A New Auto Industry, Different Challenges, New Opportunities

1. A New Auto Industry, Different Challenges, New Opportunities David Knill, Managing Director, BBK

2. BBK/ PI LLC Overview

3. The Market: Past to Present ? ? ?

4. What’s the major challenge facing us? -Good News and Bad News *Source: IHS ? ? +11% +38% +9% +51%

5. Two Supply Bases vs. One • Distinguishing the two different supply bases ‘The Supply Base’

6. State of Supply Base – Public/Large Suppliers • OEMs have good visibility • Still challenges, but fewer For the largest, healthiest suppliers with access to public credit markets, most restructurings have been accomplished (both balance sheet and operational) Volumes are on an uptick, leading to strong profitability and stability Costs have been adjusted to break even at much lower volumes

7. Ratings Trends 2010 vs. 2011- Public Suppliers • Public companies demonstrate year over year improvement in • Ratings • The A/B Rated companies have increased, while D/F risk • companies have significantly declined. C Risk companies have • decreased as well • Improvement is due to increase in Profitability, measured as, • EBITDA as a percent of Sales, and increased Revenues • Profitability, on average, has increased by 9 percent, with an • average Revenue growth of 18% • Debt Leverage, measured as Debt/Total Assets, remains stable • and consistent year over year • 9% of the companies reviewed, remain a D/F risk, in spite of • increased Revenues • The high risk companies have low EBITDA at 6% versus the • average EBITDA of 12% in 2011, and high Debt Levels at 49% • of Total Assets. These companies have high Short-term Debt at • 12% of Total Assets when compared with an average of 4% 64 public companies Year over Year trends Overall, any pressure on the Revenue generation ability may create an additional risk on these companies financial position.

8. Corporate Ratings*- Public Suppliers/OEMs Company S&P Moody’s Company S&P Moody’s * Data taken from Capital IQ, Thomson Reuters LPC Loan Connector, S & P’s Leveraged Commentary & Data

9. Historical Yields 2010 vs. 2011*- Public Suppliers/OEMs High Yield Bonds Term Loan Spreads * Data taken from Capital IQ, Thomson Reuters LPC Loan Connector, S & P’s Leveraged Commentary & Data

10. State of Supply Base – Private Suppliers • Profitability improved with higher volumes • However, meeting the demand is a major concern • Restructurings have not all been accomplished • Financing options are still restricted • Consolidations remain a concern • Suppliers unwilling or unable to spend money • Legal changes being implemented by various groups (customers, government, etc.) How will they impact the supply base? For 2/3 of suppliers (mid size and smaller) without access to the public credit markets, the picture is different

11. Private Suppliers - Profitability • In 2009, supply base adjusted break even to 9-10m vehicles • Industry is a fixed cost business • Therefore with volume increases in 2010: EBITDA for NA suppliers (2010 vs. 2009)* • Europe not as good for either group Focus on fixed costs, management of liquidity and improving volumes is critical *according to BBK Ratings data for 2009 and 2010

12. Private Suppliers - Demand In 2008/2009, suppliers significantly reduced structural costs to survive now the need to deal with:

13. Private Suppliers - Restructurings • Many have not restructured their balance sheets • Although much improved overall, over-leverage still exists for some • Percentage of suppliers rated as D/Fs in 2010 (BBK Ratings data): • 23% in North America • 31% in Europe • Restructuring options are more limited • So why haven’t we seen the lenders take action? • Poor liquidation values (real estate and equipment) = • amend and pretend • This will change • Levels are below historical levels even in good • times

14. Private Suppliers – Lending Market • Lending market has not fully reopened • Concern over market consolidation and margin degradation • However, the lending environment is slowly improving • For middle market, transactions are primarily structured as ABL with isolated cash flow based deals and limited term debt • Funding for cap ex and tooling can be an issue (poor liquidation values, lenders seeing uncertainty around new program volume) • Unwillingness of borrowers to go “all in” • Implications • Lack of excess availability to fund growth and working • capital needs (need to fund internally) • Refinancings taking longer and may involve non-traditional • lenders • In a 2010 BBK study of >150 mid-sized suppliers, 50% had • financing challenges

15. Why are they unwilling or unable to spend money? • Unable: tied to lack of lending in this market • Unwilling: due to concern over future • 2008/2009 memory • Is demand real? Which demand will prosper? • Global economic impact • Impact of raw material pricing • Fuel prices • Price downs • Washington wizards Entrepreneurs’ resistance to go “all in” again

16. Good News Problems! Gloom and doom is over, but new challenges still need to be addressed Uncertainty does exist in many areas Many of the challenges are greater for the tiered suppliers Clear visibility and action are they keys to success Operations is the most critical challenge now, but as a supplier you still must focus on all these: Failure to manage any of these challenges can jeopardize your long term viability.

17. Automotive Industry Tends to Have Short Term Memory Life is good Go all in Volume 15m this year, 17m next year Double capacity so you are prepared = noise in the market Learn from the past, actively manage today’s challenges and cautiously plan for the future.

18. Operational Challenges and Opportunities

19. Survey Recent Survey of 620 manufacturing executives* External concerns: economy, political gridlock, rising raw-material costs and federal over-regulation 60% pessimistic about U.S. economy. 64% pessimistic regarding world economy 44% growing, 52% stable, 3% declining 76% improved productivity in last 12 months. 88% expect raw-material costs to rise. 85% plan to pass those costs onto customers *according to McGladrey Manufacturing and Distribution Monitor

20. Data Recent BBK operational capability supply base study; based on a review of >150 mid-sized suppliers Survey says…

21. Major Drivers Facing Auto

22. Meet rising demand while not willing to add costs Short term (?) strategy driven by skepticism/profits Stressed labor (salaried and hourly) and equipment Turnover, quality and throughput at risk Supply base capabilities/raw material costs Competitive pricing - 2008/2009 the suppliers had to focus on reducing structural costs. - 2011 pressure on reducing piece price due to lack of attention in this area and focus on global market Rapidly changing environment - Need to be nimble and react FAST - both cost and revenue - Japan crisis - Fuel prices Key Challenges

23. Understand the capabilities/capacity/pricing of your supply base Resource utilization - caution not to over-task Waste/cost reduction efforts Be the leader within your segment Technological advances Improve working relationship with customers and supply base Strategy

24. Best Practices • Increase your sense of urgency • Slow to deal with inefficiencies can be a death sentence • Benchmark your processes – prove your leadership • Purchasing, Risk Management, Quality, Operations, Technology, etc. • Take a “variable cost approach” to supplementing resources • Limited resources can struggle to cover all the necessary ground • Drive cost down/efficiency, throughput and quality up • Comprehensive approach • Product (VAVE) • Process (Lean Manufacturing) • Manufacturing Footprint • Supply Chain (Rationalization) • Flexible and robust sourcing and supplier monitoring strategies • Clear Visibility

25. Sooner you address problems/inefficiencies (internal and external) – the more options you have and the cheaper the fix Slow to take actions to be the best is a problem Consolidations say if you are not one of the best you most likely will not be a survivor Remember: poor operating performance will quickly lead to financial distress and production risk Moral of the Story