1. Ron Harbour President Harbour Consulting President Harbour Consulting

2. The Definition of an OEM Presented by Ron Harbour May 17, 2007 Evolution of the Manufacturer / Supplier Continuum

3. The Harbour Report™

4. Recent Clients

5. The Harbour Enterprise Model Quality Products and Improved Profitability Product Quality Improvement Part Count and Piece Cost Optimization Assembly Time Reduction Greenfield Plant Design & Development Leadership Training Manufacturing Assessments & Transformations Global Competitive Benchmarking Product Teardown and Analysis Global Strategic Footprint Strategic Sourcing & Supplier Optimization Lean Product & Process Design Manufacturing Process Optimization

6. 2006 Harbour Report™ HPV Trend GM excludes medium duty. Honda, Nissan and Toyota data includes partial reporting of North American plants. Percent Change from 2005 3.3% -5.4% -1.5% 6.0% -0.2% 3.3%

7. Introduction What is an automotive company? What is an automotive company? What function does an automaker perform? What function does an automaker perform? What does a manufacturer produce (core business)? What does a manufacturer produce (core business)?

8. (Continued) Where is the line between an automaker and a supplier (or is there one anymore)? Where is the line between an automaker and a supplier (or is there one anymore)? What forces are most influential anymore… market economics or labor unions? What forces are most influential anymore… market economics or labor unions? How will the transition define the future? How will the transition define the future?

9. The Plant of Yester-Year Ford Rouge Complex

10. Phase 4 Phase 3 Phase 2 Progress Phase 1 High Vertical Integration Modern Sourcing Definition Includes foundries, steel mills, rubber plants, textiles, upholstery, wiring, chassis components Vehicle assembly, metal stamping, engine, transmission, and select key components Early to mid 1900’s 1950’s to 1980’s 1980’s to Present The Future Outsourcing Rush, Core Re-Defined No Accepted Norm Marginal outsourcing of services, components (seats, IPs, door trim, chassis, bumpers) Sequencing centers “Hallowing out” of engineering Lean logistics Supplier ownership & responsibility for body, paint, chassis Supplier work in OEM plants Pay on production Major modules delivered

11. Assembly Plant Component Sourcing Trends COMPONENTS % In-House GM / Chrysler / Ford 2000 2007 New Domestics 2007 HPV Equivalent Bumper Assembly73%44%97%0.07 Headliner Assembly49%28%71%0.15 Instrumental Panel Assembly67%42%71%0.88 Door Trim Assembly76%73%97%0.07 Door Inner Hardware Assembly--95%98%0.18 HVAC Assembly40%28%20%0.04 Exhaust System Assembly47%60%9%0.07 Suspension Assembly60%61%100%0.28 Fuel Tank Assembly26%25%40%0.06 Wheels / Tire Assembly91%76%32%0.14 Engine & Transmission Dress Assembly99%90%59%0.66 Closure Panel Assembly60%71%100%0.07

12. Support Services % In-House 2001 20072007 Grounds Maintenance53%35%0% Building Maintenance72%66%45% Janitorial Services76%77%5% Miscellaneous Services (security, fire, materials handling, tool maintenance) 54%49%33% Machinery & Equipment Maintenance76%79%68% Assembly Specific (truck loading, sequencing) 45%39%37% Paint Shop (cleaning, sludge/waste) 58%55%22% GM / Chrysler / Ford New Domestics Assembly Support Services Sourcing Trends

13. Engine Sourcing Trends Components19892007Future Engine Assembly & TestXXX Block MachiningXXX Head MachiningXXX Crankshaft MachiningXXX Camshaft MachiningXX Connecting Rods MachiningXX Flywheel Exhaust ManifoldX Intake ManifoldX Front Cover Oil Pan Oil PumpX PistonsX Piston Pins Water PumpX 5 C’s 3 C’s * U.S. Owned Companies *

14. Transmission Sourcing Trends Components19892007Future Transmission Assembly & TestXXX CarriersXXX CaseXXX Converter CaseXXX Valve Body & AssemblyXXX Internal GearsXXX ConverterXX Converter StampingsXX Stator AssemblyXX ClutchesXX Sun & Pinion GearsXX ShaftXXX SupportsX CoverX Oil PumpXX Final DriveX SprocketsX

15. The Evolution of the Manufacturer/Supplier Continuum Factory Attributes 198720072027 Plant Output 1,000/day Plant Size 3.5M sq. ft.2.5M sq. ft.? Plant Layout One building/ Multi-floor 3-4 separate but close one-story buildings Several buildings, one-story Process Flexibility One vehicle2-3 vehicles Infinite # of vehicles Workforce Size 3,500 workers2,500 workers1,500 workers Product Complexity 2 models5-15 models Infinite # of models Number of Suppliers 2,500500100 Part Sequencing None50-100 key parts500 key parts Modularity NoneSeveral Basic build philosophy

16. Assembly Plant Capacity (1990 – 2008) Annual North American production grew 28% from 12.5 million vehicles in 1990 to 16 million in 2006. Net

17. Component / Service Sourcing Labor Cost and Availability Product and/or Process Technology Control of Overall Quality of Key Components Logistics, Containers The “Core Business” Strategy Part Cost Available Capital What influences the sourcing decision?

18. Why the Major Shift? Growing gap between supplier and OEM wages Limited funds for R&D Growing technical complexity of product Lack of flexibility to manage lower volumes

19. What Does the Future Hold? Demand for more flexibility Less manufacturing process / performance differentiation Spread of capital required for new product development