Auto Market

Industry Surveys
Autos & Auto Parts
June 29, 2006
Efraim Levy, CFA Autos Analyst Steve Ferazani Financial Writer
CURRENT ENVIRONMENT ..................................................................1 GM and Ford restructure

Fords Way Forward GM to cut jobs, close plants Gasoline rises again Full-size SUVs and pricing Suppliers pressured US sales may fall in 2006 Improvement in used vehicle and parts markets
INDUSTRY PROFILE ...............................................................................9 Competition goes into overdrive INDUSTRY TRENDS ...............................................................................10
Cars stay on the road longer Growth in electronics Rising fuel economy standards Growth of safety features Affordability improves Luxury segment expands Big Three losing market share On the global front
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HOW
THE INDUSTRY
OPERATES .............................................................15
Made in Detroit and elsewhere From drawing board to dealership Regulatory crosscurrents Heavy capital commitments Competition redesigns the market The world of auto parts The tire market
KEY INDUSTRY RATIOS AND STATISTICS ..................................................23 HOW TO ANALYZE AN AUTOMOBILE MANUFACTURER .............................24
Seasons and cycles Model changeovers The income statement The balance sheets
GLOSSARY .............................................................................................28 INDUSTRY REFERENCES.....................................................................30 COMPARATIVE COMPANY ANALYSIS ..............................................33

THIS ISSUE REPLACES THE ONE DATED DECEMBER 22, 2005. THE NEXT UPDATE OF THIS SURVEY IS SCHEDULED FOR DECEMBER 2006.
Standard & Poors Industry Surveys

Editor: Eileen M. Bossong-Martines Associate Editor: Joseph M. Coda Copy Editor: Kimberly A. Castro Production: GraphMedia Statistician: Sally Kathryn Nuttall Junior Designer: Paulette Dixon
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VOLUME 174, NO. 26, SECTION 1 THIS ISSUE OF INDUSTRY SURVEYS INCLUDES 2 SECTIONS.
C URRENT E NVIRONMENT
GM and Ford restructure

General Motors Corp. (GM) and Ford Motor Co. have been losing market share and facing deteriorating profitability. To restore profitability, the two automobile giants have announced their latest restructuring plans. Each company has announced independent plans to lay off approximately 30,000 employees and to close plants. the end of the first quarter of 2006, and the reduction of Fords officer ranks by 12% by the end of the first quarter of 2006. (Automotive Components Holdings employs Ford hourly employees who had worked for, or had been assigned to, Visteon Corp.) Ford also announced which seven facilities would be idled through 2008. The company expects these actions to reduce its North American assembly capacity by approximately 1.2 million units, or 26%. With respect to the remaining seven manufacturing facilities included in the plan, Ford expects them to be idled between 2010 and 2012.
Fords Way Forward

In January 2006, Ford announced a major business improvement plan for its North American automotive operations, which its calls the Way Forward plan. As part of this plan, Ford intends to idle and cease operations at 14 manufacturing facilities in North America by 2012, including seven vehicle assembly plants. The company also intends to reduce its manufacturing employment by 25,000 to 30,000 people during the same period. These planned personnel reductions are in addition to the previously announced reduction of 5,000 hourly employees at Automotive Components Holdings LLC, the reduction of the equivalent of 4,000 salaried positions by
GM to cut jobs, close plants

GMs restructuring-related announcements preceded Fords. In November 2005, GM provided additional details for restructuring its struggling manufacturing operations in North America. Under its most recent plan, nine assembly, stamping, and powertrain facilities, and three service and parts operations facilities will cease operations. The goal is to reduce GM North
LEADING COMPANIES IN GLOBAL LIGHT VEHICLE SALES

(Ranked by 2005 total light vehicle sales)
CARS THOUSANDS OF UNITS 2004 2005 E2006 LIGHT TRUCKS THOUSANDS OF UNITS 2004 2005 E2006 TOTAL LIGHT VEHICLE SALES THOUSANDS OF UNITS 2004 2005 E2006
General Motors Toyota Ford Motor VW Group Daimler/Chrysler Hyundai Nissan PSA Peugeot Citroen Honda Motor Renault Fiat Group Suzuki
E-Estimated. Source: Global Insight.
5,184 5,335 3,452 4,722 1,915 2,526 2,160 2,673 2,470 2,024 1,602 1,468
5,049 5,379 3,472 4,696 1,975 2,799 2,219 2,821 2,475 2,078 1,633 1,539
5,255 5,843 3,388 4,908 1,949 3,280 2,359 2,819 2,632 2,108 1,627 1,682
3,449 2,135 3,118 284 2,244 622 1,042 446 719 373 391 318
3,360 2,267 3,075 331 2,269 730 1,160 449 777 382 370 334
3,265 2,389 2,842 355 2,468 725 1,105 435 805 390 410 340
8,633 7,470 6,570 5,007 4,159 3,148 3,202 3,118 3,189 2,397 1,992 1,785
8,409 7,646 6,547 5,026 4,244 3,528 3,379 3,270 3,253 2,460 2,003 1,873
8,520 8,232 6,230 5,263 4,417 4,004 3,464 3,253 3,437 2,499 2,037 2,023
JUNE 29, 2006 / AUTOS & AUTO PARTS INDUSTRY SURVEY
NORTH AMERICAN MOTOR VEHICLE PRODUCTION

(Calendar year)
CARS THOUSANDS OF UNITS 2003 2004 2005 2003 % OF TOTAL 2004 2005 LIGHT TRUCKS THOUSANDS OF UNITS 2003 2004 2005 2003 % OF TOTAL 2004 2005
General Motors Ford Motor Daimler/Chrysler Total, Big Three AM General Auto Alliance BMW CAMI Honda Motor Hyndai Mercedes Mitsubishi Nissan NUMMI Subaru/Isuzu Toyota Volkswagen Others Total transplants Grand Total
2,110.1 1,081.8 503.4 3,695.3 ... 83.4 56.9 ... 807.5 ... ... 126.2 595.2 233.5 89.2 650.1 287.3 2,929.4 6,624.7
1,927.3 936.1 532.2 3,395.5 ... 133.3 35.1 ... 783.3 ... 73.5 91.5 654.2 237.4 98.3 692.9 225.3 3,024.9 6,420.5
1,770.9 816.9 608.6 3,196.3 ... 272.6 19.8 ... 796.2 91.2 95.6 65.0 703.5 248.4 87.2 742.0 300.4 3,422.0 6,618.4
31.9 16.3 7.6 55.8 ... 1.3 0.9 ... 12.2 ... ... 1.9 9.0 3.5 1.3 9.8 4.3 44.2 100.0
30.0 14.6 8.3 52.9 ... 2.1 0.5 ... 12.2 ... 1.1 1.4 10.2 3.7 1.5 10.8 3.5 47.1 100.0
26.8 12.3 9.2 48.3 ... 4.1 0.3 ... 12.0 1.4 1.4 1.0 10.6 3.8 1.3 11.2 4.5 51.7 100.0
3,191.8 2,634.3 1,978.6 7,804.6 38.3 ... 109.5 51.0 451.6 ... 190.8 47.5 234.4 161.6 33.0 304.9 ... 163.7 1,786.0 9,590.6
3,064.7 2,544.2 2,055.7 7,664.6 32.8 ... 108.8 131.2 434.5 ... 142.0 21.7 425.1 143.3 20.4 440.3 0.1 239.7 2,139.8 9,804.4
2,801.0 2,299.7 2,074.7 7,175.5 28.3 ... 105.0 190.0 552.7 ... 171.0 22.6 495.2 168.9 31.8 466.6 1.0 290.3 2,523.3 9,698.8
33.3 27.5 20.6 81.4 0.4 ... 1.1 0.5 4.7 ... 2.0 ... 2.4 1.7 0.3 3.2 ... 1.7 18.6 100.0
31.3 25.9 21.0 78.2 0.3 ... 1.1 1.3 4.4 ... 1.4 ... 4.3 1.5 0.2 4.5 0.0 2.4 21.8 100.0
28.9 23.7 21.4 74.0 0.3 ... 1.1 2.0 5.7 ... 1.8 ... 5.1 1.7 0.3 4.8 0.0 3.0 26.0 100.0
Note: Totals may not add due to rounding. Source: Ward's Automotive Reports.
Americas assembly capacity by about one million units by the end of 2008, in addition to the previously implemented reduction of one million units between 2002 and 2005. Factoring in the additional capacity from GMs new Delta Township facility in Lansing, Michigan, which is slated to begin production next year, the overall net result will be a GM North American assembly capacity of 4.2 million units. A total of 30,000 manufacturing positions will be eliminated from 2005 through 2008. While we believe these efforts are steps in the right direction, additional cuts may be needed if sales volume and market share do not rise as well. In addition to layoffs and plant closings, to raise cash and increase its focus, GM has divested or announced plans to divest holdings in certain foreign car companies. These actions include the sale of its 20.1% interest in Fuji Heavy Industries Ltd., a reduction in its stake in Suzuki Motor Corp. to 2.7% from 20.4%, and the dissolution of its 50% ownership in a GM-Fiat Powertrain joint venture. GM has also reached an agreement with the United Auto Workers (UAW) to reduce its healthcare costs and offer buyouts to employees. Delphi Corp. and the UAW agreed
upon an attrition program to cut the number of US hourly employees at GM and Delphi through an accelerated attrition program that combines early retirement programs and other incentives. Through this arrangement, GM should be able to reduce the number of employees in the JOBS bank more cost effectively. The JOBS bank is a temporary location where idled employees who meet certain conditions must report while they are unassigned. Idled employees continue to collect most of their regular salaries and benefits. To share the pain of cost cutting, GM announced that, effective February 2006, it would increase the US salaried workforces participation in the cost of healthcare, capping GMs contributions to salaried retiree healthcare at the level of 2006 expenditures.
GM to sell GMAC
In March 2006, GM reached an agreement to sell a 51% interest in its General Motors Acceptance Corp. (GMAC) subsidiary. The planned $7.4 billion sale is to FIM Holdings LLC, a consortium of investors led by Cerberus Capital Management L.P., a private investment firm, which also includes Citigroup Inc. and Tokyo-based
Aozora Bank Ltd. GM will retain a 49% equity investment interest in GMAC. In addition, GM and the consortium will invest $1.9 billion of cash in new GMAC preferred equity, with $1.4 billion to be invested by GM and $500 million to be invested by FIM Holdings. The transaction is subject to a number of US and international regulatory and other approvals and conditions. GM expects to close the transaction in the fourth quarter of 2006. As part of the agreement, GM will retain an option, for 10 years after the closing of the transaction, to repurchase from GMAC certain assets related to the automotive finance business of the North American operations and international operations of GMAC. This is subject to certain conditions, including that GMs credit ratings are investment grade or are higher than GMACs credit ratings.
peak. The average price had eased slightly from a record $3.08 per gallon on September 5, 2005. On June 6, 2006, gasoline was $2.89 per gallon, up $0.77 (about 37%) from a year earlier, according to the US Energy Information Administration, a statistical agency of the US Department of Energy.
Full-size SUVs and pricing

As the industry has been reporting, the full-size or large sports utility vehicle (SUV) segment has been under a tremendous amount of pressure in light of rising gas prices, aging models, and a general shift in consumer vehicle preferences. As a result, one would expect to see downward pressure on segment market share and pricing. There has been a continued slide in the segments market share, with year-to-date through April 2006 off 11%, compared with the same period in 2005. However, GMs new products have made a significant amount of headway in gaining back lost territory. Volume for the Tahoe is up more than 35% and once the full GM lineup is on the streets, it should carry the segment into positive territory. On the pricing front, there has been a general decrease overall in the price of fullsize SUVs over the last year or so. According to the Power Information Network, a division of J.D. Power and Associates, the average transaction price less incentive for the full-size segment was $37,393 in December
Gasoline rises again

As this Survey was going to press in midJune 2006, oil prices were near $70 per barrel below the record high of about more than $74 reached on May 2006, but up from less than $66 at year-end 2005, and $43 at year-end 2004. In addition, there were signs that the prospect of sustained higher gasoline prices was having an impact on the purchase decisions that customers make. Since 2004, US gasoline prices have been high, compared with prior years, and generally rising even exceeding $3 per gallon at their
US MOTOR VEHICLE SALES & PRODUCTION
(In thousands)
SALES* PASSENGER CARS LIGHT TRUCKS MED. & HEAVY TRUCKS TOTAL MOTOR VEHICLES
PRODUCTION PASSENGER CARS LIGHT TRUCKS
YEAR
2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994
7,667 7,506 7,610 8,103 8,423 8,847 8,698 8,142 8,272 8,526 8,635 8,991
9,281 9,361 9,029 8,713 8,700 8,503 8,195 7,401 6,850 6,570 6,093 6,068
497 432 328 322 350 462 521 424 376 359 388 353
17,444 17,299 16,967 17,139 17,472 17,812 17,415 15,967 15,498 15,455 15,116 15,411
4,320 4,230 4,510 5,019 4,879 5,542 5,638 5,554 5,934 6,082 6,340 6,601
7,203 7,373 7,319 7,001 6,293 6,840 6,955 6,074 5,858 5,463 5,306 5,322
297 253 175 250 255 393 401 338 338 302 329 327
11,821 11,856 12,004 12,269 11,427 12,775 12,994 11,967 12,130 11,847 11,975 12,250
Note: Totals may not add due to rounding. *Total US sales, including foreign models produced both inside and outside the United States, as well as domestic models produced in Canada and Mexico. Foreign and domestic models produced inside the United States. Source: Ward's Automotive Reports.
MED. & HEAVY TRUCKS
TOTAL MOTOR VEHICLES
2004 and fell to a low point of $36,400 in October 2005. (J.D. Power is an entity independent of Standard & Poors, but is also owned by The McGraw-Hill Cos. Inc.) From November 2005 forward, we have seen stability in pricing followed by an increase. For example, in April 2006, the average price less incentive was up to $38,962 or an increase of 7% from October 2005. This increase is due to the redesigned GM SUVs, which are carrying the segment. GMs full-size SUVs were averaging $36,189 in October 2005 and have risen to $40,250 in April 2006, or an increase of 11%. If we compare the full-size segment to the total industry, we find that the industry is actually down 2% from $26,850 to $26,399 for the same period of October 2005 to April 2006. [For additional information on this topic, contact J.D. Power and Associates at (248) 2676800 or http://www.jdpowerlmc.com.]
Suppliers pressured
Because carmakers have had limited pricing power with consumers, they look for price concessions from their suppliers; these companies in turn make demands on their own suppliers and so on down the production chain. Smaller suppliers typically have less financial strength, liquidity, and ability to resist their customers demands, and therefore face some of the greatest challenges. With production sharply lower and more volatile at such major customers as GM and Ford, some suppliers are in severe financial distress. Those that produce critical parts may get a lifeline from their customers in order to prevent more costly production disruptions due to a lack of parts. Others may sell their business, if they can find a buyer; if they cannot, they may file for bankruptcy protection or go out of business altogether. The size of companies filing for bankruptcy protection has peaked. In October 2005, Delphi, with $28.6 billion in 2004 revenues (latest available), became the largest auto parts supplier in recent months to file for bankruptcy protection. Delphi was struggling with high labor and healthcare costs, rising prices for raw materials and transportation, lower production at GM, and pricing pressure. The Delphi bankruptcy should have implications, in our view, for the auto and auto parts industry. The bankruptcy filing and related demands for employee wage concessions could result in a strike by employees against Delphi. We believe such a strike is unlikely, however, because if it occurred and persisted, it would be counterproductive. It would hurt Delphi further and result in lower production at beleaguered GM, leaving both companies in even weaker financial and competitive positions and less able to support existing employment levels and contracts. We believe that lower wages for hourly Delphi employees are inevitable and that a strike would be imprudent. Still, the threat of a strike following recent strike authorization could help the unions in their negotiations with Delphi. Whatever settlement of wages and benefits Delphi achieves will likely set a benchmark for future negotiations between automakers and other auto parts suppliers and the unions. A strike by Delphi workers could seriously disrupt GMs North American operations and prevent the automaker from executing
New model activity in 2006

New model activity has been very strong in 2006, with 45 new or redesigned vehicles introduced in the United States during the year. The model introduction is evenly distributed throughout the year, with 24 models in the first half of the year and 21 in the second half. When looking at the type of vehicles and segment, there is some concentration. Small cars and SUV/CUVs (crossover utility vehicles) make up two-thirds of all the new activity in 2006, with 19 new SUVs/CUVs and 11 new compact or small cars. Several of these models are already on the road and are having success. Specifically in the compact car arena, the Toyota Yaris, Hondas Civic and Fit, and the Dodge Caliber are off to strong starts and should meet internal targets. In looking at SUVs, the Chevrolet Tahoe and GMC Yukon are putting up strong numbers, despite the rise in gas prices. Most of the SUVs/CUVs do not launch until later this year, but the Toyota FJ Cruiser is doing well in its second month and is on pace for an annualized volume of 55,00065,000. The test will come later in 2006, when SUVs and CUVs spanning the price and size realm enter the market and will do battle with the new entries on the car side of the industry. (For additional information on this topic, contact J.D. Power and Associates.)
MARKET SHARES OF US DEALER NEW LIGHT VEHICLE SALES

(Calendar year)
2002 THOUSANDS OF UNITS 2003 2004 2005 2002 % OF TOTAL 2003 2004 2005
Note: Totals may not add due to rounding. *Chrysler division only of DaimlerChrysler. Source: Ward's Automotive Reports.
PASSENGER CARS US MANUFACTURERS General Motors Chevrolet Pontiac Oldsmobile Buick Cadillac Saturn Saab Ford Motor Co. Ford Division Lincoln-Mercury Jaguar Volvo DaimlerChrysler Corp.* Chrysler/Plymouth/Jeep/Eagle Dodge Total, Big Three JAPANESE MANUFACTURERS Honda Motor Mazda Mitsubishi Nissan Subaru Suzuki Toyota OTHER FOREIGN MANUFACTURERS BMW Hyundai Kia Mercedes Volkswagen Others Total domestic-built Total imported Total car sales LIGHT TRUCKS US MANUFACTURERS General Motors Chevrolet GMC/Pontiac Saturn Other divisions Ford Motor Co. DaimlerChrysler Corp.* Chrysler/Plymouth/Jeep Dodge Total Big Three FOREIGN MANUFACTURERS Honda Hyundai Isuzu Kia Mazda Mitsubishi Nissan Subaru Suzuki Toyota Others Total domestic-built Total imported Total light truck sales Total domestic-built cars & trucks Total imported cars & trucks TOTAL MOTOR VEHICLE SALES
2,069.2 746.6 441.2 118.2 370.5 150.1 204.8 37.8 1,325.7 864.9 313.1 61.2 86.5 527.1 178.8 348.2 3,922.0 2,879.4 838.6 158.6 259.7 490.7 123.6 22.5 985.8 1,301.9 213.9 296.8 150.4 170.4 411.2 59.2 5,877.6 2,225.6 8,103.2
1,959.0 799.5 408.7 103.1 259.3 151.3 189.2 47.9 1,169.4 792.3 240.8 54.7 81.7 456.7 158.1 298.6 3,585.1 2,785.6 820.1 163.7 161.5 505.4 116.4 22.5 996.0 1,239.7 236.2 298.9 140.4 186.6 362.1 15.5 5,527.4 2,083.1 7,610.5
1,875.6 908.2 420.0 20.4 223.3 141.9 123.5 38.2 1,018.3 684.6 204.0 45.9 83.8 474.1 252.2 221.9 3,368.0 2,946.7 843.3 187.7 108.9 536.8 121.7 47.1 1,101.2 1,191.3 226.3 300.1 155.9 194.1 301.5 13.4 5,356.9 2,149.1 7,505.9
1,743.8 858.1 395.3 1.4 186.1 160.9 105.9 36.1 1,038.9 742.4 192.4 30.4 73.6 526.8 267.1 259.7 3,309.5 3,158.6 837.8 193.3 86.5 572.5 121.4 57.8 1,289.4 1,198.9 238.7 326.0 146.4 182.8 286.8 18.3 5,480.1 2,187.0 7,667.1
25.5 9.2 5.4 1.5 4.6 1.9 2.5 0.5 16.4 10.7 3.9 0.8 1.1 6.5 2.2 4.3 48.4 35.5 10.3 2.0 3.2 6.1 1.5 0.3 12.2 16.1 2.6 3.7 1.9 2.1 5.1 0.7 72.5 27.5 100.0
25.7 10.5 5.4 1.4 3.4 2.0 2.5 0.6 15.4 10.4 3.2 0.7 1.1 6.0 2.1 3.9 47.1 36.6 10.8 2.2 2.1 6.6 1.5 0.3 13.1 16.3 3.1 3.9 1.8 2.5 4.8 0.2 72.6 27.4 100.0
25.0 12.1 5.6 0.3 3.0 1.9 1.6 0.5 13.6 9.1 2.7 0.6 1.1 6.3 3.4 3.0 44.9 39.3 11.2 2.5 1.5 7.2 1.6 0.6 14.7 15.9 3.0 4.0 2.1 2.6 4.0 0.2 71.4 28.6 100.0
22.7 11.2 5.2 0.0 2.4 2.1 1.4 0.5 13.5 9.7 2.5 0.4 1.0 6.9 3.5 3.4 43.2 41.2 10.9 2.5 1.1 7.5 1.6 0.8 16.8 15.6 3.1 4.3 1.9 2.4 3.7 0.2 71.5 28.5 100.0
2,746.0 1,883.1 619.7 75.5 167.6 2,251.2 1,678.4 761.8 916.6 6,675.6 2,037.5 409.2 78.3 57.5 87.0 99.7 86.3 249.2 56.4 45.4 770.3 98.4 7,646.8 1,066.4 8,713.0 13,524.4 3,292.0 16,816.4
2,757.0 1,843.4 631.3 81.9 200.3 2,267.8 1,670.8 746.1 924.7 6,695.6 2,333.0 529.7 101.3 34.8 97.0 95.2 96.0 289.4 70.5 35.9 870.3 113.0 7,801.4 1,227.2 9,028.6 13,328.8 3,310.2 16,639.1
2,781.8 1,839.8 637.1 88.5 216.4 2,252.8 1,731.9 763.9 968.0 6,766.5 2,594.5 551.1 118.5 32.2 114.1 76.2 53.4 449.6 65.7 26.8 958.8 147.9 8,114.7 1,227.1 9,361.0 13,471.6 3,376.2 16,847.8
2,713.0 1,794.0 581.5 107.7 229.8 2,068.0 1,778.0 858.7 919.3 6,559.0 2,721.4 624.7 129.1 17.0 129.5 65.0 38.2 504.5 74.6 24.3 970.9 143.7 8,059.1 1,221.3 9,280.4 13,539.2 3,408.3 16,947.5
31.5 21.6 7.1 0.9 1.9 25.8 19.3 8.7 10.5 76.6 23.4 4.7 0.9 0.7 1.0 1.1 1.0 2.9 0.6 0.5 8.8 1.1 87.8 12.2 100.0 80.4 19.6 100.0
30.5 20.4 7.0 0.9 2.2 25.1 18.5 8.3 10.2 74.2 25.8 5.9 1.1 0.4 1.1 1.1 1.1 3.2 0.8 0.4 9.6 1.3 86.4 13.6 100.0 80.1 19.9 100.0
29.7 19.7 6.8 0.9 2.3 24.1 18.5 8.2 10.3 72.3 27.7 5.9 1.3 0.3 1.2 0.8 0.6 4.8 0.7 0.3 10.2 1.6 86.7 13.1 100.0 80.0 20.0 100.0
29.2 19.3 6.3 1.2 2.5 22.3 19.2 9.3 9.9 70.7 29.3 6.7 1.4 0.2 1.4 0.7 0.4 5.4 0.8 0.3 10.5 1.5 86.8 13.2 100.0 79.9 20.1 100.0
its turnaround initiatives. As an alternative, GM could fund a compromise between the parties and has already allocated some reserves for this potential eventuality. We believe either scenario will hurt GM. The question is how much will it cost the automaker to bring a compromise from each party. We think it will be cheaper in both the short and long run for GM to spend the billions of dollars it will likely take to subsidize both Delphi and the union workers than to suffer an extended strike. In March 2006, Dana Corp. of Toledo, Ohio, with $8.8 billion in sales in 2005, became the latest large US parts maker to file for voluntary petitions for reorganization under Chapter 11 of the US Bankruptcy Code. If the pressure does not let up, other smaller parts makers could file for bankruptcy protection or go out of business.
Parts suppliers seek new customers

As GM and Ford reduce North American vehicle production, parts suppliers are attempting to offset declining sales to those automakers by winning new business from foreign automakers. In particular, they have targeted Japanese automakers, which have dramatically increased their US presence in recent years. Japanese automakers operated 20 production facilities in the United States in 2005, up from only 11 in 1993. In 2005, Japanese production in the United States increased 7.6% from the year-earlier period to nearly 3.4 million light vehicles. As a result, US parts suppliers have increased sales to Japanese automakers. The Japan Automobile Manufacturers Association (JAMA), a trade group, reported that US companies sold $45.2 billion in parts and materials to Japanese automakers in the year
S&P Credit Market Service View:

This section was written by Standard & Poors Credit Market Services (CMS). S&P CMS is independent of S&P Equity Research Services. Views do not necesssarily reflect those of Standard & Poors Equity Research Services. and GM will be able to move from the popular employee pricing plans to a value-pricing or clear-pricing approach. The risk exists that these companies will return to the heavy incentives of the past few years. Many factors do not bode well for demand this year, among them higher gasoline prices, rising interest rates, uncertain consumer confidence, and lengthening auto-loan terms.
Passenger vehicles North America

According to Standard & Poors Credit Market Services, General Motors Corp. (B/Watch Neg/B-3) and Ford Motor Co. (BB-/Negative/B-2) need to make progress in turning around their North American operations in 2006, and time is short. GMs US market share through the first three months of 2006 was 24.2%, down from 26.3% in 2005. Fords share over the same period was 18.5%, up from 18.3% in 2005. In ongoing contrast, the Chrysler unit of DaimlerChrysler AG (BBB/Stable/A-2) is faring better in North America for now, with slight market-share gains from the success of its new products. Japanese and Korean automakers continue to steadily gain market share in the US, Kia Motors Corp. (BBB/Stable/) is planning to build its first plant in the US, while Toyota Motor Corp (AAA/Stable/A-1+) is increasing its US production capacity. We expect 2006 US light-vehicle sales to be slightly below 2005, although still at historically robust levels. Competition will remain fierce, and we remain cautious about how successfully Ford
Auto suppliers
After facing challenging business conditions for the past two years, the US auto supplier sector is now dominated by low-rated, distressed companies. A combination of vehicle production cuts, high rawmaterial costs, unfavorable product mix shifts, and ongoing pricing pressure from a weakened customer base has caused most auto suppliers earnings and cash flow to decline dramatically. A string of companies have been forced to file for Chapter 11 bankruptcy protection, including several large ones with leading market shares. The operating environment appears remains very challenging, and there appears to be little reason to expect conditions to improve in the near term. On the contrary, several issues threaten to intensify the challenges facing auto suppliers in 2006. Standard & Poors Credit Market Services has several key concerns:
ended March 31, 2005, 9% more than in the previous year, and 127.8% more than in the year ended March 1995. Nevertheless, US parts suppliers still face numerous challenges in gaining a large piece of the Japanese automaker business. As Japanese automakers opened plants in the United States, they brought many key suppliers with them. Similarly, South Korean and European parts suppliers have opened factories in the United States to sell parts to South Korean and European automakers with US plants. Asian and European automakers are considered to have a more congenial collaborative process with suppliers, while automakers from the United States are much more focused on the bottom line. In recent years, US automakers have forced suppliers to lower prices or risk losing contracts. As a result, US suppliers who do the bulk of their business
with the Big Three have seen their profit margins squeezed, forcing them to spend fewer dollars on research and development.
US sales may fall in 2006

Customers continued to visit dealerships thus far in 2006, where automakers offered a wide array of brand new models, updated older models, and innovative features, together with incentives such as rebates and lower prices. Heavy price competition enhanced vehicle affordability, but pressured industry profitability. Standard & Poors currently projects that US light vehicle sales volume will fall 0.9% to 16.8 million units in 2006, from 16.95 million in 2005. Our outlook reflects Standard & Poors forecast for growth in the US economy, along with an improved stock market, a lower unemployment rate, and rising
The success of new vehicle launches. Of particular concern is whether the launches of several new vehicles specifically, high-volume SUVs and pickups from General Motors Corp. will be successful. High gasoline prices. The result has been depressed demand for large, high-profit-margin vehicles, from which many auto suppliers generate a disproportionate share of their earnings. High raw material prices. Most auto suppliers are not able to fully offset the increased costs of steel, plastic resin, rubber, and lead with higher prices. Declining market shares of Ford and GM. Because most North American auto suppliers remain overly dependent on these two automakers, this will hurt suppliers for at least the next several years. Labor disruptions. This risk increases as auto suppliers and vehicle manufacturers attempt to reduce the burden of their high labor costs. We may still see a strike at bankrupt Delphi Corp. A strike at Delphi or any other sizable auto supplier could shut down vehicle production at some North American auto plants, and the already fragile supplier base could face severe financial hardship.
Liquidity pressures. High debt levels have limited auto suppliers access to bank lines, negative investor sentiment has hindered the suppliers ability to raise new capital, and lower credit ratings have reduced access to accounts-receivable loan facilities. Several high-profile bankruptcies have led vendors to tighten trade credit terms. Some suppliers have also found it difficult to raise funds by selling assets because there is excess production capacity and asset returns are weak. In previous years, liquidity pressures or operating problems specific to each company prompted bankruptcy. Now, however, several other factors are likely to come into play. One is the attraction of lower labor costs if a company files. Companies could also use a bankruptcy opportunity to more aggressively restructure operations or address unprofitable business contracts, or file simply because their competitors have gained advantage by doing so. Moreover, there has been an increased risk of default by Ford and GM in recent years. A bankruptcy filing by either of these companies would almost certainly prompt additional filings by some of their suppliers, who would suffer immediate liquidity crises if invoices went unpaid. In the longer term, the suppliers of a bankrupt auto manufacturer would be vulnerable to potential cutbacks in vehicle production while the manufacturer restructured its labor agreements and manufacturing footprint.
consumer confidence in 2006 combined with some purchase fatigue in 2006, following incentive driven sales in 2005. Our near-term outlook for the relative performance of the Big Three automakers is negative. Despite the Chrysler Groups expected gains, we expect that the Big Three overall will lose share to foreign carmakers, principally the Asian brands. The highly profitable light truck, minivan, and SUV segment is of special concern. Once dominated by the Big Three, this segment faces increasing pricing pressure from successful foreign makers as well as a shift to smaller, newer, more fuel-efficient vehicles. Standard & Poors expects the Big Threes market share and profit margins in this sector to decline in coming periods. We anticipate that the category will continue to see the effects of heightened competition, with increased pricing pressure and discounting. We expect the domestic brands in aggregate to continue to lose market share.
Improvement in used vehicle and parts markets

Growth in the US replacement parts market may be limited in 2006. This largely reflects the improved quality of original equipment, which has reduced the need for aftermarket parts. According to estimates from the Automotive Aftermarket Industry Association, a trade group, the automotive aftermarket industrys revenues rose 5% to $270 billion in 2005, up from $257 billion in 2004. Automakers aggressive incentives on new vehicles have pressured used vehicle prices in recent years by making new vehicle prices relatively more attractive. Despite these pressures, according to Manheim Auctions of Atlanta, Georgia, which produces a used vehicle value index, the index has recovered recently, reaching 116.3 (January 1995=100) in January 2006. This level exceeded the prior multiyear peak of 115.0 reached in April 2002, before settling back to 114.2 in April 2006.
US FULL-SIZE SUV SALES

(In thousands of units)
800 750 700 650 600 550
2000 2001 2002 2003 2004 E2005 F2006 F2007 F2008 F2009 F2010
E-Estimated. F-Forecast. Source: J.D. Power & Associates. JUNE 29, 2006 / AUTOS & AUTO PARTS INDUSTRY SURVEY
CAR & TRUCK SALES AND TREND DEMAND

(In millions of units)
12 Total car sales 10 8 6 4 Total truck sales 2 Truck trend demand 0 1981 83 85 87 89 91 93 95 97 99 01 03 2005 Car trend demand
Source: Wards Automotive Reports.
I NDUSTRY P ROFILE
Competition goes into overdrive

The United States is the worlds largest consumer market for light vehicles, a category that comprises passenger cars and light trucks. For 2006, Standard & Poors expects light vehicle sales in the United States to fall to about 16.8 million (compared with 16.95 million in 2005). According to the US Census Bureau, revenues for US new car dealers totaled an estimated $670 billion in 2005 (including service, insurance, and other items). Standard & Poors estimates that sales of new vehicles accounted for more than $400 billion of that total and should exceed $400 billion again in 2006. In recent years, light trucks have become popular passenger vehicles. The category includes minivans, sport-utility vehicles (SUVs), and pickup trucks that are used as substitutes for cars, as well as lightweight commercial vehicles like delivery vans. In terms of units sold, light trucks (less than 10,000 pounds gross vehicle weight, or GVW) accounted for more than 95% of the total 2005 truck market. Approximately 495,000 medium- and heavy-duty trucks were sold in the United States in 2005, up from about 430,000 in 2004, and 330,000 in 2003, but down from 460,000 in 2000, and 520,000 in 1999. Standard & Poors expects sales volume of such vehicles to advance to 540,000 in 2006 before retreating to 430,000 in 2007. (Medium-duty trucks weigh 10,000 to 33,000 pounds; heavy-duty trucks exceed 33,000 pounds.) Participants in the medium-weight and heavy-duty commercial truck markets include DaimlerChrysler AG, Freightliner Corp. (a subsidiary of DaimlerChrysler that makes Freightliner brand trucks), Volvo Trucks North America Inc., PACCAR Inc., Navistar International Transportation Corp., and Mack Trucks Inc. (acquired by Volvo in 2001). These segments of truck manufacturing are covered in the Heavy Equipment & Trucks issue of Industry Surveys.
The Big Three see dwindling market share

The Big Three US automakers General Motors Corp. (GM), Ford Motor Co., and the Chrysler Group accounted for approximately 43.1% of passenger cars sold in the United States in 2005, with individual market shares of 22.7%, 13.5%, and 6.9%, respectively. (Before the merger of Chrysler and Daimler-Benz AG, the Big Three referred to GM, Ford, and Chrysler. Today that term is used to indicate GM, Ford, and either Chrysler or DaimlerChrysler, depending on the context.) The balance of US car sales (56.9% in 2005, up from 34.0% in 1988) went to foreign nameplates. Most of these vehicles are produced in transplant facilities foreign-owned plants located in North America. In 2005, the top three foreign companies had a combined market share of 35.2%: Toyota Motor Corp. (with 16.8%), Honda Motor Co. Ltd. (10.9%), and Nissan Motor Co. Ltd. (7.5%). However, the Big Three dominate the US market for light trucks. Ford, GM (maker of Chevrolet and GMC trucks), and Chrysler (maker of Dodge trucks and Jeep sport-utility and recreational vehicles) account for some 71% of light truck sales. Among foreign automakers now expanding into the US light truck market are Toyota, Honda, and Nissan. Overall, the Big Three brands commanded 58.2% of the US light vehicle market in 2005, according to industry publication Wards Automotive Reports down from 60.1% in 2004, 61.8% in 2003, 63.0% in 2002, and 64.5% in 2001.
Auto parts sector highly fragmented

The auto parts manufacturing sector of the US auto industry is highly fragmented, consisting of thousands of parts suppliers that range in size from small shops to large multinational corporations. It comprises four lines of business: original equipment manufacturing, replacement parts manufacturing, distribution, and rubber fabrication.
Original equipment manufacturers (OEMs). These companies manufacture parts and components that automakers use in the assembly of new vehicles. Thousands of OEMs are small independent firms; among the largest independents are Dana Corp., Delphi Corp., Goodyear Tire & Rubber Co., Johnson Controls Inc., Magna International Inc., Superior Industries Inc., Tenneco Automotive Inc., TRW Inc., and Visteon Corp. Some OEMs are subsidiaries of large diversified companies, such as Allied Signal Inc., Eaton Corp., General Electric Co., 3M Co., PPG Industries Inc., Textron Inc., and United Technologies Corp. Replacement parts manufacturing. Participants in the replacement market, also known as the aftermarket, produce parts and components to replace or supplement parts that were included in a vehicles original assembly. Among the fields important players are ArvinMeritor Inc., Cooper Tire & Rubber Co., Dana Corp. (through its acquisition of Echlin Inc.), and Federal-Mogul Corp. As in the original equipment segment, aftermarket parts suppliers and distributors may be independent companies or subsidiaries of larger companies. Some firms, like Dana, participate in both the original equipment and replacement sectors. Replacement parts distribution. Companies in this category distribute automotive accessories and parts, such as air filters, light bulbs, and fuses, which replace or supplement original vehicle parts. Sales are primarily to automotive parts retail stores and fleet owners. Genuine Parts Co. is easily the largest independent distributor of automotive parts. As of year-end 2005, it operated 58 US warehouse/distribution centers associated with the National Automotive Parts Association (NAPA; a leading American franchiser of auto parts/accessories stores and distribution centers), owned about 1,000 jobbing stores, and served more than 5,000 independent automotive parts jobbers. Its size and leading position in the industry notwithstanding, Genuine Parts represents only an estimated 5% to 6% of the highly fragmented automotive aftermarket. Rubber fabricating. Rubber fabricators manufacture tires, belts, hoses, and other
rubber products for the automotive industry. Approximately 60% of rubber production for the auto industry is tire-related. About half of worldwide tire production is estimated to come from three companies: Compagnie Gnrale des tablissements Michelin (France), Goodyear Tire & Rubber (United States), and Bridgestone/Firestone Inc. (Japan). Foreign-based tire manufacturers now own a substantial portion of US domestic capacity. Only two US tire companies are now publicly traded: Cooper Tire & Rubber Co. and Goodyear Tire & Rubber Co. According to estimates by the Rubber Manufacturers Association, a trade organization, US light vehicles (both new and used) accounted for shipments of about 303 million tires in 2005. The 2.0% increase from 297 million units in 2004 primarily reflects higher demand for replacement tires. Standard & Poors estimates that light vehicle volume will rise 1% to 2% in 2006, driven by increased replacement tire demand.
INDUSTRY TRENDS
The most important trends in the automotive industry generally involve two related developments: competition and globalization. Increased domestic competition pressures manufacturers and their parts suppliers to leverage their brands and engineering, development, and production costs by entering and competing in foreign markets to develop and market niche vehicles that will sell in relatively small quantities. As more producers enter new markets around the globe, competition escalates worldwide. One consequence is that quality, efficiency, and vehicle longevity have been rising. Also, car makers have used lighter materials to reduce vehicle weight and enhance fuel efficiency to meet consumer and legislative demands. In recent years, demand has grown for safety features in vehicles and for luxury vehicles. Luxury vehicles often have the most advanced technology and features, including the latest safety and electronics features.
Cars stay on the road longer

As automakers improve the durability and quality of passenger cars, consumers are
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MEDIAN AGE OF US CARS AND LIGHT TRUCKS

(In years)
10.0 9.0 8.0 7.0 6.0 5.0 4.0 1970 74 78 82 86 90 94 95 96 97 98 99 00 01 02 03 04 2005 Cars Light trucks*
*All trucks prior to 1993. Source: Polk Automotive Intelligence.
Growth in electronics
Consumer demand for improved safety features, entertainment systems, and communications devices in vehicles is driving growth in automotive electronics. The global automotive electronics market is projected to grow at an annual pace of 7.5% from $86.5 billion in 2004 to $124 billion in 2009, according to industry research firm Freedonia Group. By 2010, electronics are expected to account for nearly 40% of an average vehicles value. Electronics are used in a wide variety of safety fea-
Use of aluminum and plastic grows

Automakers are increasing their usage of a variety of materials, including aluminum
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keeping them on the roads longer. The median age of US passenger cars increased to nine years in 2005, up from 8.9 years in 2004, and only 8.3 years in 2000, according to industry research group R.L. Polk & Co. Only 4.5% of passenger cars were scrapped in 2005 a record low compared with a scrappage rate of 4.8% in 2004, and 6.4% in 2000. R.L. Polk expects the US passenger car fleet to age further in the next decade, as new technology increases vehicle durability and longevity. As vehicles become more durable and last longer, the replacement cycle will lengthen, potentially creating a decline in annual light vehicle sales. The obvious beneficiaries of the trend are aftermarket parts suppliers and auto repair shops. Annual automotive aftermarket sales (including aftermarket parts and services) has increased at a compound annual growth rate of 4% since 2000 to more than $250 billion, according to tax and accounting consulting firm Grant Thornton LLC. Large auto parts supply chains are particularly reaping the benefits from the aging vehicle fleet. For instance, annual sales for Advance Auto Parts Inc. rose 13.1% to $4.3 billion in 2005, due to growth in the number of stores and sales per store. Leading auto parts retailer AutoZone Inc. reported that sales for the six months through February 11, 2006, rose about 4.1% to $2.6 billion, as the chain opened 202 additional stores since February 2005 to 3,743 stores chain wide.
and plastic, lowering the weight of vehicles and improving fuel efficiency. According to trade publication American Metal Market, aluminum accounted for 8.5% of materials used in an average passenger car in 2004, up from only 2.6% in 1977, while plastic similarly increased to 7.6% of total materials used in 2004, from 4.6% in 1977. Meanwhile steel (a much heavier material) fell from 60% of total materials used in an average passenger car in 1977 to 54.5% in 2004. A March 2006 study by the Aluminum Association, a trade group, found that aluminum surpassed iron to become the second most used material in passenger cars in 2005. Aluminum is used in engines, bumpers, and hoods amongst others, while plastic is used in interiors, engine components, and fuel systems. In automotive applications, about one kilogram (2.2 pounds) of aluminum can be used to replace two kilograms of steel or iron, allowing automakers to significantly reduce the weight of the vehicle. Lightweight vehicles create greater fuel efficiency, which is particularly important following the surge in gas prices. Nevertheless, heavier vehicles are believed to provide greater protection in crashes. In addition, aluminum is substantially more expensive than steel. For instance, Volkswagen AGs Audi brand developed the first high-volume passenger car with an all-aluminum body, the Audi A2, which launched in 2000. It ended production of the A2 in mid 2005 and plans to replace it with a new steel body A2 in 2008. The company said that the aluminum body increased manufacturing costs 1,000 ($1,206 based on the June 30, 2005 conversion rate) per vehicle. The higher-priced aluminum cars sold poorly.
tures, including tire pressure monitoring devices; electronic damping controls, which adjust shocks to road conditions to increase stability and comfort; and electronic stability programs (ESPs), which apply distinct pressure on each wheel to prevent the loss of control that leads to rollovers. Entertainment and information systems, such as GPS navigation systems and satellite radios, are also becoming increasingly popular with consumers. These value-added products are particularly proliferating in premium vehicles. Automakers can typically charge higher prices for vehicles that include more of these features. In addition, premium car buyers are willing to pay more for increased safety. The leading parts suppliers in the development of automotive electronics are Delphi Corp., Visteon Corp., Germanys Robert Bosch GmbH, and Siemens AG, as well as Japans Denso Corp. Notably, Delphi is focusing on growth in its electronics, safety, and entertainment product lines as it plans to sell off noncore operations. Just as automakers can generally charge higher prices for vehicles that include value-added parts, they are typically willing to pay higher prices to suppliers for these parts. While US automakers have squeezed parts supplier profit margins in recent years, forcing longtime suppliers to lower prices or risk losing critical contracts, they have continued to pay higher prices for automotive electronics.
sport utility vehicles (SUVs), and automaker efforts to increase performance and horsepower. Heavier, more powerful vehicles are typically less fuel-efficient. Passenger car sales accounted for only about 45.1% of the light vehicle market in 2005, compared with about 50% as recently as 1999. The growing number of large SUVs and pickups on the roads is lowering the average fuel economy of the US vehicle fleet. According to the Environmental Protection Agency, the average fuel economy of 2005 model year cars and trucks sold in the United States was 24.6 miles per gallon, compared with 25.1 miles per gallon in 1993. (By comparison, the average fuel economy of 1975 model year cars and trucks was only 15.3 miler per gallon.) Passenger car sales did make a modest comeback in 2005, with market share rising 1%, due in part to rising fuel prices. Hybrid car sales, while still accounting for less than 2% of the market in 2005, also could increase average fuel economy. For instance, the hybrid Toyota Prius is listed to have an average fuel economy of about 55 miles per gallon.
Growth of safety features

Evolving government regulations and a shift in consumer sentiment toward improved safety are boosting sales of automotive safety features. In particular, the number of airbags in new vehicles is escalating. While front driver and front passenger airbags have become standard features in almost all cars, automakers are adding side airbags and inflatable curtains, as a result of strong consumer demand. The percentage of new North American light vehicles with sideimpact airbags is projected to increase from 36% in 2005 to 57% in 2010, while vehicles with inflatable curtains will grow from 25% in 2005 to 58% in 2010, according to Global Insight. Inflatable curtains, which deploy from the ceiling, protect an occupants head in a sideimpact crash. Side airbags, which protect the chest during side-impact crashes, are generally situated in the door or seat. Although not yet government-mandated, consumers are increasingly requesting these features. Headprotecting side airbags reduce the risk of a fatality during a side impact collision by 53%, according to research conducted by the Insurance Institute for Highway Safety, an
Rising fuel economy standards

Since the inception of US vehicle fleet fuel efficiency regulations in the 1970s, the fuel economy of US vehicles has improved modestly. In 1975, Congress enacted Corporate Average Fuel Economy (CAFE) standards to lower energy consumption in the wake of the 1973 oil crisis. These standards require automakers to meet an average fuel economy for cars and trucks sold in the United States. In March 2006, the Bush administration lifted light truck standards from 21.6 miles per gallon in 2006 to 24 miles per gallon by 2011. Fuel efficiency standards for passenger cars have been unchanged at 27.5 miles per gallon since 1985. Weighing against efforts to improve the US vehicle fleet fuel efficiency has been expanded consumer demand for bigger, heavier
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independent research organization funded by the automotive insurance industry. Knee airbags are also beginning to appear in luxury vehicles although they are not generally included as a standard feature. Other safety features rapidly growing in popularity include antilock braking systems (ABSs) and electronic stability programs (ESPs). ABSs automatically pump the brakes and apply pressure selectively to prevent brake lockup. ESPs, which utilize antilock braking systems, straighten the trajectory of a vehicle by applying brake pressure when a computer senses it moving off-course. Following a study by the US National Highway Traffic Safety Administration (NHTSA) that found electronic stability programs limited road accidents (particularly for SUVs), GM, Ford, and Chrysler announced in late 2004 that they planned to equip most of their SUVs with stability controls as a standard feature by 2006. The decision is expected to increase ESP usage in new US passenger cars to 23% by the end of 2006, from 10.1% in 2004. New government regulations are also forcing automakers to install additional safety features. In the spring of 2005, after three years of wrangling, the NHTSA passed a rule requiring that new vehicles be equipped with tire pressure monitors. (The rule is a response to the 2000 recall of Firestone tires linked to more than 270 fatal highway accidents.) In December 2004, the NHTSA also
announced a new regulation requiring lap and shoulder belts in all rear seats. (Many vehicles come equipped with only a lap belt for the middle rear seat.) The rule was established to protect young children seated in that position. The new rules will be phased in during the 2006 through 2008 model years. In the United States, new safety features are usually forced on automakers by regulation; in Europe, in contrast, such changes are most often generated by customer demand. In fact, many safety devices were first offered in European vehicles before migrating to the United States. As a result, European parts suppliers are leaders in this segment. European producers were the first to make airbags standard in most models. European manufacturers have also added side airbags at a more rapid pace. Mercedes-Benz and Volvo began installing side airbags (or chest bags) in 1994 and 1995 (Ford acquired Volvo in 1999). In 2006, 83% of new light vehicles sold in Western Europe will have side airbags, compared with only 44% in North America, according to Global Insight. Swedish firm Autoliv Inc. has emerged as the biggest player in the automotive safety industry, with more than one-third of the market, according to the companys own estimates. The company estimates that the worldwide market for automotive safety features increased 4% in 2005 to $17 billion, led by strong growth in Asia.
US RETAIL SALES OF MOTOR VEHICLES, BY WEIGHT CLASS

2001 CATEGORY UNITS % OF TOTAL 2002 UNITS % OF TOTAL 2003 UNITS % OF TOTAL 2004 UNITS % OF TOTAL 2005 UNITS % OF TOTAL
PASSENGER CARS Domestic Import TRUCKS Light trucks, total 0-6,000 lbs. 6,001-10,000 lbs. 10,001-14,000 lbs. Medium-duty trucks, total 14,001-26,000 lbs. 26,001-33,000 lbs. Heavy-duty trucks (over 33,000 lbs.) Total US sales
Source: Ward's Automotive Reports.
8,422,625 6,324,996 2,097,629 9,049,751 8,699,744 6,090,543 2,516,423 92,778 210,393 118,829 91,564 139,614
48.2 36.2 12.0 51.8 49.8 34.9 14.4 0.5 1.2 0.7 0.5 0.8
8,103,223 5,877,647 2,225,576 9,035,423 8,713,139 6,068,352 2,564,745 80,042 176,253 106,925 69,328 146,031
47.3 34.3 13.0 52.7 50.8 35.4 15.0 0.5 1.0 0.6 0.4 0.9
7,610,481 5,527,430 2,083,051 9,356,961 9,028,572 6,266,475 2,671,249 90,848 186,425 119,636 66,789 141,964
44.9 32.6 12.3 55.1 53.2 36.9 15.7 0.5 1.1 0.7 0.4 0.8
7,505,932 5,356,873 2,149,059 9,792,641 9,360,988 6,457,738 2,795,971 107,279 228,456 153,366 75,090 203,197
43.4 31.0 12.4 56.6 54.1 37.3 16.2 0.6 1.3 0.9 0.4 1.2
7,667,066 5,480,095 2,186,971 9,777,263 9,280,688 6,585,786 2,528,046 166,856 243,783 154,925 88,858 252,792 17,444,329
44.0 31.4 12.5 56.0 53.2 37.8 14.5 1.0 1.4 0.9 0.5 1.4 100.0
17,472,376 100.0
17,138,646 100.0
16,967,442 100.0
17,298,573 100.0
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Affordability improves
After years in which price increases outstripped income growth, several developments including heightened competition, consumer demand for affordability, currency fluctuations, and cost cutting by manufacturers have kept a lid on automotive prices in recent years. In 1973, the average US citizen needed 17.5 weeks of annual family earnings to buy an average-priced car, a figure that rose to 22.6 weeks by 1995. By 2005, the figure had declined to 20.0 weeks. Standard & Poors believes the downtrend may continue in 2006. Heated competition has contributed to the weak automotive pricing environment. With overall improved quality among most manufacturers, buyers are more inclined to use price to differentiate similar offerings. When one manufacturer offers incentives (such as rebates or discounted financing), the others generally follow suit or risk losing market share. Customers, armed with dealer cost information from consumer publications and the Internet, have learned to drive a hard bargain when negotiating the purchase of a vehicle.
grams, are generally introduced to the luxury segment first. (The term luxury segment is loosely defined, but tends to include passenger cars and light trucks with a sticker price in excess of $40,000.) Market share for luxury vehicles in the United States expanded from about 8.4% in 2000 to 10.3% in 2005, according to Global Insight. In 2005, leading luxury vehicle manufacturers posted solid growth even as the industry as a whole struggled. Sales of Lexus, Toyotas luxury car brand, increased 5.2% in 2005 to 303,000 units, compared with a 0.5% gain for the industry. For the first four months of 2006, light vehicle sales for BMW increased 10.8% to 72,600 units. Meanwhile, total US light vehicle sales were up only 1.0% over that same period.
Big Three losing market share

GM has led the US automobile industry in sales since 1930, when it first overtook Ford. In 1978, GMs market share rose as high as 47.7%. Afterward, it declined steadily, hitting 26.3% in 2005 (for cars and light trucks combined), down from 27.6% in 2004. In the first five months of 2006, GMs share was 23.8%, down from 25.7% in the corresponding period of 2005. Ford and DaimlerChrysler also have lost ground in recent years but are currently heading in different directions. Fords share declined to 18.3% in 2005, from a recent peak of 26.2% in 1995 and 20.7% in 2003; DaimlerChryslers share rose to 13.6% in 2005 from 13.1% in 2004, but remains down from its 1998 peak of 16.8%. In the first five months of 2006, Fords share dipped to 18.3%, from 18.9% in the comparable 2005 period. The Chrysler Groups share fell to 13.8% from 14.1% during the same period. Overall, the Big Three brands commanded 58.2% of the US market in 2005, according to weekly trade publication Wards Automotive Reports down from 60.1% in 2004, 61.8% in 2003, 63.0% in 2002, and 64.5% in 2001. For the first five months of 2006, the Big Three together claimed 55.9% of the market, versus 58.7% in the comparable year-earlier period. The decline reflects rivals well-received new products, including light trucks, SUVs, and crossover utility vehicles
Luxury segment expands

With vehicle affordability rising, consumers are not pocketing the savings. Increasingly, they are taking the money and buying vehicles that are more expensive either upscale brands or vehicles with more options. In addition, demand for the safety features generally associated with luxury brands has risen in recent years, enabling this segment to consistently grow faster than the overall vehicle market. Safety enhancements, such as electronic stability proNEW CAR AFFORDABILITY TRENDS
27 Passenger car sales (in millions, right scale) 12
25
11
23
10
21
19 Average weeks of income required to buy a new car (left scale) 17 1973
7 77 81 85 89 93 97 2001 2005
Sources: Wards Automotive Reports; US Census Bureau.
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(CUVs), consumers growing attraction to Asian and European nameplates, and relative weakness at Ford and GM.
On the global front

The Internet, faster communication, lower trade barriers, and rising incomes in many parts of the world are transforming the international automotive market. Competition once came primarily from local sources; it can now come from virtually anywhere on the planet. The resulting globalization of their industry has led automakers to improve product quality, lower costs, and reposition themselves through mergers. As foreign firms have opened transplant factories in the United States, they have chipped away at domestic market share held by US producers. They are now aiming at the US light truck segment.
This shift in control of production in the United States may create opportunities and risks for US parts suppliers. We believe most large suppliers will attempt to diversify away from their dependence on the shrinking market share of the Big Three and increase their US business with growing Asian producers. Not only would such a shift increase suppliers sales, but it also could potentially improve margins as research and development and other overhead costs would be spread over a wider production volume. Magna International Inc., a global supplier of automotive systems, said it is following this strategy and trying to win more business with Japanese carmakers.
Production capacity concerns

North American overcapacity remains a major concern for automakers even as the Big Three reduce their capacity levels, according to a 2005 study by industry research firm CSM Worldwide Inc. Production capacity at North American factories is projected to rise 2.4% from 2004 to 2009 as annual capacity reaches about 19.5 million units. Overproduction is a major factor in creating high incentive levels in the US market. Automakers are forced to offer appealing financing options and rebates in order to sell off extra vehicles. However, even as US automakers attempt to shutter factories to cope with the problem, Asian automakers are opening new production facilities and expanding capacity. The CSM Worldwide report found that non-Big Three production capacity in North America increased from 4.4 million units in 2002 to about 5.5 million in 2005; Standard & Poors expects the number to continue rising. Overcapacity at North American plants is generally estimated at about three million units annually. If sales remain relatively flat, the growth of Asian production levels could be extremely detrimental to the industry and create increased pricing pressure.
Transplants expand North American production

Foreign automakers continue to increase production capacity at plants in North America. In May 2005, Hyundai Corp.s automotive subsidiary opened up its first US factory in Montgomery, Alabama, making it the first Korean auto manufacturer with US production facilities. Meanwhile, Toyota will begin production at its sixth North American plant, based in San Antonio, Texas, in late 2006. Transplants accounted for 31% of light vehicle production in North America in 2005, according to Wards Automotive Reports. That percentage is likely to rise through this decade; Standard & Poors expects Asian brands to increase production and the Big Three automakers (GM, Ford, and DaimlerChryslers Chrysler division) to reduce capacity or close facilities to cut costs.
LIGHT VEHICLE PRODUCTION BY REGION

(In thousands of vehicles)
2000 2001 2002 2003 2004
North America South America European Union Other Europe Asia & Oceania Africa Total
17,150 1,978 16,648 2,567 17,550 316 56,209
17,473 2,006 16,705 2,465 17,082 380 56,112
16,369 1,901 16,444 2,512 18,110 364 55,700
15,874 1,922 17,472 1,909 20,363 379 57,918
15,766 2,410 17,763 2,354 22,333 401 61,028
HOW THE INDUSTRY OPERATES

The automobile industry is engaged in the design, production, marketing, sale, and servicing of motor vehicles. Many different companies and participants are involved in
Source: International Organization of Motor Vehicle Manufacturers.
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production and sales, and these processes require collaborative efforts.
market for the foreseeable future, regardless of economic conditions.
Made in Detroit and elsewhere

Automobiles are built in factories around the world: in North and South America, in Eastern and Western Europe, and in Asia. Despite the industrys globalization, however, the plants of the Big Three US automobile manufacturers General Motors Corp. (GM), Ford Motor Co., and DaimlerChrysler AGs Chrysler division are still concentrated in the area of Detroit, Michigan. (Before the 1998 merger of Chrysler Corp. and Daimler-Benz AG, the Big Three referred to GM, Ford, and Chrysler. Today that term is used to indicate GM, Ford, and either Chrysler or DaimlerChrysler, depending on the context.) Foreign companies have significant production capacity in the United States, mostly in the Midwest. By increasing in-region development and procurement, these companies can better adapt to US tastes and preferences while insulating themselves from currency fluctuations. Although their share of US production had not changed much over the decade beginning in 1992 it was 25% in 2002, up slightly from 23.5% in 1992 it is up dramatically from zero before 1982, the year that Honda Motor Co. Ltd. opened the first transplant factory in Ohio. Nissan Motor Co. Ltd. followed in June 1983, while Toyota Motor Corp. started its US manufacturing operations in December 1984 through a joint venture company. In addition, because of lower production at each of the Big Three and higher overall foreign brand production, foreign brand share of US production climbed to 31% in 2005. We expect further increases in foreignowned capacity as Japanese and European automakers transfer production of luxury vehicles to North America. In addition, more capacity is being added as Japanese automakers address their lack of penetration in the light truck market by introducing new products. Daimler-Benzs acquisition of Chrysler reflects, in part, the importance of having US production facilities and distribution channels. Given the increasing presence of non-US automakers, intense competition will likely continue in the US automotive
From drawing board to dealership

In the manufacturing process, raw materials such as steel, glass, plastic, and rubber are first procured from numerous suppliers. They are made into parts at component facilities and shipped to assembly plants, where thousands of workers put the vehicles together on assembly lines. When going full throttle, plants operate two or three eight-hour shifts per 24 hours. In North America and Europe, automakers work forces are often organized by labor unions. Automakers operations are integrated to varying degrees. However, all work with independent parts producers is frequently located near the assembly plants. Recently, they have come to depend on suppliers to assume greater design and engineering responsibilities in creating new parts and systems.
Computers revolutionize design

Before production begins, automakers undertake extensive efforts to ensure that new designs will appeal to consumers. In the past, the time between a new models first sketch and its production was as long as five years. Today most automakers have reduced that time to around three years, and they aim to reduce it to less than two years. In fact, it is now possible to move from a sketch or a concept to an actual prototype in less than a year. A concept car or prototype may not be brought to production, however, if it is not well received in market testing or is not cost-effective to produce. The design process, in particular, has been greatly expedited with the help of computers. For example, it once took 12 Ford workers 12 weeks to produce a clay model, an essential step in the design process. Now, a single designer can take an idea on a computer screen to an animated video of a vehicle in three weeks. In addition, the Big Three US automakers are implementing a labor practice called simultaneous engineering. It calls for designers and engineers from various specialties to collaborate during a vehicles design phase in order to reduce or eliminate redesign work during the later development stages.
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Simplifying parts and processes

In automobile manufacturing, fewer parts mean lower production costs and a reduced likelihood of assembly errors. Thus, the Big Three are trying to cut the number of parts used in each component and vehicle by redesigning existing models as well as by creating altogether new vehicles. Typically, with each product overhaul or redesign, part counts have dropped by 20% to 30% for individual car models, and by as much as 50% for certain subsystems like bumpers and airbags. When redesigning vehicles, automakers also try to save production costs and improve quality by reducing the number of stampings on sheet-metal parts, such as hoods, trunks, fenders, and doors. In the past, these parts usually required between five and seven stampings; today, three stampings are common. Manufacturers also are lowering costs by minimizing industrial waste and pollution. Nearly all component manufacturers now deliver their goods in reusable shipping containers. This saves money for the automakers and their suppliers by eliminating excess packaging and disposal costs. Reducing the number of labor hours required for the final assembly stage also has been a high priority for automakers. Greater proportions of components are being made at parts facilities and delivered to the assembly plants on a just-in-time basis. For example, virtually all seating today is produced off-site. Automakers send daily or even hourly orders for specific seats, which are then produced and delivered. Years ago, seats were produced at the assembly plant as needed from an inventory of seating parts, components, and other materials.
nancing sources, such as banks and credit unions. For example, a manufacturers inhouse finance unit might offer consumers 0% financing on auto purchases in order to stimulate sales of that automakers vehicles. As independent businesses, dealers assume the risk of reselling the vehicles they buy. Today, dealers are normally well-capitalized firms that operate multiple franchises in order to protect themselves from sales swings in individual brands and models. While automakers offer guidance in making marketing and pricing decisions, dealers are free to set vehicle prices, and they may or may not offer customers the discounts that automakers provide.
Matching production to inventories

Car dealers usually aim to stock a 60-day supply of vehicles in inventory. When the daily sales rate is rising, however, dealers increase their inventories so that they will not lose sales due to a lack of supply. Changes in dealer inventory levels have a ripple effect on auto production. For example, the total US domestic inventory of light vehicles stood at 83 days of supply (based on the prior months selling rate) at the end of October 2004, a number considered above optimum by Standard & Poors. Of greater concern was the 91 days of supply of light trucks, although cars had a worrisome 70 days inventory. As a result, GM, whose brands we believe had inventory levels above the industry average, announced fourthquarter US production cuts of 7.6% (versus 2003 levels) to bring inventories more in line with demand. GM also cut production in the first nine months of 2005 (year to year) by 9.4% to better match sales and production. These cuts and production reductions at other automakers helped industry inventory of light vehicles drop to a below normal 50 days at August 31. While truck inventory dropped to the traditional 60-day target, sedans fell to a lean 39 days, suggesting the need to replenish inventory levels. During the fourth quarter of 2005, GM production volume was up overall, on increased sedan volume as truck unit manufacturing declined.
Close ties with dealers

Finished vehicles are sold to franchised dealerships, which are independent businesses. Automakers record these sales (net of marketing costs) when the vehicles are shipped to the dealers. They work closely with and share many costs with dealers in developing national, regional, and local marketing plans, and they offer discounts to dealers as well as directly to retail customers. In addition, automakers financing divisions sometimes offer deals to consumers that may be better than those available from other fi-
Regulatory crosscurrents
Automakers are often caught between conflicting regulatory requirements and
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market demands. They must comply with government regulations regarding safety, fuel consumption, and pollution control, each of which typically has repercussions on the vehicles performance in other areas. For instance, the most effective way to improve a cars fuel economy is to lighten its weight. Yet doing so increases its vulnerability in collisions, making the job of designing a safe vehicle more challenging. Meanwhile, pollution regulations, which are periodically tightened, require emissions equipment that hurts fuel economy. Compliance with government rules can also fly in the face of consumer demand. For much of the past decade, consumers have clamored for SUVs and for larger and more powerful engines. These desires have been in direct conflict with the governments goal of reducing fuel consumption, because large-engine cars and SUVs consume more fuel than do smaller vehicles. The need to satisfy opposing regulatory and consumer demands has generally driven vehicle costs up, forcing automakers to turn to ever more complex solutions.
recovery equipment by 1994, and mandated the use of cleaner-burning fuels, including reformulated gasoline. It also required centrally fueled fleets of more than 10 vehicles (for 1998 and later models) to cut hydrocarbon and toxic chemical emissions by 75%.
Alternative fuel and hybrid vehicles

All domestic and most foreign automakers are developing the technology to use alternative fuels (such as ethanol, methanol, propane, or natural gas) or electricity derived from batteries or solar power. Some are actually marketing modified vehicles that can run on either gasoline or alternative fuels. Sales of such alternative fuel vehicles are still relatively small, but demand is rising, and some automakers have waiting lists of buyers. Hybrid vehicles are those with two or more sources of energy. In this category, foreign companies have taken the lead. Toyota and Honda, for example, now offer hybrid vehicles that alternate between gasoline and battery-powered electricity. US automakers have been resistant to hybrid vehicles, which they see as money losers; instead, they have been focusing on alternative fuel technologies, such as fuel cells. The hybrid market, however, has become difficult to ignore. GM began selling hybrid vehicles in late 2005, after Ford had already begun selling its Ford Escape, the first hybrid SUV. The benefits of hybrid and alternative fuel vehicles include cleaner emissions and lower operating costs compared with traditional vehicles. California, a huge auto market that typically sets precedents for federal environmental acts, has enacted increasingly strict emissions regulations. In addition, when gasoline prices spike upward, as they recently did, it further enhances the appeal of cars such as Toyotas updated Prius or Hondas Insight that can get upward of 55 miles per gallon.
Meeting emissions standards

The Clean Air Act Amendments of 1990 (CAAA) mandated that automakers reduce emissions from their manufacturing plants and established several new vehicle regulations. First phased in with 1994 models, CAAA tailpipe standards required that emissions of nitrogen oxides and hydrocarbons be cut by 60% and 40%, respectively, by 1996. A second round of cuts was required beginning with the 2004 model year vehicles, which started production in late 2003. These new cuts should result in passenger cars that will be 77% cleaner than those currently on the road; light trucks, which had been subject to less protective standards in the past, should see a 95% improvement. The legislation increased the required warranty period for catalytic converters and electronic diagnostic equipment to eight years or 80,000 miles; for all other pollution gear, the warranty period was reduced to two years or 24,000 miles. Additionally, the law required automobiles sold in the United States to be equipped with fuel-vapor recovery canisters preventing the release of gasoline fumes when the tank is filled. In 39 smoggy metropolitan areas, the CAAA required gas stations to install vapor
Recall rules passed

Beginning in the summer of 2000, reports that faulty Firestone brand tires mounted on Ford Explorer SUVs had resulted in more than 200 deaths spurred regulatory changes affecting the automotive industry. In November 2000, the Transportation Recall Enhancement, Accountability, and Documentation (TREAD) Act was signed into law.
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The TREAD Act requires automotive vehicle manufacturers to quickly inform the National Highway Traffic Safety Administration (NHTSA) about problems with their products in the United States or abroad. The law also requires NHTSA to develop a new dynamic test on auto rollovers in order to inform consumers; that test is in development. The legislations goal is to enhance information flow in detecting and speeding the correction of safetyrelated defects in automobiles, equipment, and parts.
Ford. Up from an average of $3.5 billion in the early to mid-1980s, Fords annual capital expenditures have generally exceeded $8.0 billion worldwide in recent years, as the firm spent heavily to update its vehicles and power trains (engines and transmissions). Outlays, however, were just $7.1 billion in 2005; they could fall slightly to about $7.0 billion in 2006. Chrysler. For Chrysler (part of Daimler Chrysler), capital investments in the United States totaled 3.1 billion ($3.8 billion) in 2005. Outlays included costs for completing the launches of new vehicles. In 2006, we expect the Chrysler division to spend slightly more as it plans to introduce 10 new products. Toyota. Although not a US Big Three member, Toyota is the second largest vehicle manufacturer in the world based on sales volume and has a growing sales and production presence in the United States. The company planned capital outlays of 1.55 trillion (about $14.0 billion at recent exchange rates) worldwide in the fiscal year ending March 2007, up from 1.53 billion spent in the fiscal year ending March 2006.
Heavy capital commitments

Large capital commitments are required to keep pace with product development and model changeovers. Capital budgets vary among the Big Three, with Ford and GM generally spending the most and Chrysler, which is less vertically integrated, spending the least. With outsourcing on the rise, some automakers are requiring that their suppliers pick up an increasingly large share of capital spending. General Motors. GMs capital investments peaked in 1985 and 1986, when spending on product redesign and plant construction and modernization for the two years totaled $22.8 billion. For 1991 through 1994, the average annual global expenditure dipped to about $5.4 billion. By 2001, as the company invested in new plants and machinery upgrades in the United States and Europe, it increased its capital expenditures to $8.1 billion (excluding $472 million of capital expenditures for Hughes Electronics). This increase is even more astounding because it excludes outlays from GMs Hughes Defense Operations and the Delphi Automotive parts business, which were divested and spun off, respectively. GMs worldwide capital expenditures totaled $7.9 billion in 2005. This level of commitment reflects the companys efforts to improve plant efficiency and product quality, introduce new and updated products more frequently, and expand its global presence. While substantial, this total is still lower than the mid-1980s peak, both in absolute dollars and as a percentage of sales. For 2006, we expect capital outlays to rise to $8.7 billion.
Competition redesigns the market

The US motor vehicle market, which domestic automakers divided among themselves as an oligopoly from the 1950s through the early 1970s, has since become the worlds most vigorously competitive auto market. Many foreign automakers entered the open US market in the early 1980s. Once established, they seized significant market share by addressing shifting consumer tastes and the quality shortfalls of domestic products. Japanese vehicle manufacturers were particularly successful in these regards, steadily expanding their market share at the expense of the Big Three. Foreign competition forced domestic automakers to solve underlying organizational problems and address poor product quality. After a two-decade slide in market share, which culminated in disastrous financial performances in the early 1990s, the Big Three took extensive actions to improve their designs and streamline their manufacturing processes. As a result, product quality and design are becoming less of an issue in
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differentiating foreign and domestic manufacturers. Rising competition in North America and Europe has also restricted manufacturers pricing power. Vehicle price increases have been limited in these markets; in some cases, vehicles are priced the same or lower than previous models, despite containing more features.
Costs for rebates and other marketing tactics, such as the recent employee-discountfor-all buyers, have been rising since the end of 1996. This trend likely will continue, reflecting greater competition.
Leasing plays a role

In the distant past, the practice of leasing cars was largely limited to businesses that maintained fleets of vehicles and to individual drivers, generally professionals, who traded in their cars frequently. During the 1990s, however, the practice became widespread among ordinary consumers as well. Automakers and dealers regard leasing as a way to overcome buyer resistance to high prices and fears that vehicle resale values will not hold up. Leasing protects consumers from the uncertainties of resale values when the time arrives to trade in their cars or trucks. After the two- or three-year leases expire, consumers return the vehicles to the dealer. The automakers finance subsidiary then assumes the risk of reselling the car. Thus, the automakers themselves take the gain (or loss) on the used vehicle. This strategy has concerned the investment community. If automakers misjudge their vehicles resale values and do not charge sufficiently high monthly lease prices, they could suffer losses when reselling the vehicles, hurting profits and possibly stock values. In fact, declining vehicle residual values have caused some car companies, such as GM, to reduce their commitment to leasing. In 2005, an estimated 20% to 25% of all vehicle sales were accomplished via leasing. After peaking at about 30% (according to some sources), this number had been trending downward. However, Standard & Poors believes that with interest rates rising, some automakers may look to use attractive lease rates (instead of cut-rate financing) to lure customers into dealerships.
The selling process

The battle for sales takes place mainly on the dealership floor, where price and service are the primary weapons. Although price competition is generally intense, dealers have some flexibility to raise or lower prices in response to consumer interest in a given vehicle model. Today, many products sell within a tight price range. In such a market, dealers are differentiated by their customer service. Service quality must be honed day in and day out; any gains in this area can be achieved only over a long period. Any advantage can quickly be lost if poor service generates unfavorable publicity.
Pricing factors
Several factors can force retail auto prices to rise. Over time, consumers come to expect as standard equipment features once offered as optional. New safety or emissions-control items may be required to comply with government regulations. Prices may also rise as consumer demand for a model increases. Competition pressures manufacturers and dealers to lower prices. Lower automobile prices can be achieved through higher unit production volume, cost savings on parts and labor, and improved manufacturing efficiencies. When costs are reduced through innovation, savings can be shared between manufacturer and consumer, so profits can still rise. However, when prices are reduced solely to stimulate demand and there are no offsetting cost savings, profitability declines. When sales lag, automakers use numerous tactics to stimulate demand, including discounts and cash rebates. Dealers can and often do give their own discounts in addition to those offered by manufacturers. An auto companys captive finance subsidiary can spur sales by offering car buyers financing at lower interest rates than those available elsewhere. Alternatively, manufacturers may eliminate options on a particular model to offer buyers a low-priced alternative.
Demand factors
The economic environment naturally affects demand for automobiles. Cars are a major purchase for most families, and consumers need to feel comfortable before they spend so much of their hard-earned money. During periods of sustained economic growth and plentiful employment, sales typically rise as customers feel flush and confi-
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dent enough to buy new vehicles. Conversely, when the economy weakens and jobs are hard to come by, consumers are more likely to delay the purchase of new vehicles. Other factors affecting new car sales include changes in style, engineering, safety, and quality (which hasten the obsolescence of existing models), and the cost and availability of gasoline and insurance. Safety has captured vehicle buyers attention in recent years and has become a pervasive theme in automakers ad campaigns. In response to consumer demand for safer vehicles, automakers have made wide use of components such as airbags and antilock brake systems.
Therefore, when suppliers farther down the supply chain have financial or manufacturing difficulties, carmakers and Tier 1 suppliers are likely to help in order to maintain timely parts production. The cost of supplier distress can absorb more than just cash; it also can demand management time and attention. In addition to providing loans and making higher than contractually required payments for parts, some T1 companies, such as Delphi Corp., have committed staff to help the smaller companies with purchasing and manufacturing.
Original and replacement parts

Original equipment manufacturers (OEMs) and replacement parts makers alike tend to specialize in a few items that require a high degree of skill and efficiency to manufacture. Their ability to spread outlays for research, product development, and tools and dies over several contracts gives them an important cost advantage over automakers parts divisions. In addition, OEMs and aftermarket parts suppliers are less likely to be unionized and thus more likely to have lower labor costs than auto manufacturers that run unionized plants. While they are similar in some respects, OEMs and replacement parts makers diverge in others, as outlined following. Original equipment sales. For OEMs, equipment sales depend on the number, size, and complexity of cars and trucks produced in a given year. Another variable is the percentage of any given part that automakers produce captively. The equipment made by OEMs usually is sold directly to auto manufacturers. However, some of it is distributed as replacement parts to the aftermarket, which comprises new car dealers, a few major parts distributors, thousands of smaller jobbers, and other local firms. For many large manufacturers of auto parts, the backbone of the business is original equipment sales. With the US markets annual sales of more than 16 million light vehicles, OEMs benefit from the ability to leverage their expertise across models and customers and into the aftermarket. Original equipment is a cyclical business, however, and changes in the economic environment
The world of auto parts

Auto parts manufacturers produce original parts and accessories for new vehicles, replacement parts and accessories for older vehicles, or both. The automotive business provides the majority of revenues and profits at most of these companies. At some diversified firms, however, nonautomotive operations (usually some sort of manufacturing business) account for more than half of total sales and earnings. Online procurement has changed the automotive parts business. Because of the increased price transparency created by online competitive bidding, selling prices for commodity items are often pressured. However, value-added products are generally less affected.
A dependent relationship
Parts suppliers are an important part of the vehicle manufacturing process. Automakers such as GM and Ford design and market vehicles, but they outsource production of the vehicles parts to relatively large parts manufacturers called Tier 1 (T1) suppliers. T1 suppliers, in turn, subcontract production of some parts among thousands of smaller manufacturers called Tier 2 (T2) and Tier 3 (T3) suppliers. T1 suppliers typically have multiple sources for parts. Nonetheless, they often strive to maintain a diversified T2/T3 parts supplier base in order to guarantee a steady flow of parts. If T2 and T3 suppliers run into financial difficulties, they also can create costly problems for the automobile and T1 parts makers by interrupting the production of vehicles.
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can cause sales to fluctuate considerably from year to year. Replacement parts sales. Sales of replacement parts have traditionally been more stable than original equipment sales, because the number of cars on the road, especially older models, is in a long-term uptrend. Variables affecting replacement part demand include the quality of original equipment (longer-lasting, higher-quality equipment reduces demand for replacement parts) and the number and age of cars on the road. Replacement parts are distributed to the aftermarket via car dealers, gas stations, parts distributors, small jobbers, and other local firms. Automakers are less likely to produce replacement parts captively, as demand is unknown. This increases opportunities for aftermarket vendors. In recent years, however, replacement parts have experienced declines in unit sales, largely because of the improved quality of the original equipment.
Parts makers help automakers by enabling them to accelerate the introduction of new car lines, by sharing the high cost of developing new models, and by minimizing automakers exposure to damaging strikes (supplier strikes tend to be smaller and less frequent than those of carmakers). Key suppliers are now involved in the earlier design phases of new products or processes, helping to reduce component costs.
The tire market

According to estimates by Modern Tire Dealer, a monthly trade publication, more than 60 million tires were shipped to automakers in 2005 for new cars and light trucks, and 242 million replacement tires were delivered for sale. We expect total industry (original and replacement) sales volume for light vehicles to increase 1% to 2% in 2006 led by higher replacement demand. With the exception of bias-ply temporary spare tires, radial tires have accounted for all original tires installed on new light vehicles (passenger cars, minivans, SUVs, and pickup trucks) for many years. The increased popularity of high-performance speed-rated radial tires, which wear out much faster than do conventional radials, has helped to boost tire replacement frequency. On a unit basis, tire sales to the aftermarket are much more profitable than those to automobile producers. One reason is that automakers wield enormous buying power and can negotiate favorable prices. Nonetheless, tire makers strive to obtain original equipment contracts, which can mean a larger market share than a supplier can get in the aftermarket. In addition, when a supplier ships huge numbers of tires directly to an auto manufacturer, its distribution expenses are greatly reduced, and it incurs no advertising costs. Furthermore, car owners have a marked propensity to replace tires on their cars with the same brand that was originally installed. Thus, OEM contracts can mean future profits for tire manufacturers. The rest of the auto-related rubber fabricating industry includes manufacturers of items such as belts, hoses, motor mounts, bushings, window and door moldings and seals, and other rubber parts that go into most vehicles. These manufacturers partici-
OEMs integral role in auto production

In the past, original equipment manufacturers sold their products to manufacturers largely by signing annual contracts that covered one model year. The contracts were generally elastic with respect to price and volume deliveries. Today, however, manufacturers normally award contracts for the life of a vehicle model, provided the supplier agrees to specific targets for productivity increases that offset inflation for the manufacturer and also can lower per-unit prices. Automakers share with suppliers part of the savings that they help to achieve, in order to encourage and reward their loyalty to corporate goals. Original equipment parts suppliers thus play a large role in production programs and bear greater responsibility for the programs outcomes. While automakers give parts makers specific goals for cost, quality, performance, timing, and product features, they leave them to their own devices to find the appropriate solutions. Given just-intime inventory pressures, suppliers must locate their facilities near the automakers production sites or risk losing business. Those that meet the automakers needs can expect to receive long-term contracts and expand their businesses.
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pate in the original equipment market and aftermarket, and their fortunes closely resemble those of makers of traditional original equipment parts and aftermarket parts.
KEY INDUSTRY RATIOS AND STATISTICS

Seasonally adjusted annual rate (SAAR) of vehicle sales. Adjustment factors for production and motor vehicle imports and exports are distributed once a year by the Bureau of Economic Analysis, a division of the US Department of Commerce. These factors adjust motor vehicle sales in order to account for seasonal changes in demand and production and are based on the prior five years experience. The best known of these factors is the SAAR for vehicle sales. This measure calculates the annualized rate of vehicle sales or production, based on one months results. In October 2001, the annualized rate of US sales reached a record 21.3 million light vehicles, reflecting unprecedented 0% financing offered to consumers following the terrorist attacks of September 11, 2001. In contrast, April 2006 saw a SAAR of 16.7 million vehicles. Monthly sales report. Companies typically report their unadjusted monthly vehicle sales volumes a few days after the end of each month. These data give the analyst a
good sense of how individual companies are performing and are the timeliest indicators of overall industry sales trends. When one companys report is compared with those of other companies, it provides a snapshot of whats hot and whats not, whos gaining share and whos losing it. Individual monthly sales reports, seen in isolation and without seasonal adjustments, may not give a full picture of what is occurring in the industry. However, each months numbers can be compared with year-earlier levels and preceding months to get a broader view of industry trends. Detailed monthly sales reports, broken down by brand, are available from Wards Automotive Reports. (See this Surveys Industry References section.) In addition, monthly sales by company are usually available in the Wall Street Journal. Days supply of inventory. This statistic is calculated by dividing the number of units in inventory (including those in transit) by average daily sales to determine how long sales can continue out of present stock. It can be calculated for a single model, a particular automaker, or the entire industry. US automakers often disclose inventory data on request; some may also calculate days supply. Analysts and other observers take the individual company data and perform industrywide analyses. Automakers typically urge dealers to keep 60 days worth of inventory on hand. The actual number of vehicles needed to meet this target can swing wildly as actual sales fluctuate. The supply of US light vehicles dipped to 73 days as of May 1, 2006, from 76 days in the prior-year period and even with the prior months 73 days. Scrap rates. This eagerly awaited statistic, released annually in April, records the number of vehicles scrapped or sent to a junkyard in a 12-month period (July 1 to June 30). An increase in scrapped vehicles is generally believed to precede a rise in demand for motor vehicles. For the year ended June 30, 2005, a record low 4.3% of all passenger cars and trucks in use were scrapped, according to R.L. Polk & Co., a premier provider of automotive information solution services. This number represents a decline from 5.3% in the year ended June 30, 2004.
VEHICLE SCRAPPAGE
(In thousands of vehicles, except as noted)
TOTAL VEHICLES IN USE NEW REGISTRATIONS SCRAPPAGE AS % OF NEW REGISTRATIONS SCRAPPAGE AS % OF ALL VEHICLES IN USE CARS TRUCKS TOTAL
YEAR*
SCRAPPAGE
2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995
238,697 231,398 225,882 221,027 216,683 213,299 209,509 205,043 201,070 198,293 193,440
16,690 17,419 16,940 17,640 17,505 18,089 16,130 15,638 15,286 15,664 15,059
9,989 11,903 12,085 13,296 14,122 14,299 11,664 11,665 12,509 10,811 10,332
59.8 68.3 71.3 75.4 80.7 79.0 72.3 74.6 81.8 69.0 68.6
4.5 4.8 5.2 5.6 6.0 6.4 5.7 5.5 6.6 6.1 6.1
4.0 6.0 7.7 7.0 7.6 7.5 5.6 6.3 5.8 4.7 4.4
4.3 5.3 5.5 6.1 6.6 6.8 5.6 5.7 6.2 5.5 5.5
*Year ending June 30. Registered. Sources: Auto Exec; Polk Automotive Intelligence.
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Consumer confidence. The most widely followed consumer confidence survey is conducted by the Conference Board, a private research organization, which polls 5,000 representative US households to gauge consumer sentiment. This qualitative measure of consumer attitudes is expressed as an index, with 1985 used as a base year (1985=100). The index is compiled from monthly surveys that tally responses to a series of questions. It has two components: the present situation index, which measures consumers feelings about their current economic situation, and the expectations index, which tracks consumers feelings about the future. A high level of consumer confidence generally signals that people feel good about the economy, their job prospects, and their future earnings ability. Rising index levels indicate that consumers expect further economic growth in the months ahead, which generally bodes well for automotive sales. The consumer confidence index stood at 103.2 in May 2006, down from 109.6 in April 2006, which was the highest since 110.3 in May 2002. According to the Conference Board, consumers were buttressed by improvement in employment opportunities.
Other important factors to consider are automakers inventories and market share. Inventory levels are available from sources such as the US Department of Commerces Bureau of Economic Analysis and the industry publication Wards Automotive Reports. In general, automakers consider inventory equivalent to 60 days worth of sales to be sufficient. When inventories exceed 75 days on a particular model, action is usually imminent. The automaker needs either to slow production or to bolster demand through heightened marketing efforts. If inventories are too low (traditionally, fewer than 60 days), production must be increased or sales could be lost. Market share comparisons are important when analyzing an automaker. By comparing a manufacturers percentage of industrywide vehicle production with its share of retail sales, the analyst can determine if the automaker is producing more (or fewer) vehicles than demand warrants. Such a comparison would indicate whether the automaker needs to increase production or reduce discounts to catch up to demand and prevent inventories from falling or, in the case of weak demand, to slow production or offer discounts to bolster demand and prevent inventories from rising too much.
HOW TO ANALYZE AN AUTOMOBILE MANUFACTURER

Automobile manufacturing is one of the largest industries in the United States. As such, it is scrutinized closely by economists, investors, and consumers, as well as by government regulators and legislators. A plethora of statistics is available to help track the state of the industry and its participants. Because the auto industry is so highly concentrated, industry statistics are generally a good proxy for individual company trends. Automakers disclose four important figures concerning their operations: motor vehicle production, retail sales, dealer inventories (all disclosed monthly), and factory sales (released quarterly). In addition, they also release forward-looking numbers, such as quarterly vehicle production plans. To make projections about an automakers financial results, an analyst should first track production plans in order to generate an estimate of factory vehicle sales in upcoming fiscal periods.
Seasons and cycles

Motor vehicle sales and production exhibit two kinds of patterns: seasonal and cyclical. When studying an automaker, it is important to consider the impact of each on production and sales. For most motor vehicle sales, the seasonal pattern is distinct: sales are strongest from March through June and weakest from November through January. An analyst might be able to detect abnormal monthly sales results by observing fluctuations in the seasonally adjusted annual rate (SAAR) provided by the Bureau of Economic Analysis. Production is strongest from February through June. It slows in July and August, when shutdowns for annual model changeovers coincide with workers summer vacations. December is also a weak month for production, as holiday vacation shutdowns usually last one or two weeks. These two vacation periods are also a popular time for automakers to rebalance their inventories.
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Because plants are already closed, shutdowns are frequently extended on a plant-by-plant basis to correct excessive inventories for any particular models. The cyclical pattern is evident in longterm sales trends. In the past decade, annual US vehicle sales have ranged from a low of 12.5 million units in 1991 to a record 17.8 million units in 2000. Such wide divergences in annual sales have occurred repeatedly over the past four decades.
Model changeovers
The analyst should examine an automakers plans for model changeovers. Annual model changes do not usually cause severe disruptions in automakers operations, because a two- to four-week changeover period is normally scheduled during the summer. However, a major model redesign, which puts billions of dollars in expenditures at stake, can severely disrupt production, sales, and liquidity. Major changeovers frequently require extensive plant renovations and slow start-ups as equipment is proven and debugged. Significant glitches often occur in new equipment or production processes. These problems may slow the start-up and saddle an automaker with low production levels for an extended period. Such events can have a severe impact on the automakers cash flow and seriously distort its balance sheet and income statements for several quarters. Qualitative factors regarding model changeovers must also be taken into account. An analyst should attempt to gauge the prospects of new or modified products. Are the features and styling attractive to consumers? Is the price perceived to be a good value? What sales volume and margins are expected for the vehicle? Is the product in a favorable segment a profitable truck or SUV or is it a money-losing sedan? If the answers are favorable, then the company may have a hit on its hands.
In accordance with financial accounting standards, automakers since 1988 have presented consolidated statements of income. These statements separate and detail the income from and expenses for automotive manufacturing and financial services. Automakers are also allowed to present a second set of financial statements, in which the finance subsidiaries results are reported on an equity basis. This means that the companys income statement gives only the net operating income for financial services, rather than a detailed breakdown of income and expenses.
Revenues
Automakers derive the bulk of their revenues from the sale and financing of light vehicles, which are defined as cars and light trucks weighing less than 10,000 pounds. Sales revenues. Automobile companies listed on US stock exchanges report their revenues on a quarterly basis. The majority of revenues are derived from wholesale (or factory) vehicle shipments that are recorded when automakers ship vehicles to dealerships. Monthly vehicle sales reports record retail volume of motor vehicle sales by dealerships. These numbers are disclosed to the public and followed closely by economists, analysts, and the media. In the long term, factory shipments and retail sales should balance out. As a practical matter, however, differences usually arise due to the timing of shipments and retail sales, and the impact of imports and exports. Average revenue per vehicle sold can be tracked by dividing an automakers revenues from vehicle sales by the number of vehicles shipped during the same period. Generally, the trend should be upward; if an automaker has flat or declining revenues per vehicle, it may have discounted heavily to sustain unit shipments, or it may be selling more of its cheaper models. A sharp rise in revenues per vehicle could indicate that an automaker has seen a shift in production volume to models that are more expensive. Financing revenues. Automakers also receive revenues from dealer inventories and retail customer sales that they finance. In addition to generating revenues, financing is an important sales tool: automakers use
The income statement

Among the major items to examine on an automakers income statement are revenues, gross margins, and marketing costs. Automakers typically include them in two different statements.
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their financing divisions to support various marketing initiatives. These include encouraging dealers to keep larger inventories on hand (by offering a favorable interest rate on inventory purchases) and subsidizing customers vehicle purchases (via rebates, below-market interest rates, and the like). US automakers also generate revenues by offering a variety of services, including insurance and extended service contracts. An automakers financing revenues may rise or fall with the general level of interest rates without dramatically affecting income from financing operations. This is because the automaker earns a markup on the interest it pays to borrow funds. Auto financing loans are usually made for a period of 24 to 48 months. Automakers attempt to match their borrowings with loan maturities to minimize their exposure to interest rate fluctuations. The low interest rates of the past several years have aided finance operations. In addition, borrowing costs have benefited from favorable market conditions in the asset-backed security market.
sales has often been even lower due to strenuous competition.
Marketing costs
Marketing costs tend to rise and fall with the underlying level of demand for motor vehicles. Normally, automakers devote about 10% of sales revenue to marketing costs (which may include financial incentives). However, to stimulate demand, they may spend 14% or more. Nevertheless, when it is clear that demand is declining severely due to recession, automakers may have to face reality and curtail advertising and marketing expenditures. This has not been the case since late 2001, however, when the highly competitive market prompted automakers to boost incentives in order to spur sales. In particular, during the fourth quarter of 2001, automakers responded aggressively to stimulate moribund demand in the aftermath of the September 11 terrorist attacks.
Earnings quality
In May 2002, Standard & Poors announced a new methodology for calculating companies earnings that will enable investors to make apples-to-apples earnings comparisons. The computation of Standard & Poors Core EarningsTM excludes certain nonrecurring items: goodwill impairment, gains/losses from asset sales, pension gains, unrealized gains/losses from hedging activities, merger and acquisition charges, and litigation settlements. Included as valid costs of doing business are employee stock option expense, restructuring charges, writedowns of depreciable or amortizable operating assets, purchased research and development, and pension costs. (A detailed explanation of Core Earnings can be found at www.standardandpoors.com, in the Analytical Methodology section under Equity Research.) For companies in the Autos and Auto Parts industry, the most notable difference in reported earnings and Core Earnings comes from pension and other post-retirement obligations. Option-related expenses could also necessitate Core Earnings adjustments. For example, recalculating the results of TRW Automotive Holdings Corp., an auto parts manufacturer, for the fiscal year ended December 31, 2005, using the Core Earnings
Gross margins
Gross margins in the automobile industry fluctuate greatly with production volume because many of the costs related to vehicle production are fixed. Even labor costs have become largely fixed because of union contracts. Such contracts may restrict layoffs and require automakers to pay certain laidoff workers benefits worth up to 95% of their take-home pay. Therefore, automakers must sustain relatively high production levels to break even. Once the break-even point has been passed and fixed costs are spread over more units, however, the automaker can earn substantial profits. For each additional unit of production beyond the break-even point, variable profit for high-end vehicles can exceed $10,000 per unit. Even so, it is rare for an automakers gross margin to exceed 25% of its revenues. By the time the company has deducted marketing, selling, general, and administrative costs, its average return on sales (i.e., net income from operations as a percentage of revenues) may be as little as 5% over the automotive cycle, which may run more than four years. Over the past two decades, US automakers return on
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definition shows the following change. Including adjustments for option costs would have reduced TRWs earnings per share (EPS) by $0.03 in 2005. Additional adjustments, primarily for pension income, would have further reduced EPS by another $0.54. When TRWs financials are recalculated using the Core Earnings definition, the result is income of $1.42 per share. In contrast, the company reported per-share operating income of $1.99.
The balance sheets

As with their income statements, automakers produce two sets of balance sheets. One set uses the full consolidation method, and one accounts for financial operations on an equity basis. An equity balance sheet separates the automakers financial services operation (which customarily operates with high debt leverage ratios) from its manufacturing operation. Auto analysts usually focus on the equitymethod balance sheets because these documents make it easier to determine the financial strength of a companys manufacturing operations. When studying an automakers balance sheets, it is easy to be impressed with the strong cash position the company may have accumulated during a favorable economic period. When business slows, however, an automakers cash position can quickly erode for several reasons. First, the company receives less revenue. Second, the float created by timing differences between purchase of supplies and materials and payment of accounts payable diminishes, as fewer materials are purchased and more bills are paid. Third, the automaker must continue to pay its fixed costs even as its business volume decreases. Thus, an automaker can see wide swings in liquidity in a short time.
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G LOSSARY
Accessories Comfort, convenience, and safety products not essential to the performance of a vehicle, such as audio, security products, floor mats, and covers. Aftermarket Replacement or add-on purchases for a product after its original sale. The automotive aftermarket includes replacement parts, accessories, lubricants, fuel, appearance products, and repairs. Axle A shaft on which the wheels revolve. Block exemption A network of distribution agreements that makes penetration of the market difficult for other players is forbidden under European antitrust law, unless the industry is granted what is referred to as a block exemption. The exemption is a set of provisions designed by the European Commission establishing competitive procedures for an industry that does not meet antitrust standards. The auto industry has a block exemption, which was recently revised. Captive import Car or truck made overseas with a domestic nameplate. CFC Chlorofluorocarbons; used in motor vehicle air conditioning units. Changeover The task of assigning a production machine to perform a different operation, such as changing a press tool or jig, but could also mean changing the color of paint in a paint plant or loading a new part program into a lathe. Diesel engine An internal combustion engine that uses diesel oil for fuel. Rather than utilizing a traditional ignition system, it functions by injecting diesel oil into the cylinders when the piston has compressed the air to make it hot enough to ignite the diesel fuel without a spark.
Heavy parts Chassis (shock absorbers, mufflers and exhaust system products, struts); drive train (U-joints, transmission parts, clutches); brake parts (brake pads, rotors, discs); crash parts (body repair kits, fenders and bumpers, fiberglass panels, glass). High performance Products that enhance the speed and handling of a motor vehicle. Hybrid A vehicle utilizing two distinct but interdependent forms of propulsion, usually a gasoline engine coupled with an electric motor. Just-in-sequence A further refinement of just-in-time, in which parts are delivered not only at the right time and in the right quantity, but are synchronized to the customers schedules so that they match the customers own product flow, completely eliminating stock held next to the assembly track. Just-in-sequence delivery requires effective systems for sharing information between customer and supplier and a high degree of integration between the two operations. Just-in-time (JIT) A system based on frequent, small deliveries of parts to maintain minimum on-site inventory. Platform Mechanical underpinnings of a vehicle. Powertrain An engine and transmission combination, which sometimes includes the drive shaft, and drive axle. Six Sigma A process improvement methodology based on statistical analysis of the production process. Sigma is the symbol for standard deviation and Six Sigma refers to the condition where control limits are at least six standard deviations apart (i.e., plus or minus three SD from the mean). This equates to a 3.4 parts-per-million defect rate. Six Sigma philosophy focuses on a quantitative analysis of defects and identification of the opportunity for defects to occur, in processes as well as products. Specialty repair Establishment specializing in one facet of automotive repair (i.e., transmission, ignition, exhaust). The outlets specialty accounts for more than 50% of total sales receipts. Stamping A sheet metal part created by pressing rolled sheet metal between metal dies. Tier 1 (T1) suppliers Automotive parts manufacturers that supply final equipment directly to automakers (OEMs or original equipment manufacturers). Increasingly, Tier 1 suppliers are becoming systems integrators or producers of major subassemblies and modular components that can be installed into a vehicle as a unit, such as a complete chassis.
Driveline All the individual components beyond the engine up to the wheels, including the clutch and drive shaft; but not the engine or transmission. Fuel injection Using pressure to deliver fuel into an engines combustion chamber. General service parts Spark plugs and electrical parts (tune-up kits, wiring, switches); filters (oil, air, and gas); batteries; belts and hoses; engine accessories (speed control, carburetors, oil and water pumps, alternators). Gross vehicle weight (GVW) The weight of a vehicle, including passengers, options, and all cargo.
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Tier 2 (T2) suppliers Manufacturers that produce components for Tier 1 suppliers. Tier 3 (T3) suppliers Manufacturers that supply raw materials used in the production of components. Tire dealer An automotive store that generates at least 50% of its sales from tires. Transplant Car or truck with a foreign nameplate made within a country where it will be distributed. Truck weights Light trucks are less than 10,000 pounds gross vehicle weight (GVW). Medium-duty trucks weigh 10,000 to 33,000 pounds. Heavy-duty trucks exceed 33,000 pounds. Turbocharging A way to generate increased power and lower emissions by sending exhaust gases through a turbine, which drives a pump, forcing more air into the engine cylinders. Upside down trade This occurs when what a buyer owes on a trade-in vehicle exceeds its current value.
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I NDUSTRY R EFERENCES
PERIODICALS
Automotive Industries Worldwide Purchasing Ltd. Web site: http://www.ai-online.com Monthly; covers the automotive industry, targeting those in automotive engineering, design, manufacturing, and purchasing. Automotive News Crain Communications Inc. 1155 Gratiot Ave., Detroit, MI 48207 (313) 446-6000 Web site: http://www.autonews.com Weekly; covers the automotive industry. Car and Driver Hachette Filipacchi Media US Inc. 2002 Hogback Rd., Ann Arbor, MI 48105 (734) 971-3600 Web site: http://www.caranddriver.com Monthly; covers the auto industry from an enthusiast/consumer angle. Modern Tire Dealer Bobit Publishing Co. 341 White Pond Dr., Akron, OH 44320 (330) 867-4401 Web site: http://www.mtdealer.com Monthly; covers the tire industry. Motor Trend Primedia Inc. 6420 Wilshire Blvd., 7th Fl., Los Angeles, CA 90048 (323) 782-2220 Web site: http://www.motortrend.com Monthly; covers the auto industry from an enthusiast/consumer angle. Rubber and Plastics News Crain Communications Inc. 1725 Merriman Rd., Akron, OH 44313 (330) 836-9180 Web site: http://www.rubbernews.com Biweekly; covers the rubber and plastics industries. Rubber World Lippincott & Peto Inc. P.O. Box 5451, 1867 W. Market St., Akron, OH 44313 (330) 864-2122 Web site: http://www.rubberworld.com Monthly; covers the tire and rubber industry.
Wards Automotive Reports Wards AutoWorld Wards Automotive Yearbook Prism Business Media Inc. 3000 Town Center, Ste. 2750, Southfield, MI 48075 (248) 357-0800 Web site: http://www.wardsauto.com Weekly, monthly, and annual publications, respectively, that provide information on the auto industry; the weekly includes the latest production and sales statistics.
TRADE ORGANIZATIONS
The Alliance of Automobile Manufacturers 1401 Eye St. NW, Ste. 900, Washington, DC 20005 (202) 326-5500 Web site: http://www.autoalliance.org Trade association comprising nine car and light truck manufacturers; advocates for the auto industry on public policy matters. Automotive Aftermarket Industry Association (AAIA) 7101 Wisconsin Ave., Ste. 1300, Bethesda, MD 20814 (301) 654-6664 Web site: http://www.aftermarket.org Represents 2,700 member companies that conduct business in the motor vehicle aftermarket industry, including suppliers, distributors, retailers, program groups, manufacturers representatives, trade publications, educators, and vendors. Provides legislative, legal, research, and operational services and information. The AAIA was created through a combination of the Automotive Parts & Accessories Association and the Automotive Service Industry Association. National Automobile Dealers Association 8400 Westpark Dr., McLean, VA 22102 (703) 821-7000 Web site: http://www.nada.org A national association representing national franchised new car and truck dealers in legal and legislative affairs. Provides services and training programs to help members improve their operations. Rubber Manufacturers Association (RMA) 1400 K St. NW, Ste. 900, Washington, DC 20005 (202) 682-4800 Web site: http://www.rma.org National organization for the rubber products industry; works with numerous industry groups on common issues.
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CONSULTING AND RESEARCH FIRMS
The Conference Board 845 Third Ave., New York, NY 10022 (212) 339-0345 Web site: http://www.conference-board.org Publishes the monthly consumer confidence survey, which measures consumer sentiment. Global Insight 1000 Winter St., Waltham, MA 02451 (781) 487-2100 Web site: http://www.globalinsight.com Provides economic and market forecasting services. J.D. Power and Associates 2625 Townsgate Rd., Westlake Village, CA 91361 (805) 418-8000 Web site: http://www.jdpower.com An international marketing and information firm that studies consumer opinion and customer satisfaction. Supplies statistics and survey information on the automotive industry. (J.D. Power is an entity independent of Standard & Poors, but is also owned by The McGraw-Hill Cos. Inc.) R.L. Polk & Co. 26955 Northwestern Hwy., Southfield, MI 48034 (800) 464-7655 Web site: http://www.polk.com An international consumer marketing firm.
GOVERNMENT AGENCIES
Bureau of Economic Analysis US Department of Commerce 1441 L St. NW, Washington, DC 20230 (202) 606-9900 Web site: http://www.bea.gov A federal agency that produces and disseminates economic accounts statistics that provide a comprehensive, up-to-date picture of economic activity.
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D EFINITIONS
FOR
C OMPARATIVE C OMPANY A NALYSIS TABLES
Operating revenues Net sales and other operating revenues. Excludes interest income if such income is nonoperating. Includes franchised/leased department income for retailers and royalties for publishers and oil and mining companies. Excludes excise taxes for tobacco, liquor, and oil companies. Net income Profits derived from all sources, after deductions of expenses, taxes, and fixed charges, but before any discontinued operations, extraordinary items, and dividend payments (preferred and common). Return on revenues Net income divided by operating revenues.
Price/earnings ratio The ratio of market price to earnings, obtained by dividing the stocks high and low market price for the year by earnings per share (before extraordinary items). It essentially indicates the value investors place on a companys earnings. Dividend payout ratio This is the percentage of earnings paid out in dividends. It is calculated by dividing the annual dividend by the earnings. Dividends are generally total cash payments per share over a 12-month period. Although payments are usually calculated from the ex-dividend dates, they may also be reported on a declared basis where this has been established to be a companys payout policy. Dividend yield
Return on assets Net income divided by average total assets. Used in industry analysis and as a measure of asset-use efficiency. Return on equity Net income, less preferred dividend requirements, divided by average common shareholders equity. Generally used to measure performance and to make industry comparisons. Current ratio Current assets divided by current liabilities. It is a measure of liquidity. Current assets are those assets expected to be realized in cash or used up in the production of revenue within one year. Current liabilities generally include all debts/obligations falling due within one year. Debt/capital ratio
The total cash dividend payments divided by the years high and low market prices for the stock. Earnings per share The amount a company reports as having been earned for the year (based on generally accepted accounting standards), divided by the number of shares outstanding. Amounts reported in Industry Surveys exclude extraordinary items. Tangible book value per share This measure indicates the theoretical dollar amount per common share one might expect to receive should liquidation take place. Generally, book value is determined by adding the stated (or par) value of the common stock, paid-in capital, and retained earnings, then subtracting intangible assets, preferred stock at liquidating value, and unamortized debt discount. This amount is divided by the number of outstanding shares to get book value per common share. Share price This shows the calendar-year high and low of a stocks market price. In addition to the footnotes that appear at the bottom of each page, you will notice some or all of the following: NANot available. NMNot meaningful. NRNot reported. AFAnnual figure. Data are presented on an annual basis. CFCombined figure. In this case, data are not available because one or more components are combined with other items.
Long-term debt (excluding current portion) divided by total invested capital. It indicates how highly leveraged a company might be. Long-term debt includes those debts/obligations due after one year, including bonds, notes payable, mortgages, lease obligations, and industrial revenue bonds. Other long-term debt, when reported as a separate account, is excluded; this account generally includes pension and retirement benefits. Total invested capital is the sum of stockholders equity, longterm debt, capital lease obligations, deferred income taxes, investment credits, and minority interest. Debt as a percent of net working capital Long-term debt (excluding current portion) divided by the difference between current assets and current liabilities. It is an indicator of a companys liquidity.
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C OMPARATIVE C OMPANY A NALYSIS A UTOS & A UTO PARTS

Operating Revenues
Million $ Ticker Company Yr. End DEC # APR DEC DEC DEC JUL AUG SEP DEC DEC DEC SEP DEC DEC # MAR DEC DEC DEC DEC DEC DEC 2005 2004 2003 2002 2001 2000 710 A 2,531 170,064 D 180,557 F 902 894 743 5,153 A 2,646 288 297 17,155 14,073 NA 1,065 606 645 3,047 A,F 1995 516 A 2,809 D 137,137 165,370 C 142 563 485 3,125 1,329 A 100 A 112 8,330 4,714 A NA 990 A 663 A 522 1,354 C,D Compound Growth Rate (%) 10-Yr. 3 NA 3 1 24 16 7 11 12 21 17 13 14 NA 5 2 5 15 2 4 4 5 9 6 21 NA (7) 5-Yr. (0) NA 1 1 7 23 6 12 10 18 13 10 4 NA 9 6 6 13 (2) (9) 6 2 3 3 17 NA 5 1-Yr. (19) NA 3 (0) (12) 17 (11) 11 22 26 6 3 1 29 6 1 (6) 7 7 4 7 13 (8) 8 10 NA 5 2005 136 NA 129 115 873 455 205 285 323 669 481 330 362 ** 164 125 162 419 124 144 150 163 246 186 689 NA 50 Index Basis (1995 = 100) 2004 168 85 125 115 987 389 230 257 265 530 453 319 360 ** 156 124 173 393 115 139 140 144 266 173 624 346 47 2003 138 93 120 110 825 279 174 249 231 353 420 272 334 ** 121 102 161 362 110 235 115 139 238 161 464 246 42 2002 129 83 119 111 863 221 171 220 205 325 354 241 306 ** 110 90 150 318 122 223 105 137 217 157 392 207 39 2001 115 81 118 106 662 147 141 218 177 269 278 221 289 NA 109 92 123 262 130 211 107 154 189 156 333 188 38
AUTOMOBILE MANUFACTURERS COA COACHMEN INDUSTRIES INC FLE FLEETWOOD ENTERPRISES F * FORD MOTOR CO GM * GENERAL MOTORS CORP MNC MONACO COACH CORP THO WGO THOR INDUSTRIES INC WINNEBAGO INDUSTRIES
702.4 D 865.1 D 711.1 665.2 594 A NA 2,374.7 D 2,608.0 2,318.3 2,280 C 177,089.0 A,C 171,652.0 A,C 164,196.0 D 162,586.0 D 162,412 190,215.0 F 190,812.0 F 182,005.0 D,F 184,214.0 F 175,353 F 1,236.2 A,C 1,397.2 1,168.3 1,222.7 A 937 A 2,558.4 A 992.0 8,903.0 D 4,293.8 A 669.1 536.5 27,479.4 D 17,089.2 547.4 A 1,628.9 D 830.4 D 844.9 C 5,673.8 F 914.6 2,155.2 19,723.0 C 2,187.7 A 1,114.2 8,033.0 D 3,525.3 530.9 A 505.7 26,553.4 C 16,960.0 424.8 A 1,543.9 A 824.3 901.8 5,320.5 C,F 854.2 2,081.6 D 18,370.4 1,517.0 192,319.5 A 9,097.3 20,653.0 A 1,855.4 4,219.0 1,571.4 A 845.2 D 7,788.0 3,069.2 353.1 A 469.0 22,646.0 15,746.7 328.0 A 1,199.8 678.8 A 840.3 4,903.7 F 816.4 3,514.4 15,119.0 C 1,245.3 A 828.4 C 827 682
AUTO PARTS & EQUIPMENT ARM ARVINMERITOR INC BWA BORGWARNER INC DW DREW INDUSTRIES INC GNTX GENTEX CORP JCI * JOHNSON CONTROLS INC LEA LKQX MOD SMP SUP LEAR CORP LKQ CORP MODINE MANUFACTURING CO STANDARD MOTOR PRODS SUPERIOR INDUSTRIES INTL
6,882.0 6,805 2,731.1 2,352 325.4 A,C 269 A 395.3 310 20,103.4 18,427 A 14,424.6 287.1 1,092.1 598.4 D 782.6 4,302.5 C,F 900.5 3,330.0 13,850.0 13,625 250 1,075 A 608 643 3,545 F 965 3,155 14,147
MOTORCYCLE MANUFACTURERS HDI * HARLEY-DAVIDSON INC TIRES & RUBBER BDG BANDAG INC CTB * COOPER TIRE & RUBBER CO GT * GOODYEAR TIRE & RUBBER CO
996 740 3,472 1,494 14,417 A,C 13,166 1,572 152,446 A 8,370 10,513 A 903 A 3,549 1,055 72,185 5,262 3,310 A 536 8,899 A,C
OTHER COMPANIES WITH SIGNIFICANT AUTOS AND PARTS OPERATIONS AIT APPLIED INDUSTRIAL TECH INC JUN 1,717.1 DCX DAIMLERCHRYSLER AG DEC 177,364.7 GPC * GENUINE PARTS CO DEC 9,783.0 MGA MAGNA INTERNATIONAL -CL A DEC 22,811.0 A TBCC TBC CORP DEC NA TEN TENNECO INC DEC 4,441.0 A
1,464.4 1,446.6 C 1,626 171,869.7 D 156,837.8 136,072 8,449.3 8,258.9 8,221 15,345.0 A,C 12,971.0 A 11,026 A 1,318.5 A 1,109.7 1,009 3,766.0 3,459.0 C 3,364 C
Note: Data as originally reported. S&P 1500 Index group. * Company included in the S&P 500. Company included in the S&P MidCap. Company included in the S&P SmallCap. # Of the following calendar year. ** Not calculated; data for base year or end year not available. A - This year's data reflect an acquisition or merger. B - This year's data reflect a major merger resulting in the formation of a new company. C - This year's data reflect an accounting change. D - Data exclude discontinued operations. E - Includes excise taxes. F - Includes other (nonoperating) income. G - Includes sale of leased depts. H - Some or all data are not available, due to a fiscal year change.
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Net Income
Million $ Ticker Company Yr. End DEC # APR DEC DEC DEC JUL AUG SEP DEC DEC DEC SEP DEC DEC # MAR DEC DEC DEC DEC DEC DEC 2005 (19.4) NA 2,228.0 (10,458.0) 4.0 121.8 65.1 33.0 239.6 33.6 109.5 757.2 (1,381.5) 30.9 60.8 (1.8) (7.1) 959.6 49.5 (15.0) 239.0 2004 13.4 (72.6) 3,634.0 2,805.0 36.7 106.1 70.6 127.0 218.3 25.1 112.7 817.5 422.2 20.6 61.7 (8.9) 44.7 889.8 66.9 27.4 114.8 31.5 3,338.5 395.6 692.0 37.2 15.0 2003 7.4 (22.3) 921.0 2,862.0 22.2 78.6 48.7 140.0 174.9 19.4 106.8 682.9 380.5 14.6 40.4 0.2 73.7 760.9 60.2 73.8 (802.1) 19.8 (526.6) 353.6 589.0 33.4 27.0 2002 9.9 (70.7) 284.0 1,736.0 44.5 51.2 54.7 149.0 149.9 15.8 85.8 600.5 311.5 11.0 34.4 6.1 78.3 580.2 50.1 111.8 (1,105.8) 14.8 5,113.5 367.5 554.0 27.4 31.0 2001 (4.0) (81.3) (5,453.0) 601.0 24.9 26.7 43.8 35.0 66.4 8.9 65.2 478.3 34.2 4.2 23.3 0.3 55.4 437.7 43.8 18.2 (203.6) 28.0 (589.2) 297.1 580.0 21.0 (130.0) 2000 2.2 (272.8) 5,410.0 4,452.0 42.5 36.1 48.4 218.0 94.0 1.5 70.5 472.4 274.7 NA 47.6 10.2 79.9 347.7 60.3 96.7 40.3 31.0 2,314.0 385.3 598.0 18.7 (41.0) 1995 17.5 69.9 4,139.0 6,932.5 4.9 13.8 27.8 123.0 74.2 7.8 18.9 195.8 94.2 NA 61.4 16.1 53.1 111.1 97.0 112.8 611.0 16.9 (1,248.0) 309.2 232.5 15.2 489.0 Compound Growth Rate (%) 10-Yr. NM NA (6.0) NM (2.1) 24.3 8.9 (12.3) 12.4 15.7 19.2 14.5 NM NA (0.1) NM NM 24.1 (6.5) NM (9.0) 12.6 NM 3.5 10.6 NA (19.2) 5-Yr. NM NA (16.3) NM (37.8) 27.5 6.1 (31.4) 20.6 85.1 9.2 9.9 NM NA 5.0 NM NM 22.5 (3.9) NM 42.8 12.3 7.8 2.6 1.3 NA NM 1-Yr. NM NA (38.7) NM (89.2) 14.8 (7.9) (74.0) 9.8 33.8 (2.8) (7.4) NM 50.1 (1.5) NM NM 7.8 (26.0) NM 108.2 75.8 1.1 10.6 (7.7) NA 286.7 2005 (110) ** 54 (151) 81 883 234 27 323 430 580 387 (1,467) ** 99 (11) (13) 864 51 (13) 39 327 NM 141 275 ** 12 Index Basis (1995 = 100) 2004 77 (104) 88 40 749 769 255 103 294 321 596 418 448 ** 100 (55) 84 801 69 24 19 186 NM 128 298 244 3 2003 42 (32) 22 41 453 570 176 114 236 248 565 349 404 ** 66 1 139 685 62 65 (131) 117 NM 114 253 219 6 2002 57 (101) 7 25 909 371 197 121 202 202 454 307 331 ** 56 38 147 522 52 99 (181) 87 NM 119 238 180 6 2001 (23) (116) (132) 9 509 194 158 28 89 114 345 244 36 NA 38 2 104 394 45 16 (33) 166 NM 96 249 138 (27)
OTHER COMPANIES WITH SIGNIFICANT AUTOS AND PARTS OPERATIONS AIT APPLIED INDUSTRIAL TECH INC JUN 55.3 DCX DAIMLERCHRYSLER AG DEC 3,376.2 GPC * GENUINE PARTS CO DEC 437.4 MGA MAGNA INTERNATIONAL -CL A DEC 639.0 TBCC TBC CORP DEC NA TEN TENNECO INC DEC 58.0
Note: Data as originally reported. S&P 1500 Index group. * Company included in the S&P 500. Company included in the S&P MidCap. Company included in the S&P SmallCap. # Of the following calendar year. ** Not calculated; data for base year or end year not available.
Return on Revenues (%)

Ticker Company Yr. End DEC # APR DEC DEC DEC JUL AUG SEP DEC DEC DEC SEP DEC DEC # MAR DEC DEC DEC DEC DEC DEC 2005 NM NA 1.3 NM 0.3 4.8 6.6 0.4 5.6 5.0 20.4 2.8 NM 5.6 3.7 NM NM 16.9 5.4 NM 1.2 2004 1.6 NM 2.1 1.5 2.6 4.8 6.3 1.6 6.2 4.7 22.3 3.1 2.5 4.8 4.0 NM 5.0 16.7 7.8 1.3 0.6 2.1 1.7 4.3 3.4 2.0 0.4 2003 1.0 NM 0.6 1.6 1.9 5.0 5.8 1.8 5.7 5.5 22.8 3.0 2.4 4.4 3.4 0.0 8.8 15.5 7.4 2.1 NM 1.4 NM 4.2 3.8 2.5 0.7 2002 1.5 NM 0.2 0.9 3.6 4.1 6.6 2.2 5.5 4.8 21.7 3.0 2.2 3.8 3.1 1.0 10.0 13.5 5.6 3.4 NM 1.0 3.3 4.4 4.3 2.5 0.9 2001 NM NM NM 0.3 2.7 3.2 6.4 0.5 2.8 3.3 21.0 2.6 0.3 1.7 2.2 0.1 8.6 12.3 4.5 0.6 NM 1.7 NM 3.6 5.3 2.1 NM 2005 NM NA 0.8 NM 0.7 15.0 16.1 0.6 6.3 12.3 12.3 4.8 NM 8.5 5.5 NM NM 17.9 6.7 NM 1.5 8.6 1.4 9.5 5.3 NA 1.9
Return on Assets (%)

2004 4.0 NM 1.2 0.6 7.2 15.5 18.3 2.3 6.6 12.6 13.9 5.8 4.6 8.4 5.8 NM 6.2 17.1 9.6 1.0 0.7 5.5 1.4 9.2 6.5 4.5 0.5 2003 2.4 NM 0.3 0.7 4.3 14.2 13.6 2.8 6.1 12.7 15.6 5.6 4.7 7.7 4.3 0.0 10.9 17.3 9.4 2.6 NM 3.6 NM 8.7 5.9 5.3 1.0 2002 3.4 NM 0.1 0.5 9.1 12.7 16.1 3.3 5.5 10.4 15.4 5.6 4.1 5.4 3.8 1.2 13.2 16.6 7.5 4.1 NM 2.7 2.7 8.9 6.1 5.8 1.2 2001 NM NM NM 0.2 6.7 9.0 13.4 0.8 2.4 5.6 14.0 4.9 0.4 NA 2.6 0.1 10.7 15.8 6.1 0.6 NM 4.8 NM 7.1 7.6 4.6 NM 2005 NM NA 15.4 NM 1.2 22.0 29.7 3.5 15.1 23.2 13.5 13.4 NM 11.3 10.4 NM NM 30.5 9.1 NM 327.8 15.1 7.6 16.7 10.6 NA 40.3
Return on Equity (%)

2004 6.2 NM 26.2 10.6 12.1 22.9 34.3 13.5 15.6 23.3 15.3 17.4 16.9 10.9 9.9 NM 7.5 28.8 13.3 2.5 384.6 9.7 7.5 16.3 13.7 13.1 13.8 2003 3.5 NM 10.7 17.8 8.1 21.0 25.0 17.1 15.6 23.7 16.8 17.7 19.4 9.9 7.2 0.1 13.1 29.3 13.4 7.5 NM 6.5 NM 15.9 12.0 13.7 NA 2002 4.7 NM 4.0 13.0 18.8 18.5 28.2 21.4 14.4 20.8 16.3 18.6 19.3 7.8 6.6 3.6 16.0 29.1 11.0 12.1 NM 4.8 14.3 16.4 11.8 13.1 NA 2001 NM NM NM 2.3 12.5 12.9 22.9 4.8 6.1 11.6 14.8 17.2 2.2 NA 4.6 0.2 13.1 27.7 9.1 2.0 NM 9.2 NM 12.9 14.3 11.4 NM
OTHER COMPANIES WITH SIGNIFICANT AUTOS AND PARTS OPERATIONS AIT APPLIED INDUSTRIAL TECH INC JUN 3.2 DCX DAIMLERCHRYSLER AG DEC 1.9 GPC * GENUINE PARTS CO DEC 4.5 MGA MAGNA INTERNATIONAL -CL A DEC 2.8 TBCC TBC CORP DEC NA TEN TENNECO INC DEC 1.3
Note: Data as originally reported. S&P 1500 Index group. * Company included in the S&P 500. Company included in the S&P MidCap. Company included in the S&P SmallCap. # Of the following calendar year.
35
36
Current Ratio
Ticker Company Yr. End DEC # APR DEC DEC DEC JUL AUG SEP DEC DEC DEC SEP DEC DEC # MAR DEC DEC DEC DEC DEC DEC 2005 1.9 NA NA NA 1.6 2.1 3.2 1.3 1.0 2.0 10.7 1.0 0.9 3.2 1.4 1.6 3.3 3.6 2.9 3.5 1.8 2004 2.2 1.4 NA NA 1.7 2.1 2.6 1.3 1.6 2.1 11.7 1.0 0.9 3.6 1.5 1.8 4.2 2.8 3.1 5.3 1.7 2.9 1.4 3.2 1.5 1.4 1.2 2003 2.3 1.7 NA NA 1.8 2.0 2.8 1.2 1.8 1.8 9.6 1.0 0.9 4.4 2.1 1.7 4.6 2.9 3.1 2.1 1.9 2.8 1.5 3.4 1.6 1.5 1.2 2002 2.5 1.5 NA NA 1.5 1.9 2.6 1.1 1.3 1.7 9.5 1.0 0.8 3.1 2.2 1.7 3.8 2.1 2.8 2.0 1.3 2.9 NA 3.1 1.5 2.1 1.0 2001 2.7 1.6 NA NA 1.4 2.7 3.5 1.0 1.0 1.4 12.4 1.0 0.7 1.3 2.4 3.3 3.9 2.3 2.4 1.5 1.6 3.2 NA 3.4 1.6 2.1 1.1 2005 6.2 NA 83.6 92.6 9.3 0.0 0.0 60.3 18.9 26.9 0.0 19.2 63.3 11.9 21.8 34.7 0.0 23.6 1.0 33.9 84.6 16.4 51.9 14.7 9.2 NA 85.0
Debt / Capital Ratio (%)

2004 6.2 71.8 82.2 85.5 0.0 0.0 0.0 57.3 26.0 32.6 0.0 21.7 39.2 19.6 5.5 35.5 0.0 19.7 2.1 39.0 82.9 18.6 53.8 15.6 10.7 34.8 81.9 2003 4.2 60.4 85.2 85.2 4.7 0.0 0.0 61.5 33.0 21.0 0.0 27.3 46.0 1.4 11.9 33.7 0.0 17.8 3.5 45.5 85.6 20.3 55.7 20.2 5.1 43.5 87.6 2002 4.5 77.2 86.2 89.0 9.9 0.0 0.0 64.8 38.8 35.6 0.0 32.5 54.0 18.6 14.8 37.7 0.0 14.4 5.1 47.8 68.2 21.9 56.9 22.9 6.8 25.8 97.8 2001 5.0 68.6 87.2 79.4 11.9 0.0 0.0 65.6 38.6 35.0 0.0 30.2 57.6 1.7 20.2 51.9 0.0 17.6 6.5 48.7 46.7 26.7 56.3 25.4 6.4 33.7 83.9
Debt as a % of Net Working Capital

2005 13.9 NA NA NA 27.3 0.0 0.0 224.3 945.5 81.9 0.0 530.4 NM 44.3 129.4 58.0 0.0 44.0 1.8 71.1 122.6 22.3 155.8 19.5 31.6 NA 622.0 2004 12.3 181.7 NA NA 0.0 0.0 0.0 208.6 138.4 103.7 0.0 NM NM 64.1 24.8 58.7 0.0 38.2 3.5 58.0 126.4 26.7 141.4 20.0 34.6 120.7 571.8 2003 9.8 135.7 NA NA 12.4 0.0 0.0 426.9 178.9 83.6 0.0 NM NM 3.3 37.0 60.0 0.0 37.8 5.4 159.2 146.1 30.3 129.0 26.0 15.9 151.9 665.1 2002 10.8 205.6 NA NA 26.6 0.0 0.0 632.6 548.4 161.3 0.0 NM NM 54.8 44.0 66.2 0.0 35.3 8.5 205.5 258.7 33.3 NA 29.8 32.9 47.8 NM 2001 10.8 188.7 NA NA 47.1 0.0 0.0 NM NM 350.2 0.0 NM NM 17.2 59.6 87.6 0.0 40.0 13.0 290.0 166.1 40.7 NA 37.5 27.6 60.4 NM
OTHER COMPANIES WITH SIGNIFICANT AUTOS AND PARTS OPERATIONS AIT APPLIED INDUSTRIAL TECH INC JUN 2.9 DCX DAIMLERCHRYSLER AG DEC 1.3 GPC * GENUINE PARTS CO DEC 3.0 MGA MAGNA INTERNATIONAL -CL A DEC 1.5 TBCC TBC CORP DEC NA TEN TENNECO INC DEC 1.2
Price / Earnings Ratio (High-Low)

Ticker Company Yr. End DEC # APR DEC DEC DEC JUL AUG SEP DEC DEC DEC SEP DEC DEC # MAR DEC DEC DEC DEC DEC DEC 2005 NM-NM NA-NA 12-6 NM-NM NM-91 19-12 20-13 47-24 15-11 20-11 29-22 19-13 NM-NM 25-12 21-15 NM-NM NM-NM 18-13 20-16 NM-NM 14-8 2004 23-15 NM-NM 9-6 11-7 25-13 21-12 20-12 14-9 14-10 17-11 32-21 15-11 11-8 20-13 19-13 NM-NM 26-15 21-15 15-11 65-46 23-11 29-12 15-12 20-14 12-9 18-11 47-18 2003 40-21 NM-NM 35-13 11-6 33-12 24-8 27-9 12-6 13-7 15-8 32-17 15-9 11-6 21-16 24-10 NM-NM 17-12 21-14 14-9 22-12 NM-NM 24-15 NM-NM 17-13 14-8 20-8 11-3 2002 31-18 NM-NM NM-46 20-9 20-9 23-10 19-12 15-6 12-7 11-7 29-21 14-10 11-7 NA-NA 29-15 34-19 18-12 30-22 17-10 17-8 NM-NM 28-19 10-6 18-13 13-8 13-7 11-2 2001 NM-NM NM-NM NM-NM 38-22 27-12 18-9 20-7 41-21 22-14 12-5 39-21 15-10 80-43 NA-NA 46-27 NM-NM 21-13 39-22 22-12 70-42 NM-NM 14-11 NM-NM 22-14 11-6 14-5 NM-NM 2005 NM NA 33 NM 185 17 19 83 13 0 49 25 NM 0 39 NM NM 18 52 NM 0 23 58 50 25 NA 0
Dividend Payout Ratio (%)

2004 28 NM 20 40 16 5 10 21 13 0 42 21 13 0 35 NM 35 13 38 114 0 29 55 53 21 0 0 2003 50 NM 80 39 0 2 8 19 11 0 11 19 4 0 46 NM 19 8 41 42 NM 46 NM 58 23 0 0 2002 35 NM 267 59 0 2 7 18 11 0 0 20 0 NA 49 71 16 7 50 27 NM 62 17 55 23 0 0 2001 NM NM NM 112 0 4 9 143 24 0 0 23 0 NA 125 NM 20 8 58 168 NM 34 NM 66 21 0 NM 2005
Dividend Yield (High-Low, %)

2004 1.8-1.2 0.0-0.0 3.2-2.3 5.4-3.6 1.2-0.6 0.4-0.2 0.8-0.5 2.5-1.5 1.3-0.9 0.0-0.0 2.1-1.3 1.8-1.4 1.6-1.2 0.0-0.0 2.6-1.9 3.0-2.1 2.3-1.3 0.9-0.6 3.4-2.5 2.4-1.8 0.0-0.0 2.4-1.0 4.6-3.6 3.7-2.7 2.2-1.7 0.0-0.0 0.0-0.0 2003 2.4-1.2 0.0-0.0 6.1-2.3 6.7-3.7 0.0-0.0 0.2-0.1 0.9-0.3 3.3-1.6 1.7-0.8 0.0-0.0 0.6-0.3 2.0-1.2 0.6-0.3 0.0-0.0 4.4-2.0 4.0-2.3 1.6-1.1 0.6-0.4 4.5-3.0 3.5-1.9 0.0-0.0 3.1-1.9 6.1-3.4 4.3-3.5 2.7-1.6 0.0-0.0 0.0-0.0 2002 1.9-1.1 0.0-0.0 5.8-2.2 6.5-2.9 0.0-0.0 0.2-0.1 0.6-0.4 2.8-1.2 1.6-0.9 0.0-0.0 0.0-0.0 1.9-1.4 0.0-0.0 NA-NA 3.2-1.7 3.8-2.1 1.3-0.9 0.3-0.2 4.9-3.0 3.4-1.6 7.4-1.7 3.3-2.3 3.0-1.7 4.3-3.0 2.8-1.7 0.0-0.0 0.0-0.0 2001 2.4-1.5 1.0-0.5 7.1-3.3 5.1-2.9 0.0-0.0 0.4-0.2 1.3-0.5 6.9-3.5 1.8-1.1 0.0-0.0 0.0-0.0 2.4-1.5 0.0-0.0 NA-NA 4.6-2.7 4.8-2.4 1.5-0.9 0.4-0.2 4.9-2.6 4.0-2.4 5.9-3.2 3.1-2.3 8.1-3.9 4.8-3.0 3.4-2.0 0.0-0.0 0.0-0.0
2.2-1.4 0.0-0.0 5.3-2.7 10.9-4.9 2.0-1.2 1.4-0.9 1.4-0.9 3.4-1.8 1.2-0.9 0.0-0.0 2.2-1.7 1.9-1.3 3.7-1.6 0.0-0.0 2.6-1.8 4.7-2.3 3.2-2.2 1.4-1.0 3.2-2.6 3.2-1.9 0.0-0.0 1.9-1.1 5.0-3.5 3.1-2.7 2.5-1.8 NA-NA 0.0-0.0
OTHER COMPANIES WITH SIGNIFICANT AUTOS AND PARTS OPERATIONS AIT APPLIED INDUSTRIAL TECH INC JUN 20-12 DCX DAIMLERCHRYSLER AG DEC 17-12 GPC * GENUINE PARTS CO DEC 19-16 MGA MAGNA INTERNATIONAL -CL A DEC 14-10 TBCC TBC CORP DEC NA-NA TEN TENNECO INC DEC 15-9
37
38
Earnings per Share ($)

Ticker Company Yr. End 2005 2004 0.87 (1.31) 1.99 4.97 1.25 1.85 2.06 1.89 3.91 1.22 0.73 4.35 6.18 0.51 1.81 (0.46) 1.68 3.02 3.47 0.37 0.65 2003 0.48 (0.58) 0.50 5.10 0.76 1.38 1.32 2.09 3.23 0.96 0.69 3.78 5.71 0.45 1.19 0.01 2.76 2.52 3.14 1.00 (4.58) 2002 0.62 (1.97) 0.15 3.37 1.55 0.94 1.37 2.24 2.82 0.81 0.57 3.36 4.77 0.31 1.03 0.51 2.97 1.92 2.53 1.53 (6.62) 0.51 5.07 2.11 5.83 1.29 0.78 2001 (0.25) (1.53) (3.02) 1.78 0.87 0.56 1.05 0.53 1.26 0.46 0.44 2.70 0.53 0.12 0.70 0.03 2.14 1.45 2.13 0.25 (1.27) 0.95 (0.59) 1.72 6.57 1.00 (3.43)
Tangible Book Value per Share ($)

2005 11.19 NA 2.26 9.73 7.81 7.31 7.15 0.73 9.01 6.28 5.39 J 10.56 (13.70) 3.10 NA 6.72 21.73 11.05 27.08 14.02 (4.10) 11.12 36.49 15.21 51.31 NA (2.28) 2004 13.12 2.13 3.13 27.67 8.98 6.21 6.01 2003 12.36 4.61 2.40 24.14 7.90 4.75 5.78 2002 12.16 2.91 (0.56) (24.66) 7.11 3.35 4.81 2001 11.90 4.77 (0.01) (3.68) 5.49 4.35 5.00 2005 17.49-10.76 13.85-7.33 14.75-7.57 40.80-18.33 20.80-11.85 41.07-26.27 39.71-26.14 22.62-11.74 61.73-44.85 32.30-17.85 20.32-15.38 75.22-52.57 61.19-26.74 17.83-8.25 37.98-26.45 16.00-7.70 28.85-19.79 62.49-44.40 50.35-41.18 22.50-13.00 18.59-11.24 37.55-22.78 55.15-38.77 46.64-40.75 82.77-60.00 NA-NA 20.06-11.55
Share Price (High-Low, $)

2004 20.19-13.22 16.14-10.14 17.34-12.61 55.55-36.90 31.25-16.76 37.99-22.00 40.64-25.10 26.24-16.25 54.68-38.35 21.13-13.60 23.54-15.10 63.98-49.57 69.20-48.84 10.46-6.64 33.99-23.98 16.80-12.00 43.90-25.21 63.75-45.20 51.30-38.32 23.89-17.20 15.01-7.06 32.00-13.13 49.85-39.67 44.32-32.03 85.33-67.48 30.90-18.80 17.49-6.73 2003 19.20-10.00 11.61-3.06 17.33-6.58 54.39-29.75 24.96-9.01 33.28-10.73 35.50-11.65 24.45-12.02 42.75-21.66 14.25-7.30 22.49-11.95 58.12-35.88 63.14-32.15 9.25-7.00 28.00-12.46 15.70-9.10 46.15-33.62 52.51-35.01 42.97-28.45 21.80-11.84 8.19-3.35 16.57-10.24 46.85-26.27 33.75-27.20 83.60-50.25 30.30-11.81 7.45-2.01 2002 19.50-11.30 11.90-2.37 18.23-6.90 68.17-30.80 30.70-14.30 21.39-9.32 25.74-15.93 32.50-14.39 34.47-19.19 8.57-5.45 16.75-11.76 46.60-34.55 53.84-32.70 NA-NA 30.00-15.65 17.39-9.45 53.80-35.79 57.25-42.60 42.01-26.00 26.10-12.25 28.85-6.50 14.17-9.80 50.88-29.78 38.80-27.10 78.09-49.35 16.80-9.46 8.32-1.90 2001 13.65-8.25 17.25-8.10 31.42-14.70 67.80-39.17 23.25-10.48 10.19-4.92 20.66-7.80 21.87-11.00 27.59-17.10 5.38-2.38 17.11-9.22 41.35-25.97 42.40-22.60 NA-NA 32.00-19.13 14.95-7.44 44.85-28.00 55.99-32.00 46.75-25.01 17.43-10.55 32.10-17.37 13.79-10.43 52.72-25.60 37.94-23.91 69.00-40.44 13.50-4.63 5.45-1.35
DEC (1.24) # APR NA DEC 1.21 DEC (18.50) DEC 0.13 JUL AUG SEP DEC DEC DEC SEP 2.15 1.95 0.48 4.23 1.60 0.70 3.95
2.12 (1.62) 11.95 7.40 4.81 3.74 5.03 J 4.50 J 5.81 3.93 (5.99) (10.56) 2.52 3.16 17.96 16.14 7.28 8.03 22.66 22.12 10.73 25.55 15.30 (4.61) 9.66 38.59 14.21 48.43 5.26 (1.42) 9.63 24.76 J 7.48 (4.55) 8.84 37.12 12.95 43.03 3.58 (3.91)
(1.49) (3.35) 2.90 (1.07) 3.13 2.22 3.76 J 3.19 J 2.49 16.72 J (18.23) 2.03 14.64 11.47 19.96 7.21 (24.60) 1.27 13.77 12.49 17.30 5.64
DEC (20.57) DEC 0.70 # MAR 1.80 DEC (0.09) DEC (0.27) DEC 3.42
DEC 2.55 DEC (0.24) DEC 1.36
22.17 J 21.22 6.99 12.54 (0.67) 14.06 8.67 31.04 11.88 45.90 6.99 (7.47) 8.36 32.06 10.97 45.34 6.06 (9.16)
OTHER COMPANIES WITH SIGNIFICANT AUTOS AND PARTS OPERATIONS AIT APPLIED INDUSTRIAL TECH INC JUN 1.87 1.09 0.70 DCX DAIMLERCHRYSLER AG DEC 3.32 3.29 (0.52) GPC * GENUINE PARTS CO DEC 2.51 2.26 2.03 MGA MAGNA INTERNATIONAL -CL A DEC 5.99 7.17 5.93 TBCC TBC CORP DEC NA 1.68 1.54 TEN TENNECO INC DEC 1.35 0.37 0.67
Note: Data as originally reported. S&P 1500 Index group. * Company included in the S&P 500. Company included in the S&P MidCap. Company included in the S&P SmallCap. # Of the following calendar year. J-This amount includes intangibles that cannot be identified.
The analysis and opinion set forth in this publication are provided by Standard & Poors Equity Research Services and are prepared separately from any other analytic activity of Standard & Poors. In this regard, Standard & Poors Equity Research Services has no access to nonpublic information received by other units of Standard & Poors. The accuracy and completeness of information obtained from third-party sources, and the opinions based on such information, are not guaranteed.
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Industry Surveys

Autos & Auto Parts

June 29, 2006

Efraim Levy, CFA Autos Analyst Steve Ferazani Financial Writer

CURRENT ENVIRONMENT ..................................................................1 GM and Ford restructure

GLOSSARY .............................................................................................28 INDUSTRY REFERENCES.....................................................................30 COMPARATIVE COMPANY ANALYSIS ..............................................33

Standard & Poors Industry Surveys

GM and Ford restructure

Fords Way Forward

GM to cut jobs, close plants

LEADING COMPANIES IN GLOBAL LIGHT VEHICLE SALES

JUNE 29, 2006 / AUTOS & AUTO PARTS INDUSTRY SURVEY

NORTH AMERICAN MOTOR VEHICLE PRODUCTION

JUNE 29, 2006 / AUTOS & AUTO PARTS INDUSTRY SURVEY

Full-size SUVs and pricing

Gasoline rises again

PRODUCTION PASSENGER CARS LIGHT TRUCKS

JUNE 29, 2006 / AUTOS & AUTO PARTS INDUSTRY SURVEY

MED. & HEAVY TRUCKS

TOTAL MOTOR VEHICLES

New model activity in 2006

JUNE 29, 2006 / AUTOS & AUTO PARTS INDUSTRY SURVEY

MARKET SHARES OF US DEALER NEW LIGHT VEHICLE SALES

JUNE 29, 2006 / AUTOS & AUTO PARTS INDUSTRY SURVEY

Parts suppliers seek new customers

S&P Credit Market Service View:

Passenger vehicles North America

JUNE 29, 2006 / AUTOS & AUTO PARTS INDUSTRY SURVEY

US sales may fall in 2006

JUNE 29, 2006 / AUTOS & AUTO PARTS INDUSTRY SURVEY

Improvement in used vehicle and parts markets

US FULL-SIZE SUV SALES

CAR & TRUCK SALES AND TREND DEMAND

Source: Wards Automotive Reports.

Competition goes into overdrive

The Big Three see dwindling market share

Auto parts sector highly fragmented

JUNE 29, 2006 / AUTOS & AUTO PARTS INDUSTRY SURVEY

JUNE 29, 2006 / AUTOS & AUTO PARTS INDUSTRY SURVEY

Cars stay on the road longer

MEDIAN AGE OF US CARS AND LIGHT TRUCKS

*All trucks prior to 1993. Source: Polk Automotive Intelligence.

Use of aluminum and plastic grows

JUNE 29, 2006 / AUTOS & AUTO PARTS INDUSTRY SURVEY

Growth of safety features

Rising fuel economy standards

JUNE 29, 2006 / AUTOS & AUTO PARTS INDUSTRY SURVEY

US RETAIL SALES OF MOTOR VEHICLES, BY WEIGHT CLASS

JUNE 29, 2006 / AUTOS & AUTO PARTS INDUSTRY SURVEY

Big Three losing market share

Luxury segment expands

JUNE 29, 2006 / AUTOS & AUTO PARTS INDUSTRY SURVEY

Sources: Wards Automotive Reports; US Census Bureau.

On the global front

Production capacity concerns

Transplants expand North American production

LIGHT VEHICLE PRODUCTION BY REGION

17,150 1,978 16,648 2,567 17,550 316 56,209

17,473 2,006 16,705 2,465 17,082 380 56,112

16,369 1,901 16,444 2,512 18,110 364 55,700

15,874 1,922 17,472 1,909 20,363 379 57,918

15,766 2,410 17,763 2,354 22,333 401 61,028

HOW THE INDUSTRY OPERATES

Source: International Organization of Motor Vehicle Manufacturers.