DONGFENG MOTOR Co., Ltd. Business Strategy
March 24, 2006
Agenda
W DFL: Company Overview
W China Market & Industry Situation
W DFL Strategy and Business Performance
2 T DFL: Company Overview
W China Market & Industry Situation
W DFL Strategy and Business Performance
3
Complementary Strengths Provide Advantage
•Strong commercial vehicle •Strong global brand (CV) brand in China •Full range of passenger •Comprehensive CV line-up vehicles around the world •Large-scale, operational •Advanced R&D and production facilities technology capabilities •Dedicated and experienced worldwide staff • Industry leading production •Wide distribution network in technology and methods Chinese market •Top class management •Strong CV R&D capability expertise with multicultural •Competitive Engine, Parts, experience and Equipment business for CV in China •Strong financial processes and management systems
4 One Company, Two Brands
DFLDFL
A single full-line auto company
TRUCKS, CV’S & BUSES PASSENGER VEHICLES
Sunny Bluebird
Teana Tiida
Pickup Paladin (Produced(Produced byby ZhengzhouZhengzhou Nissan)Nissan)
5
Partnership Structure
DongfengDongfeng MotorMotor Co.Co. NissanNissan MotorMotor Co.,Co., Ltd.Ltd.
DongfengDongfeng MotorMotor GroupGroup Co.Co. 50% 50% NissanNissan China China InvestmentInvestment Co.Co.
Asset investment Cash investment 8.35 billion RMB 8.35 billion RMB Name inherited
DongfengDongfeng MotorMotor Co.,Co., Ltd.Ltd. (DFL)(DFL)
Non-auto- Core automotive operations motive PSA/Honda companies, JVs etc.
Commercial Vehicle Passenger LCV div. Equipment Parts div. Vehicle div. (DFAC) div. div.
(+ZNA) 6 Organization Structure – Functions and Business Units
BoardBoard ofof DirectorsDirectors XU Ping, Chairman (8(8 members)members) (4 DF, 4 Nissan)
KatsumiKatsumi NAKAMURANAKAMURA PresidentPresident Functions
Product & R&D Purchasing Manufacturing Finance Human market & Quality Re sources planning ZU VP TONG VP OOTANI VP OUYANG VP KOMATSU VP TONG VP Commercial Vehicles TONG Dongcheng VP Passenger Vehicle YOSHIDA VP, REN VP LCV (DFAC) ZU Fushou VP
Parts & Components OUYANG Jie VP Operational Divisions Operational Equipment SHEN Li Senior GM 7
As of E/’05 Main Business *) 7.5h x 2-shift x 303days (incl. work on Sat) No. of Production Production Total No. of Subsidiary Volume [K units] Capacity Fixed Employees companies [K units, 4,545h/y base*] Assets [K persons] ‘04 ‘05 [Bil. RMB] HD: Passenger 150Æ270(E/’06) Vehicle div. 4 64 165 4.6 6 XF : 90
Commercial 11 203 155 HQ: 150 4.0 28 Vehicle div. SUBs: 120
LCV HQ: 120 (DFAC) 1 60 86 SUBs: 50 1.9 5
Parts & Components 19 -- -- 3.1 27 div.
Equipment -- -- div. 1 0.4 4
8 Location
Major Production Base
CommercialCommercial vehicles:vehicles: LDT,LDT, LightLight BUSBUS && BUSBUS ChassisChassis PassengerPassenger vehicles:vehicles: Teana,Teana, BluebirdBluebird Engine:Engine: MachineryMachinery andand assemblyassembly (Cummins)(Cummins)
SUV,SUV, P/UP/U:: Paladin,Paladin, Pick-upPick-up
襄樊襄樊 鄭州鄭州 Zhengzhou Nissan XiangfanXiangfan ZhengzhouZhengzhou Automobile. Co., Ltd. Xinjiang Dongfeng Xinjiang ★★ ★ HQ* *) Registered address Automobile Co., Ltd. ★ ◎ 十堰十堰ShiyanShiyan 武漢武漢 Wuhan Wuhan Dongfeng Hangzhou Automobile. Co., Ltd.
Commercial:Commercial: H,H, MDTMDT andand busesbuses chassischassis Liuzhou Engine:Engine: MachiningMachining andand assemblyassembly ★★ Dongfeng Liuzhou Components:Components: Transmissions,Transmissions, Axles,Axles, Radiators,Radiators, 広州広州 InteriorInterior parts,parts, PowerPower steering,steering, OthersOthers Automobile Co., Ltd. GuangzhouGuangzhou Equipments:Equipments:Dies,Dies, Tools,Tools, MachiningMachining centercenter PassengerPassenger carscars:: Sunny,Sunny, Tiida,Tiida, BluebirdBluebird SylphySylphy CVCV R&DR&D CenterCenter EnginesEngines:: MachineryMachinery andand assemblyassembly PVPV R&DR&D CenterCenter 9
T DFL: Company Overview
T China Market & Industry Situation
W DFL Strategy and Business Performance
10 China: Total Industry Volume [+: increase / -: decrease ratio] [’000 units] 8,000 Forecast
6,360 6,000 5,828 450 433 +3% H&MDT 5,198 1,020 -25% 4,576 575 989 +3% LDT +40% +10% 410 903 1,170 4,000 +7% BUS 814 +11% 1,090 +6% 1,024 PV 997 +3%
2,000 +12% 3,720 +15% +23% 3,316 2,354 2,696
0 '03'04'05'06
LDT: including Mini Truck Source: CAAM, adjusted by DFL Corporate Planning BUS: including Large, Mid, Light BUS and Mini BUS(CUV) < Including import and excluding export > PV: including MPV, SUV, excluding CUV 11
Competition in Passenger Car Market
Fiercer Competition － Brand-New Model Launches
40 36
10 30 24 20 9 19 20 7 18 4 8 3 11 3 10 10 5 10 4 6 9 6 3 3 7 8 44 2 3 0 '01 '02 '03 '04 '05 '06
MPV/SUVMPV/SUV SmallBasic car(B-Seg)Small Mid (C-Seg)Mid/Large Large (D-Seg + Premium) Excl. full model changes 12 PV: Market Price Down Trend
(%) CY02 03 04 05 0 -3.1 -3.1 -5 Large Class Large Class -7.8 Small ClassClass (B-Seg) (D-Seg) -7.8 -10 -12.3 -14.0 - 14.0 -15 MediumMedium ClassClass - 13.6 (C-Seg) - 20.9 -20 -20.2 - 21.6
-25 - 24.3
13
Structural Change in CV Market
– Pursuit of “Transportation Efficiency” –
- Large scale MDT MDT freight co.
- Overloading control LDT - Safety LDT
4-wheeled - Ne w Tr affic 4-wheeled Agricultural Vehicle Regulation Agricultural Vehicle 3-wheeled 3-wheeled
’03 ’06~ 14 T DFL: Company Overview
T China Market & Industry Situation
T DFL Business Strategy and Performance
15
Mid & Long-term Strategic Objectives
“Sustainable Profitable Growth”
To be a Globally Competitive & Well-known Comprehensive Automotive Manufacturer
T CV: Global Top 3 [Mid-Term Focus] – Profitability enhancement with progressive volume increase in H&M-duty trucks – Reinforcement of product competitiveness in cooperation with Nissan for Light-duty truck business
T PV: One of the best brands providing “Value for Customers” in China [Mid-Term Focus] – Elevation of brand awareness with increased value for customers – Reach top level of CSI
16 Three Perspectives of our Strategy T Plan23: Plan Two Cubed (=2x2x2)
I. “Growth” II. “Operational Two Times the Sales Volume Enrichment” and Revenue 2 Double-Digit Operating Margin 2
III. “Learning” 2 Partners
17
I. “Growth” Strategy
T How to secure sales increase
ProvideProvide “Value“Value forfor Customers”Customers”
' Competitive Product Line-up
' Convenient & Standardized Sales & Service
FurtherFurther BusinessBusiness expansionexpansion
' Associated Business ' Export Business Development ' Remodeling / Assembled BUS Business
18 Sales Volume
H&MCV: HDT, MDT, Large BUS, and Mid BUS T DFL Sales Volume: Actual and Plan LCV*1: LDT, Light BUS, and DF-branded MPV *1) NISSAN VALUE-UP scope [‘000 units] 700 Plan 620 600 485 500 425 320 H&MCV 400 322 299 LCV 131 285 300 ZNA 174 115 Nissan PV 200 146 21 300 100 87 88 158 200 66 0 61 2003 2004 2005 2006 2007
Sales volume of Zhengzhou Nissan Auto. Co. is included from 2005 19
Passenger Vehicle
[’000 units] Plan + New model 300 + New model Tiida Full Model Teana Change 200 Sunny Bluebird 158 300 56
100 200 66 61 59 22 12 24 15 44 25 28 - 2003 2004 2005 2006 2007
20 PV: Top 12 Makes
05/1-12 04/1-12 Rank Maker Volume Share Vs. Last same period Rank Volume Share 1 上海通 (SH-GM) 用 324,742 10.2% 28.8% 3 252,053 10.0% 2 上海大(SH-VW) 众 287,118 9.0% -19.1% 1 355,006 14.0% 3 一汽大(Faw-VW) 众 277,097 8.7% -7.7% 2 300,118 11.9% 4 北京现(BJ-Hyundai) 代 233,668 7.3% 62.2% 5 144,090 5.7% 5 广州本(GZ-Honda) 田 230,768 7.2% 14.2% 4 202,066 8.0% 6 天津一(TJ-FAW) 汽 193,008 6.0% 48.1% 6 130,306 5.2% 7 奇瑞(Chery) 189,158 5.9% 118.5% 11 86,568 3.4% 8 东风日(DF-Nissan) 产 157,516 4.9% 159.1% 14 60,784 2.4% 9 吉利(Geely) 149,969 4.7% 51.2% 8 99,197 3.9% 10 天津丰(TJ-Toyota) 田 147,438 4.6% 67.2% 10 88,188 3.5% 11 神龙(DF-PSA) 140,399 4.4% 57.5% 9 89,129 3.5% 12 悦达起(DF-Kia) 亚 110,008 3.4% 76.1% 13 62,452 2.5% Total of above 2,440,889 76.4% 30.5% 1,869,957 74.0% Others 755,073 23.6% 15.0% 656,788 26.0% Total 3,195,962 100.0% 26.5% 2,526,745 100.0%
21
New Model Launch in ’06
Picture: SYLPY in Japan 22 Sales Network – Nissan Passenger Vehicle T PV Dealer development Dealer development aiming simultaneously for scale & quality Strict management of facility standards & brand image Dealer outlet development plan Dealer outlet built based on standard policy
'03
'04
'05
'06
'07 0 100 200 300 400 Incl. 2nd Tier Dealers No. of outlet T Customer Satisfaction 2003 2004 2005 2007 SSI No. 10 No. 5 No. 3 Top level CSI No. 9 No. 5 No. 1 Top level 23
DONGFENG - NISSAN PV R&D Center 2004 / Mar / 24 Announce R&D Center establishment 2004 / Dec / 6 Start construction 2006 / Mar / 20 Complete DF-Nissan PV R&D Center as one of the Nissan’s global R&D bases develops vehicles, matching with Chinese market needs, based on the products developed by Nissan.
Total investment: 330M RMB Area: 200,000 m2
24 New Engine Plant in Huadu, Guangzhou
Area 390,000㎡ Floor 145,000㎡ Engine HR16DE, MR20DE Capacity 180k units (Æ360k by ’08)
Machining Machining KD Casting 2nd Stage 1st Stage Assembly Warehouse
Investment: 3,000M RMB 25
Truck Sales
[’000 units] 250 230 Market Share Position 215 - ’05 actual - 195 194
0 2003* 2004 2005 2006(Plan)
*) Reference: definition of segmentation has been changed 26 CV: H&MDT TIV T Deterioration of market demand in 2005 – -25% vs. ’04
K 600 '04 Actual 575 ’04 Actual '05 Actual 500 448 ’06 Fcst '06 Forecast
400 433 ’05 Actual
300 260
258 200
177 100
0 JFMAMJJASOND Cumulative market sales volume by month 27
Launch of “New Generation Cabin” Model
T Unique Selling Points
DONGFENG STYLE: “STRONG AND SMART”
USP1. “Ergonomics” design • Easy operation • Comfortable interior • Shock absorbing system
USP2. “Safety” design
USP3. “Aerodynamic” design
28 Commercial Vehicle Dealer Network
Expansion of 3S-Image Dealers
HDT/MDT Sales Network development plan
80 50 130 '04
'05 105 45 110
'06 125 45 90
'07 145 45 65
0 50 100 150 200 250 300
3S Image ｄealer 3S Function dealer Single sales dealer
29
LCV Sales – DFAC
[‘000 units] 100 95 90 90 86 Small Truck
80 16 Prince
70 66 Duolika 2 61 Kangba 60 6 23
50 Jinba 33 24 DF Star 40 14 Small Dump 30 3 12 15 6 Dump 20 3 DF Pick-up 10 15 16 15 BUS 0 2003 2004 2005 2006 2007 Objective Objective 30 Products of DFAC Light-Duty Trucks
DF Star Jinba
Kangba Duolika facelift 31
LCV Dealer Network Development
Via 3S shops’ construction continual increase, quality is improved alongside network quantity rise. ※DBIS: Dongfeng Brand Image Shop
Dealer outlet development plan Dealer outlet built based on standardDBIS policy '03 Indicate 3S DLR '04
'05
Open-air '06 market
'07
0 100 200 300 No. of outlet
32 II. “Operational Enrichment” Strategy T How to accelerate cost reduction & productivity improvement To enrich “Value for Customer” by attractive products & competitive prices (keeping DFL’s profitable growth)
"Price (Æ Cost) Competitiveness" through the overall Value-chain
Logistics After- Associated Planning R&D Purchasing Manuf. S&M (SCM) Service Business
Purchasing Cost Reduction
Manufacturing and Logistics Expenses Reduction
Productivity Improvement
Quality Improvement 33
Cost / Expense Reduction
T KPI progress: ’05 Actual
Purchasing Cost Reduction Logistics Exp. Reduction
[%] '05 Objective [%] '05 Objective 20 '05 Actual 35 31.1 16.6 '05 Actual 30 15 25 11.9 20 10 20 10 6 15 10.4 10 5 7 5 0 0 PV CV PV CV
Cost Reduction: Cumulative against the end of ’03 as a base 34 Quality Improvement
T Commercial Vehicle – Drastic improvement by introducing Nissan’s Quality Management System
60 60 51 50 HDT 50 MDT 35 40 40
30 30 19 19 16 20
Quality Index 20 Quality Index Quality 13 10 10
0 0 2003 2004 2005 2003 2004 2005
T Passenger Vehicle –“Global Best Level Quality” with Nissan Quality Control
35
Productivity Improvement T Headcount Rationalization with Productivity Improvement
Mid & Long-term Contracted Employee headcounts Productivity
000 persons units/employee 80 12 66 61 10 57 60 56 8
40 6
4 20 2
0 0 2003 2004 2005 2006 (Objective)
36 Support from NISSAN LCV Business and PV Plant T Number of Nissan Expatriates by site HQ/Admin. MFG Vehicle MFG Engine 50
HQ/Admin. 89 30 MFG Vehicle 30 20 MFG Engine 26 10 10 8 7 TOTAL 145 10 5 6
襄樊襄樊 0 XiangfanXiangfan 2003 2004 2005 2006 ★ (Plan) ★ ★★ 十堰十堰ShiyanSh iyan ◎ HQ and CV Business 武漢武漢 WuhanWuhan PV Business HQ/Admin. MFG Vehicle MFG Engine HQ/Admin. MFG Vehicle MFG Engine 50 45 広州広州 50 40 GuangzhouGuangzhou 40 37 37 39 39 38 ★★ 40 29 30 30 30 30 30 23 21 22 20 20 10 4 10 0 0 2003 2004 2005 2006 2003 2004 2005 2006 (Plan) (Plan) 37
DFL Production Capacity Utilization
Production volume Utilization ratio [’000 units] [%]
700 CV 120% PV 110% CV utilization ratio 600 PV utilization ratio 101%100% 89% 90% 500 88% 89% 89%
76% 85% 80% 400 83%
300 60%
200 40% 100
0 20% 2003 2004 2005 2006 2007 Plan Plan Utilization ratio: Calculated based on the actual production preparation situation of each production line and facility without overtime working 38 Centralized Cash Management
Commitment Facility Operated by Liquidity Support
ICBC DFL Treasury CMB Excess Cash Entrustment Loan of HQ & Sub.s DF Finance Co. Designed by Collection Payment Entrustment Loan MHCB Collection Dealers DFL Payment Suppliers Subsidiaries
Repay unnecessary debt from group perspective Local Banks
39
Financial Expense Reduction T Bank Borrowings 8,072 [M RMB] 8000 5,801 6000
4000 2,152 2,222 1,950 2000
0 '03/Jul 1st 2003 2004 2005 2006 (Budget) T Cash on Hand [M RMB] 10,000 9,247 8,598 7,514 8,000 6,745 6,800 6,000 4,000 2,000 0 '03/Jul 1st 2003 2004 2005 2006 (Budget) T Finance Expense 400 342 [M RMB] 300
200 156 108 102 100
0 2003 2004 2005 2006 (Budget) 40 III. “Learning” Strategy T How to establish solid business base and bring out a latent potential
Management / Operation Quality & Speed Improvement
' Transparency of management decision through Management Committee
' Implementation of global management practice Nissan’s management know-how transformed into “Dongfeng - Nissan Management Way” • P-D-C-A cycle management • KPI control • CFT Activities • QCD improvement ' Company Culture & Mind-set Evolution • Education / Training • Teamwork • VISION / MISSION / BEHAVIOR 41
“Dongfeng - Nissan Management Way”
Lead by top management themselves, discussed at workshop activities together with both Chinese and Japanese key persons Æ Cross Cultural and Cross Functional Management
1. Mutual understanding of and respect for different values 2. Creating a mutual trust relationship 3. Common understanding of management objectives and establishing an environment for collaboration
42 Philosophy of the Core Culture
Vision・Mission・Guiding Principles of Dongfeng Nissan
DFLDFL Objective Objective ：：“A“A globally globally competitive, competitive, comprehensive comprehensive automotive automotive manufacturer” manufacturer”
PVPV objective objective OneOne of of the the best best brand brand in in China, China, providing providing “Value“Value for for our our customers” customers” ①① VisionVision ② Mission
Mid-term and long-term plan Plan23 (’04-’07) Interaction with “NISSAN VALUE-UP” plan Guiding Principles ③ ’05 Dongfeng Nissan：A fish jumps over the dragon gate to become a dragon Solid foundation for future development of DFL-PV; ’04 Enhancing the amalgamation between Chinese and Japanese parties Founded in June, 2003 43
“Dongfeng - Nissan Management Way”
T VISION: Enrich People’s Life 人 · 車 · 生活 以最具价值的汽车产品和服务为顾客提供丰富的人性化的移动生活体验 Valuable Products and Services Promise Rich, Humanized car ownership experience.
T MISSION: ॠࢊॠ Customers Create Value and Prosperity Together Shareholders Employees ॠࢊ ॠ Providing creative and superior values to all the stakeholders: – Customers, Shareholders, Dealers, Partners, and Employees Partners Society
4445 Dongfeng - Nissan Guiding Principles
1. ᕪ࠳ = Customer Driven
2. ੩ = Innovative & Proactive
3. = Fair & Transparent
4. = Communication & Cross Functional
5. ፟ = Cost Conscious & Profit Driven
6. = Learning & Devotion
45
DONGFENG MOTOR Co., Ltd. Business Strategy
“A Globally Competitive, Comprehensive Automotive Manufacturer”
46