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Global Auto Industry and Policy Perspectives Richmond Association for Business Economics November 6, 2007

Slide 2. Global Automotive Business EnvironmentPolicy Uncertainty and Investment DecisionsNABE Value. Topics Today. Global Trends. Slide 4. Emerging markets in ?take-off" stage of growth Mature markets turning more ?upscale" Small car segments, fuel efficiencyProductivity growth will drive relative price declinesDiversity of global regulation a structural headwindIs there a game changing technology on horizon?.

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Global Auto Industry and Policy Perspectives Richmond Association for Business Economics November 6, 2007

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    2. Slide 2 Global Automotive Business Environment Policy Uncertainty and Investment Decisions NABE Value Topics Today

    3. Global Trends

    4. Slide 4 Emerging markets in “take-off” stage of growth Mature markets turning more “upscale” Small car segments, fuel efficiency Productivity growth will drive relative price declines Diversity of global regulation a structural headwind Is there a game changing technology on horizon? Trends

    5. Slide 5 Global Economic Growth

    6. Slide 6 Global Vehicle Sales

    7. Slide 7 Real GDP and Industry Volume

    8. Slide 8 Global Vehicle Stock

    9. Slide 9 China to track EU environmental standards Environmental policies will play a larger role in determining sales and segmentation growth Vehicle mix likely to change significantly from today Global Market Attributes

    10. Policy Perspectives

    11. Slide 11 Status Quo Technology Paths and Uncertainty UK Experience Emerging Market Pathways Practical and Empirical Considerations

    12. Slide 12 Real options analysis “When the outcomes for key assumptions are uncertain and could follow a number of different paths” Investment Decisions Under Conditions of Uncertainty

    13. Slide 13 Real Options Method for valuing investments Applies stock option valuation models to valuation Incorporates value of flexibility The initial investment gives you the option, but not the obligation to make future investments The value of an option to invest in the future is likely higher than an absolute, locked-in future investment Option value increases with greater uncertainty In a very uncertain world, flexibility is more valuable “Buying” flexibility now is often cheaper than paying to adapt to or losing market share because of future changes

    14. Slide 14 Example: Investment in Alternative Fuel Vehicles (AFV)

    15. Slide 15 Advantages and Disadvantages to Using Real Options Advantages: Incorporates market and regulatory uncertainty Provides a financial value for flexibility that can justify additional cost Gives a better understanding of a project’s value AFV investment does not make financial sense, because Company loses money on AFVs now But in the future, AFVs may be very profitable. Today’s investment protects for this outcome Disadvantages: Requires changes in business processes

    16. Slide 16 Real Options Employing real options has the potential for great savings In an uncertain world, real options favors projects that protect against range of outcomes The flexibility is rarely incorporated into investment value, but is crucial to surviving in an uncertain marketplace

    17. Slide 17 Crude Oil and U.S. Gasoline Prices

    18. Slide 18 Crude Reserves are Situated Poorly

    19. Slide 19 CAFE Cap and Trade Feebates Gasoline Tax Carbon Tax The Value of Earmarking Policy Options Old and New

    20. NABE Membership Value for You

    21. Slide 21 NABE Mission Provide leadership in the use and understanding of economics Professional organization linked to your chapter 40% discount on membership during your first year NABE Membership Value $100 For the First Year

    22. Slide 22 NABE For You Your life long learning Your profession and network Your tools on a web-based platform Your clients Your chance to give back – NABE Foundation and Mentoring Program How can we help you? NABE Membership Value $100 For the First Year

    23. Slide 23 Roundtables Job Search Listings Speakers’ Bureau Conferences Papers and Reports from Conferences Teleconferences Professional Development Seminar Skills Seminars NABE Membership Value $100 For the First Year

    24. Slide 24 Let us make your NABE membership far more valuable than you ever expected! Contact the NABE staff Email nabe@nabe.com Tel. No. 202-463-6223 NABE Membership Value

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