Industries Automotive Global Automotive Financial Review An overview of industry data, trends and financial reporting practices* 2006 edition Table of contents About the PricewaterhouseCoopers Global Automotive Financial Review ............................................... | 2 | Global Automotive Sector Outlook: Big Bets and Shifting Competitive Dynamics ........................... | 5 | A Focus on the BRIC Countries: The Brazilian Automotive Market ............................................................................................................................................. | 11 | The Russian Automotive Market ............................................................................................................................................... | 15 | The Indian Automotive Market .................................................................................................................................................... | 19 | The Chinese Automotive Market .............................................................................................................................................. | 25 | Global Automotive M&A Overview .................................................................................................................................................. | 31 | 2005 PwC Automotive Shareholder Value Awards ......................................................................................................... | 37 | International Financial Reporting Standards ......................................................................................................................... | 43 | Sarbanes-Oxley .................................................................................................................................................................................................. | 49 | From The Chairmen ........................................................................................................................................................................................ | 69 | Automotive Industry Financial Disclosures ............................................................................................................................. | 93 | Appendices OEM Segment Information ........................................................................................................................................................ | 127 | Tier Supplier Segment Information ................................................................................................................................ | 130 | Contacts ................................................................................................................................................................................................................ | 131 | PricewaterhouseCoopers August 2006 | Global Automotive Financial Review About the PricewaterhouseCoopers Global Automotive Financial Review PricewaterhouseCoopers (PwC) is pleased to present its annual The list of 37 companies included in this Review is presented as Global Automotive Financial Review – a summary of financial Appendices A (OEM segment information) and B (Tier Supplier data, trends and practices as reported by leading global vehicle segment information). These companies consist of 7 global manufacturers and suppliers. vehicle manufacturers and 23 global suppliers, 6 of which generated more than $0 billion each in revenue during 2005. To assemble this eighth annual Financial Review, members of the PwC Automotive Practice analysed the annual reports and Form In the opening sections of the Review we summarise the industry’s 0-Ks for fiscal years ending during 2005 and early 2006 for US 2004 results, future prospects, merger and acquisition activity and registrants and annual reports for fiscal years ending during 2004 shareholder returns. We also present several articles prepared by for non-US entities. Particular attention was paid to the chairmen’s members of our Automotive practice, summarising industry results letters to shareholders, management’s discussion and analysis and prospects in the BRIC countries, as well as on topics such as (MD&A) and financial disclosures specifically relevant to the IFRS, Mergers and Acquisitions and Sarbanes-Oxley. automotive industry. Porsche AG Vehicle Manufacturers by Revenue (in $ millions)* Subaru - Fuji Heavy Industries Mitsubishi Motors Corp. Suzuki Motor Co. Mazda Motor Corp. Renault SA FIAT S.p.A BMW Group Hyundai Motor Co. Peugeot Citroën SA Nissan Motor Co., Ltd. *Consolidated Group Revenue Honda Motor Co., Ltd. Volkswagen AG Ford Motor Co. DaimlerChrysler AG Toyota Motor Corp. General Motors 0 50 000 100 000 150 000 200 000 2 Global Automotive Financial Review | August 2006 PricewaterhouseCoopers In the “By the Numbers” section, we present charts and graphs guidance applicable to each topic, we provide representative highlighting important ratios and performance metrics used quotations from financial statement footnotes to illustrate how by automotive industry executives and analysts. The statistics automotive companies are dealing with these issues in their underlying these ratios are taken directly from annual reports and annual reports and Form 0-Ks. The disclosures presented are not 0-Ks and are summarised in Appendices A and B. offered as recommended methods of accounting or disclosure, but as illustrations of current practice. In addition, information is To provide additional insight into the priorities of the leaders included on changes in accounting standards that are of particular of automotive companies, the “From the Chairman” segment relevance to automotive companies. provides quotations from the chairmen’s letters to shareholders on major recurring themes that were evident across the annual The members of the PricewaterhouseCoopers Global Automotive reports. These include technology and innovation, ethics and Practice are ready to assist you as you lead your business corporate governance, collaboration, key strategies for success, through current challenges and toward new successes. For your the environment and opportunities in China and the Asia Pacific convenience, a list of contacts can be found at the end of this region, among others. publication. A summary of technical reporting issues of particular importance Stephen D'Arcy Christian Martin to automotive companies is also provided. With respect to Global Automotive Leader European Automotive Leader Tier 1 Suppliers by Revenue (in $ millions)* Autoliv Inc. Federal-Mogul Corp. GKN plc Dana Corp. Arvin Meritor Inc. Eaton Corp. Valeo SA TRW Automotive Holdings Corp. ZF Group Faurecia Toyota Industries Corp. Visteon Corp. Lear Corp. Continental AG Michelin Group *Consolidated Group Revenue Aisin Seiki Co. Ltd. Goodyear Tire & Rubber Co. Magna International Inc. Bridgestone Inc. Delphi Corp. Johnson Controls Inc. Denso Corp. Robert Bosch GmbH 3 PricewaterhouseCoopers August 2006 | Global Automotive Financial Review Global Automotive Sector Outlook: Big Bets and Shifting Competitive Dynamics Light vehicle manufacturing growth Asia-Pacific region, which is expected to account for more than 42% of the increase in vehicle assembly to the end of Global light vehicle assembly growth is expected to exceed the decade. 8.5 million units between 2005 and 200, representing a Several mature markets are expected to grow over the 3.7% increase over the next four years. In fact, the PwC next four years, including the US (9.5%), France (5.0%) Automotive Institute forecasts double-digit growth rates in and Germany (2.9%), but the biggest breakthrough will all global regions except North America. The largest con- come from an emerging regional grouping we call the BRIC tribution to overall growth is expected to come from the countries (Brazil, Russia, India and China). To put their Global Light Vehicle Assembly by Region collective growth in context, BRIC countries will account 990-203 (millions) for more than 40% of the sector assembly increase over the 2005-200 period, while representing 52% of the 80 BRIC * global capacity expansion in that time period. This is why 70 Rest of the World nearly all major global automakers are pursuing a BRIC North America European Union strategy in some form as they attempt to gain competitive 60 advantage by tapping the potential of these emerging 50 automotive markets. 40 On the surface, this growth might seem something to celebrate among global automakers and their suppliers. 30 20 Restructuring challenges 10 On the other hand, the last few years have brought numer- 0 ous reports of financial instability, corporate bankruptcies, 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 restructuring efforts and plant closures. In fact, massive Source: PwC Automotive Institute structural changes are simmering, and the situation will * BRIC (Brazil, Russia, India, China) only heat up as the entire automotive value chain struggles 5 PricewaterhouseCoopers August 2006 | Global Automotive Financial Review to adapt to new market realities. These include high raw in many cases, generous government incentives. Among material prices and razor-thin profit margins that put pres- the global players leading this charge are Japanese and sure on OEMs and suppliers alike – all against a backdrop South Korean automakers, particularly Toyota Motor Com- of dramatic increases in the level of global competition. pany and Hyundai Motor Group. In the case of Toyota, the The result is a sector