The AEC is comprised of two committees: The Quality Systems Committee and the Component Technical Committee. Both committees are composed of representatives from the sustaining members: Daimler Chrysler, Delphi Delco Electronics Systems, Visteon and other associate members.

The AEC Component Technical Committee serves as the standardization body for establishing standards for reliable, high quality electronic components. Components meeting these specifications are suitable for use in the harsh automotive environment without additional component-level qualification testing.

Delphi provides its suppliers with the technical documents developed by the AEC Component Technical Committee and make them available for download over the Internet.

New Development – Electronic Data Interfacing for Suppliers

Project Vega

What is Project Vega?

Delphi Project Vega is a Delphi Enterprise System for business transactions including:

• SAP R/3
• EDI with suppliers using EDIFACT
• Internet Electronic Forms (EDI alternative for small suppliers not using EDI)
• SAP R/3 Kanban Process
• EDI Communication via the EDS-ELIT-Value Added Network (no change from current EDI network)

A “Getting Started Guide” is available from the Delphi Automotive Systems Vega 2 Electronic Commerce Program. Adobe Acrobat Reader, version 3.0 or higher is required to view the file.

Vega 2 Getting Started Guide

Project Information and Supplier Requirements

Suppliers must communicate electronically with Delphi Vega 2.0. Suppliers must be capable of electronically receiving the following EDI EDIFACT messages:

• DELFOR – Weekly Planning Schedules (similar to the ANSI 830 message)
• DELJIT – Daily Shipment Plan (similar to the ANSI 862 message)

Suppliers must be able to electronically send the following EDI EDIFACT message:

• DESADV – Advanced Shipment Notification (similar to the ANSI 856 message)

Suppliers must complete EDI certification testing with Delphi prior to the due date. EDI will be transmitted to and from Delphi on the EDS ELITValue Added Network (VAN).

Small volume suppliers not currently using EDI with Delphi may use an Internet Electronic Form solution instead.

NO FAXING OR MANUAL PROCESSING REQUIRED BY NON-CONFORMANCE TO THE ABOVE ESTABLISHED PROCEDURE IS PERMITTED BY DELPHI.

Other Areas

Customized Market Analysis would be helpful in considering

ü additional featured products

ü additional information on comparable products

ü additional information on distribution channels

ü additional information on pricing

END OF REPORT

also attached – Attachment A – Featured Product
Reserved for Attachment A

Featured Product

Insertion