Stephen Girsky IMF World Auto Council June 2004 Morgan Stanley Research The State of the Industry Global demand growth continues to be modest, with the exception of selected emerging markets. Excess capacity likely to continue, putting pressure on prices. OEM strategies to counter deflation have been to cut costs and get the consumer to “buy up”. Company updates Questions Morgan Stanley Research Global Demand Growing at Slow Pace Global Light Vehicle Demand % CAGR LMC-JD Power & Morgan Stanley Research Morgan Stanley Global Sales Forecast FY04E United States
Flat Western Europe
+ 1% Japan
+ 2% China
+ 25% 2003A 2004E % ∆ Units in MM Morgan Stanley Research Estimates Excess Capacity Estimated at 25-30% Global Utilization at 72% Autofacts Global Excess Capacity is Significant Honda contemplating importing small cars into . from Brazil VW contemplating importing cars to Europe from Brazil Honda to import cars to Europe from China Ford/Toyota importing vehicles to Europe from Turkey Morgan Stanley Research OEMs Spending for Growth 13 of 14 OEMs had FY03 CapEx > D&A BMW Mazda PSA Ford VW DCX GM Company data & Morgan Stanley Research Zero Sum Game Slow growth and excess capacity suggest deflation/revenue pressures are likely to continue. Not everybody can be a winner. Winners will be low cost producers who deliver good product that consumers are willing to pay for. Morgan Stanley Research Capacity Situation Could Get Worse Capacity Additions Over 1mm units Ford (122) Nissan 250 Toyota 180 Total 308 GM 125 Ford (48) DCX 80 Honda 180 Nissan 200 Toyota 30 Total 567 Ford (211) GM (98) DCX 80 Hyundai 235 Total 6 Toyota 150 2003 2004 2005 2006 Company data & Morgan Stanley Research Units in 000 Every 1 Pt. of Share Translates into $ in Profits Units of Added Capacity is % of NA Capacity, or $5-$6bn in Pretax Profits Detroit Three $3,143 . Pretax P