Russian Auto Component Vendors Competitive Strategies within the «new» Market Conditions

1. Russian Auto Component Vendors Competitive Strategies within the «new» Market Conditions March 2007

2. 11 enterprises There are five enterprises in the management SOK-AUTOMOTIVE • № 1 Company in the Russian auto component market • 12 years of rapid growth due to M&A and effective asset management SOK-AUTOMOTIVE «Car Assembly» Division «Auto Components» Division OJSC «IzhAvto» SOK-AUTOMOTIVE Sales Revenue Trend, $ billion CJSC «Roslada» CJSC «VazInterServis» (automobile manufacture) 2

3. «Auto Components» Division OJSC «SchetMash» Kursk CJSC «VAZINTERSERVIS» Togliatti OJSC «Zavod Avtosve» Kirzhach OJSC «OSVAR» Vyazniki • Instrument Sets • Trip Computer • On-board Monitoring System • Automobile Speed Sensors • Environment Air Temperature Sensors • Adsorbers • Clutch plates and components • Steering gear connection • Stabilizers • Rear brake assemblies • Pedal assemblies • Lamps: fog lamps, interior, exterior, lamp clusters • Lamps: rear lamps, clearance lamps, head lamps, trunk lamps, cab lamps, number plate lamps • Optical assemblies • Lamps: head lamps, spotlamps, rear lights, fog head lamp assemblies, turn signals • Lamps: rear lamps, number plate lamps, rear lights, turn signals CJSC «SKK» Samara OJSC «BelZAN» Belebey CJSC «PES SKK» Samara (JV with Delphi) CJSC «MOTOR SUPER» Togliatti • Automotive industry cables • Heavy-duty vehicle hardware • Springs • Vehicle wire harnesses • Air filters • Heaters • Plastic parts CJSC «Kinelagroplast» Kinel OJSC «SAZ» Syzran OJSC «Komplekt-LTD» Togliatti The enterprises are managed by SOK Group • Air pipes • Washer jars and overflow bottles • Moldings • Spot-facing • Electric window lift, window raiser • Sun visors • Die fixtures • Screens • Safety bars • Front leg assembly module • Cooling assembly module • Radio fixture panel • Fill piece assembly • OJSC «Dimitrovgrad Illumination Appliences Plant» • OJSC «Dimitrovgrad Power Metallurgy Plant» • OJSC «Dimitrovgrad Bearing Liners Plant» • OJSC «Dimitrovgrad Radiator Plant» • OJSC «Dimitrovgrad Valve Plant» 3

4. Year 2006 Lada Russian brands Foreign brands 88,7% 46% 54% Other Russian brands 11,3% New automobile market trend (thousand pcs) Year 2000 Lada Foreign brands Russian brands 72,4% 5% 95% Other Russian brands 27,6% Source: RUSSIAN AUTO MARKET – 2006, «LADAONLINE» 4

5. New automobile market trend ($ billion) • Market capacity for new automobiles in the year 2006 is $28 billion. Source: RUSSIAN AUTO MARKET - 2006, «LADAONLINE» 5

6. Sales forecast for new automobiles (thousand pcs) • The share of new foreign autos has increased from 5 to 54 % (in monetary terms, that is from $1,5 to $22 billion in the period 2000-2006) Focus Group • The capacity of the chosen vehicle focus group will increase sevenfold by 2012 and will make $37 billion (at present, the capacity of the segment of the selected focus group plus current models of LADA is approx. $8 billion) • Technical solutions used in designing and manufacturing the focus group vehicles are at a high level Russian-assembled foreign autos Lada (forecast) General level of requirements put to car component suppliers in the world Source: RUSSIAN AUTO MARKET - 2006, «LADAONLINE», evaluation by SOK-Automotive 6

7. Aftermarket (pessimistic forecast) Aftermarket (optimistic forecast) OEM (pessimistic forecast) OEM (optimistic forecast) Auto component market capacity forecast for the chosen focus group: ОЕМ + Aftermarket ($ million) • The capacity of the auto component market for the chosen vehicle focus group will increase by 26 to 34 times by the year 2012 and will make $15 to 20 billion (at present, the capacity of the segment of the selected focus group plus current models of LADA is approx. $10 billion) • Foreign auto component vendors are seeking opportunities to start business in the Russian Federation Forecast for automobile sales • Russian ОЕМs show interest in the engineering potential of foreign auto component vendors Optimistic forecast – 50 % Pessimistic forecast – 30 % Level of localization of Russian-assembled foreign autos by 2012 Russia is on the eve of joining the WTO and a gradual decrease of duties on both ready autos (duties reaching 15% within 7 years) and the average customs dues on imported auto components Source: RUSSIAN AUTO MARKET - 2006, «LADAONLINE», evaluation by SOK-Automotive 7

8. Auto components market Trend Current state Domestic brands sector • Stability of supply and demand • High competition between domestic vendors • Large amount of low-quality and counterfeit products • Cooperation of foreign auto component suppliers with Russian ОЕМs • Increase in competition between domestic and foreign auto component vendors Russian-assembled foreign automobile sector • Rapid growth in demand coupled with a deficit of supply • Competition between suppliers of original and counterfeit spare parts on the aftermarket • Expansion of warehousing and service infrastructure • Localization of auto components to fit the assembly lines The Russian automobile market has entered the active globalization phase 8

9. today tomorrow Quality Quality Foreign vendors Foreign vendors Domestic vendors Price Price Implementing European Domestic vendors Standards Integration of the Russian car component vendors into the world automobile industry • Objectives: • Supply of auto components for perspective models of Russian ОЕМs (development of engineering potential: Joint Ventures, creation of outsourcing partners system, developing engineering functions on enterprises) • Supply of car components for Russian-assembled foreign cars («establish the reputation» as a class 1 or 2 Supplier) • Export supplies within specialization (study the requirements of the Global Client, benchmarking, reference for general production development) • Conditions of competitive capacity in the global market: • Client-oriented pattern (constant contact, study of demands, complex solutions) • Deep specialization (understand the competitors’ products, quality, shop price structure, problems and strong points to develop own goals and tasks) Competitive Capacity Matrix 9

10. Strategy for the Russian auto component vendor development Global auto component market World level of production and supply organization Innovative technologies Business Transparency Compliance with Standards International Alliances • Transition to IFRS • Adjustment of corporate management to international requirements • Building of transparent legal structure • ISO/TS 16949 Implementation • Lean Production system implementation • Introduction of logistics standards 10

11. Basics for Russian auto component vendors’ competitive capacity • Long – term and smoothly running relationships ability with material Suppliers • Convenient location referenced to the potential customers, infrastructural production prepared facilities ability • Optimal price policy leading possibility • Technological, human resources and investment potential • Logistical convoying delivery possibility • Administration management ability in regions • Running business experience at Russian «infrastructure problems» conditions (absence of specialized mediators and outsourcings; strict business scope conducting, defined by regulating authorities; strict observance obligations between the partners, developed professional personnel market etc.) 11

12. Tasks under way Certification to comply with ISO/TOR 16949 requirements • Certification to comply with ISO/TOR 16949 completed: • CJSC «SKK» Jan 2005 • CJSC «PES SKK» Jan 2005 • CJSC «MOTOR-SUPER» May 2005 • CJSC «Kinelagroplast» Aug 2006 • CJSC «VAZINTERSERVIS» Nov 2006 • PLC «Komplekt LTD» Jan 2007 • OJSC «SchetMash» Feb 2007 • Terms of certification to comply with ISO/TOR 16949: • OJSC «OSVAR», OJSC «SAZ» Mar 2007 • OJSC «BelZAN», OJSC «Zavod Avtosvet» Jul 2007 Preparation and auditing of reports in compliance with IFRS All companies of the «Auto Component» Division Nov 2007 12

13. Tasks under way «Lean production» Program Introduction of Lean processes in the regular activities of ALL enterprises of the SOK-Automotive Division CEO Directors of Divisions Deputy Director General in Lean Production (process master) Heads of Divisions • Building maps of current and desired value creation • Loss analysis • Design and implementation of improvement plans 13

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