1 Rating Trends and Outlook Auto Industry, Capital Goods & Automotive Parts Suppliers Moody’s 2002 Corporate Finance Credit Outlook Investor Briefing New York, January 15, 2002

2 Auto Industry and Capital Goods Bruce Clark Senior Vice President

3 Agenda Global auto industry challenges Regional auto challenges - U.S., Europe and Japan Rating implications Capital goods sector

4 Global Industry Challenges Excess capacity - 57 mil. produced vs over 70 mil. capacity Ongoing cyclicality and concurrent downturns Mature markets - U.S., Europe and Japan Growth Markets - Asia, Latin America, Eastern Europe - timing? Intensifying competition - Product and geographic expansion, product development time Huge investment requirements Flawed operating and financial model?

5 US Industry Challenges Profit concentration SUV, Trucks, Minivans Growing international competition in these segments Minimal profitability in cars Brand image and average age of customers Excess capacity - plant & people Weak international operations Cyclical downturn

6 US Vehicle Sales Trend Moody’s Estimation Range 15M M Unit Sales Units (in millions)

7 Big-3 Net Income US$ (in millions)

8 Ability to Address Challenges Position of strength in SUVs, trucks & minivans Narrowing gap on quality Adequate liquidity for downturn Willingness to address operating model problems Past recoveries

9 Rating Implications Recent rating actions Near-term focus: Ability to hold share Restructuring efforts Scope Cash costs Cash benefits Assumptions - market, share, pricing Timing and magnitude of recovery

10 Rating Implications Where should ratings settle??? Timing and magnitude of financial recovery Likely range of future operating and financial volatility

11 European Industry Challenges Block exemption expiration End-of-life regulations In roads by Japanese - more capacity New facilities in Eastern Europe Consumer migration - value for money and prestige

12 Europe Vehicle Sales Trend Units (in millions)

13 Japanese Industry Challenges Weak economy Stratification of competitors Operating model can accommodate slack demand

14 Japan Vehicle Sales Trend Units (in millions)

15 Rating Prospects The formidable ToyotaAa1Stable BMWA1Stable HondaA2Stable The hopeful RenaultBaa2Stable NissanBaa3Stable HyundaiBa2Stable The watched VWA1Stable PeugeotA3Stable The challenged GM A3NegativeFiat Baa2 Negative Ford A3Rev DGMitsubishi Ba3 Stable DCX A3 NegativeMazda Ba3 Stable

16 Capital Goods PaccarA1 - Stable CATA2 - Stable DeereA2 - Negative Ingersoll-RandA3 - Negative CumminsBaa3 - Negative NavistarBa1 - Stable CNHBa3 - Negative

17 Capital Goods Rating Issues Ongoing cyclicality Hold fundamental competitive position Long-term viability of the industry Robustness of returns on up-side vs Weakness on the down-side.

18 Automotive Parts Suppliers George A. Meyers VP/Senior Credit Officer

19 Background Downgrades in 2001 reflect: Shrinking volumes with high fixed costs margin pressure high debt burdens diminished cash flows liquidity issues weakening debtholder protection measures

20 Deteriorating Credit Metrics Note: The average reflects figures from selected Auto Suppliers

21 Deteriorating Credit Metrics Note: The average reflects figures from selected Auto Suppliers

22 Deteriorating Credit Metrics Note: The average reflects figures from selected Auto Suppliers

23 Downgrades Reflect Industry’s Downturn A1 A2 A3 Baa1 Baa2 Baa3 Note: The average reflects ratings of selected Auto Suppliers

24 Pessimistic Outlook for 2002 Volumes down again –volatility and duration concerns Margin pressure –pricing demands from OEMs –implications for further cost reduction measures OEM concentration and market share erosion Business/Product/Geographic diversity

25 Cash flow generation –from operations –proceeds from asset sales Sensitivity analysis Working capital –now a source, but for how long? Can capital expenditures really be cut back? –lean manufacturing initiatives Dividend cuts Reduced Cash Flows Need Help

26 Financing flexibility –balance sheets strained –mergers and stock buybacks –Banks and investors - sector disfavor Funding sources - diversity Financial covenant headroom Near-term maturities Contingent liabilities - rating trigger risks Liquidity - Can Companies “Weather” the Downturn

27 Deteriorating fundamentals continue Break-even levels need to be reduced, suggesting more restructuring actions OEM concentration and pricing demands are concerns Reduced cash flow generation heightens liquidity concerns More downgrades and outlook changes likely in 2002 Summary