Big Three sales fall 36% while Japanese imports account for 53% of market

High fuel costs, credit freeze and recession lead to steep drop in demand for new vehicles globally

2008
GM and Chrysler declare bankruptcy Increased government intervention and regulation in auto and financial sectors

Growth of auto sector in low cost, emerging markets of Brazil, Russia, India and China

Domestic automotive companies and financial institutions exit leasing business

Manufacturers and parts suppliers announce layoffs, idle plants and close operations

Source: Mergent Automotive Industry Report May 2009 Thursday, 8 September, 11

Ebube Anizor Dibya Baruah Kai Chu Huayi Niu

Thursday, 8 September, 11

Focus
Is Opel strategy appropriate?
Auto manufacturing industry attractiveness Distinctive capabilities and competitive advantage Current strategy and client base

Examine alternative strategies that help mitigate downturn and help Magna grow in future

Thursday, 8 September, 11

Opel-Vauxhall Background
Opel is German automaker acquired by GM in 1929 -> now GM Europes largest brand
UK based Vauxhall same cars with different badging

Opel designs/models are sold worldwide by GM under different brands Relatively strong nancial performance
Thursday, 8 September, 11

Opel-Vauxhaul Deal
Magna would control 55%
35% owned by Russian's largest lender Serbank Russian truck maker GAZ to provide expertise

GM 35% stake. Opel employees 10%. Minimize job loss and closures in Germany Use idle plants to produce vehicles for other manufacturers Aim to increase production in current facilities

Thursday, 8 September, 11

Opel-Vauxhall Strategy
Expand passenger car business in Russia
Grow Opel share to 22% -> 700K cars/year

Launch environmentally friendly small cars for untapped markets Create a platform to produce complete cars for other manufacturers

Thursday, 8 September, 11

Company Overview
Founded by Frank Stronach in 57 as one man tool and die shop. First parts contract in 60
70s & 80s: diversication, growth and constitution 90s: geographic expansion and technology innovation 00s: drivetrain and full vehicle assembly

Highly diversied global automotive supplier Supplier to over 70 car brands globally Strong dependence on Detroit 3 - 50% revenue
Thursday, 8 September, 11

Industry Analysis: Highlights and Trends

Parts:
Strong dependence and knowledge share with OEMs OEMs exerting pricing pressure and tougher terms Increased consolidation of vehicle platforms Increasing value in assembly and powertrain

Auto:
Increasing demand in BRIC, shifting manufacturing Government regulation and pressure for fuel economy R&D in electric and hybrid technologies

signicant Rising costs of raw material

Thursday, 8 September, 11

Internal Analysis: Current Strategy

Parts and Geographic Diversication
Continually add capabilities and expand to growing markets

Growth by Acquisition and Alliances

Weak NA auto industry has required growth in Eurasia

Forward Integration
Gain greater footing in value chain

Develop green capabilities

Develop electric and hybrid technologies and vehicle

Thursday, 8 September, 11

Internal Analysis: Corporate

Extremely Decentralized
Each division entrepreneurially run / shared destiny High employee involvement & rich reward structure

Good Labour Relations

Framework of Fairness - No strike/No Lockout policy Worker constitution

Very high worker productivity Technological Innovation

Committed R&D investments

Thursday, 8 September, 11

Option 1: Become Auto Manufacturer

Stay on course to buy Opel and expand to acquire other complementary manufacturers with access to foreign markets Build own small cars and mid size cars for emerging markets and eco-friendly car for the NA market Become outsourcer of complete vehicle for larger base of customers and models

Thursday, 8 September, 11

Option 1: Evaluation
Become Auto Manufacturer

Advantages
Access to growing markets and use of underutilized plants to serve Europe Leverage against declining auto sales Ensure supplier relationship stand

Disadvantages
Cannot translate competitive advantages to sector No experience in marketing to end consumer Conict of interest with its customers

Thursday, 8 September, 11

Option 2: Maintain Supplier Focus

Continue current strategy of diversied parts, full assembly in global markets Acquire (business from) weaker or failing competitors Establish further co-development deals with manufacturers
e.g. Deal with Ford to release electric vehicle in 2011

Continue R&D in alternative energy

Thursday, 8 September, 11

Option 2: Evaluation
Maintain Supplier Focus

Advantages
Stick to core capabilities, model and resources Partner to manufactures not competitor Opportunity to become more integral to success of Detroit 3 increase power

Disadvantages
Greater share of shrinking pie Doesnt hedge against failing manufacturers Supplier margins are being squeezed

Thursday, 8 September, 11

Option 3: Backwards Integrate

Acquire Tier 2 suppliers in North America
Consider global suppliers where it makes sense

Joint venture or partnership with other Tier 1 suppliers Selective suppliers that support lucrative and growing areas
Powertrain Alternative energy
Thursday, 8 September, 11

Option 3: Evaluation
Backwards Integration

Advantages
Ensure survival of supply for current operations Cut costs and extract greater prots in mid-term mitigate OEM power and price pressures Firms could be available at bargain prices

Disadvantages
May not protect from growing costs of raw materials Bucks trend of focus on higher value-added activities Risky in a time where cash reserves are precious

Thursday, 8 September, 11

Recommendation Criteria
Mitigate against drop in sales of new cars Allow for corporate culture to be infused
Independent business, high productivity, constitution

Not threaten current or future base of client

Have to navigate manufacturer waters carefully

Takes advantage of global presence and trends

Thursday, 8 September, 11

Recommendation
Option 2: Maintain Supplier Focus
Magna has resources to withstand industry shakedown and still invest in R&D Partly avoids travails of auto manufacturing where success requires customer and market insight Partnerships with OEMs ensure mutual survival

Option 3: Backwards Integrate

Ensure supply Increase power with OEMs

Thursday, 8 September, 11

Questions?

Thursday, 8 September, 11

Global Presence

240 manufacturing operations & 80+ product development centres in 25 countries

Thursday, 8 September, 11

Capabilities

Thursday, 8 September, 11

Auto Parts Industry Analysis

Supplier Power
High bargaining power Raw material suppliers Many autosuppliers

Barriers to Entry (+)

Tangible Barriers Functional Facility High efficient production line High operating cost Intangible Barriers Advanced R&D, Technology Distribution Channel Government Regulation

Threat of Substitutes (-)

Automaker self supply

Buyer Power (-)

Corporation, Manufacture Strong bargaining power Lower switching cost Multiple Choice to buyers

Thursday, 8 September, 11

Auto Industry Analysis

Low bargaining power More supplier Supplier rely on Carmaker

Supplier Power

Tangible Barriers Efficient Facility High startup capital investment High operating cost Intangible Barriers Advanced R&D, Technology Great management Distribution Channel

Barriers to Entry

Industry Competitor
GM, Ford, Daimler Chrysler Japanese Automaker, Honda, Toyota, Nissan European Automaker-Fuel economic Globalization, Diversification, Vertical Cost efficiency, Differentiation Competitors Product Public Transit Other transportation tools Buyer preference

Threat of Substitutes

Thursday, 8 September, 11

Individual, corporation, Strong bargaining power Lower switching cost Diversified buyer Lower cost to buyer

Buyer Power

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Thursday, 8 September, 11

Magna Performance (2008/9)

Thursday, 8 September, 11

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