Remarks by Bernd Hoffmann, Chairman of Schmitz Cargobull AG, at the VDA Press Workshop for the Upcoming 60Th IAA Commercial Vehicles, on 9Th July 2004

Remarks by Bernd Hoffmann, Chairman of Schmitz Cargobull AG, at the VDA Press Workshop for the Upcoming 60th IAA Commercial Vehicles, on 9th July 2004

“Future Challenges Facing European Manufacturers of Superstructures and Trailers”

Ladies and gentlemen, I too would like to warmly welcome you to our workshop in Frankfurt.

Chart I: EU enlargement was officially completed two months ago, and reports of Development of economic growth and the establishment of new production locations are the transport generating enthusiasm throughout Europe. market in “New Europe” We in the commercial vehicle sector also have great expectations with regard to the free movement of goods across frontiers: The growing demand for transport services on the one hand — nearly 400 million consumers in Central and Eastern Europe have to be supplied with goods — and favourable production costs on the other hand, are fuelling these hopes. For example, the hourly wage in Lithuania — including taxes and social benefits — is four euros, which is only one-fifth of the wage cost here in Germany. Such statistics can easily give rise to something of a gold-rush feeling. Nevertheless, we should keep in mind other, more sobering, facts, such as the following:

The steel market is currently being completely bought up by China. In 2004 alone, the requirements of this booming economy exceeded domestic production by 80 million tons. In addition, the CEO of Salzgitter AG, Wolfgang Leese, recently warned that bottlenecks may occur with regard to the supply of iron ore, coke and scrap metal. Material and capacity shortages in other areas will also dampen economic growth. For example, I can already tell you today that we will be forced to increase the prices for our vehicles in the autumn due to dramatic increases in the cost of the important starting materials steel, aluminium and plastics.

Moreover, an underdeveloped infrastructure, a largely outdated industrial base, and language barriers all mean that EU enlargement will not lead to instant benefits. Those who believe they must move into Central and Eastern Europe now are actually 20 or 30 years too late. To be successful in the region you need to have:

- knowledge of the market

- qualified employees from the countries in question, and

- a clear strategy. The potential generated by the EU enlargement lies by definition not only Chart II: in the new member states but also in the developed markets of Western Industrial centres Europe, which will be affected economically by the new members. In fact, in Europe a large proportion of the goods destined for consumers in Central and Eastern Europe will be supplied by Western Europe over the medium term. The huge shopping centres on the outskirts of country capitals such as Budapest, Bucharest, Moscow, Prague and Warsaw offer just a hint of the tremendous need for consumers in the region to catch up. If we take Eastern Germany as an example, however, we can see that it will take decades for the region’s economic strength to reach that of today’s Western Europe.

A second driving force will be the relocation of production. In particular, we can expect the wage-intensive manufacturing sector to go east. Naturally, such a development will generate additional demand for transport services.

Chart III: The automotive industry is leading the way here, with Volkswagen, Industrial centres Daewoo, Opel and Fiat in Poland; Hyundai/Kia, Volkswagen and the PSA in Germany and Central and Group in Slovakia; Skoda and Toyota/PSA in the Czech Republic; and Eastern European Audi and Suzuki in Hungary. countries These companies have invested billions of euros in new factories since the fall of the Iron Curtain. And their suppliers are being towed along behind. In fact, the German production lines for VW, Audi and Porsche are increasingly receiving their components from factories in Hungary, Slovakia or the Czech Republic.

1 The sector for trailers and semitrailers can benefit more than most from these shipments.

The question, therefore, ladies and gentlemen, is how should the trailer and semitrailer manufacturers should prepare themselves for the challenges associated with the New Europe?

The crucial factors for promoting substantial market growth as a whole are thorough deregulation and a shift in production from “just in time” delivery to “just in sequence”. This can generate additional shipments — for example, deliveries that previously only took place once could now be made several times per day. Additional factors that will determine success in the future are thus the establishment of pan-European transportation networks with uniform conditions, equality of opportunity between road and rail, and optimal utilization of infrastructure and shipping capacity in terms of both weight and volume. At the same time, we can already see why the existing transport networks in Central and Eastern Europe will make it difficult for us to achieve our objectives. Poland, which has a population of just under 40 million — Chart IV: that's almost half of Germany's population — had only 358 kilometres of Infrastructure: motorway at the end of 2003. Even when Hungary, the Czech Republic, Moterway kilometres in Slovakia and Slovenia are included, the new EU countries in Central Germany, Poland Europe have only slightly more than 2,000 kilometres of motorways. By and Central and Eastern European comparison, Germany has 11,800 kilometres and the state of North Rhine- countries Westphalia alone has 2,185 kilometres. Despite enormous EU subsidies, the expansion of the infrastructure in the region will not be achieved as quickly as the markets had hoped. So what does the rail network have to offer as an alternative? At the moment, some 40 percent of goods shipments in the new member states are accounted for by rail; the average figure for the rest of the EU is eight percent. According to a study by Progtrans AG, however, the expected increase in freight movement will clearly shift the balance in favour of lorry transport.

2 Despite this fact, we continue to develop trailers that can be lifted by cranes — special MEGA trailers — for piggyback transport in combined goods transport. As we move forward, the semitrailer sector must address the following specific challenges: - a sharply increasing demand for transport services - limited infrastructure capacities - increased safety requirements, and - the provision of onsite services for pan-European fleets.

Chart V: The annual new registration figures demonstrate the potential here: Every Registrations year, 120,000 semitrailers are newly registered in the countries of Central and Western Europe. The countries of Central and Eastern Europe posted just Eastern Europe, Western Europe, 26,000 such registrations in 2003. And bear in mind that the total USA population of this region is approximately 387 million — in other words, about two million higher than that of Western Europe, which has 385 million inhabitants. At the same time, even the developed markets of France, Spain, the UK and Italy register only a little more than 14,000 new registrations each per year. There is thus huge potential for growth in these countries as well. By comparison, North America has a population of 325 million and an average of 300,000 new registrations of semitrailers per year. So what type of business and political environment does the New Europe need, ladies and gentlemen? The basic issue here is transport deregulation. Today, standards and safety regulations in the Western countries differ so greatly that the flow of goods is often hindered or limited. In the UK, for example, goods have to be secured with nets. Permitted total vehicle heights also vary sharply throughout the new EU. In addition, the process by which franchises for fleet operators are granted is still not transparent enough in several countries. Sometimes, there's simply too much bureaucracy — for example, in Greece, where individual franchises are still handed out for each vehicle. All of these things slow things down. Chart VI: In future, freight-forwarding companies will have to find ways of combining Concept for long- distance transport maximum cargo area capacity — in terms of both volume and payload — > 40 t 3 with lower costs. The issue of the 40-tonne limit in effect both here and in other countries will also have to be addressed. Long hauls could use 60- tonne roadtrains or other combinations, such as those long considered normal in Scandinavia. The total payload can be distributed among the axles in such a manner that the stresses on the roads are no higher than is currently the case. Concerns that these types of vehicle combinations would clog up A-roads or inner-city areas are in my opinion unfounded. Here the market will regulate itself: Freight-forwarders, for example, cannot afford stoppages or half-full lorries. As a result, they will only use the big combinations for long-distance shipments. Restrictions on driving times, such as the ban on Sunday driving or the various checks by different authorities, demonstrate that even the old EU has some way to go before we can talk about an uninhibited flow of

goods. The entry of the new member states into the EU provides us with an ideal opportunity to finally create a standardized regulatory framework. This is the goal that we in the Trailer and Semitrailer Manufacturers’ Working Group, which forms part of the German Association of the Automotive Industry (VDA), are now pursuing.

Ladies and gentlemen, in the future, freight-forwarders must measure success in terms of payload — in the literal sense. Optimal utilization of cargo volume will also be accompanied by a greater focus on rapid loading and unloading. The technical equipment associated with curtainsiders and container semitrailers must be adapted and continually improved in order to meet these demands. We at Schmitz Cargobull, for example, have developed a

new chassis that not only offers three metres interior height with a total vehicle height of four metres, but also permits the use of safe and economical 22.5-inch brakes in combination with a newly developed 455 tyre.

Chart VII: On the one hand, this enables us to meet a stacking requirement of the Comparison of 19.5” commercial vehicle manufacturing industry. Specifically, it must be and 22.5” brakes: wear, disk possible to stack the normal three wiremesh collapsible pallets measuring temperature one meter each on top of one another. On the other hand, we will be able

4 to reduce lifecycle costs. Studies have shown that brake-lining wear is approximately 30 percent lower when the larger brake discs are used than is the case with the 19.5-inch discs. Moreover, the service life of the larger, newly developed 455 tyres is ten to 20 percent longer than that of the smaller tyres. Fuel consumption is also lower. The overall operating costs can thus be significantly reduced. The issue of cargo safety is also becoming increasingly important: Chart VIII: Sophisticated, certified securing systems for transporting palettes, loose Optimum cargo safety cargo, steel, paper, beverages etc. are now a must for every semitrailer.

Such systems are developed by our technicians in cooperation with those who use and test them — the freight-forwarders, DEKRA and TÜV, sector associations and professional organisations. Practically designed cargo securing systems lead to: · greater safety on the road · greater protection for goods and the vehicle and thus lower insurance premiums · a reduction in downtime due to police checks Taken together, ladies and gentlemen, cargo safety is a true cost killer for a freight-forwarder.

In future we will continue to invest significant sums in the development of these and other sophisticated technologies. However, the big companies have to take the lead here, since industrial manufacturers are the only companies that can refinance the large investments involved through their high production volumes. Market integration is also being accompanied by an increasing demand for flexibility regarding the type of cargo shipped in vehicle interiors. It's already no longer a taboo to load up a lorry with meat and then fill it with furniture or machines for the journey back, for example. For this reason, we will need to provide appropriate securing systems for the different types of cargo, including cargo shipped in refrigerator trailers.

Chart IX: We also need to offer multilingual communication systems, services, and Requirements for spare parts documentation in order to serve the needs of pan-European future trailer fleets. European players like Schmitz Cargobull must be able to offer the construction

5 same level of service and quality in all the countries in which they operate.

Regardless of whether it's Bucharest or Madrid — lorry drivers expect professional assistance wherever they happen to be with their cargo. We've already laid the basis for such standards with the development of the modular system for our semitrailers.

The modular system begins with configuration of the vehicle by the sales department, continues along the production lines, and ultimately guarantees rapid and precise processing in the after-sales area. Now that we've installed a computer-based sales platform known as Cargo Sell, sales staff at Schmitz Cargobull can enter a customer's requirements into a laptop. Within a few minutes, the system provides a complete offer. This computer system, which is also used for production control, contains logical queries that prevent incorrect orders being placed. Customers' specific demands are met through application of this modular system. In other words, mass production isn't the bread and butter of Schmitz Cargobull's business; instead, we focus on the individual customer's order. The average order encompasses 1.7 vehicles, which means that practically no two vehicles are similar. Delivery time has been cut from between four and five weeks to as little as three days. Actual production time per semitrailer has decreased to one- third of the original figure and is now around 42 hours for a curtainsider. Speed is ultimately a huge cost killer. That's because today's logistics experts order their transport equipment at short notice only after they've received an order. Our strategy is therefore “growth through reduction”. In fact, since 1994, Chart X Growth through we have produced only four trailer model series: reduction - semitrailers - platform lorries - tippers, and - container chassis. The decisive advantage here is that our associated shared parts policy has lowered the number of parts from 80,000 to 12,000. This development is being driven further forward by the galvanized bolted chassis. Schmitz Cargobull trailers are now pre-

6 produced in modular components and then assembled at satellite plants in the customer's market — for example, in Spain, the UK or Lithuania. This is made possible by bolting support components that were previously welded, whereby all bores and bolts are pre-produced with millimetre precision. Quality standards are thus guaranteed, regardless of where the lorry is finally assembled. Core expertise in the “modular underframe longitudinal girder” — an important element in trailer production — is an essential component of the strategic philosophy at Schmitz Cargobull production facilities. The key pre- products — in other words, the underframe longitudinal girders that are so important for a high quality trailer — are therefore manufactured exclusively at our Chassis Competence Centres in Altenberge and Gotha, both of which are located in Germany. High-quality galvanisation of the components and modules significantly reduces the costs associated with painting. It also dramatically improves the trailer's surface protection and thus value retention. We first presented this new technology at the IAA two years ago. Since then, it has been gradually introduced into the manufacturing process, with the result that the last completely welded chassis rolling off the line at the Altenberge plant on 17th June 2004. That particular vehicle was also the 276,884th unit built at the factory. The process optimisation made possible by bolting and galvanising has an important role to play when it comes to substantially increasing production. We believe it will be possible to boost our annual production from the current 30,000 units to approximately 55,000 over the next five years. The existing capacities at our main production locations in Altenberge (curtainside semitrailers), Vreden (container semitrailers) and Gotha (semitrailer tippers, container chassis) are designed to be able to handle such a challenge. However, to ensure success, it may also make sense to involve one or more satellite manufacturing facilities.

Ladies and gentlemen, the race to utilise sophisticated technologies will Chart XI: High-tech focus less on high-powered high-tech products and more on high-tech production, bolting production and the reduction of lifecycle costs. A high degree of technology

7 automation ensures a consistent level of quality for all components. As a result, bolting technology functions smoothly in the satellite plants, as I have already mentioned. Just-in-sequence delivery directly to the production line is now a standard procedure in modern vehicle production processes. However, the logistics systems at our plants go much further. For example, production is consistently aligned with the desired delivery date. This means that the daily output of up to 80 vehicles in Altenberge has been precisely calculated in advance. Just-in-sequence also closely incorporates the supply chain, whereby the trailers are customized for a specific customer at the last possible moment in order to achieve a high level of flexibility. At Schmitz Cargobull, we haven't built off-the-shelf vehicles — in other words, those not built to specification for a particular customer — for several years now.

In order to optimally prepare ourselves for the challenges associated with Chart XII sales and service activities in new markets, we are continually expanding CTC networks and service partners: the Cargobull Trailer Centres — or CTC — network. These centres can be European map found today at key road traffic nodes everywhere from Gibraltar to the Urals, and from Scandinavia to Greece. The customer centres offer services ranging from sales consulting, financing and full service all the way to spare parts provision and preowned-vehicle services. Altogether, we now have 31 CTCs throughout Europe, including new centres in Sofia, Bulgaria and Bucharest, Romania, both of which were established last year. There are also CTCs in Panèvezys, Lithuainia — on the so-called Via Baltica between St. Petersburg and Berlin — Warsaw, Poland, and Prague, Czech Republic. A new CTC will also soon be opened in Zagreb, Croatia. Major success factors these days — and not only in Central and Eastern Chart XIII: Value chain: Europe — are value added services. Consulting is the key here: To Value added achieve customer loyalty, you not only need to possess expertise in services vehicle construction; you also have to have comprehensive knowledge of the market and its requirements. The sales team must therefore be recruited largely from the local population, since these are the people

8 most familiar with social, cultural, economic and political customs. Sales employees selected from this environment are then put through a standardised company training programme. This investment in the workforce is a key factor when it comes to ensuring successful business activities and a high level of customer loyalty.

Financing services are also becoming increasingly important. This is because companies, especially in the new EU countries, often lack the necessary capital to purchase vehicles outright. Lease-purchase and pure leasing deals provided by our own financing company facilitate cost planning in this regard. Full-service packages also allow customers to Chart IV: Value added calculate maintenance and service costs in advance. Our Cargobull services: Finance subsidiary is currently financing 10,000 trailer units, making it one Financing of the leading companies in its sector.

Customers today demand a tightly knit service-partner network that is available round the clock. We work with more than 600 authorised partners in all European countries. A central service number automatically connects drivers to a service partner in their vicinity who also speaks their language. Moreover, the Schmitz Cargobull spare-part identification system, which goes by the catchy name of EPOS, contains a list of all the parts for every trailer. All the service employee needs is the chassis number to identify the right part and then order it. We deliver spare parts to the service centres in most countries via overnight express mail, or else have the parts sent from a depot in the country in question. Even in Russia, where many things often seem to take weeks, we can deliver spare parts in a short period of time.

Another area in which our sector has great expectations — and rightly so, Chart XV: Value added in my opinion — is the establishment and expansion of telematics services: systems. Telematics These systems are now being used more intensively not only for placing freight orders but also for documenting the flow of goods throughout the entire supply chain. The constant monitoring of the whereabouts of valuable goods or cargo that has to be delivered within a specific period of time is becoming increasingly crucial. 9 Such systems also provide information on duration of use, maintenance intervals, wear and utilisation — all of which represent important business data that can be called up anytime, and which strongly influence lifecycle costs as well. In essence, all of this information provides an answer to a

key question: How many euros per kilometre does the vehicle cost the freight-forwarding company? In view of the envisioned pan-European fleets, the size of the Chart XVI: Development of manufacturer is becoming an important issue with regard to lifecycle costs revenues as well. After all, not only can larger companies guarantee the supply of Schmitz Cargobull spare parts over the long term; the resale value of well-known, high quality vehicles is much higher.

In addition, companies like Schmitz Cargobull also handle pre-owned vehicle sales, regardless of whether it's just one lorry or a whole fleet.

Ladies and gentlemen,

allow me to briefly summarise:

Freight-forwarding companies and fleet managers will profit from strong, innovative and service-oriented manufacturers of trailers and superstructures. The smaller manufacturers will successfully serve the niche market for specialised vehicles.

Thanks to the current degree of technical standardization, the cost benefits associated with series production and larger procurement Chart XVII: volumes, it is possible to establish production facilities in Western, An elephant on the move Southern and Central Europe. This is particularly the case for companies with an international scope that also offer a comprehensive service. The great expertise of the employees at our production locations, our high quality standards, our excellent logistics chain in the manufacturing area, and the benefits that freight-forwarders are reaping from the innovations that are finding their way into lorries and trailers — these are all reasons why I am optimistic about the future.

I wish each and every one on us a bright and successful future.

10 Ladies and gentlemen, thank you for your attention.

I'll now be happy to answer any questions you may have.