global automotive

November 27, 2009 Global: Automobiles

Goldman Sachs Global Investment Research 1

November 27, 2009

Global: Automobiles

Identifying global long-term winners: Toyota, Volkswagen and Fiat

Three key structural trends to 2020

We see BRICs growth and the carbon challenge as

key influences on the next cycle. We identify and

quantify three key structural trends the global

automotive industry will face in the next decade:

(1) Global economic realignment: we expect this

to drive up global car sales by 70% over the next

ten years, an US$86 bn/€60 bn opportunity.

(2) The cost of CO2 compliance: we estimate a

US$117 bn/€80 bn headwind to industry profits

over the next decade.

(3) Negative mix-shift: emerging market growth

and changing consumer behavior could reduce

industry profits by US$26 bn/€18 bn we believe.

Consolidation to pursue 'relevant scale'

To offset profit headwinds over the next decade,

we estimate the industry must double annualized

net cost savings to 200 bp pa vs. the last cycle.

We believe consolidation will be part of the

industry’s response, given limits to cost cutting.

Our analysis highlights Fiat, PSA and Suzuki as

attractive industrial partners.

Introducing our GS Autos Scorecard

To identify long-term industrial winners within

global autos we have measured our coverage

against six key success factors (the GS Autos

Scorecard). We highlight Toyota, VW, Fiat,

Hyundai, and Honda as well positioned.

Attractive annual return potential

Despite a track record of underperformance, the

automotive sector has provided investors with

significant annual performance opportunities. The

spread between the annual top and bottom

performer has been an average 102% since 1973.

Long-term winners: Toyota, VW and Fiat

Our investment framework identifies Toyota

(rated Buy), VW (Conviction Buy) and Fiat (Buy) as

attractive long-term winners.

In addition, we highlight Ford (Conviction Buy) as

our preferred global restructuring play.

Given volatile returns, no auto company qualifies

for inclusion in our GS SUSTAIN focus list.

Global Automotive Research Team

EMEA Stefan Burgstaller | Goldman Sachs International

Shane McKenna | Goldman Sachs International

Tim Rothery | Goldman Sachs International

Maty Ndiaye | Goldman Sachs International

Anton Farlenkov | OOO Goldman Sachs Bank

Artyom Golodnov | OOO Goldman Sachs Bank

US Patrick Archambault | Goldman Sachs & Co.

Aditya Oberoi | Goldman Sachs & Co.

Asia Rajeev Das | Goldman Sachs Japan Co., Ltd.

Kota Yuzawa | Goldman Sachs Japan Co., Ltd.

Yuichiro Isayama | Goldman Sachs Japan Co., Ltd.

Yukihiro Koike | Goldman Sachs Japan Co., Ltd.

Rosa Kim | Goldman Sachs (Asia) L.L.C., Seoul Branch

Sandeep Pandya | Goldman Sachs India SPL.

GS SUSTAIN Research Team Sarah Forrest, CFA | Goldman Sachs (Singapore) Pte

Andrew Howard | Goldman Sachs International

Marc Fox | Goldman, Sachs & Co.

Melissa Epperly | Goldman Sachs International

Sara Finan | Goldman Sachs International

Coverage views Europe: Attractive

US: Attractive

Japan: Attractive

Asia: Attractive

Stefan Burgstaller +44(20)7552-5784 | [email protected] Goldman Sachs International

Tim Rothery, CFA +44(20)7774-6987 | [email protected] Goldman Sachs International Patrick Archambault, CFA (212) 902-2817 | [email protected] Goldman, Sachs & Co. Kota Yuzawa +81(3)6437-9863 | [email protected] Goldman Sachs Japan Co., Ltd.

The Goldman Sachs Group, Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification, see the end of the text. Other important disclosures follow the Reg AC certification, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.

The Goldman Sachs Group, Inc. Global Investment Research



Table of contents

Executive summary 13

Industry analysis: Global economic realignment 33

Industry analysis: CO2 challenge 49

Industry analysis: Mix-shift 69

Industry analysis: GS Autos Scorecard 75

Industry analysis: Consolidation 93

Investment framework 105

GS SUSTAIN: Overview 121

GS SUSTAIN: ESG framework 131

Company profiles 149

Disclosures 227

Analyst Contributors

Anthony Ling, Global CIO, Keith Hayes DOR Asia, Anthony Carpet DOR Americas

EUROPE AUTOS

Stefan Burgstaller

[email protected]

Shane McKenna

[email protected]

Tim Rothery

[email protected]

Maty Ndiaye

[email protected]

Sherri Malek

[email protected]

Anton Farlenkov

[email protected]

Artyom Golodnov

[email protected]

AMERICAS AUTOS

Patrick Archambault

[email protected]

Aditya Oberoi

[email protected]

ASIA AUTOS

Rajeev Das

[email protected]

Kota Yuzawa

[email protected]

Yuichiro Isayama

[email protected]

Yukihiro Koike

[email protected]

Rosa Kim

[email protected]

Sandeep Pandya

[email protected]

Yipeng Yang

[email protected]

GS SUSTAIN

Sarah Forrest, CFA

[email protected]

Andrew Howard

[email protected]

Marc Fox

[email protected]

Melissa Epperly

[email protected]

Sara Finan

[email protected]

Stian Obrestad

[email protected]

Kristina Obrtacova

[email protected]

Puneet Gambhir

[email protected]

Louise Nankiinga

[email protected]

SPECIAL SITUATIONS

Charles Burrows

[email protected]

GLOBAL ECONOMICS

Jim O’Neill

[email protected]

Dominic Wilson

[email protected]

Peter Berezin

[email protected]

Anna Stupnytska

[email protected]

We would like to thank Brian J. Jacoby and Ashik Kurian for their help with and contributions to this report. The prices in the body of this report are based on the market close of November 24, 2009 unless otherwise indicated.



A comprehensive investment framework for the global automotive sector

Global autos offers significant annual performance potential in our view. As capital returns have converged in the wake of

the economic crisis, we believe the sector now provides attractive investment opportunities at the bottom of the cycle. We

believe the next business cycle will be dominated by BRIC growth and the carbon challenge. We identify and quantify three

key structural trends: (1) global economic realignment; (2) the CO2 challenge; and, (3) negative mix-shift. Against this

backdrop, we consider industry positioning a key proxy for long-term return potential. To capture this potential, we

introduce the GS Auto Scorecard. This measures relative company positions against six key success factors.

We believe that consolidation is also likely to become a part of the industry’s answer to substantial profit headwinds

through the next cycle, as companies will pursue ‘relevant scale’ in terms of geographical exposure, economies of scale and

technology. Our investment framework identifies Toyota (Buy), Volkswagen (Conviction Buy) and Fiat (Buy) as potential

long-term winners among our global coverage. In addition to potential long-term winners, we highlight Ford (Conviction

Buy) as our preferred global restructuring play.

The credit crisis has hit the global automotive industry hard, leading to a convergence of industry

margins and returns and creating attractive investment opportunities

The global automotive industry was hit hard by the economic crisis, suffering unprecedented levels of demand destruction.

Monthly annualised global sales fell 19% from peak levels in October 2007 to trough levels in March 2009, while global automotive

production fell even further, down 34%. As a consequence of the impact of the credit crisis and significant foreign exchange

movements, the cash returns of the automotive companies has converged over the last 18 months, accelerating a trend evident

since 1999 (when the difference between the highest- and lowest-return company was 28.4%).

We forecast that this spread will compress to 5.6% in 2011 as macro economic factors dominate. In our view, this will create an

attractive investment opportunity at the bottom of the automotive cycle: we believe that the relative competitive positioning of

individual automotive companies will lead to a divergence in returns thereafter, as the industry emerges from the crisis, prompting

divergent equity performance.

We expect the next business cycle to be dominated by BRIC growth and the carbon challenge and

see three key structural trends facing the global automotive industry

The automotive industry is at the centre of two significant developments: (1) significant economic growth in BRIC countries, and (2)

the carbon challenge: to significantly reduce CO2 emissions. Against this backdrop, we identify, discuss and quantify three key

structural trends facing the global automotive industry:



1. Global economic realignment: Given our economists’ forecast of a continued realignment in global economic output, we

expect wealth levels in emerging economies to rise quickly, bringing a huge global population into the consumer class. As a

result, we believe large new markets should open to the automotive industry over the coming decade. As consumers in those

markets grow wealthier, the experience of already-developed economies suggests vehicle penetration could rise rapidly in

these economies. The result will potentially be a significant expansion in the size of the global car market: we forecast an

increase of 73% to 107 mn units in 2020, relative to the 2010E level or a 5.7% CAGR. On our forecasts, BRICs countries will

account for almost 70% of this growth, growing at an 11% CAGR, with China becoming the world’s largest car market by 2020

(with car and light commercial vehicle sales of 30 mn units pa). In contrast, we expect the Triad (the US, Europe and Japan)

markets to remain fairly stagnant over this period, given a lack of forecast population growth, relatively static income

distribution and limited increases in per capita vehicle penetration. We estimate that the 45 mn unit global growth we forecast

(allowing for incremental capacity investment) will present the global automotive industry with a potential US$86 bn (€60 bn)

profit opportunity over the next decade.

2. The CO2 challenge: Passenger vehicle emissions account for 10% of current global emissions of greenhouse gases (GHG),

roughly half the emissions generated by transportation in total. Faced with the challenge of achieving significant reductions in

global GHG emissions, policy makers have focused their attention on the automotive industry through CO2 emissions targets.

The announced regulations and indicated plans aim to significantly reduce emissions per vehicle over the next decade, as

emissions regulations in the USA, Japan, Europe and China begin to converge. Regulators’ targets in Europe, North America

and Japan look for an average 17% improvement in CO2 emissions from current levels by 2015/16, we estimate. This, we

believe, can be achieved through improvements to the efficiency of the internal combustion engine, via improvements to

engine technologies, transmission systems and accessories, and changed material use. However, the acceleration in vehicle

demand we forecast will likely intensify pressure to develop alternative powertrain technologies, particularly electrification

solutions. We estimate an incremental cost of US$117 bn (€80 bn) to the industry of complying with tightening CO2 emissions

standards by 2020, representing US$2,400/€1,640 per vehicle in Europe, and US$2,100/€1,400 per vehicle in the USA. This

estimate includes both additional R&D costs, and higher variable-cost spend, adjusted for a volume-led learning curve as the

penetration of CO2 reducing technologies is expected to increase through the next 10 years.

3. The negative mix-shift: The global automotive industry is facing the threat of significant negative mix-shift towards smaller

cars from: (1) economic realignment and associated growth in emerging markets, and (2) a downsizing trend within developed

markets. We see the majority of incremental growth in demand through to 2020 coming from emerging economies, including

the BRICs, where sales are typically more biased towards more affordable, smaller vehicles. Assuming that the current segment

mix in each of the BRIC countries remains stable, we believe the growth in these markets should lead to a global shift towards

smaller cars over the next 10 years. Data from developed economies also suggests consumers in those markets are

increasingly turning to smaller cars, exacerbating the pace of change in the global mix. Government regulation will likely

influence consumer behaviour, adding to the global mix-shift pressure. We estimate that the industry faces a potential

headwind from this move to smaller cars of around US$26 bn (€18 bn), over and above CO2 reduction costs, and represents a

shift which will potentially reposition the traditional profit centres of the industry away from the C/D/E segments.



GS Autos Scorecard ranks across six key success factors; we highlight Toyota, Volkswagen, Fiat,

Hyundai and Honda as well positioned

To identify potential long-term winners within the global automotive industry, we have assessed our coverage universe against six

key success factors. We highlight Toyota, Volkswagen, Fiat, Hyundai and Honda as well positioned global car companies.

1. Price/mix are key building blocks with which automotive companies can create a sustainable competitive advantage. The

realized average price per unit sold can vary significantly by car company. Product mix in particular is one key factor explaining

differences in average prices. We attempt to isolate this to get a better reading on individual brand equity and price premium

potential.

2. Low-cost position: The automotive industry is a highly competitive industry which must cope with overcapacity, low pricing

power and raw material and foreign exchange headwinds. To determine the relative cost position of the companies across our

coverage universe, we have analyzed eight key factors: (1) theoretical average labor costs; (2) units per employee; (3) revenues

per employee; (4) empirical break-even point; (5) capacity utilization; (6) growth-adjusted capex/depreciation; (7) revenues/net

assets; and, (8) research and development/sales.

3. Economies of scale: As the industry faces structural challenges, we believe economies of scale are becoming more

important. To establish relative scale, we focus on: (1) unit sales; (2) revenues; (3) the average capacity of the plants accounting

for 80% of production; (4) percentage of cars produced from top-five platforms; and, (5) total numbers of cars produced from

top-five platforms.

4. Financial health: Global winners are likely to benefit from good profitability, cash generation and strong balance sheets, as

these factors provide a good basis for companies to invest in new technologies, maintain product development levels and

manage the cyclical and structural challenges facing the industry.

5. Growth: Access to growth regions and segments will be a key factor driving relative growth profiles over the next ten years,

we believe. We attempt to measure the exposure of business models to these two key drivers: (1) we calculate a theoretical

organic sales growth rate, based on 2008 sales split by geography and our 2010-2020 regional growth forecasts; (2) we derive a

theoretical organic growth profile for each company, based on 2008 segment exposures and our forecast mix-shift by segment

to 2020.

6. CO2 efficiency: This part of our GS Auto Scorecard is meant to quantify the impact of tighter CO2 regulations facing the global

automotive industry. We calculate the distance to required targets for each manufacturer in the US and Europe. In addition, we

analyze by how much a manufacturer has improved its fleet CO2 emission over the last three years.



Consolidation to pursue ‘relevant scale’; Fiat, Peugeot and Suzuki offer strategic value

In this report, we demonstrate that the global automotive industry has worked hard to realize cost savings and efficiency gains, to

offset headwinds to profits from raw material price inflation, regulatory costs and currency. We calculate the global industry

realized an average 100 bp net cost saving pa through the last cycle (1998-2007). Over the next cycle, however, and based on our

analysis of global industry headwinds, we estimate that annual net cost savings will have to double to 200 bp pa for the industry to

maintain its average annual operating profit margin of 5%. Given our estimates for significant cost pressure over the next cycle, we

believe that consolidation to pursue ‘relevant scale’ is likely to become part of the industry’s answer to the substantial headwinds to

industry profitability. We believe car manufacturers need to achieve ‘relevant scale’ in terms of growth, size and technology, and

see industry consolidation as a means of: (1) companies accessing growth markets; (2) improved cost positions from better fixed

cost absorption; and, (3) funding the development of CO2-efficient internal combustion engine concepts, as well as the development

of alternative powertrain solutions, such as electrification. Using the GS Global Auto Scorecard, we assess the potential benefits

from combinations of companies within the industry: we consider potential improvement in industrial positioning, through

improved economies of scale, lower-cost positions, and access to stronger CO2 technology portfolios (while allowing fro negative

revenue synergies). We identify Fiat, Peugeot and Suzuki as of strategic value: all three companies are potentially attractive

partners to five or more companies on the basis of this methodology.

Comprehensive framework: industry position, M&A potential, Director’s Cut and GS SUSTAIN

To identify long-term attractive global automotive companies, we have developed a comprehensive investment framework. This

includes four key elements:

1. Industry positioning: We believe that the relative competitive positioning of any automotive company is a good proxy for its

long-term return potential. We use our GS Global Auto Scorecard results to assess the competitive positioning of each

company in our coverage. Toyota, Volkswagen, Fiat, Honda and Hyundai screen as best positioned in our scorecard.

2. M&A potential: Given our view that consolidation is likely to become part of the industry’s answer to significant profit

headwinds over the next decade, we recognize the strategic value companies might offer to potential partners. Fiat, Peugeot

and Suzuki screen as having strategic value to potential partners in our framework.

3. Director’s Cut: We use our Director’s Cut framework to identify relative valuation opportunities within our global coverage

group. We find that returns-based measures of financial performance show a stronger relationship to valuation than other,

more traditional financial measures (such as growth-based metrics). By focusing on cash flow rather than earnings, and gross

rather than net assets, CROCI avoids the distorting influences of different accounting policies on reported earnings and asset

values. Consequently, we find a closer correlation between CROCI and EV/GCI (enterprise value/gross cash invested) than

between other measures of return on capital and earnings multiples.

4. GS SUSTAIN: The GS SUSTAIN framework for mature industries identifies the companies in each global industry best placed

to sustain competitive advantage and superior returns on capital over the long term (3-5 years). Our analysis shows that

companies able to sustain industry-leading returns on capital for three years or longer have consistently delivered equity

market outperformance. The GS SUSTAIN framework is designed to identify those companies in each industry best positioned

to sustain those returns in the future. That framework integrates analysis of the key drivers of corporate performance: (1)

returns on capital; (2) industry positioning; and, (3) management quality with respect to environmental, social and governance

(ESG) issues.



Identifying long-term winners: Toyota, Volkswagen and Fiat

Exhibit 1: Identifying long-term winners: Toyota, Volkswagen and Fiat

Turning point

Investment Framework

Themes

Auto OEMs

The industry has historically struggled to generate attractive returns

The credit crisis resulted in an unprecedented downturn in demand and intensified financial

stress

GS SUSTAINIndustry positioning

Return on Capital

CROCI

Cash return on cash invested

Low cost positionPricing / mix

EV/GCI

=CROCI/WACC

Return on capital based

valuation approach

Significant demand growth and rising strategic challenges will drive bifurcation in performance

across the industry

Economies of scale

Global demand growth & realignmentConsumer classes are expanding rapidly in emerging economies, driving rapid growth in

auto demand

The carbon challengeGlobal CO2 emission standards must toughen

substantially and converge across regions if long-term global emissions targets are to be met

Negative mix shiftGrowth will be fastest for smaller vehicles, in which segments the industry has historically generated

lower levels of profitability

Growth exposure

Financial health

CO2 efficiency

Consolidation: Required cost savings to offset headwinds over the next decade and allow the auto industry to cover its cost of capital are forecasts to be double those of the last decade driving more structural solutions and consolidation

M&A Potential

Industry Positioning

Scorecard

Assessment of relative industry

positioning

Management Quality

ESG

Environmental, social and

governance issues

Leading Companies Toyota, Volkswagen, Fiat, Honda, Hyundai

M&A Analysis

DirectorsCut

Fiat, PSA, Suzuki

Renault, Fiat, Ford, VW

No GS SUSTAIN WinnersWatchlist stocks: Toyota, Fiat and VW

Global Winners Fiat, Toyota, Volkswagen

Global Restructuring Ford

Turning point


Themes

Auto OEMs



stress


Return on Capital

CROCI



EV/GCI

=CROCI/WACC


valuation approach


across the industry

Economies of scale


auto demand





Growth exposure

Financial health

CO2 efficiency


M&A Potential


Scorecard


positioning

Management Quality

ESG


governance issues


M&A Analysis

DirectorsCut

Fiat, PSA, Suzuki





Source: Goldman Sachs Research.



Exhibit 2: Comprehensive framework: industry position, M&A potential, Director’s Cut and GS SUSTAIN

Industry Positioning Director'sCut 2011E Return Management

Low cost Economies Financial Growth CO2 M&A (EV/GCI vs. on capital QualityPrice-mix position of scale Health exposure efficiency Overall Potential CROCI/WACC) 2009-2011E ESG Score

Toyota ●●● ●●●●● ●●●●● ●●●● ●● ●●●●● ●●●●● ● ● ●●●●● ●●●Volkswagen ●●●●● ●● ●●●●● ●●●● ●●●● ● ●●●●● ●● ●●●● ● ●●●Fiat ●●● ●●●●● ●● ●●● ●●●● ●●● ●●●● ●●●●● ●●●●● ●● ●●●Honda ●● ●●● ●●● ●●●●● ●●● ●●● ●●●● ●● ●● ●●●●● ●●Hyundai ● ●●●● ●●● ●● ●●●● ●●●●● ●●●● ● ● ●●●● ●BMW ●●●●● ● ● ●●●●● ● ●●● ●●● ● ●●●● ●●● ●●●●●Daimler ●●●●● ●●● ● ●●●●● ● ● ●●● ●● ●● ●●● ●●●●●Suzuki ● ●●●●● ● ●● ●●●●● ●● ●●● ●●●●● ● ●●●● ●Nissan ●●● ● ●●●● ●● ●● ●●● ●● ●●● ●●● ●●●●● ●Ford ●● ●● ●●●● ●● ● ●●●● ●● ●●● ●●●●● ●● ●●Peugeot ●● ●●● ●● ● ●● ●●●●● ●● ●●●●● ●●● ● ●●●●●Renault ●●● ● ●●●● ● ●●● ●● ●● ●●● ●●●●● ● ●●●

GS SUSTAIN

Source: Company data, Goldman Sachs Research estimates.

Exhibit 3: Director’s Cut (on 2011 estimates) Exhibit 4: GS Autos Scorecard: a useful proxy for long-term return potential

BMW

Daimler AG

Fiat

Ford

Honda Motor

Hyundai Motor

Nissan

Peugeot

Renault

Suzuki Motor

Toyota Motor

Volksw agen

y = 0.6113x - 0.3193R2 = 0.4104

y = 0.3362x

0.0x

0.1x

0.2x

0.3x

0.4x

0.5x

0.6x

0.7x

0.8x

0.9x

1.0x

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

CROCI/WACC

EV/G

CI

BMW

Daimler AG

Fiat

Ford

Honda MotorHyundai Motor

Nissan

Peugeot

Renault

Suzuki Motor

Toyota Motor

Volksw agen

0.0x

0.1x

0.2x

0.3x

0.4x

0.5x

0.6x

0.7x

0.8x

0.9x

1.0x

10 12 14 16 18 20 22 24 26

Scorecard

EV/G

CI





Toyota

Exhibit 5: Toyota scorecard spider

0

1

2

3

4

51. Pricing/mix

2. Low cost position

3. Economies of scale

4. Financial health

5. Grow th

6. CO2 Efficiency

Investment view

Toyota achieved 24 points on the GS Autos Scoreboard, scoring as a long-

term winner (in keeping with its reputation). The company is under short-

term earnings pressure, amid a slump in global auto demand, but

continues to leverage its solid balance sheet and invest for the long term,

steadily extending its lead over competitors.

Toyota achieved the maximum five points in the economies of scale, low-

cost position, and CO2 efficiency categories. In the area of CO2 emissions,

Toyota was the first maker to commercialize hybrid technologies and has

built on these to develop expertise in a range of powertrain technologies

(from plug-in hybrids to fuel cells and electric vehicles). Hybrid vehicles

now account for over 15% of Toyota’s annual sales, and it is the only maker

for which hybrids represent a stable earnings stream. In contrast, funding

constraints have forced most automakers to pick and choose the types of

next-generation powertrains they invest in, giving Toyota a strong

advantage. We believe it may benefit from providing its hybrid and other

technologies and parts to other firms in the future. The company achieved

a low score in the growth category, reflecting its regional sales structure

and its already large-scale production. Still, it is moving rapidly to develop

low-cost vehicles to be launched in emerging markets in 2010-2011 and is

making efforts to expand production capacity in the growth markets of

China and India. We believe customers in emerging markets are likely to

demand more high-end vehicles as car ownership increases, and that

Toyota’s market presence being relatively low should not be an obstacle to

future growth.

We expect production momentum to dip temporarily in April-June 2010 on

the end of government incentives, but Toyota has implemented a series of

restructuring measures—exiting Formula One, closing the US NUMMI

plant, and rearranging Japanese dealerships—in addition to the kaizen

process that underpins its competitiveness, and we believe it can maintain

stable earnings. FY3/11 CROCI/WACC analysis puts Toyota’s expected

return around the average for global automakers, but we consider it an

attractive medium-term investment given its cash flow generating

capabilities. We rate Toyota Buy.

Analyst: Kota Yuzawa

Rating: Buy

12-month price target: ¥4,400

Price target methodology: Our ¥4,400 price target is based on an ROE-P/B

correlation and our FY3/11 estimates.

Key risks to our price target: Key risks to our price target include a higher

yen/US$ exchange rate and an increase in US recall-related costs.




Volkswagen

Exhibit 6: Volkswagen scorecard spider

0

1

2

3

4

51. Pricing/mix



4. Financial health

5. Grow th

6. CO2 Efficiency

Investment view

We highlight Volkswagen as a global long-term winner in the automotive

industry, achieving the second highest score on our GS Auto Scorecard

analysis of six key success factors. Additionally, we see substantial

potential upside to our price target for VW’s preferred shares. VW is a

Conviction Buy with a 12-month price target of €107. We view VW as

structurally well positioned within the global automotive industry. VW

comprises a portfolio of strong brands, enjoys a price premium, is well

positioned to participate in BRICs growth (particularly China), and enjoys a

competitive advantage from its sector-leading modular component

strategy in our view. VW score highest in terms of price/mix, reflecting its

position as the ‘desirable’ volume brand, realizing a 5%-7% price premium

over other competitors. With group sales of more than 6 mn units in 2009E,

VW scores highly on economies of scale, particularly given the company’s

leading component strategies. VW pioneered the platform sharing concept

in the 1990s, and was one of the first auto makers in Europe to talk about

component sharing to optimize economies of scale. In the next evolution of

its component strategy, most likely with the launch of the new Golf in

2011/12, VW aims to use two generic platforms to optimize economies of

scale.

With net cash of €9.8 bn in 2010E, VW scored well in terms of financial

health, and with almost 30% of sales exposed to the BRIC market, VW is

well positioned to participate in structural emerging market growth. VW

has particularly strong market positions in Brazil and China, but is

developing footholds in Russia and India. In addition, VW is focusing on

the US market with the start-up of a new factory and the launch of a US

specific D-segment vehicle. Despite significant structural changes to VW’s

cost structure (particularly in Germany) in the years ahead of the financial

crisis, VW has significant potential to improve further its cost positioning

relative to peers. VW ranks comparatively poor in terms of CO2 efficiency

on 2008 data, as the group has made below-average progress towards

achieving 2015/16 targets in Europe and the US (compared to other

manufacturers). VW’s score is most likely negatively impacted by its

premium Audi brand, which naturally would inflate the CO2 data. As we

move towards 2012, we expect VW to improve significantly the CO2

performance of its fleet.

Analyst name: Stefan Burgstaller

Rating: Buy (on the European Conviction Buy List)

12-month price target: €107

Price target methodology: Mid-cycle EV/EBIT framework applied to our

2010 forecasts.

Key risks to our price target: Lower volumes in 2010, CO2 compliance costs

and a value-destructive merger are key downside risks to our rating and

price target.




Fiat

Exhibit 7: Fiat Scorecard spider

0

1

2

3

4

51. Pricing/mix



4. Financial health

5. Grow th

6. CO2 Efficiency

Investment view

We highlight Fiat as long-term structural winner in the global automotive

industry. Fiat ranks third on our GS Auto Scorecard of key success factors,

in which we include potential scale benefits from Fiat’s close tie-up with

Chrysler. Fiat has been the only global car maker with a strategic response

to the challenges of the credit crisis. We believe the Chrysler deal allows

Fiat to address its core weakness, a lack of economies of scale, and gives

the Italian car maker access to one of the largest car markets in the world.

Although Fiat has invested management time and talent in Chrysler, Fiat’s

ultimate 35% stake will be funded by sunk costs (i.e. sharing of platforms

and technologies Fiat had already developed and expensed).

Fiat offers attractive potential upside to our price target. We rate Fiat Buy,

with a 12-month price target of €14, including €2 bn for Fiat’s stake in

Chrysler. Not surprisingly, Fiat achieved only an average score in terms of

price/mix. Fiat is a small, no thrills car maker with a modest price point

realization. Acknowledging this, Fiat’s strategy has been to offer the

appropriate level price point and up-sell to customers through options.

Perhaps surprisingly, Fiat scored highly in terms of low-cost position

compared to other car makers. Fiat operates in Tichy (Fiat 500, Panda), one

of the most efficient car plants in Europe and is implementing its Japanese

inspired world-class manufacturing programme. Even including Chrysler,

the combined entity still ranks below par in terms of economies of scale. In

the context of the automotive industry, Fiat has an average score in terms

of financial health, but screens as attractively positioned in terms of

growth. Fiat is the market leader in Brazil, and is developing its market

presence in Russia and India. To date, China remains Fiat’s weakness.

Despite being a small car manufacturer, Fiat scores only in line with the

average in terms of CO2 efficiency, based on our analysis of recent

improvements in CO2 and the distance to target levels set in Europe.

However, we believe that Fiat is developing a number of powertrain

changes to improve its compliance with future CO2 requirements. In

addition to a good Scorecard score, Fiat screens as an attractive partner

within the global automotive industry. Given the transformational changes

achieved at Fiat, we are more optimistic for Chrysler’s performance

potential under Fiat.

Analyst name: Stefan Burgstaller

Rating: Buy

12-month price target: €14

Price target methodology: Mid-cycle EV/EBIT framework applied to our

2010 forecasts.

Key risks to our price target: Lower volumes, further cash burn and

value-destructive M&A are key risks to our price target.




Ford

Exhibit 8: Ford scorecard spider

0

1

2

3

4

51. Pricing/mix



4. Financial health

5. Grow th

6. CO2 Efficiency

Investment view

While Ford lags its best-in-class peers (e.g. Toyota, Volkswagen and Fiat) in

terms of its long-term positioning (as measured by our scorecard), we

consider it as the most attractive restructuring opportunity in our coverage.

Firstly, we expect it to move up the ranks on a number of the metrics that

make up the scorecard quite quickly. We highlight three areas in particular

in which it ranks below average, but where its shortcomings are being

addressed: (1) regarding price/mix, we expect significant improvement as

the company has moved away from a discount strategy in favour of

smaller but more profitable market share. Indeed, the benefit of this model

has been evident in the last few quarters’ results; (2) we expect its low-cost

positioning to improve significantly, driven by the sizable restructuring it

has undertaken over the last 18 months. This has significantly lowered its

fixed costs and reduced excess capacity; and, (3) we expect material

growth improvement as the company continues to shift its footprint to

flexible or car-based capacity to service what we expect will be a growing

demand for passenger cars.

We also see a growth advantage over the next 12 months from its high

exposure to the North American market, were we expect sales to outpace

the global average. Our preference for Ford also reflects low market

expectations, given its very challenged history which leads some to doubt

it can ever attain even average sector profitability. As such, Ford screens

well within our stock selection framework versus global peers. Our

Director’s Cut framework identifies Ford as one of the more attractive

stocks, the valuation of which is not fully discounting our expectations for

cash flow and profitability. This is implicit in the enterprise value that is

implied by the sector’s CROCI/WACC trend line, which implies 25%

potential upside for Ford. We also note Ford has among the largest

expected changes in ROIC in our auto universe, albeit from a very low

base, toward the industry mean: changes in ROIC have statistically been a

very good indicator of share price performance.

Analyst name: Patrick Archambault

Rating: Buy (on the Americas Conviction Buy List)

6-month price target: US$11

Price target methodology: We value Ford’s shares using 2012 EBITDAP and

EPS, discounted back to the present at a 15% cost of equity.

Key risks to our price target: The greatest downside risk to our price target

would be prolonged weakness in US auto demand and a large downturn in

Europe post government scrappage programs.

Source: Company data, Goldman Sachs Research estimates..



Executive summary



Attractive investment opportunities emerge as margins and returns converge

The global automotive industry was hit hard by the economic crisis, suffering unprecedented levels of demand destruction.

Monthly annualised global sales fell 19% from peak levels in October 2007 to trough levels in March 2009, while global automotive

production fell even further, down 34%. As a consequence of the impact of the credit crisis and significant foreign exchange

movements, the cash returns of the automotive companies has converged over the last 18 months, accelerating a trend evident

since 1999 (when the difference between the highest- and lowest-return company was 28.4%).

We forecast that this spread will compress to 5.6% in 2011 as macro economic factors dominate. In our view, this will create an

attractive investment opportunity at the bottom of the automotive cycle: we believe that the relative competitive positioning of

individual automotive companies will lead to a divergence in returns thereafter, as the industry emerges from the crisis, prompting

divergent equity performance.

Exhibit 9: Company returns have converged…

Global autos: Companies aggregate CROCI (1998-2011E)

Exhibit 10: …from a 21.7% spread in 2001 to a forecast 5.6% in 2011

CROCI dispersion (max vs. min.) and standard deviation (1998-2011E)

-5%

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The next cycle will be influenced by BRICs growth and the carbon challenge

The automotive industry is at the centre of two significant developments: (1) significant economic growth in BRIC countries; and, (2)

the carbon challenge to reduce significantly CO2 emissions.

BRICs growth: demand growth is migrating towards the large emerging markets and their surging middle classes, and away from

US and European consumers. Our global economists named the BRICs (Brazil, Russia, India, and China) and the N11 (the next

group of eleven large emerging economies) as key beneficiaries of this. In 2000, the BRIC economies accounted for 10% of global

GDP. We forecast this to be 18% in 2010 and expect this to accelerate to 29% in 2020 and 48% in 2050 (Exhibit 11). Over the last 10

years, the BRIC economies have contributed nearly as much as Europe, the US and Japan combined to global GDP growth. Our

global economists forecast that this trend will accelerate over the next year, with BRIC economies contributing 50% of global GDP

growth, compared to a 27% contribution from Europe, the US and Japan.

The carbon challenge: Population growth and economic development are placing mounting pressures on the global environment.

Climate change is the highest profile of those pressures. Society’s awareness of the threats climate change presents, its causes,

and its willingness to take action to drive the changes needed to avert the worst effects (whether directly or through support for

political intervention) is increasing rapidly. On a global basis, transportation accounts around 20% of global CO2 emissions, with

road traffic accounting for approximately half this.

Exhibit 11: BRIC economies taking an increasing share of global GDP

Share of global GDP by region, 1800-2050E

Exhibit 12: Global car park

Global car park by region, 2000, 2010E and 2020E (million units)

0%

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1800 1850 1900 1950 2000 2010E 2020E 2050E

% o

f wor

ld G

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W Europe US Japan Brazil Russia India China RoW

RoW

BRICs

Major developed economies

0

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2000 2010E 2020E

Car

Par

k - m

n un

it

Triad BRIC RoW

Source: GS Global ECS Research.

Source: Global Insight, Goldman Sachs Research estimates.



Three key structural trends facing the global automotive industry over the next decade

Global economic realignment represents a US$86 bn (€60 bn) opportunity

Given our economists’ forecast of a continued realignment in global economic output, we expect wealth levels in emerging

economies to rise quickly, bringing a huge global population into the consumer class. As a result, we believe large new markets

should open to the automotive industry over the coming decade. As consumers in those markets grow wealthier, the experience of

already-developed economies suggests vehicle penetration could rise rapidly in these economies. The result will potentially be a

significant expansion in the size of the global car market: we forecast an increase of 73% to 107 mn units in 2020, relative to the

2010E level. On our forecasts, BRIC countries will account for almost 70% of this growth, growing at an 11% CAGR, with China

becoming the world’s largest car market by 2020 (with car and light commercial vehicle sales of 30 mn units pa). In contrast, we

expect the Triad (the US, Europe and Japan) markets to remain stagnant over this period, given a lack of forecast population

growth, relatively static income distribution and limited increases in per capita vehicle penetration. We estimate that the 45 mn unit

growth we forecast (allowing for incremental capacity investment) will present the global automotive industry with a potential

US$86 bn (€60 bn) profit opportunity over the next decade.

Exhibit 13: Emerging markets are set to take an increasing share of the

global car market

Unit volume (mn) for Triad and emerging markets, 1990-2020E

Exhibit 14: BRICs to contribute over 70% of growth in 2010-2020E

Contribution to global unit sales growth, 2010-2020E

0

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CO2 compliance costs could reach US$117 bn (€80 bn)

Passenger vehicle emissions account for 10% of current global emissions of greenhouse gases (GHG), roughly half the emissions

generated by transportation in total. Faced with the challenge of achieving significant reductions in global GHG emissions, policy

makers have focused their attention on the automotive industry with CO2 emissions targets, or their equivalent fuel-efficiency

standards, set over the next decade in Europe, the US, Japan, South Korea, Australia and China covering over 70% of the current

global automotive market. Reductions in emissions intensity have been achieved over recent decades (Exhibit 15) but it is likely that

regulators will demand significant further improvements beyond already announced targets for 2015/2016.

Announced regulations and indicated plans should significantly reduce emissions per vehicle over the next decade. As Exhibit 16

illustrates, emissions regulations in the USA, Japan, Europe and China are beginning to converge, as greater regulatory focus is

placed on fuel economy and CO2 emissions levels. Regulators’ targets in Europe, North America and Japan look for an average 17%

improvement in CO2 emissions from current levels, we estimate, as highlighted in Exhibit 17. We believe these near-term gains can

be achieved through improvements to the efficiency of the internal combustion engine, via improvements to engine technologies,

transmission systems and accessories and changed material use. However, beyond those near-term 2015 targets, we expect that

alternative powertrain technologies will become necessary to achieve required reductions. The acceleration in vehicle demand we

forecast will intensify pressure to develop alternative technologies.

Exhibit 15: CO2 emissions have been steadily falling for new vehicles over

the last 30 years

CO2 emissions – US passenger cars and light trucks, Germany passenger cars

Exhibit 16: Emissions regulations are tightening and converging

Emissions regulations in various major economies harmonized to the European

test cycle

150160170180190200210220230240250260270280290300310

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g C

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USA Europe Japan China

Potential 2030E

Potential 2020E

Source: VDA, EPA, Goldman Sachs Research estimates.

Source: ICCT, Goldman Sachs Research estimates.



We estimate that the total number of light vehicles on the road will double between 2000 and 2020, and increase by over 50%

between 2010 and 2020. IEA estimate that the current vehicle park delivers average emission levels of c.190g CO2/km. To maintain a

constant level of CO2 emissions over the next decade on a global basis (given our forecasts for a 55% increase in number of

vehicles on the road), we estimate average CO2 emissions per vehicle will need to decline by 36% from current levels (c.190g/km to

c.122g/km). Allowing that not all of the existing global fleet will be renewed in this period, we estimate that this would require an

average reduction in new car emissions of c.49% through 2020. This reduction is unlikely to be through improvements to internal

combustion engine efficiencies, and will necessitate the development of alternative powertrain technologies in our view.

The emissions reduction benefits associated with a shift to electric vehicles will only be achieved if the electricity which replaces

petroleum is generated with low emission intensity. Exhibit 18 shows estimated full carbon emissions of travel via a variety of

modes (including the emissions associated with petroleum extraction and refining, power generation etc), highlighting that unless

the power they consume is generated via clean generation technologies, electric vehicles will have little benefit to total emissions.

Critical to the success of electric vehicle development, therefore, is the building of the low-carbon generation and transmission

infrastructure – itself a relatively slow process. We estimate an incremental cost of US$117 bn (€80 bn) to the industry from

complying with tightening CO2 emissions standards by 2020, representing US$2,400/€1,640 per vehicle in Europe, and

US$2,100/€1,400 per vehicle in the USA. This estimate includes the additional R&D costs, and higher variable-cost spend, adjusted

for a volume-led learning curve as the penetration of CO2-reducing technologies is expected to increase through the next 10 years.

Exhibit 17: 2015 targets can be met through existing technologies

Estimated emissions reduction potential associated with selected technologies

Exhibit 18: Electric vehicles have the potential for significant emissions

reductions, if power generation becomes less carbon intensive

Range of well-to-wheel emissions per passenger-km by mode

0% 10% 20% 30% 40% 50% 60% 70% 80%

Stop-start + regenerative braking

Optimised ICE (downsize, turbo charging, weightreduction)

Stop-start + regenerative braking + downsizing

ICE with Mild hybrid

ICE with Parallel hybrid

ICE with Plug-in hybrid

Electric Vehicle

CO2 reduction potential

0% 10% 20% 30% 40% 50% 60% 70% 80%







Electric Vehicle


0% 10% 20% 30% 40% 50% 60% 70% 80%







Electric Vehicle


0

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Gas

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e ca

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-km

Source: McKinsey, EPA, Transport and Environment, Goldman Sachs Research estimates.

Source: IPCC.



3. Mix shift towards smaller vehicles poses a US$26 bn (€18 bn) headwind

On a global basis, economic realignment (discussed earlier) should drive a global move towards smaller cars. We expect the

majority of incremental growth in demand to 2020 to be from emerging economies, including the BRICs, where sales are typically

more biased towards more affordable, smaller vehicles.

Assuming the current segment mix in each of the BRIC countries remains stable, the growth in these markets should lead to a

global shift towards smaller cars over the next 10 years. Exhibit 19 shows the segment mix by key region. Exhibit 20 shows the

segment mix evolution since 1995, including our 2020 forecasts.

Data from developed economies also suggests consumers in those markets are increasingly turning to smaller cars, exacerbating

the pace of change in the global mix. Government regulation will influence consumer behaviour adding to global mix-shift pressure.

We estimate that the industry faces a potential headwind from this move to smaller cars of c.US$26 bn (€18 bn), over and above

CO2 reduction costs, and represents a shift which will potentially reposition the traditional profit centres of the industry away from

the C/D/E segments.

Exhibit 19: Small car segment takes a greater share of the BRIC markets

than the Triad market

Segment share of passenger car market by country and region, 2008

Exhibit 20: Trend towards small cars has been continuous over the last 15

years

Share of global market by segment 1995-2010E and our 2020E forecast

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A B C D E Other





GS Scorecard highlights Toyota, VW, Fiat, Hyundai and Honda as well positioned

We expect the three key structural challenges and opportunities facing the global automotive industry to create interesting

investment opportunities for investors. Following a period of convergence in returns through 2007-2011E, during which

macroeconomic factors have dominated (as a result of volume evolution and FX movements), we expect company returns

post-2012 to begin to diverge again, as industry and company-specific measures become key drivers. As a result, we believe it will

be productive for investors to focus on structurally better-positioned companies, potential global long-term winners. To identify

these companies, we have developed the GS Autos Scorecard. We use this to assess the relative fundamental positioning of our

global coverage group (Exhibit 22). The scorecard comprises six categories which we believe will prove key drivers of success for

automotive companies in the next decade: (1) price/mix, (2) low-cost position, (3) economies of scale, (4) growth, (5) financial health

and, (6) CO2 efficiency.

Exhibit 21: We use six key categories to compile our scorecard rankings

GS Autos Scorecard; key categories

Exhibit 22: Toyota and Volkswagen appear structurally well positioned

GS Autos Scorecard; ranking by company

• Price/mix: Identifying companies with higher average selling prices and

brand equity, adjusted for model mix

• Low-cost position: Comparing key measures of automotive cost

structure and manufacturing efficiency

• Economies of scale: Measuring absolute size and purchasing power as

well as concentration in platforms and production plants

• Growth: Identifying exposure to the global economic realignment theme

(BRIC growth) and potential mix-shift to small, more fuel-efficient cars

• Financial health: Comparing the key financial ratios of companies

(balance sheet health, returns and profitability)

• CO2 efficiency: Identifying the potential challenges for companies to

comply with CO2 targets in the US and Europe

10 12 14 16 18 20 22 24 26

Renault

Peugeot

Nissan

GM

Ford

Suzuki

Daimler

BMW

Hyundai

Honda

Fiat

VW

Toyota

Score





Exhibit 23: Our GS Autos Scorecard is based on rankings across six categories

GS Autos Scorecard overview

Factor Weight BMW Daimler Fiat VW Peugeot Renault Toyota Honda Nissan Suzuki Hyundai Ford GM1. Pricing/mix 17% ●●●●● ●●●●● ●●● ●●●●● ●● ●●● ●●● ●● ●●● ● ● ●● ●1.1 Average unit price ●●●●● ●●●●● ● ●●●●● ●● ●●● ●●●● ●●● ●●●● ● ● ●●● ●●1.2 Price premium ●●●●● ●●●●● ●●●●● ●●●● ●●● ●●●● ●●● ●● ●●● ● ● ●● ●

2. Low cost position 17% ● ●●● ●●●●● ●● ●●● ● ●●●●● ●●● ● ●●●●● ●●●● ●● ●●●●2.1 Global Labor Footprint ● ● ●●●●● ●●●● ●● ●● ●●●● ●●● ●●● ●●●●● ●●●●● ● ●●●2.2 Units per Employee ● ● ●●●●● ● ●●● ●● ●●● ●●●● ●● ●●●●● ●●●●● ●●● ●●●●2.3 Revenues per employee ●●●●● ●●●●● ●●●●● ● ● ● ●●● ●●● ●● ●● ●●●● ●●● ●●●●2.4 Break-even point ●● ●●●●● ●●●● ●●● ● ●●● ●●●●● ●●● ●●●●● ●● ●●●● ● ●2.5 Capacity utilisation ●●●●● ●●● ● ●●● ●●●● ● ●●●●● ●●●●● ● ●●●● ●● ●●● ●●2.6 Growth adjusted capex/depreciation ●●●● ●●● ●● ●●●●● ●●● ● ●●●● ● ●● ●●● ● ●●●●● ●●●●●2.7 Revenues/net assets ● ●●● ●● ●● ●●●●● ●●●● ●●●● ●●●●● ● ●●●●● ● ●●● ●●●●●2.8 Research and development/Sales ● ●●● ●●●●● ●● ●●●● ● ●●●● ● ●●● ●●●●● ●●●●● ●● ●●●

3. Economies of scale 17% ● ● ●● ●●●●● ●● ●●●● ●●●●● ●●● ●●●● ● ●●● ●●●● ●●●●●3.1 Size (unit sales) ● ● ●● ●●● ●● ●●●● ●●●●● ●●● ●●●● ● ●●● ●●●● ●●●●●3.2 Size (revenues) ●●● ●● ●●● ●●●●● ● ●●● ●●●●● ●● ●●● ● ● ●●●● ●●●●●3.3 Average capacity in plants accounting for 80% of production ● ● ●●●● ●●●● ●●●●● ●●● ●●● ●● ●●● ●●●●● ●●●●● ●● ●3.4.1 Percentage of cars produced on top five platforms ●●●●● ●● ●●● ●● ●●●● ●●●● ● ●●●●● ●●● ●●●●● ●●● ● ●3.4.2 Number of cars produced on top five platforms ● ● ● ●●●●● ●●● ●● ●●●●● ●●●●● ●●● ●● ●●●● ●●● ●●●●3.5 Research and development budget ●● ●●● ●● ●●● ● ●●●● ●●●●● ●●● ●●●● ● ● ●●●●● ●●●●●

4. Financial health 17% ●●●●● ●●●●● ●●● ●●●● ● ● ●●●● ●●●●● ●● ●● ●● ●● ●4.1 Net Debt/EBITDA (2010E) ●●●●● ●●●●● ●●● ●●●●● ●● ● ●●●● ●●●● ●● ●●● ● ● n.a4.2 Credit Rating ●●●●● ●●●● ●● ●●●● ●● ● ●●●●● ●●●●● ●●● ●●● ●●● ● ●4.3 Future Margin (2011E) ●●●●● ●●●●● ●●●● ●●● ● ● ●● ●●●●● ●● ● ●●●● ●●● n.a4.4 CROCI(2011E) ●●●● ●●●●● ●●● ● ● ● ●●●● ●●●●● ●●● ●● ●● ●●●●● n.a

5. Growth 17% ● ● ●●●● ●●●● ●● ●●● ●● ●●● ●● ●●●●● ●●●● ● ●●●5.1 Theoretical organic growth (geography) ● ● ●●● ●●●● ● ●● ●●● ●●●● ●●● ●●●●● ●●●●● ●● ●●●●●5.2 Theoretical organic growth (segments) ● ● ●●●●● ●●●● ●●●●● ●●●●● ●●● ●●● ●● ●●●● ●●● ● ●●

6. CO2 Efficiency 17% ●●● ● ●●● ● ●●●●● ●● ●●●●● ●●● ●●● ●● ●●●●● ●●●● ●6.1 CO2 : Distance to target (Europe) ●●●●● ● ●●●● ●● ●●●●● ●●●●● ●●● ●●● ● ● ●●●● ●●● ●●6.2 CO2 : Distance to target (US) ● ● n.a ●● n.a n.a ●●●● ●●●●● ●●●● ●●● ●●●●● ●●● ●●6.3 CO2 : Last 3 year improvement (Europe) ●●●●● ●● ●●● ● ●●● ● ●●●●● ●● ●●●● ●●● ●●●●● ●●●● ●6.4 CO2 : Last 3 year improvement (US) ●● ●● n.a ● n.a n.a ●●●● ●●● ●●●●● ●●●● ●●● ●●●●● ●

SCORE 16 16 20 21 15 14 24 19 15 16 19 15 15

RANK 6 7 3 2 12 13 1 4 11 8 5 9 10

●●● ●●● ●●●● ●●●●● ●● ●● ●●●●● ●●●● ●● ●●● ●●●● ●● ●●

Source: Goldman Sachs Research estimates.



Industry consolidation to pursue relevant scale likely to become part of the answer

Cost cutting and annual efficiency gains are part of the industry’s DNA. We estimate that over the last cycle the industry delivered

an annual net cost saving of 100 bp of revenues, offsetting headwinds from raw materials, currency and costs to meet emission and

safety regulations which were only partially offset by volume growth. We believe that to return the industry to its historical average

5% EBIT margin (achieved in the last cycle) will require the industry to double its annual net cost savings in the next cycle to an

average 200 bp of revenues pa. Although the automotive industry has a poor track record of successful mergers, a broader analysis

highlights a positive relationship between industry concentration and profitability (Exhibit 25). While we would not want to

underestimate the ability of automakers to cut costs, we believe there remain limitations. Hence, we believe further improvements

in the industry’s cost structure need to be of a structural nature, i.e. scale. As a rule of thumb, the industry estimates that a doubling

the purchasing volume could result in a 10% cost saving.

Exhibit 24: Industry faces substantial profit headwinds over the next decade

EBIT walk, 2010-2020E

Exhibit 25: Sector analysis highlights positive correlation between industry

consolidation and average returns

Global market share of three largest industry players, average CROCI for

respective companies 2002-09E

-20%

-15%

-10%

-5%

0%

5%

10%

2010

E EB

IT m

argi

n

Raw

mat

eria

ls

Emis

sion

s an

dsa

fety

CO

2 he

adw

ind

Mix

shi

ft

Volu

me

Res

truct

urin

g,pr

oduc

tivity

and

othe

r

2020

E EB

IT m

argi

nat

5%

Prof

it po

ol im

pact

- EB

IT m

argi

n

v

Utilities

Telecommunication Services

Materials

Semiconductors

Transportation

Commercial & Professional

Services

Capital Goods

Pharma & BiotechHealthcare

Energy

HHPP

Food, Beverage & Tobacco Food & Staples

Retailing

Retailing

Media

Consumer ServicesConsumer Durables

Autos & components

R2 = 30%

0%

5%

10%

15%

20%

25%

0% 10% 20% 30% 40% 50% 60%

Share of 3 largest players in sector sales

Aver

age

sect

or C

RO

CI 0

2-09

E


Source: Goldman Sachs Research estimates, Quantum database.



Merger analysis highlights potential attractive industrial partnerships

Given our estimates for significant cost pressure over the next cycle, we believe that consolidation to pursue ‘relevant scale’ is

likely to become part of the industry’s answer to the substantial headwinds to industry profitability. We believe car manufacturers

need to achieve ‘relevant scale’ in terms of growth, size and technology, and see industry consolidation as a means of: (1)

companies accessing growth markets; (2) improved cost positions from better fixed cost absorption; and, (3) funding the

development of CO2-efficient internal combustion engine concepts, as well as the development of alternative powertrain solutions,

such as electrification. Using the GS Global Auto Scorecard, we assess the potential benefits from combinations of companies

within the industry: we consider potential improvement in industrial positioning, through improved economies of scale, lower-cost

positions, and access to stronger CO2 technology portfolios (while allowing for negative revenue synergies). We identify Fiat,

Peugeot and Suzuki as of strategic value: all three companies are potentially attractive partners to five or more companies on the

basis of this methodology (we focus on potential combinations which will improve the scorecard of both partners by at least three

points. Fiat offers emerging market growth, low cost and small car expertise. Peugeot adds scale and CO2 leadership while Suzuki is

a small car company with significant emerging market exposure).

Exhibit 26: Toyota, Hyundai and Fiat are most strategically attractive; BMW, Daimler and Suzuki would see greatest scorecard improvement from partnerships

Improvement in GS Scorecard aggregate score from entering into a combination with another auto manufacturer

Improvement in individual company score if company ties up with partner Average Current Scorecard

Company Partner improvementCompany Score BMW Daimler Fiat VW Peugeot Renault Toyota Honda Nissan Suzuki Hyundai Ford GM from combinationBMW 16 0 3 7 5 7 4 10 5 4 5 8 6 7 5.5Daimler 16 3 0 7 4 7 5 10 5 6 5 8 6 5 5.5Fiat 20 2 2 0 3 5 3 5 3 3 2 5 4 3 3.1VW 21 2 1 5 0 5 1 7 3 2 4 6 3 2 3.2Peugeot 15 2 2 5 3 0 3 5 3 3 2 3 3 4 2.9Renault 14 2 3 6 2 6 0 8 4 0 5 7 4 4 3.9Toyota 24 0 0 0 0 0 0 0 0 0 0 0 0 0 0.0Honda 19 1 1 4 2 4 2 6 0 2 3 5 3 3 2.8Nissan 15 2 3 5 2 5 0 7 3 0 5 6 3 4 3.5Suzuki 16 2 2 4 4 4 4 7 4 5 0 6 6 4 4.0Hyundai 19 1 1 3 2 1 2 3 2 2 2 0 2 2 1.8Ford 15 1 1 4 1 3 1 5 2 1 4 4 0 3 2.3GM 15 2 0 3 0 4 1 5 2 2 2 4 3 0 2.2

Average attractiveness 1.5 1.5 4.1 2.2 3.9 2.0 6.0 2.8 2.3 3.0 4.8 3.3 3.2as partner (average score improvement)

Denotes mutual benefit where score for each partner in merger would increase by 3 or more BMW and Daimler see greatest benefit from a tie up with another auto maker

BMW and Daimler offer the lowest attraction to partners given relatively small scale and limited exposure to emerging markets and small carsToyota looks an attractive partner, offering an average Scorecard improvement to partner of 6 points




Global auto sector offers significant annual performance potential

The automotive sector is often considered unattractive for long-term investing as a result of its value-destroying track record.

However, it attracts significant attention from investors pursuing shorter-term trading opportunities. The industry has been through

several decades of structural decline: against a backdrop of average growth in global car sales between 1990 and 2008 of 2%, the

industry has consistently struggled to meet its cost of capital, resulting in long-run underperformance relative to global equity

markets. Despite this, the automotive sector offers tremendous performance potential, with an average annual return differential

between the best and worst-performing automotive manufacturer on a global basis of 102% over the last 36 years. Alternatively,

investing in the 25th percentile performer relative to the 75th percentile performer in any given year since 1973 would, on average,

have generated an average annual total shareholder return of 34%.

Exhibit 27: Long-run underperformance, albeit less rapid in last decade …

Total shareholder returns of global automotive industry relative to global equity

market (indexed to 100)

Exhibit 28: …yet offers significant annual return potential

Spread top vs. bottom performer in given year, global autos

40

50

60

70

80

90

100

110

120

130

Jan-

73

Jan-

75

Jan-

77

Jan-

79

Jan-

81

Jan-

83

Jan-

85

Jan-

87

Jan-

89

Jan-

91

Jan-

93

Jan-

95

Jan-

97

Jan-

99

Jan-

01

Jan-

03

Jan-

05

Jan-

07

Jan-

09

0%

50%

100%

150%

200%

250%

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Spread Top vs Bottom Performer Average

Source: Datastream.

Source: Datastream.

In Exhibit 29 we show the annual winners and losers in terms of share price performance since 1995 within the global automotive

industry.



Exhibit 29: Global Auto sector offers attractive annual performance potential

Global autos: Annual share price performance by company (1995-2009 to date)

BMW DCX POR REN DCX REN PSA POR NISS HYU NISS DCX VW O POR VW O FIAT POR DCX POR VW O BMW DCXPOR VW O VW O VW P VW O FORD TOY FORD GM VW P HYU REN VW O VW O VW P FIAT PSAVW P HON FORD HON MAZ HYU MAZ KIA MAZ VW P GM REN VW PTOY PSA NISS MMC TOY HON MAZ FORD HYU

TOY SUZ KIA HONMAZ NISSSUZ

GM HON BMW DCX BMW POR BMW REN POR PSA POR BMW POR PSA DCX HON NISS FIAT TOYFIAT GM HYU GM HON REN VW P FIAT

KIA SUZPOR VW O FORD TOY GM FIAT PSA HYU NISS BMW REN BMW DCX REN MMC TOY REN HYU BMW REN BMW DCXKIA SUZ VW P SUZ SUZ HON KIA SUZ HON MAZ SUZ

TOY SUZVW P FORD GM MMC MMC HON PSA VW O VW P NISS HYU KIA HON PSA POR KIA PSA NISS FORD PSA HYU PSA MMCTOY MAZ VW P KIA REN SUZ

BMW DAI FIAT PSA HYU DAI FIAT FIAT MMC VW O GM POR MAZ BMW DCX BMW MMC PORNISS SUZ KIA MAZ FORD TOY TOY SUZ FIAT NISS

SUZ FORDFIAT PSA NISS REN NISS HON TOY VW O FORD SUZ PSA HON FIAT MMC VW P MMC FORD GMREN HYU NISS HONMMCMAZ MAZ MMC VW P GM TOY FIAT REN BMW VW P VW O GM HYU KIA TOY

MAZ GM

HYU KIA MMC KIA NISS KIA DAI HYU FORD MMC DCX FIAT MMC FORD GM KIA MAZ BMW DCX VW O GMMAZ VW O FORD FIAT PSA

POR RENVW P FORDGM HYUKIA HONMAZ MMCNISS TOYSUZ

2007 2008 20092003 2004 2005 20061999 2000 2001 20021995 1996 1997 1998

2009

-10% - 0%

-20% -10%

-30% -20%

2008200620051997 20071998

<=-30%

>= 30%

20% - 30%

10% - 20%

0% - 10%

200420032002200119961995 20001999

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

World car sales (LHS) World GDP (RHS)

Source: Datastream, Goldman Sachs Research estimates.



Returns drive valuation and performance

We find that returns-based measures of financial performance show a stronger relationship to valuation than other, more traditional

financial measures, such as growth-based metrics. By focusing on cash flow rather than earnings, and gross rather than net assets,

CROCI avoids the distorting influences of different accounting policies on reported earnings and asset values. Consequently, we

find a closer correlation between CROCI and EV/GCI (enterprise value/gross cash invested) than between other measures of return

on capital and earnings multiples. Exhibit 30 highlights a strong relationship between returns and EV/GCI valuations for the auto

sector over the period 2000-2008 (and average returns and valuations in 2005-07). Our back-test (Exhibit 31) shows that on average

stocks that screen as attractive on a relative basis on EV/GCI vs. CROCI/WACC typically outperform those stocks which screen as

unattractive on a one-year forward basis, with perfect foresight. The exceptions in the 1999-2008 period were 2003, 2004 and 2008,

when companies with strong balance sheets outperformed.

Exhibit 30: Valuation (EV/GCI) positively correlated to returns (CROCI

EV/GCI vs. CROCI/WACC (8%) 2005-07 average values

Exhibit 31: Annual performance of upper half of stocks that trade below best

fit line on EV/GCI vs. CROCI/WACC relative to performance of stocks above

the best fit line

BMWFiat

Ford

Honda Motor

Hyundai Motor

Nissan*

Peugeot

Suzuki Motor

Volksw agen

Daimler AG

Renault*

Toyota Motor

y = 0.4068x + 0.0594R2 = 0.4902

y = 0.4631x

0.0x

0.2x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

4.5x

CROCI/WACC

EV/G

CI

-80

-60

-40

-20

0

20

40

60

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

TSR

(%)

Buy Sell





Comprehensive investment framework for the global autos sector

To identify potential long-term winners within the global automotive industry, we have developed a comprehensive investment

framework which includes four key elements: (1) Industry positioning; (2) M&A potential; (3) Director’s Cut; and, (4) GS SUSTAIN

methodologies (Exhibit 32).

Industry positioning

We believe that the relative competitive positioning of any automotive company is a good proxy for its long-term return potential.

We use our GS Global Auto Scorecard results to assess the competitive positioning of each company in our coverage. Toyota,

Volkswagen, Fiat, Hyundai and Honda screen as best positioned on our scorecard.

M&A potential

Given our view that consolidation is likely to become part of the industry’s answer to significant profit headwinds over the next

decade, we recognize the strategic value companies might offer to potential partners. Fiat, Peugeot and Suzuki screen as having

strategic value to potential partners in our framework.

Director’s Cut

We use our Director’s Cut framework to identify relative valuation opportunities within our global coverage group. We find that

returns-based measures of financial performance show a stronger relationship to valuation than other, more traditional financial

measures (such as growth-based metrics). By focusing on cash flow rather than earnings, and gross rather than net assets, CROCI

avoids the distorting influences of different accounting policies on reported earnings and asset values. Consequently, we find a

closer correlation between CROCI and EV/GCI (enterprise value/gross cash invested) than between other measures of return on

capital and earnings multiples. Our Director’s Cut screen (2011E returns basis) highlights Ford, Renault, Volkswagen, and Fiat as

trading at attractive valuations relative to their return potential.

GS SUSTAIN

The GS SUSTAIN framework for mature industries identifies the companies in each global industry best placed to sustain

competitive advantage and superior returns on capital over the long term (3-5 years). Our analysis shows that companies able to

sustain industry-leading returns on capital for three years or longer have consistently delivered equity market outperformance. The

GS SUSTAIN framework is designed to identify those companies in each industry best positioned to sustain those returns in the

future. That framework integrates analysis of the key drivers of corporate performance: (1) returns on capital; (2) industry

positioning; and, (3) management quality with respect to environmental, social and governance (ESG) issues.



Exhibit 32: Identifying long-term winners: Toyota, Volkswagen and Fiat

Turning point


Themes

Auto OEMs



stress


Return on Capital

CROCI



EV/GCI

=CROCI/WACC


valuation approach


across the industry

Economies of scale


auto demand





Growth exposure

Financial health

CO2 efficiency


M&A Potential


Scorecard


positioning

Management Quality

ESG


governance issues


M&A Analysis

DirectorsCut

Fiat, PSA, Suzuki





Turning point


Themes

Auto OEMs



stress


Return on Capital

CROCI



EV/GCI

=CROCI/WACC


valuation approach


across the industry

Economies of scale


auto demand





Growth exposure

Financial health

CO2 efficiency


M&A Potential


Scorecard


positioning

Management Quality

ESG


governance issues


M&A Analysis

DirectorsCut

Fiat, PSA, Suzuki












GS SUSTAIN

Source: Company data, Goldman Sachs Research estimates

Exhibit 34: Director’s Cut (2011 estimates)

Global autos sector: 2011E EV/GCI vs. CROCI/WACC

Exhibit 35: GS Auto Scorecard; a useful proxy for long-term return potential

Global autos sector: 2011E EV/GCI vs. scorecard score

BMW

Daimler AG

Fiat

Ford

Honda Motor

Hyundai Motor

Nissan

Peugeot

Renault

Suzuki Motor

Toyota Motor

Volksw agen

y = 0.6113x - 0.3193R2 = 0.4104

y = 0.3362xLine through

average

0.0x

0.1x

0.2x

0.3x

0.4x

0.5x

0.6x

0.7x

0.8x

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

CROCI/WACC

EV/G

CI

Theoretical line

BMW

Daimler AG

Fiat

Ford

Honda Motor

Hyundai Motor

Nissan

Peugeot

Renault

Suzuki Motor

Toyota Motor

Volksw agen

0.0x

0.1x

0.2x

0.3x

0.4x

0.5x

0.6x

0.7x

0.8x

10 12 14 16 18 20 22 24 26

Scorecard

EV/G

CI





No companies stand out in global autos under the GS SUSTAIN framework

Exhibit 36 summarizes the results of our ranking of companies relative to their global industry peers on each dimension of our

analysis. None of the companies we have examined, which collectively represent c.85% of global industry sales, stand out relative

to peers. Toyota achieves above-median scores on all three dimensions of our framework, but given the challenges the industry

faces in sustaining leadership, we have not highlighted the company as a GS SUSTAIN leader. We highlight three as watch list

companies; relatively well placed, but not outstanding across three areas of analysis: Toyota, VW and Fiat.

Exhibit 36: Global autos in GS SUSTAIN: No companies stand out for leadership across all areas of analysis

Companies with above-median scores on each dimension of analysis

Management quality

Return on capital


Management quality – ESG (based on 2008 data) above sector median

Industry positioning: leaders on objective, quantifiable analysis of a combination of:– Pricing / mix– Low cost position– Economies of scale– Financial health– Growth exposure– CO2 efficiency

Return on capital – CROCI (2009-11E) above sector median

* Ford did not score above median on any of these three metrics

Honda

Renault

Nissan

Hyundai

Peugeot

Volkswagen

ToyotaBMW

Daimler

Fiat

Suzuki

Management quality

Return on capital






Honda

Renault

Nissan

Hyundai

Peugeot

Volkswagen

ToyotaBMW

Daimler

Fiat

Suzuki




Exhibit 37 summarizes this analysis numerically. In each area of corporate performance we assess – return on capital (2009-11E

average CROCI), industry positioning and management quality with respect to ESG issues – we apply objective and quantifiable

measures to assess companies’ relative positioning. Details of the calculation of cash returns (CROCI) in the industry are detailed on

page 126. The industry positioning analysis reflects our application of the industry scorecard we have developed for the auto sector

to each company. Full details of the analysis applied to assess each company’s management quality with respect to ESG issues are

on page 133.

Exhibit 37: Global Autos – GS SUSTAIN winners table

Summary performance of companies across the key drivers of sustained competitive advantage

Score as a % of maximum Percentile Total score Percentile 2009-11E % change vs.

2006-08 Percentile

BMW 63% 81% 5 1 1 5 1 3 16 36% 9% (3%) 54%Daimler 69% 100% 5 3 1 5 1 1 16 36% 8% (4%) 45%Fiat 63% 54% 3 5 2 3 4 3 20 82% 8% (2%) 36%Ford 57% 27% 2 2 4 2 1 4 15 27% 7% 6% 27%Honda 59% 36% 2 3 3 5 3 3 19 64% 13% (3%) 100%Hyundai 40% 0% 1 4 3 2 4 5 19 64% 9% (2%) 63%Nissan 49% 18% 3 1 4 2 2 3 15 9% 9% 1% 81%Peugeot 65% 90% 2 3 2 1 2 5 15 9% 4% (2%) 0%Renault 63% 54% 3 1 4 1 3 2 14 0% 6% (1%) 9%Suzuki 47% 9% 1 5 1 2 5 2 16 36% 9% (1%) 72%Toyota 63% 54% 3 5 5 4 2 5 24 100% 10.5% 0.1% 90%VW 61% 45% 5 2 5 4 4 1 21 91% 7% (7%) 18%

Financial health Overall Industry PercentileESG (2008)

Management quality

Economies of scale

Growth exposure

Company

Return on capital

CO2 efficiency


Pricing / mix Low cost position CROCI




This page has been left blank intentionally.



Industry analysis: Global economic realignment



BRIC economies taking over as the drivers of global GDP growth

A key theme of our global economic research has been the shift in economic power and global demand towards the large emerging

markets and their surging middle classes, away from the US and the European consumer. Our global economists named the BRICs

(Brazil, Russia, India, and China) and the N11 (the next group of eleven large developing economies) as key beneficiaries. In 2000,

BRIC economies accounted for 8% of global GDP. They forecast that this will reach 18% in 2010 and expect this to rise to 29% in

2020 and 48% in 2050 (Exhibit 38). Over the last 10 years, the BRICs have contributed more than 33% to global GDP growth,

compared to 17% from the US and 8% from Europe. Our global economists forecast that this trend will accelerate over the next

year, with the BRIC economies contributing 50% to global GDP growth, compared to a 27% contribution from Europe, US and

Japan.

Exhibit 38: BRIC economies taking an increasing share of global GDP

Share of global GDP by region, 1800-2050E

Exhibit 39: BRIC economies to contribute 50% of global growth in

2010-2020E

Global GDP 1990 and 2020E, contribution to growth by region by decade

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1800 1850 1900 1950 2000 2010E 2020E 2050E

% o

f wor

ld G

DP

W Europe US Japan Brazil Russia India China RoW

RoW

BRICs

Major developed economies

0

10

20

30

40

50

60

70

80

1990 1990-2000 2000-2010E 2010E-2020E 2020E

US$

tr

RoW

BRICsEurope, US & Japan

Whereas Europe, the US & Japan contributed almost three-quarters of the increase in global GDP betw een 1950 & 2000, w e expect the BRICs to contribute over half of the increase in global GDP betw een 2010 & 2020 and developed economies under one-third





The rise of the BRICs’ middle class a key driver for car sales

As part of the big-picture (the shift in economic power and the growth contributions from the BRICs), our global economists have

focused on the rise of the middle class in these economies, part of which they have termed ‘the expanding middle’ in global

demand (see, “Global Economics Paper No: 170: The Expanding Middle: The Exploding World Middle Class and Falling Global

Inequality”). The middle class in these emerging economies is already driving growth in global middle-income consumers (defined

as those with incomes between US$6,000 and US$30,000 in PPP terms) at an unprecedented rate. But the pace of expansion is

likely to accelerate further over the next 5-10 years. Our global economists believe that the way in which this group evolves - and

impacts spending patterns – will be increasingly important to understanding global industry and company opportunities in general,

and automotive industry and company opportunities in particular.

Exhibit 40: The rise of the BRICs middle class

Change in population of middle class (US$6,000-30,000 income), mn people,

five-year rolling average

Exhibit 41: A large high-Income pool could emerge in the BRICs

Population with income of US$6,0000-30,000, 1960-2050, mn

-100

-80

-60

-40

-20

0

20

40

60

80

100

1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Cha

nge

in p

opul

atio

n w

ith in

com

e be

twee

n U

S$6,

000

and

US$

30,0

00 (5

yr m

ovin

g av

g, m

n)

World World ex India and China China India

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1960 1970 1980 1990 2000 2010 2020 2030 2040 2050Popu

latio

n w

ith in

com

e be

twen

US$

6,00

0 an

d $3

0,00

0 (m

ns)

World ex China and India World China India





BRICs to move into sweet spot for car ownership growth in the next decade

There can be big differences between overall growth in the economy and growth in demand for particular products. At different

income levels, different products become affordable and available. As the pool of people in that category expands, growth may

accelerate rapidly. In Exhibit 42, our global economists show that the sensitivity of car ownership to income growth peaks at

around US$9,000 per capita on a PPP basis. However, as economies develop and income levels improve, car penetration

accelerates. Exhibit 43 shows our analysis of the sensitivity of car penetration to income data.

Exhibit 42: Elasticity of car demand to income growth peaks at around

US$9,000 (PPP terms)

Elasticity of car ownership growth to GDP per capita growth, vs. income levels

Exhibit 43: Car penetration strongly correlated to income levels

Car penetration (vehicle per 1,000 population) vs. 2007 GDP per capital; PPP terms

0.0

0.5

1.0

1.5

2.0

2.5

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000

Per Capita Income 2007 PPP US$

Elas

ticity

of C

ar O

wne

rshi

p w

ith

resp

ect t

o G

DP

per

capi

ta g

row

th

Elasticity Maximised at GDP PPP of $9,040

R2 = 87%

-100

0

100

200

300

400

500

600

700

800

900

0 10 20 30 40 50 60

GDP per capita - US$ 000s (2007, PPP terms)C

ar P

enet

ratio

n - v

ehic

les

per 1

000

popu

latio

n

Source: Source; GS Global ECS Research (Global Economics Paper 170 and 118).

Source: Global Insight, GS Global ECS Research.



BRICs to be a major source of automotive sales growth in the next decade

Our global economists initially discussed the impact of BRICs growth on three major markets (energy, autos and equity

capitalization) in 2004 (see, “Global Economics Paper No 118: The BRICs and Global Markets: Crude, Cars and Capital”). In Exhibit

44 we show our latest forecasts of car ownership evolution. On our updated projections, our global economists expect car

ownership per 1,000 of population to increase substantially over the next 10 years. We forecast car penetration in Brazil will

increase 64%, to 273 in 2020 from 166 in 2010, and in Russia will increase 72%, to 454 in 2020 from 263 in 2010. In India, we forecast

an increase of 164% to 45 in 2020, from 17 in 2010, and in China an increase of almost 285% to 158 in 2020, from 41 cars in 2010.

Despite the significant increases in forecast car ownership, we forecast that car penetration in the BRIC economies will remain

below the current car penetration level of developed countries, with the likely exception of Russia. In comparison, car penetration

(including light trucks) in the US is close to 800 units per 1,000 of population and in Europe is c.500.

Exhibit 44: Car penetration levels in Brazil and Russia are likely to reach

European averages earliest

Cars per 1,000 population 2005-2050E

Exhibit 45: USA has highest light vehicle penetration globally

Cars (light vehicles for US) per 1,000 population, 2008, 2020E forecasts for BRICs

0

100

200

300

400

500

600

700

800

2005

2010

E

2015

E

2020

E

2025

E

2030

E

2035

E

2040

E

2045

E

2050

E

Car

s pe

r 100

0 po

pula

tion

Brazil China India Russia

0

100

200

300

400

500

600

700

800

900

USA

(200

8)

W. E

urop

e (2

008)

Japa

n (2

008)

Kore

a (2

008)

E. E

urop

e (2

008)

Sout

h Am

eric

a (2

008)

Asia

(200

8)

Braz

il (20

08)

Rus

sia

(200

8)

Indi

a (2

008)

Chi

na (2

008)

Glo

bal A

vera

ge (2

008)

Braz

il (20

20E)

Rus

sia

(202

0E)

Indi

a (2

020E

)

Chi

na (2

020E

)

Car

Par

k - c

ars

per 1

000

of p

opul

atio

n

Source: Global Insight, World Bank, GS Global ECS Research.

Source: Global Insight, World Bank, GS Global ECS Research.



Global car market set to grow 73% over the next decade (5.7% pa)

The global car market peaked in 2007, with almost 70 mn vehicles sold worldwide, 55% in the Triad markets (the US, Japan and

Western Europe) and 45% in the emerging markets (with 21% in BRICs). Following a sharp drop in global car sales to almost 61 mn

units in 2009E, mainly as result of dramatic demand destruction in the developed world, we forecast a modest recovery in global

cars sales to 62 mn units in 2010E. Based on our economists’ BRIC model projections, with forecasts for economic development,

income distribution, car penetration and scrappage rates, we calculate that the world car market could grow by an average 5.7% pa

over the next decade, from 62 mn units in 2010E to an estimated 107 mn units in 2020 (Exhibit 46).

Exhibit 46: We forecast global car demand will increase by 5.7% pa from 2010 to 2020, driven by strong BRIC markets growth. In contrast we expect pedestrian

growth of 1% pa over the next decade in the Triad as we are incorporating a structural impact to trend demand post the credit crisis

Global car sales volume forecasts, 2000 to 2020E

CAGR CAGRSales (Units) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2020E 2000-10E 2010E-20EUSA 17.3 17.1 16.8 16.7 16.9 17.0 16.6 16.2 13.2 10.5 12.0 15.0 -3.6% 2.3%Japan 5.9 5.8 5.7 5.7 5.7 5.7 5.6 5.2 5.0 4.7 4.3 4.5 -3.1% 0.5%Western Europe 16.6 16.7 16.2 16.0 16.5 16.5 16.7 16.8 15.4 14.5 13.5 14.5 -2.1% 0.7%E. Europe (ex Russia) 1.9 1.4 1.4 1.8 2.3 2.4 2.5 2.9 2.8 2.0 2.0 3.2 0.4% 5.0%Brazil 1.4 1.5 1.4 1.3 1.5 1.6 1.8 2.4 2.7 2.9 2.7 5.7 6.7% 7.6%Russia 1.1 1.2 1.1 1.2 1.5 1.6 2.0 2.6 3.0 1.5 1.8 5.7 5.2% 12.0%India 0.8 0.7 0.8 0.9 1.1 1.2 1.5 1.7 1.7 1.9 2.1 8.4 10.5% 15.0%China 1.9 2.0 2.8 3.9 4.4 5.3 6.7 8.0 8.6 11.2 11.2 30.2 19.6% 10.4%Asia (ex China/Japan/India) 3.8 3.8 4.3 4.3 4.5 4.9 4.5 4.7 4.7 4.0 4.2 6.8 1.0% 5.0%RoW 5.5 4.1 5.9 6.1 6.8 7.6 8.2 9.0 9.0 7.6 8.0 13.1 3.9% 5.0%Global 56.1 54.4 56.4 57.9 61.2 63.8 66.1 69.5 66.2 60.8 61.8 107.0 1.0% 5.7%Global ex. China 54.3 52.4 53.7 54.0 56.8 58.5 59.4 61.5 57.6 49.6 50.6 76.9 -0.7% 4.3%

Triad 39.8 39.6 38.7 38.3 39.1 39.2 38.9 38.2 33.6 29.7 29.8 34.0 -2.9% 1.3%Emerging Markets 16.3 14.8 17.7 19.6 22.1 24.6 27.2 31.3 32.6 31.1 32.0 73.0 7.0% 8.6%BRICS 5.1 5.4 6.1 7.4 8.6 9.7 12.0 14.7 16.1 17.4 17.8 49.9 13.2% 10.9%Rest of emerging market 11.2 9.4 11.6 12.2 13.6 14.9 15.2 16.6 16.5 13.6 14.2 23.2 2.4% 5.0%

GrowthGlobal 4.9% -3.1% 3.7% 2.5% 5.7% 4.2% 3.6% 5.2% -4.8% -8.2% 1.6%Global ex. China 4.6% -3.4% 2.4% 0.7% 5.1% 3.0% 1.5% 3.7% -6.4% -13.9% 2.0%

Triad 0.8% -0.5% -2.2% -1.1% 2.0% 0.3% -0.8% -1.6% -12.1% -11.6% 0.2%Emerging Markets 16.7% -9.3% 19.6% 10.3% 13.1% 11.2% 10.6% 14.9% 4.2% -4.8% 3.0%BRICS 10.3% 5.7% 12.5% 20.4% 16.4% 13.7% 23.7% 21.9% 9.5% 8.4% 2.0%Rest of emerging market 19.8% -16.1% 23.8% 5.1% 11.2% 9.7% 2.0% 9.4% -0.4% -17.6% 4.3%




BRIC countries to contribute 70% of car sales growth over this period

The economic realignment and rise of the middle class drives our automotive sales growth forecasts for the BRIC countries. In

contrast, we expect mature markets to display only pedestrian growth over the next 10 years as the Triad consumer absorbs the

impact of the credit crisis (i.e. a higher savings rate and lower consumption). As result, BRIC economies will likely account for more

than 70% of global car sales growth in the next decade, with China expected to account for almost 42% of this increase (Exhibit 48).

Exhibit 47: Emerging markets are set to take an increasing share of the

global car market

Unit volume for Triad and emerging markets, 1990-2020E

Exhibit 48: BRICs to contribute over 70% of growth in 2010-2020E

Contribution to global unit sales growth, 2010-2020E

0

20

40

60

80

100

120

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

E

2012

E

2014

E

2016

E

2018

E

2020

E

Triad Emerging Markets

0%

10%

20%

30%

40%

50%

60%

70%

80%

USA

Japa

n

Wes

tern

Eur

ope

Tria

d

Braz

il

Rus

sia

Indi

a

Chi

na

BRIC

E. E

urop

e (e

xR

ussi

a)As

ia (e

xC

hina

/Jap

an/In

dia)

Oth

er

RoW

Con

tribu

tion

to g

loba

l gro

wth

201

0E to

202

0ESource: Global Insight, Goldman Sachs Research estimates.




We expect China to become the largest car market in the world by 2020

Based on our estimates for global car sales volumes in 2020, China could become the largest car market worldwide (with car and

light commercial vehicle sales of 30 mn units pa). In 2010, we forecast that China will account for 18% of the global car market. We

expect this to change dramatically over the next 10 years, with China potentially accounting for almost 30% of the global car market

in 2020E.

Exhibit 49: China to become the largest car market by 2020E, replacing Western Europe and the USA

Light vehicle sales 2010E and 2020E by region and country, share of global car sales 2010E and 2020E

2010E unit sales by region 2020E unit sales by region

0

5

10

15

20

25

30

US

A

Japa

n

Wes

tern

Eur

ope

E. E

urop

e (e

xR

ussi

a) Bra

zil

Rus

sia

Indi

a

Chi

na

Asi

a (e

xC

hina

/Jap

an/In

dia)

RoW

Uni

t vol

umes

- m

n

2010E 2020E

USA19%

Japan7%

Western Europe

23%E. Europe (ex Russia)

3%

China18%

Asia (ex China/Japan

/India)7%

RoW13%

India3% Russia

3% Brazil4%

USA14%

Japan4%

Western Europe

14%

E. Europe (ex Russia)

3%

Brazil5%

Russia5%

India8%

China29%

Asia (ex China/Japan

/India)6%

RoW12%




Our forecasts are based on car penetration, population and scrappage assumptions

Our estimates for the evolution of the BRIC automotive markets are based on: (1) passenger car penetration per 1,000 of population

from our global economics team; (2) population estimates for 2020 from the US census Bureau; and, (3) scrap rate assumptions. To

calculate total car sales within a given region we assume the light commercial vehicle market grows annually at 5%. Based on our

model, we forecast total annual average car market growth over the next 10 years of 8% in Brazil, 12% in Russia, 15% in India and

10% in China. Overall, we forecast the BRIC region will deliver 11% pa volume growth from 2010 to 2020.

Exhibit 50: Economic penetration model forecasts BRIC markets to grow at 11% per annum over the next decade from 2010E

Vehicle forecast model for BRIC markets (in mn cars), CAGR and vehicle penetration assumptions.

Passenger Car Mkt LCV Market Total MarketBrazil Russia India China BRIC Brazil Russia India China BRIC Brazil Russia India China BRIC

2007 1.9 2.4 1.3 5.3 10.9 0.4 0.2 0.4 2.9 4.0 2.4 2.6 1.7 8.0 14.72008 2.2 2.8 1.3 5.7 12.0 0.5 0.2 0.4 2.9 4.1 2.7 3.0 1.7 8.6 16.1

2009E 2.3 1.4 1.4 7.4 12.5 0.6 0.1 0.5 3.8 4.9 2.9 1.5 1.9 11.2 17.42010E 2.2 1.7 1.5 7.4 12.8 0.5 0.1 0.5 3.8 5.0 2.7 1.8 2.1 11.2 17.8

2020E 4.8 5.4 7.5 24.0 41.8 0.9 0.2 0.9 6.1 8.1 5.7 5.7 8.4 30.2 49.9

CAGR 2007-2020E 7% 7% 15% 12% 11% 6% 0% 6% 6% 6% 7% 6% 13% 11% 10%CAGR 2008-2020E 7% 6% 16% 13% 11% 4% 0% 6% 6% 6% 6% 5% 14% 11% 10%CAGR 2009-2020E 7% 13% 16% 11% 12% 4% 6% 5% 5% 5% 6% 13% 14% 9% 10%CAGR 2010-2020E 8% 12% 17% 12% 13% 5% 5% 5% 5% 5% 8% 12% 15% 10% 11%

Cars per 1000 populationBrazil Russia India China BRIC

2007 147 210 13 23 372008 153 227 14 28 41

2020E 273 454 45 158 129

Source: Global Insight, World Bank, Goldman Sachs ECS Research, Goldman Sachs Equity Research.

In this context, it is interesting to note that Russia has the highest car penetration among the BRIC economies and its population is

expected to decline by 8 mn people (6%) over the next 10 years (from 140 mn in 2010E to 132 mn in 2020E), while Brazil’s

population is expected to rise 11%, China’s by 5% and India’s by 13% through this period. Given its higher car penetration in

comparison to other BRIC markets, and its potentially declining population, we would expect the Russian car market to be more of a

replacement market (as highlighted by the higher scrap rate of c.6% pa).



Japanese and Korean experience supports our BRIC forecasts

Our forecast for the evolution of car penetration in the BRIC economies is in line with the historical development of Japan and

South Korea over the last 50 years. China’s current vehicle penetration matches that of Japan’s in 1966, and South Korea’s in 1988,

and our expected penetration growth through to 2020E matches that achieved by Japan and South Korea over the following decade.

Similarly for India, our expected penetration growth matches the historical experience of Japan and Korea from equivalent

positions of economic development.

Exhibit 51: Japanese and Korean historical experience supports our BRIC forecasts

Car penetration and income level, Japan 1955-1977, South Korea 1976-1996 and China, Brazil and India 2008

1975

1995

India 2008

1970

1977

1987

1989

1991

19841983

19821981

19581959

19611962

19631964

19661967

1968

1971

1994 1976

1996

Brazil 2008Japan History

S. Korea History

1955

1965

China 2008

1960

1990

1986

1976197719781979

19561957

1974

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

- 20 40 60 80 100 120 140 160 180

Passenger cars ( per 1,000 people)

Rea

l GD

P pe

r Cap

ita

Russia Cars per 1000 people = 227GDP per captia = $9,797

China 2020E

India 2020E

Source: World Banks, Global Insight, Goldman Sachs Research estimates.



Triad markets likely to trade sideways over the next decade

We forecast pedestrian growth in the Triad markets over the next decade as the impact of the credit crisis is absorbed. Considering

trend demand, we note in the US and Western European markets a flattening of the growth trend line since the 1990s. We believe

that this is most likely a sign that these markets have become replacement markets, where the scrappage rate is the key driver of

annual car sales, with the US market seemingly fluctuating around a c.15 mn unit market and in Europe passenger car demand

around the 13 mn level.

Exhibit 52: US car market peaked at 17.3 mn units in 2000

US light vehicle market including light commercial vehicle

Exhibit 53: Western European car market peaked at 15 mn units in 1999

European passenger cars market excl light commercial vehicles

8

9

10

11

12

13

14

15

16

17

18

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

E20

11E

US

Ligh

t veh

icle

mar

ket (

units

mn)

USA (light vehicle) (LHS)

6

7

8

9

10

11

12

13

14

15

16

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

E20

11E

W. E

urop

ean

pass

car

mar

ket (

units

mn)

W. Europe (pass car) (RHS)



Our analysis (Exhibits 54 and 55) attempts to isolate the potential impact of the credit crisis on car sales in the US and Europe. For

several decades, consumer confidence and annual car sales were strongly correlated (until 9/11 in 2001). GM’s ‘Keep America

Rolling’ programme marked the beginning of almost a decade of high incentives, most likely a consequence of the availability of

‘cheap’ and less restricted consumer credit. To quantify the loss of these effects as conditions reverse post the credit crisis, we have

estimated (based on the historical consumer confidence/car sales correlation) implied car sales, based on consumer confidence

levels. We aggregate the implied oversupply through the period and take a simple average. We conclude that the US market was

oversupplied to the tune of 20% over this period, and the Western European market 8% oversupplied.



Exhibit 54: Historical Western European consumer confidence and car sales relationship suggests European market was oversupplied by c.8% in 2001-2007

Consumer confidence vs. passenger car sales , W. Europe (EU15+EFTA), 1987 to present

Consumer confidence vs car sales Consumer confidence vs car sales (9 month lag)

10.5

11.0

11.5

12.0

12.5

13.0

13.5

14.0

14.5

15.0

15.5Ja

n-87

Jan-

88Ja

n-89

Jan-

90Ja

n-91

Jan-

92Ja

n-93

Jan-

94Ja

n-95

Jan-

96Ja

n-97

Jan-

98Ja

n-99

Jan-

00Ja

n-01

Jan-

02Ja

n-03

Jan-

04Ja

n-05

Jan-

06Ja

n-07

Jan-

08Ja

n-09

Eur

opea

n pa

ssen

ger c

ar m

arke

t - u

nits

mn

-35.0

-30.0

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

Eur

opea

n co

nsum

er c

onfid

ence

European Sales - 12 month rolling average European Consumer Confidence

y = 0.10746x + 14.69834R2 = 0.55885

10.0

11.0

12.0

13.0

14.0

15.0

16.0

-35.0 -30.0 -25.0 -20.0 -15.0 -10.0 -5.0 0.0 5.0

Consumer Confidence

Pas

seng

er C

ar S

ales

(9 m

onth

lag)

10.5

11.0

11.5

12.0

12.5

13.0

13.5

14.0

14.5

15.0

15.5

Jan-

87

Jan-

88

Jan-

89

Jan-

90

Jan-

91

Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Pas

seng

er c

ar m

arke

t - u

nits

(mn)

European Sales - 12 month rolling average European car market predicted by consumer confidence

Source: Global Insight, Eurostat, Goldman Sachs Research estimates.



Exhibit 55: Historical US consumer confidence and car sales relationship suggests US market was oversupplied by c.20% in 2001-2007

Consumer confidence vs. light vehicle sales, US, 1973 to present

Consumer confidence vs sales Consumer confidence vs sales with 6 month lag (1973-Jan 2001)

8.0

9.0

10.0

11.0

12.0

13.0

14.0

15.0

16.0

17.0

18.0

19.0Ja

n-73

Jan-

75

Jan-

77

Jan-

79

Jan-

81

Jan-

83

Jan-

85

Jan-

87

Jan-

89

Jan-

91

Jan-

93

Jan-

95

Jan-

97

Jan-

99

Jan-

01

Jan-

03

Jan-

05

Jan-

07

Jan-

09

US

pas

seng

er c

ar m

arke

t - u

nits

mn

10.020.030.040.050.060.070.080.090.0100.0110.0120.0130.0140.0150.0160.0

US

con

sum

er c

onfid

ence

US Sales - 12 month rolling average US Consumer Confidence

y = 0.06476x + 7.65718R2 = 0.60663

10.0

11.0

12.0

13.0

14.0

15.0

16.0

17.0

18.0

0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0

Consumer Confidence

Pas

seng

er C

ar S

ales

(6 m

onth

lag)

8.0

10.0

12.0

14.0

16.0

18.0

Jan-

73

Jan-

75

Jan-

77

Jan-

79

Jan-

81

Jan-

83

Jan-

85

Jan-

87

Jan-

89

Jan-

91

Jan-

93

Jan-

95

Jan-

97

Jan-

99

Jan-

01

Jan-

03

Jan-

05

Jan-

07

Jan-

09

US

Lig

ht V

ehic

le M

arke

t - u

nits

(mn)

US Sales - 12 month rolling average US car market predicted by consumer confidence

Source: Global Insight, Conference Board, Goldman Sachs Research estimates .



The Triad consumer might start to shop for smaller more fuel-efficient cars

While we forecast a near-term cyclical recovery in US car sales, we expect the Triad (the US, Europe and Japan) markets to show

no structural growth, given a lack of population growth, relatively static income distribution and a limited increase in per capita

vehicle penetration. In contrast to the rising middle class in the BRIC counties, the Triad consumer might need to trade off a higher

savings rate with lower overall expenditure on new vehicles. With fuel costs representing 30% of the total ownership cost of a

vehicle on a pa basis, and depreciation of purchase cost being 35%, (insurance, maintenance and others make up the remaining

35%) lower overall expenditure on vehicles may translate into a search for either more fuel-efficient vehicles or vehicles with a

lower initial acquisition price.

Exhibit 56: US savings rate has been at an all-time low in recent years and

is likely to revert towards trend levels

US household savings rate, 1950 to 2010E

Exhibit 57: Fuel cost represents almost 30% of the ownership costs

Breakdown of the total ownership cost per vehicle

0

2

4

6

8

10

12

14

1949

1953

1957

1961

1965

1969

1973

1977

1981

1985

1989

1993

1997

2001

2005

2009

%

Depreciation cost, 35%

Fuel cost, 30%

Other costs, 35%

Source: US Department of Commerce, GS Global ECS Research.

Source: Eurostat, GS Global ECS Research.



Global market growth could be worth US$86 bn (€60 bn) of incremental operating profit

Based on our forecasts, the global car market is set to increase from 62 mn vehicles in 2010 to 107 mn vehicles in 2020. To quantify

the impact of this volume growth, we have created a simple model with the following key assumptions:

• The industry achieves an average 85% capacity utilization level from its existing capacity footprint. This level is consistent with

a 5%-6% operating margin and therefore consistent with covering the cost of capital. Beyond this point, incremental capacity is

added to meet further demand increases, maintaining global utilization at 85%.

• We assume that the first 9 mn of the 45 mn additional units can therefore be supplied by the existing capacity footprint,

achieving a 20% contribution margin to operating profits.

• We assume the remaining 36 mn units of the volume increase will be produced in new capacity, at an average industry

operating profit margin of 5%.

In total, we believe our forecast market growth could add an incremental US$86 mn (€60 mn) to the industry’s profit pool by 2020.

This would represent just 40% of the operating profit impact implied by a more simplistic analysis which excludes any

consideration incremental capacity and applies a constant 20% contribution margin to forecast volume growth.

Exhibit 58: Incremental capacity requirements potentially limit impact from volume growth to US$86 bn/€60 bn over the period 2010-2020E

Analysis of impact of incremental volume growth to profit pool considering required capacity increases

CommentsGlobal Volumes - 2010E 62 Current global volume forecast for 2010EGlobal Capacity 2010E 90Capacity Utilisation 69%

Global Volumes - 2020E 107 We assume industry strives to achieve 85% utilisation, a level empirically consistent with covering cost of capitalGlobal Capacity 2020E 126 To deliver 107mn units in 2020E would therefore require 125mn units of capacity to be installedCapacity Utilisation 85%

Volume growth - 2010E to 2020E 45 Of total 44mn unit increase in sales volume, 9mn would be met by improving capacity utilisation of existing o/w filling existing capacity 9 facilities from 69% in 2010E to 85% in 2020. o/w matched by capacity expansion - 2010E to 2020E 36 To meet the overall 44mn unit volume increase 35mn units would be produced in newly installed capacity

Contribution margingrowth with no capacity investment 20% We assume a 20% contribution margin for incremental units produced in already installed capacitygrowth with capacity investment 5% Production in incremental capacity sees only a 5% contribution margin given incremental depreciation at 5% sales and

the addition of direct labour 10% of sales.Average vehicle price (light vehicles) - € 16,500Average vehicle price (light vehicles) - US$ 23,925

EBIT benefit - € bn 60 Overall benefit of €60bn/US$86bn from incremental global growth, 40% of the €146bn/US$211bn estimated on a EBIT benefit - US$ bn 86 20% contribution margin for all volume and thereby ignoring the cost of adding incremental capacity

Source: CSM, Goldman Sachs Research estimates.



Industry analysis: CO2 challenge



Auto maker CO2 challenges are part of a wider agenda for CO2 reduction

Population growth and economic development are placing mounting pressure on the global environment. Climate change is the

highest profile of those pressures. Society’s awareness of the threats climate change presents, its causes, and its willingness to

take action to drive the changes needed to avert the worst effects (whether directly or through support for political intervention) are

strengthening quickly. On a global basis, transportation accounts around 20% of global CO2 emissions, with road traffic accounting

for approximately half this figure. As Exhibit 59 illustrates, the share of road traffic in national emissions levels varies by region,

reaching a higher proportion in more developed economies. Policy makers have focused their attention on the automotive industry

with CO2 emissions targets, or their equivalent fuel-efficiency standards, set over the next decade in Europe, the US, Japan, South

Korea, Australia and China covering over 70% of the current global automotive market.

Exhibit 59: Transportation accounts for 20% of global CO2 emissions, with traffic taking a higher share of CO2 emissions in more advanced economies

CO2 emissions by source, 2007

GLOBAL W. EUROPE USA

Traffic26%

Power Generation

39%

Industry16%

Households19%

Power Generation

(Coal, Gas and Oil)52%

Road Traffic - Passenger

Cars17%

Road Traffic - trucks

5%

Others26%

Waste and Effluents

3%

Power Generation

25%

Street Traffic10%

Private and Industrial Buildings

8%

Industry19%

Agriculture14%

Forestry18%

Other Traffic3%

Source: VDA, UN IPCC.



CO2 targets are converging on a global basis

Existing announced regulations and indicated plans should significantly reduce emissions per vehicle over the next decade. As

Exhibit 60 illustrates, emissions regulations in the USA, Japan, Europe and China are beginning to converge, as greater regulatory

focus is placed on fuel economy and CO2 emissions levels.

Exhibit 60: CO2 emissions regulations are tightening and converging

Emissions regulations in various major economies harmonized to the European

test cycle

Exhibit 61: Summary of conversion rates between standard fuel measures –

CO2, miles per gallon (gasoline European gallon, diesel European gallon and

gasoline US gallon)

0

50

100

150

200

250

300

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

g C

O2/

km

USA Europe Japan China

Potential 2030E

Potential 2020E

CO2 g/km 200 180 160 140 130 120L/100km (gasoline) 8.4 7.5 6.7 5.9 5.4 5.0

mpg (Euro - gasoline) 33.8 37.5 42.2 48.3 52.0 56.3mpg (Euro - diesel) 37.3 41.4 46.6 53.3 57.3 62.1mpg (US - gasoline) 28.1 31.2 35.2 40.2 43.3 46.9

CO2 g/km 110 100 80 60 50 40L/100km (gasoline) 4.6 4.2 3.3 2.5 2.1 1.7

mpg (Euro - gasoline) 61.4 67.6 84.4 112.6 135.1 168.9mpg (Euro - diesel) 67.8 74.6 93.2 124.3 149.1 186.4mpg (US - gasoline) 51.1 56.2 70.3 93.7 112.5 140.6

Source: ICCT, Goldman Sachs Research estimates.




Fuel economy has to increase substantially to meet targets

While fuel economy standards are tightening, demand growth from emerging markets is likely to pose a challenge to reducing

overall CO2 emissions from passenger vehicles. We estimate the total number of light vehicles on the road will double between

2000 and 2020, and increase by over 50% between 2010 and 2020 (Exhibit 62). IEA estimate that the current vehicle park delivers

average emission levels of c.190g CO2/km.To maintain a constant level of CO2 emissions over the next decade on a global basis

(given our forecasts for a 55% increase in number of vehicles on the road), we estimate average CO2 emissions per vehicle will

need to decline by 36% from current levels (around 190g/km to around 122g/km).

Allowing for not all of the fleet being renewed in this period, we estimate that this would require an average reduction in new car

emissions of c.49% through 2020 (Exhibit 63). However, to achieve significant declines in new car emissions, we believe an

integrated approach, looking beyond "tank-to-wheel" considerations such as vehicle design and technical innovations, will be

required. In particular, we believe policy makers will be forced to focus on “well-to-tank” considerations, through increased use of

sustainable bio-fuels and alternative energy sources, while governments will also play a role by improving traffic flows,

encouraging modal shifts and changes to driving behaviour and potentially encouraging more aggressive scrappage of the existing

vehicle fleet.

Exhibit 62: Global car park in 2010-2020E to increase at double the rate of

the previous decade

Global car park by region, 2000, 2010E and 2020E (million units)

Exhibit 63: To keep total global CO2 emissions in 2020 at the 2007 level

requires a 36% reduction in average CO2 emissions per vehicle, (requiring a

49% reduction in new vehicles emissions); mn units, g per vehicle

0

200

400

600

800

1000

1200

2000 2010E 2020E

Car

Par

k - m

n un

it

Triad BRIC RoW

Average CO2 emission new car sales 2010-2020EFleet average target CO2 and reduction

Car Park 171 152 122 95 482020E vs 2010E -10% -20% -36% -50% -75%

824 10% 171 152 122 95 48899 20% 170 150 117 89 39974 30% 168 146 111 81 26

1049 40% 166 143 105 72 131123 50% 165 140 99 64 11163 55% 164 138 96 59 n.m.1198 60% 163 136 93 56 n.m.

Reduction in CO2 emissions - new vehicles sales - vs current avgCar Park 171 152 122 95 482020E vs 2010E -10% -20% -36% -50% -75%

824 10% -10% -20% -36% -50% -75%899 20% -11% -21% -38% -53% -80%974 30% -12% -23% -41% -58% -86%

1049 40% -12% -25% -45% -62% -93%1123 50% -13% -27% -48% -66% -100%1163 55% -14% -27% -49% -69% n.m.1198 60% -14% -28% -51% -71% n.m.





We believe 2015 objectives can be met with existing technology

Near-term regulations in Europe, North America and Japan look for an average 17% improvement in CO2 emissions from current

levels, we estimate, as highlighted in Exhibit 64. Increasing the efficiency of the internal combustion engine (ICE) remains the single

most important near-term solution to the longer term challenge in our view. Improvements in the ICE are likely to be achieved

through a combination of a variety of technologies: (1) Engine-related improvements; such as turbo-charging, downsizing, engine

friction reduction, direct injection, homogenous charge compression ignition, variable valve timing, variable camshaft timing,

improved engine management, start-stop systems with regenerative braking. (2) Transmission-related improvements; such as an

increased number of gears from six to seven and eight-speed transmissions. Continuous variable transmission, dual clutch

transmissions. (3) Accessory-related improvements; such as improved aero-dynamics, low rolling resistance tyres, electric power

steering, improved driver information (e.g. gear shift indicators, fuel economy indicators, tyre pressure monitoring systems),

weight reduction through increased use of aluminium, plastics and composite materials.

McKinsey estimates that technology available today can improve the fuel efficiency of today’s ICE gasoline vehicles by about 39%

at an incremental cost (relative to the cost of an average vehicle without such technologies) of around €3,000 (c.US$4,050) per

vehicle, without the introduction of full hybrids. Similar changes to diesel vehicles could boost fuel efficiency by 36% over current

levels at an incremental cost of around €2,000 (c.US$2,700). Furthermore advanced ICE technology benefits from relying on existing

available technologies which do not require significant infrastructure investment (such as those required for electric vehicles, fuel

cells or plug in hybrids) or significant improvements in manufacturing costs (such as Li-Ion battery technology).

Exhibit 64: 2015/16 Fuel economy standards in Triad markets require 17%

improvement on average from current levels...

Exhibit 65: …which can be met through existing CO2 reduction technologies

0%

5%

10%

15%

20%

25%

USA Europe Japan

CO

2 re

duct

ion

to re

ach

2015

/201

6 ta

rget

0% 10% 20% 30% 40% 50% 60% 70% 80%







Electric Vehicle


0% 10% 20% 30% 40% 50% 60% 70% 80%







Electric Vehicle


0% 10% 20% 30% 40% 50% 60% 70% 80%







Electric Vehicle


Source: EPA, ACEA, EU, JAMA, Goldman Sachs Research estimates.

Source: McKinsey, EPA, Transport and Environment, Goldman Sachs Research estimates.



Alternative fuels could play a significant part

We see a potentially significant contribution to reducing CO2 emissions from the increased use of alternative fuels. These offer the

possibility of lower (and potentially negative) “well-to-tank” carbon emissions, while also offering some benefits in “tank-to-

wheel“ emissions. The predominant alternative fuels in the automotive industry include compressed natural gas (CNG), biofuels

and hydrogen.

• CNG is an environmentally clean alternative to gasoline and diesel, and can be used in standard internal combustion engine

cars that have been converted to bi-fuel vehicles (gasoline/CNG). A drawback of CNG vehicles is the greater amount of fuel

storage space for each gasoline gallon equivalent.

• Bio-fuels are made from plant sources such as sugarcane or corn and are already in use in vehicles worldwide. The most

common bio-fuel is bio-ethanol, which can be mixed with gasoline to any percentage. Most existing petrol engines run on

blends of up to 5%-10% bio-ethanol, while several car manufacturers are now producing flexible fuel vehicles (FFVs), which can

run on any combination of bio-ethanol and petrol up to 100% bio-ethanol.

• Bio-fuels are considered a clean alternative, because the plants from which they are made absorb CO2 while they are growing,

thus offsetting the CO2 emissions in the fuels’ combustion. The use of bio-fuels is also beneficial in that they can be produced

from locally available raw materials, lessening the dependence on imported oil. However, limitations exist, including the fuels’

lower energy density, and possible market competition between food and fuel. Car manufacturers are currently backing the

development of second-generation bio-fuels, such as biomass-to-liquid (BTL) fuel, which combats this issue; its production

does not threaten food supplies and biodiversity.

• Hydrogen produces solely water in its combustion and therefore emits zero tailpipe CO2 emissions. However, a significant

amount of energy is required in the production of hydrogen, which itself results in CO2 emissions and a low overall fuel

efficiency. This and the high necessary investment in refueling infrastructure and hydrogen storage, means that this option is

currently less viable than current fuels in usage. However, development of less expensive and energy-intensive production

methods may accelerate the establishment of a hydrogen economy.

• In the near term, the significant necessary investment in refueling infrastructure and advancement in technology hinders future

commercialization of alternative fuels. Given the overall limited potential of the advanced combustion engine and alternative

fuels in considerably reducing CO2 emissions, a greater focus on alternative powertrain technologies is essential.



Technical limits on ICE likely to lead to powertrain fragmentation post 2015

The additional technological options for the reduction of CO2 emissions fall into two broad categories: alternative fuels and

electrification. While we believe that there are a number of technological measures that can reduce CO2 emissions, in total it will

probably be necessary to include some zero-emission vehicles in the mix (effectively electric vehicles). We will not debate here the

issue of electricity sourcing, suffice to say that within a general reduction in greenhouse emissions the pressures on the power

generation industry will be even greater than that on transport (see, “GS SUSTAIN: Low-carbon energy: May the wind blow for

carbon capture and storage”, June 2 2009).

Exhibit 66: Technology road-map for electrification of the powertrain – hybrids represent a stepping stone technology to full electric vehicles

Energy Petrol Biofuel ElectricitySource Diesel Biogas

CNG Hydrogen

Powertrain

Technology Start-stop Mild Hybrid Full Hybrid Plug-in hybrid Plug-in hybrid Fuel Cell Electric(parellel) (serial) Battery

(range-extender)100%

Degree ofelectrification

0%

COMBUSTION ENGINES

Hydrogen

HYBRIDS PURE ELECTRIC DRIVING




Electric vehicles ultimately required to reduce CO2

While we would not wish to assume a limit on what the world’s automotive engineers are capable of achieving in terms of

improving the efficiency of the internal combustion engine, the scale of the challenge leads us to believe that alternative

technologies (such as electric vehicles) will also have to be embraced. McKinsey estimates that current technologies can improve a

gasoline engine’s efficiency by 39% from the current average. Full adoption would therefore reduce emissions to 116g/km; using

hybrid technology as well could lower this to around 100g/km or below. In order to achieve even lower levels of average emissions,

a proportion of the fleet will have to be fully electric vehicles (i.e. zero-emission). Exhibit 67 highlights the necessary proportion of

new vehicle sales as electric vehicles at different levels of ICE efficiency and different targets for CO2 emissions of new vehicle sales.

Even if efficiency improvements lower the average emission of an ICE car to 80g/km, 25% of vehicles sold would need be

electrically powered to achieve an average of 60g/km for new car sales. Hence, we believe for the necessary reduction in carbon

emissions, both electric vehicles and optimization of the internal combustion engine will be necessary. Well-to-tank emissions are

also likely to become increasingly important. As the proportion of electric vehicles increases, we believe focus will increasingly shift

from measures of “tank-to-wheel” CO2 emissions to include “well-to-tank”. Average CO2 emissions in the production and

distribution of gasoline and diesel are around 24g/km, in addition to “tank-to-wheel” emissions. “Well-to-tank” emissions for

electricity vary strongly, as Exhibit 68 illustrates, with wind offering zero “well-to-tank” CO2 emissions, and coal-based electricity

generation reaching 116g/km. Consequently, an electric vehicle based solely on coal- based electricity generation could potentially

have a higher “well-to-wheel” CO2 emissions level than the most efficient ICE-based vehicles.

Exhibit 67: Electric vehicles required to bring CO2 emissions of new vehicle

sales below technical limits of internal combustion engine

Proportion of new vehicle sales from electric vehicles given limit on ICE

technology and overall new vehicle sale emissions regulation

Exhibit 68: Electric vehicles’ overall CO2 emissions depend on electricity-

generation method

CO2 emission gram per kilometre for principal energy generation methods

Share of new car sales from electric vehicleTarget level CO2 g/km new car sales

0 20 40 50 60 65 70 75 80Technical 60 100% 67% 33% 17% 0% 0% 0% 0% 0%limit of 70 100% 71% 43% 29% 14% 7% 0% 0% 0%ICE with 80 100% 75% 50% 38% 25% 19% 13% 6% 0%hybrid 90 100% 78% 56% 44% 33% 28% 22% 17% 11%CO2 g/km 100 100% 80% 60% 50% 40% 35% 30% 25% 20%

110 100% 82% 64% 55% 45% 41% 36% 32% 27%120 100% 83% 67% 58% 50% 46% 42% 38% 33%

0

20

40

60

80

100

120

Coal EU- mix NaturalGas

Nuclear Wind Gasoline/Diesel-

w ell to tank

CO

2 em

issi

ons

- C)2

g/k

m (w

ell-t

o-ta

nk)


Source: CONCAW, EUCar, Goldman Sachs Research estimates.



Electrification

The electrification path begins with hybrid vehicles.

• Micro-hybrid: A micro-hybrid combines a stop/start system with a brake energy regeneration system. Brake energy

regeneration works by recovering energy that would otherwise be lost during braking or coasting. Stop/start technology

automatically switches the engine off when the car is stationary. The engine then restarts immediately when the clutch pedal is

pressed. This technology is particularly fuel efficient in city driving conditions, offering savings of 4%-7%. Micro-hybrids cannot

use battery power to support the combustion engine or drive solely on electric power.

• Mild hybrid: This is the initial step in the electrification process. The mild hybrid contains an electric motor that provides a

support role for an internal combustion engine. The electric motor offers acceleration assistance in addition to providing a

start-stop system, and regenerates braking energy for recharging the battery. Mild hybrids provide only a modest improvement

in fuel efficiency of around 11%; however, it serves as an important intermediate step in the commercialization of hybrid

vehicles.

• Full hybrid: A full hybrid, sometimes called a strong hybrid, can either run on the engine, the battery or a combination of the

two modes. Subsequently, the full hybrid requires a larger, higher-capacity battery and electric motor to enable an electric-only

drive, and allows the electric motor to be used for startup, low to mid-range speeds and acceleration assistance. McKinsey

estimates that current hybrid-electric technology can improve vehicle fuel efficiency relative to today’s ICE equivalent by about

30%; combined with additional vehicle optimization measures like further weight reduction, fuel efficiency would increase by

an average of 44% relative to today’s ICE. The incremental per-vehicle cost is almost €4,000 (c.US$5,800) today.

• Plug-in hybrid: The plug-in hybrid differs from the full hybrid in that it contains a high capacity battery which can be plugged

into an electrical outlet to be charged. In addition, the plug-in hybrid discharges the battery while driving, whereas in a regular

hybrid vehicle a roughly constant battery charge is maintained. This further increases the fuel efficiency. The main benefit of

the plug-in hybrid is that it can operate on a purely electric mode for the purpose of short-distance commuting, while still

having the extended range of a hybrid for longer trips. McKinsey estimates that plug-in hybrid technology combined with

vehicle optimisation can improve vehicle fuel efficiency 65%-80% in some regions, relative to current ICE performance. The

incremental per-vehicle cost is almost €10,000 (c.US$14,500) today.

• Electric vehicle: The electric vehicle is the ultimate stage in the electrification process as it produces zero tailpipe emissions. It

uses electric motors instead of an internal combustion engine for propulsion and is powered by a large battery which stores

grid electricity. For commercialization of electric vehicles to occur, batteries with a high energy density and long life, and which

are suitable for fast charging are key. The cost of battery technology and charging infrastructure remain significant obstacles to

electric vehicle penetration. OEMs are now forming relationships with battery manufacturers to research and develop new and

improved battery technology, but also more efficient manufacturing processes capable of supporting high volume production.

The development of the battery industry is discussed in a GS report, “Global Technology, “Fully Charged: Look for undervalued

winners in battery sector boom”, June 26, 2009. McKinsey estimates that in 2030, electric vehicles could provide “well-to-

wheel” emissions reductions of 70%-85%, relative to today’s ICE vehicles. Key will be the speed at which costs can be reduced,

with McKinsey highlighting that cost reduction for batteries of 5%-8% per year through 2030 would reduce the incremental per-

vehicle cost from c. €36,000 today to €5,800 for an electric vehicle with a driving range of 160km (~100 miles). Our Global

Technology team highlights the potential for quicker cost reduction arising from standardization and resulting economies of

scale, as exhibited by the 70% reduction in unit cost per KWh over five years achieved with the standardized 18650 laptop

battery between 1995 and 2000.



• Fuel cell vehicle: A fuel cell produces electricity by combining hydrogen and oxygen in a chemical reaction. Thus, like electric

vehicles, the fuel cell vehicle produces zero tailpipe emissions. This technology has a higher efficiency than the hydrogen

internal combustion engine; however the cost and durability of the fuel cell system remain significant challenges. Similar to

hydrogen-based ICEs, onboard hydrogen storage is an issue and safety concern that needs to be faced. Thus, collaboration on

the development of hydrogen vehicles is necessary to overcome the major challenges to their commercial viability.



Cost and technical challenges remain in delivering on electric vehicles

Electric vehicles may require significant infrastructure investment

Current technology, and most research, suggests that personal electric vehicles (EV), or electric cars as they are commonly termed,

will probably be battery powered; hence the need for a (re)charging infrastructure to support them. Historically, there has been

concern that this infrastructure would be expensive and time-consuming to install. However, trials by Tokyo Power have indicated

that the technology was readily available and potentially quicker to install than previously thought. Furthermore, in another trial

currently underway in Japan, batteries are exchanged rather than recharged by the vehicle user, with the battery being charged up

by the energy provider or a third-party battery provider at a suitable location. However, with cars typically parked for at least 20

hours per day, many in the industry do not view this as a major issue. Despite initial successful trials, we believe the creation of an

EV network, based on battery exchange, is likely to face significant hurdles; given the importance of the size and distribution of the

weight of the battery to a vehicle’s performance and design, this issue is likely to limit the ability to reach a standardized solution

across OEMs.

Cost is a temporary issue, but battery technology needs to improve

One argument often made against electric vehicles is that they are expensive. Typically, they are 50%-100% more expensive than a

similar gasoline-driven car, primarily due to the high cost of current battery technology. While materials account for 70% of the cost

of a lithium-ion battery – limiting the scope to bring the cost down – we believe that ultimately, technological advances (denser

batteries requiring less material) and economies of scale of production will reduce the cost. As Exhibit 69 highlights, to make

electric vehicles attractive to consumers on a total ownership cost basis (assuming a five year payback) requires a significant

reduction in the cost of the battery (from the current level of around US$1,000-2,000 per KWh)

Although prices of electric vehicles might fall over time, subsidies may be necessary in the early years to tempt consumers. Rising

fossil fuel prices and/or carbon taxes would make them more attractive, provided electricity prices did not also increase with the oil

price, as happened in 2007-08 in many countries, including the UK. Exhibit 69 highlights that significant increases in oil prices

should increase the attractiveness of electric vehicles to the consumer; at a US$124 oil price, an EV with a 60 km battery range and

a battery price of US$1,000/KWh offers a similar total cost of ownership to the consumer as a gasoline ICE (assuming a constant

electricity price of US$0.12/KWh (current US electricity average price)). Another option would be to lease batteries, enabling

consumers to compare the cost with their monthly petrol/diesel bill.

The life and charging time of batteries has long been a restriction on electric vehicles’ range. However, scientific developments

could make this easier. For example, the New Scientist (March 12, 2009) reported that two scientists at MIT had revealed an

experimental battery that charges 100 times as fast as normal lithium-ion batteries. They estimate that an electric car could be

charged in five minutes rather than the eight hours currently required with this. The technology requires a high-powered charger

and the batteries are bulky, but it illustrates that progress is being made, and could potentially address the limitations of electric

vehicle networks dependent on battery exchange.



Exhibit 69: Improvements in battery technology and higher fuel costs should increase attractiveness of EV to consumers

Incremental cost for EV (US$ per vehicle) and required oil price for cost benefit to consumer assuming 5-year payback

Incremental Cost of Electric Vehicle and Required Oil Price AnalysisBattery Technology Miles/KWh 4.0Battery Technology Km/KWh 6.4

Annual Mileage (km) 15000Average fuel economy (l/100km) 6.0Miles per imperial gallon 47.1Miles per US gallon 39.2

Electricity cost - cents per KWh 0.12

Cost of ICE that replaced - avg (US$) 1500

INCREMENTAL COST - US$ per vehicleElectric Vehicle Range - km 40 50 60 75 100 150 200 250 320Electric Vehicle Range - miles 25 31 38 47 63 94 125 156 200Required Battery size KWh 6 8 9 12 16 23 31 39 50Cost per KWh 150 -563 -328 -94 258 844 2,016 3,188 4,359 6,000Battery - US$ 200 -250 63 375 844 1,625 3,188 4,750 6,313 8,500

250 63 453 844 1,430 2,406 4,359 6,313 8,266 11,000300 375 844 1,313 2,016 3,188 5,531 7,875 10,219 13,500400 1,000 1,625 2,250 3,188 4,750 7,875 11,000 14,125 18,500500 1,625 2,406 3,188 4,359 6,313 10,219 14,125 18,031 23,500600 2,250 3,188 4,125 5,531 7,875 12,563 17,250 21,938 28,500700 2,875 3,969 5,063 6,703 9,438 14,906 20,375 25,844 33,500800 3,500 4,750 6,000 7,875 11,000 17,250 23,500 29,750 38,500900 4,125 5,531 6,938 9,047 12,563 19,594 26,625 33,656 43,500

1000 4,750 6,313 7,875 10,219 14,125 21,938 29,750 37,563 48,5001500 7,875 10,219 12,563 16,078 21,938 33,656 45,375 57,094 73,5002000 11,000 14,125 17,250 21,938 29,750 45,375 61,000 76,625 98,500

REQUIRED OIL PRICE (assuming required 5 yr payback to electric vehicle)Electric Vehicle Range - km 40 50 60 75 100 150 200 250 320Electric Vehicle Range - miles 25 31 38 47 63 94 125 156 200Required Battery size KWh 6 8 9 12 16 23 31 39 50Cost per KWh 150 -25 -21 -17 -10 0 21 41 62 91Battery - US$ 200 -19 -14 -8 0 14 41 69 97 135

250 -14 -7 0 10 28 62 97 131 180300 -8 0 8 21 41 83 124 166 224400 3 14 25 41 69 124 180 235 312500 14 28 41 62 97 166 235 304 401600 25 41 58 83 124 207 290 373 489700 36 55 75 104 152 249 346 442 578800 47 69 91 124 180 290 401 512 666900 58 83 108 145 207 332 456 581 755

1000 69 97 124 166 235 373 512 650 8431500 124 166 207 270 373 581 788 995 1,2862000 180 235 290 373 512 788 1,065 1,341 1,728




Electric vehicles likely to reach 1-5 mn units per year by 2020

Given the complexities and cost of electric vehicles, we believe wholesale adoption over the next decade remains unlikely. Various

consultants’ estimates for electric vehicle penetration suggest between 1% and 5% of the new light vehicle sales globally are likely

to be electric vehicles by 2020, implying volumes in range of 1-5 mn units.

Exhibit 70: Electric vehicles could represent 1%-5% of global passenger car sales in 2020E

New vehicle sales by powertrain – summary of estimates for 2020E

3% 1% 3% 5% 2% 4% 5% 5% 2% 2% 4% 4% 4% 2% 6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

BCG

McK

inse

y

Ener

Del

Rol

and

Berg

er

GS

Tech

nolo

gyTe

am

BCG

Ener

Del

Rol

and

Berg

er

BCG

Ener

Del

Rol

and

Berg

er

BCG

Rol

and

Berg

er

BCG

Rol

and

Berg

er

Shar

e of

pow

ertra

in te

chno

logi

es (%

)

EV

PHEV

Hybrid (Full)

ICE

Global USEurope Japan China

Source: Boston C consulting Group, McKinsey, EnerDel, Roland Berger, Goldman Sachs Research estimates.

Emerging markets could be a significant player in the electric vehicle world

The development of alternative powertrains also offers a potential opportunity for Asian OEMs, especially those based in India and

China that are behind established manufacturers in terms of conventional powertrain technologies. By focusing on alternative

solutions, they could potentially reach parity more quickly, since to date, no one holds an insurmountable advantage.



Electrification likely to lead to emergence of new automotive suppliers

The electrification of the powertrain has resulted in the emergence of new automotive suppliers. The industry’s strategic response

differs by manufacturer, with some key OEMs pursuing vertical strategies (partnering with battery suppliers) while others rely

exclusively on third-party battery supply.

Exhibit 71: Electrification likely to lead to development of new automotive suppliers

Battery strategy by key OEM

Battery JV Auto OEMs

Panasonic ToyotaPanasonic EV Energy(Toyota60%

Panasonic40%)

GS Yuasa

Blue Energy(Honda49%

GS Yuasa51%)Honda

Lithium Energy Japan

(MMC15%GS Yuasa51%

Mitsubishi Corp34%)

MMC

Hitachi Vehicle Energy

A123Systems (US)

LG Chem (Korea)

GM

Hyundai

Evonik Industries (Germany) Daimler

Deutsche Accumotive(Dailmer90%Evonik10%)

JCS

TeslaMotor(Daimler10%)

Ford

BMW

Sanyo

Toshiba

BYD (China)

VW

BYD Auto

Samsung SDI (Korea) Bosch

SB LiMotive(Bosch50%SDI50%)

Electrovaya (Canada) Tata Motors

Battery JV Auto OEMs

Source: Automotive News, Motor Fan, Company data.



Cost of CO2 compliance for the industry could reach US$117 bn/€80 bn by 2020

We estimate that meeting CO2 emissions targets for Europe (130g/km in 2015 and a potential target of 95g/km in 2020E) could cost

the global auto industry US$34 bn/€24 bn between 2010 and 2020. We estimate a figure of US$13 bn/€9 bn to meet US 2016 CAFE

standards (35.5mpg, equivalent to around 162g/km of CO2) and a further US$18bn/€12bn to meet and an assumed target of

130g/km in 2020E. For “Rest of World”, we estimate meeting CO2 regulation is likely to add additional costs of US$52 bn/€35bn,

assuming compliance costs of 30% of the average for the US and Europe (US$2,200 per vehicle). These imply a total cost headwind

for the global industry of US$117 bn/€80 bn. Our analysis suggests that full CO2 compliance costs could reach c.US$2,400/€1,640

per vehicle by 2020 for vehicles in Europe, and US$2,100/€1,400 per vehicle in the USA.

Our base assumptions for this analysis are:

• 140g/km in Europe in 2015 and 95g/km in 2020, with 100% compliance;

• 162g/km in 2016E (35.5mpg equivalent) and 130g/km in 2020 in USA with 100% compliance;

• Initial cost to CO2 reduction to meet 2015 targets in Europe of €50 per CO2 gramme reduction. We assume a volume-based

learning curve of 20% cost reduction for every doubling in volume, resulting in cost per gramme of reduction falling to €26 by

2015. Post 2015, we assume the electrification of the power-train will require new technologies, again starting at an initial cost

of €50 per gramme of CO2 reduction;

• Initial cost to meet 2016 targets in the US are assumed to be $29/€20 per gram of reduction given the relatively lower starting

point in terms of fuel efficiency. We also assume a volume-based learning curve at 20% cost reduction for a doubling of

volume. Post 2015, we assume next generation of technology has a higher initial starting cost of $73/€50 per gram reduction;

• We assume flat market size at 15 mn units in the USA and 14.5 mn units in Europe.



Exhibit 72: European market likely to face a US$34 bn headwind between 2010-2020E to meet 2020E CO2 objectives

European market CO2 cost model 2010-2020E, € mn, € per car, US$ mn, US$ per car

PHASE 1 - OPTIMISED ICE & HYBRIDISATION PHASE 2 - ELECTRIFICATION2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

CO2 target g/km 130 130 130 130 130 130 95 95 95 95 95Compliance 10% 25% 50% 75% 90% 100% 15% 35% 58% 80% 100%Fleet average CO2 g/km 154 150 144 137 133 130 125 118 110 102 95

Market Size - units mn 14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5CO2 target compliant vehicles (equivalent units) 1.45 3.625 7.25 10.875 13.05 14.5 2.175 5.075 8.3375 11.6 14.5

Cost per gram of reduction 50 41 33 29 27 26 49 37 32 28 26Cost per vehicle 1,350 1,115 892 783 738 713 1,703 1,297 1,105 994 925

Cumulative Cost - € mn 1,958 4,041 6,466 8,512 9,632 10,345 14,050 16,926 19,560 21,872 23,755Incremental costs - € mn - yoy 1,958 2,084 2,425 2,046 1,120 713 3,705 2,876 2,634 2,313 1,883Cost per car - € 135 279 446 587 664 713 969 1,167 1,349 1,508 1,638

Cumulative Cost - US$ mn 2,838 5,860 9,375 12,342 13,966 15,000 20,372 24,543 28,362 31,715 34,445Incremental costs - US$ mn 2,838 3,021 3,516 2,967 1,624 1,034 5,372 4,170 3,819 3,353 2,730Cost per car - US$ 196 404 647 851 963 1,035 1,405 1,693 1,956 2,187 2,376

Discount rate 8%NPV - € mn 15,151NPV per car - € 1,045NPV - US$ mn 21,969NPV per car - US$ per car 1,515

Cumulative compliance costs - US$ mn Incremental compliance costs - US$ mn

0

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2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

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`




Exhibit 73: US market likely to face a US$30 bn headwind between 2010E and 2020E to meet 2016 CAFE standards and possible 2020E requirements

US market CO2 cost model 2010-2020E, € mn, € per car, US$ mn, US$ per car

PHASE 1 - OPTIMISED ICE & HYBRIDISATION PHASE 2 - ELECTRIFICATION2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

CO2 target g/km 162 162 162 162 162 162 162 130 130 130 130Compliance 7% 18% 40% 65% 90% 95% 100% 10% 35% 70% 100%Fleet average CO2 g/km 216 210 197 182 168 165 162 159 151 140 130

Market Size - units mn 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0CO2 target compliant vehicles (equivalent units) 1.05 2.7 6 9.75 13.5 14.25 15 1.5 5.25 10.5 15

Cost per gram of reduction 20 18 14 12 11 11 10 50 37 29 26Cost per vehicle 1,160 1,053 814 697 627 616 0 1,600 1,173 938 836

Cumulative Cost - € mn 1,218 2,844 4,887 6,792 8,469 8,785 8,785 11,185 14,942 18,636 21,331Incremental costs - € mn 1,218 1,626 2,043 1,905 1,677 316 0 2,400 3,757 3,694 2,695Cost per car - € 81 190 326 453 565 586 586 746 996 1,242 1,422

Cumulative Cost - US$ mn 1,766 4,123 7,086 9,848 12,280 12,738 12,738 16,218 21,665 27,022 30,930Incremental costs - US$ mn 1,766 2,357 2,962 2,762 2,431 459 0 3,480 5,447 5,356 3,908Cost per car - US$ 118 275 472 657 819 849 849 1,081 1,444 1,801 2,062

Discount rate 8%NPV - € mn 12,927NPV per car - € per car 862NPV - US$ mn 18,744NPV per car - US$ per car 1,250

Cumulative compliance costs - US$ mn Incremental compliance costs - US$ mn

0

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Fleet renewal also a key potential lever for reducing emissions

Over the last 30 years, the average life of passenger cars in Europe and North America has increased by around three years (Exhibit

74), implying an extension of the average useful operating life of a vehicle of around six years. As Exhibit 75 shows, average CO2

emissions have been declining over this same period, as vehicle technology improves and car manufacturers strive to improve

performance. Notwithstanding the environmental implications of producing a new vehicle, replacing older, more polluting vehicles

offers the potential to reduce overall fleet CO2 emissions substantially. Replacing 16-year old on the road vehicles with new vehicles

would reduce CO2 emissions for those vehicles by c.36% in Germany and c.10% in the US, reducing overall passenger car fleet

emissions by 2% and 0.6% in each market respectively. Furthermore, an appropriately designed scheme offers the potential to drive

volumes higher in mature markets (albeit temporarily), which could provide market-led incentives to manufacturers to help

overcome the significant initial fixed and variable costs of reducing CO2 emissions.

Exhibit 74: Average age of the fleet in Europe and US has been increasing

as vehicle life extends

Average age of fleet (EU-15 passenger cars, US passenger cars and light trucks)

Exhibit 75: CO2 emissions have been steadily falling for new vehicles over

the last 30 years

CO2 emissions – US passenger cars and light trucks, Germany passenger cars

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Aver

age

Age

Flee

t (yr

s)

EU-15 US Passenger Cars US Light Trucks

150160170180190200210220230240250260270280290300310

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

CO

2 g/

km

Germany US Pass Car US Light Truck

Source: Eurostat, Goldman Sachs Research estimates.

Source: VDA, EPA, Goldman Sachs Research estimates.



Governments have started to support development of alternative powertrain concepts

In Exhibit 76 we summarise key government programmes globally aimed at accelerating the development and deployment of

alternative powertrain concepts.

Exhibit 76: Governments have started to support the development of alternative powertrain concepts

Key government programmes

Japan US ChinaTarget volume HEV 8 mn units by 2020 NA NA

PHEV 1.3 mn units by 2020 1mn units by 2015 NAEV 2.07 mn units by 2020 NA NA

Budget HEV NA NA NA

PHEV NA

EV NA

Charge station 5,318 locations by 2020 (rapid charging station)* NA NA

Subsidy HEV Up to ¥250k (FY09 supplementary budget) NA Up to 50,000 yuan for certain cities

PHEV

EV

Note NA NA EV promotion plans announced in 13 model cities

Germany France UKTarget volume HEV NA NA NA

PHEVEV

Budget HEV NA NA NA

PHEV

EV

Charge station NA 1 mn locations by 20154.4 mn locations by 2020 25,000 locations by 2015 (London)

Subsidy HEV NA

PHEV

EV

¥21.2 bn(FY10 planned. Includes ¥10.8bn

investment for EV promotion, ¥7.4 bn investment for battery R&D)

$2.4bn ($1.5 for battery makers, $0.5bn for motor makers, $0.4bn for charging stations)

Up to $7,000 Up to 60,000 yuan for certain citiesTotal ¥9bn budgest (FY2010) for subsidy and charging stations

£2,000-5,000 (budget £0.25 bn, starting 2011)€5,000 for first 100,000 units by 2012

1mn units by 2020 2mn units by 2020 1.2 mn units by 2020

€0.5 bn (Federal government) €4 bn(€1.5bn will be invested for chargin stations)

£2.3 bn(£20 mn will be invested for charging stations)

€3,000-5,000 for first 100,000units (2012-2014)

Source: Motor Fan, Marklines, Japan Ministry of the Environment, Nissan data, Goldman Sachs Research estimates.



Industry analysis: Mix-shift



Profitability is correlated with segments

The biggest challenge for the global automotive industry from the threat of downsizing and mix-shift towards smaller cars is the

industry’s historical difficulty generating satisfactory profit from small cars. Profitability tends to improve with the size of cars, and

in line with the selling price, assuming the OEM has competitive segment volumes to benefit from lower unit fixed costs.

Customers tend to be prepared to pay more for bigger cars. The higher price points provide a better umbrella for the OEM to

manage costs and achieve satisfactory levels of profitability. In contrast, the small car segment can be quite price competitive and

tends to attract low-price new entrants. Furthermore, for small car producers, the lower price point tends to make it more difficult to

absorb headwinds from raw material cost inflation and regulatory costs. Former Renault CEO Louis Schweitzer used to explain the

profitability of the volume producer in the form of a bell curve. Renault, he suggested, would make a peak profit margin if both the

C segment (i.e. Megane) and D segment (i.e. Laguna) were successful. Despite a focus on smaller cars, Renault typically found it

difficult to make satisfactory profit margins in the smaller A and B segments, something common to many OEMs worldwide.

Exhibit 77: Global shift in mix towards smaller cars likely to lead to significant redistribution of global profit pool from the D and E segments into the B and C

segments in particular (US$ bn)

Revenue, EBIT and EBIT margin by segment – 2007 and 2020E

Revenue by segment EBIT by segment Margin by segment

-6%

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-2%

0%

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A B C D E Other

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IT b

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Recent evidence shows signs of mix shifting towards smaller vehicles

In 2009, there has been a significant shift towards smaller cars, a result of various government incentive programmes to shore up

the global car market. However, focusing on 2008 sales data by key segment, we see evidence of ‘downsizing’ and mix-shift in the

US and the European markets. Within a given geographical market, mix-shift can be the result of several general factors, such as

an economic response from the consumer to increases in petrol prices, and government incentives and taxation policies towards

smaller, more fuel-efficient cars.

Exhibit 78: Downsizing shift already present in the US market in 2008…

Change in segment market share – USA, 2008 vs.2007

Exhibit 79: …as well as in the European market

Change in segment market share – Western Europe, 2008 vs.2007

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

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MPV

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PU-C D

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-E

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oy

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-1.0%

-0.5%

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A B MPV-B

SUV-B

C MPV-C

SUV-C

D MPV-D

SUV-D

E MPV-E

SUV-E

Cha

nge

in s

egm

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arke

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re y

oy





Emerging market growth to impact mix of global car market

On a global basis, economic realignment (discussed earlier) is a key driver in the global shift towards smaller cars. We expect BRIC

economies to become the key economic growth drivers over the next decade. BRIC countries tend to be more focused on small cars

than the Triad markets. Assuming that the current segment mix in each of the BRIC countries remains stable, the growth in these

markets should lead to a global shift towards smaller cars over the next 10 years. Exhibit 80 shows the segment mix by key region.

Exhibit 81 shows the segment mix evolution since 1995, including our 2020 forecasts.

Exhibit 80: Small car segment takes a greater share of the BRIC markets

than the Triad market

Segment share of passenger car market by country and region, 2008

Exhibit 81: Trend towards small cars has been an continuous over the last

15 years

Share of global market by segment 1995-2010E and GS 2020E forecasts

0%

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A B C D E Other





Emission regulations to impact cars sales mix negatively

Engine size and engine performance data tend to be more positively correlated with a higher pricing point and profitability. Exhibits

82 and 83 show that average engine capacity and average engine power have reached a plateau (or are even in decline) in Europe.

Like the shift to smaller segments, we believe the trend towards smaller vehicles with lower engine capacity and power within

given segments is likely to continue, driven by: (1) increasing levels of CO2 taxation on consumers; (2) consumers facing

structurally higher fuel costs, and (3) improved vehicle powertrain technologies becoming more widely implemented, offering

similar performance levels but with smaller engines (particularly downsizing and turbo-charging).

Exhibit 82: Average engine capacity in Europe peaked in 2007

Average engine capacity (cc3) – Western Europe, 1990-2008

Exhibit 83: Average engine power seems to have reached a plateau in 2007

Average engine power hp (metric) – Western Europe, 1990-2008

1500

1550

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(met

ric)

Source: ACEA.

Source: ACEA.



Mix-shift could reduce the global profit pool by US$26 bn (€18 bn)

Quantifying the potential threat to the global profit pool from mix-shift is difficult (and is probably a key focus within the car

industry currently). However, broadly, we estimate that a global mix-shift from 61% A, B and C segments share in 2007, towards

70% A, B and C segments share by 2020 could dilute global EBIT margin by 150 bp, to 3.6% from 5.1%. This could reduce the global

profit pool by US$26 bn/€18 bn over the next decade, even excluding potential negative engine and content mix shifts.

Exhibit 84: Mix-shift model suggests a 1.5% margin headwind, equivalent to a US$26 bn/€18 bn for the industry over 2010-2020E

Units Average Average Units Average RevenuesTriad Emerging Global Global Selling Selling Revenues EBIT EBIT Global (constant Selling (constant Revenue Contribution New New

Markets Markets Mkt Mkt Price Price 2007 2007 margin Mkt market Price volume) Change Margin EBIT EBIT2007 2007 2007 2007 US$ € US$ bn US$ bn % 2020 volume) US$ US$ bn US$ bn US$ bn margin

A 7% 12% 9% 5.2 11,600 8,000 61 -3 -5.0% 11% 6.3 11,600 73 13 15.0% -1 -1.6%B 16% 25% 20% 11.4 16,675 11,500 190 0 0.0% 23% 13.2 16,675 221 30 20.0% 6 2.8%C 31% 35% 32% 18.7 26,100 18,000 487 24 5.0% 36% 20.4 26,100 533 46 25.0% 36 6.7%D 35% 17% 28% 15.9 32,625 22,500 518 36 7.0% 23% 13.0 32,625 423 -95 27.0% 11 2.5%E 10% 5% 8% 4.7 39,875 27,500 189 19 10.0% 6% 3.2 39,875 126 -62 30.0% 0 0.1%Other 1% 6% 3% 1.6 27,422 18,912 45 0 0.0% 3% 1.5 27,422 40 -5 20.0% -1 -2.4%Industry (Passenger Cars) 57.6 25,878 17,847 1490 76 5.1% 57.6 24,597 1,417 51 3.6%


Exhibit 85: A, B and C segments expected to take an increasing share of the market and redistribute profit away from the traditional D segment profit centre

Revenue by segment 2007 Revenue by segment 2020E

EBIT by segment 2007 EBIT by segment 2020E

A

B

C

D

E

0%

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E

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E

A B C D E Other

C33%

D34%

Other3%E

13%B

13%

A4%

C38%

D30%

A5% B

16%

E10%

Other1%

C31%

D45%

E24%

C66%

D18%

E6%

B10%




Industry analysis: GS Autos Scorecard



The GS Autos Scorecard

Against a background of structural challenges and opportunities facing the global automotive industry, we have developed the GS

Autos Scorecard. We use this to assess the relative fundamental positioning of our global coverage group (Exhibit 87). The

scorecard comprises six categories; we believe these will be key determinants of success for automotive companies in the next

decade: (1) price/mix; (2) low-cost position; (3) economies of scale; (4) growth; (5) financial health; and, (6) CO2 efficiency.

Within each of the six key categories, we rank the companies against a number of factors for which we have been able to collect

and generate objective data from publically available resources (e.g. annual reports, company disclosure, industry bodies and other

forecasting organizations such as CSM and Global Insight). Based on the relative scores of the companies for each factor within

each category, we establish a ranking for each company within this category. Exhibit 86 summarizes the key categories and

provides a brief explanation for its inclusion in the scorecard.

To generate overall rankings, we created an equally-weighted average score, based on the rankings in each of the six key

categories. Exhibit 88 shows the overall ranking of the companies in our GS Autos Scorecard. Toyota and VW lead the global

rankings on our scorecard, while Renault (adjusted for synergies from its Nissan alliance) and GM screen as the weakest positioned

companies. Fiat and Hyundai both returned attractive fundamental scores, largely on their emerging market and small car exposure.

Exhibit 86: We use six key categories to establish our scorecard rankings

GS Autos Scorecard: key categories

Exhibit 87: Toyota, VW and Fiat screen as global long-term winners

GS Autos Scorecard: ranking by company

• Price/mix: Identifying companies with higher average selling prices and

brand equity, adjusted for model mix

• Low cost position: Comparing key measures of automotive cost

structure and manufacturing efficiency

• Economies of scale: Measuring absolute size and purchasing power as

well as concentration in platforms and production plants

• Growth: Identifying exposure to the global economic realignment (BRIC

growth) theme and potential mix-shift to small, more fuel-efficient cars

• Financial health: Comparing companies across key financial ratios in

terms of balance sheet health, returns and profitability

• CO2 efficiency: Identifying the potential challenge for companies of

complying with CO2 targets in the US and Europe

10 12 14 16 18 20 22 24 26

Renault

Peugeot

Nissan

GM

Ford

Suzuki

Daimler

BMW

Hyundai

Honda

Fiat

VW

Toyota

Score





Exhibit 88: Our GS Autos Scorecard is based on rankings in six categories



2. Low cost position 17% ● ●●● ●●●●● ●● ●●● ● ●●●●● ●●● ● ●●●●● ●●●● ●● ●●●●2.1 Global Labor Footprint ● ● ●●●●● ●●●● ●● ●● ●●●● ●●● ●●● ●●●●● ●●●●● ● ●●●2.2 Units per Employee ● ● ●●●●● ● ●●● ●● ●●● ●●●● ●● ●●●●● ●●●●● ●●● ●●●●2.3 Revenues per employee ●●●●● ●●●●● ●●●●● ● ● ● ●●● ●●● ●● ●● ●●●● ●●● ●●●●2.4 Break-even point ●● ●●●●● ●●●● ●●● ● ●●● ●●●●● ●●● ●●●●● ●● ●●●● ● ●2.5 Capacity utilisation ●●●●● ●●● ● ●●● ●●●● ● ●●●●● ●●●●● ● ●●●● ●● ●●● ●●2.6 Grow th adjusted capex/depreciation ●●●● ●●● ●● ●●●●● ●●● ● ●●●● ● ●● ●●● ● ●●●●● ●●●●●2.7 Revenues/net assets ● ●●● ●● ●● ●●●●● ●●●● ●●●● ●●●●● ● ●●●●● ● ●●● ●●●●●2.8 Research and development/Sales ● ●●● ●●●●● ●● ●●●● ● ●●●● ● ●●● ●●●●● ●●●●● ●● ●●●

3. Economies of scale 17% ● ● ●● ●●●●● ●● ●●●● ●●●●● ●●● ●●●● ● ●●● ●●●● ●●●●●3.1 Size (unit sales) ● ● ●● ●●● ●● ●●●● ●●●●● ●●● ●●●● ● ●●● ●●●● ●●●●●3.2 Size (revenues) ●●● ●● ●●● ●●●●● ● ●●● ●●●●● ●● ●●● ● ● ●●●● ●●●●●3.3 Average capacity in plants accounting for 80% of production ● ● ●●●● ●●●● ●●●●● ●●● ●●● ●● ●●● ●●●●● ●●●●● ●● ●3.4.1 Percentage of cars produced on top f ive platforms ●●●●● ●● ●●● ●● ●●●● ●●●● ● ●●●●● ●●● ●●●●● ●●● ● ●3.4.2 Number of cars produced on top f ive platforms ● ● ● ●●●●● ●●● ●● ●●●●● ●●●●● ●●● ●● ●●●● ●●● ●●●●3.5 Research and development budget ●● ●●● ●● ●●● ● ●●●● ●●●●● ●●● ●●●● ● ● ●●●●● ●●●●●


5. Growth 17% ● ● ●●●● ●●●● ●● ●●● ●● ●●● ●● ●●●●● ●●●● ● ●●●5.1 Theoretical organic grow th (geography) ● ● ●●● ●●●● ● ●● ●●● ●●●● ●●● ●●●●● ●●●●● ●● ●●●●●5.2 Theoretical organic grow th (segments) ● ● ●●●●● ●●●● ●●●●● ●●●●● ●●● ●●● ●● ●●●● ●●● ● ●●


SCORE 16 16 20 21 15 14 24 19 15 16 19 15 15

RANK 6 7 3 2 12 13 1 4 11 8 5 9 10

●●● ●●● ●●●● ●●●●● ●● ●● ●●●●● ●●●● ●● ●●● ●●●● ●● ●●




GS Scorecard: 1 – Pricing/mix

Pricing and product-mix are key building blocks with which automotive companies create a competitive advantage. The realized

average price per unit sold can vary significantly by car company. Product-mix is one key factor explaining differences in average

prices: i.e. a small car manufacturer such as Suzuki will have a lower average unit price compared to Volkswagen or Toyota, which

offer a greater proportion of larger vehicles, more closely in line with the overall market mix product portfolio. In Exhibits 90 and 91

we plot the average realized price per unit against a theoretical (based on a car company’s product mix) average price, in an

attempt to isolate an OEM’s price premium.

Exhibit 89: Premium manufacturers BMW and Daimler have the best pricing/mix rankings

GS Scorecard: 1 – Pricing/mix summary rankings



Exhibit 90: Comparison of real ASP to theoretical, mix-derived ASP

Global Autos: Real vs. theoretical ASP by company (2008; US$)

Exhibit 91: Comparison of real ASP to theoretical, mix-derived ASP

Global Autos: Real vs. theoretical ASP by volume manufacturer (2008; US$)

BMW

Daimler

Fiat

VW

Ford

Suzuki

Toyota

PSARenault

GM

Honda

Mitsubishi

Nissan

Hyundai

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000

Theoretical ASP

Rea

l ASP

Fiat PSA

VW

Ford

GMMitsubishi

Suzuki

Toyota

Hyundai

Renault HondaNissan

5,000

7,000

9,000

11,000

13,000

15,000

17,000

19,000

21,000

5,000 7,000 9,000 11,000 13,000 15,000 17,000 19,000 21,000

Theoretical ASP

Rea

l ASP





GS Scorecard: 2 – Low-cost position

The automotive industry is a highly competitive industry which must cope with overcapacity, low pricing power and raw material

and foreign exchange headwinds. To determine the relative cost position of the companies across our coverage universe, we have

analyzed eight key factors: (1) theoretical average labor costs; (2) units per employee; (3) revenues per employee; (4) the empirical

break-even point; (5) capacity utilization; (6) growth-adjusted capex/depreciation; (7) revenues/net assets; and, (8) research and

development/sales.

Exhibit 92: Fiat, Toyota and Suzuki rank as the lowest cost producers

GS Scorecard: 2 – Low-cost position

Factor Weight BMW Daimler Fiat VW Peugeot Renault Toyota Honda Nissan Suzuki Hyundai Ford GM2. Low cost position 17% ● ●●● ●●●●● ●● ●●● ● ●●●●● ●●● ● ●●●●● ●●●● ●● ●●●●2.1 Global Labor Footprint ● ● ●●●●● ●●●● ●● ●● ●●●● ●●● ●●● ●●●●● ●●●●● ● ●●●2.2 Units per Employee ● ● ●●●●● ● ●●● ●● ●●● ●●●● ●● ●●●●● ●●●●● ●●● ●●●●2.3 Revenues per employee ●●●●● ●●●●● ●●●●● ● ● ● ●●● ●●● ●● ●● ●●●● ●●● ●●●●2.4 Break-even point ●● ●●●●● ●●●● ●●● ● ●●● ●●●●● ●●● ●●●●● ●● ●●●● ● ●2.5 Capacity utilisation ●●●●● ●●● ● ●●● ●●●● ● ●●●●● ●●●●● ● ●●●● ●● ●●● ●●2.6 Grow th adjusted capex/depreciation ●●●● ●●● ●● ●●●●● ●●● ● ●●●● ● ●● ●●● ● ●●●●● ●●●●●2.7 Revenues/net assets ● ●●● ●● ●● ●●●●● ●●●● ●●●● ●●●●● ● ●●●●● ● ●●● ●●●●●2.8 Research and development/Sales ● ●●● ●●●●● ●● ●●●● ● ●●●● ● ●●● ●●●●● ●●●●● ●● ●●●


1. Global labour footprint: This measure attempts to provide an objective assessment of the relative labour cost footprint of

each company. The analysis is based on our calculation of a capacity-weighted average labour cost, based on data available

from the United States Department of Labor – Bureau of Labour Statistics. Given the limited disclosure on employee costs by

certain companies, we have developed a consistent framework to assess comparative labour costs per employee (see Exhibits

93 and 94).

2. Units per employee: We use this is as a measure of labor productivity, but are aware that it can be influenced by capital

intensity (i.e. degree of automation) and differences in vertical integration. Typically, small car manufacturers tend to be more

productive than producers of a larger mix or premium manufacturers (Exhibit 95).

3. Revenues per employee: This measure captures the efficiency of a car maker’s workforce, and combines it with the earning

potential per employee (Exhibit 96).

4. Break-even point: Our research suggests that automotive companies achieve their break-even point at a capacity utilization

level of 70%. Based on empirical data, we used a regression analysis to estimate the theoretical level of profitability of each

member of our coverage universe at its respective capacity utilization level in 2007. We then compared the differences between

theoretical profitability and reported profitability. We use this measure to estimate the relative break-even points of each car

manufacturer included in this report (Exhibit 97).



5. Capacity utilization: A company with capacity more closely aligned with its sales should enjoy better capacity utilization. The

greater the capacity utilization above our estimated 70% break-even level, the more profitable a car company should be. To

eliminate product-cycle impacts in this analysis, we used average capacity utilization over the last five years (Exhibit 99).

6. Growth-adjusted capex/depreciation: This measure is intended to capture capital efficiency and discipline. We calculate the

average capex/depreciation ratio for 2004-2007 and compare this with the unit sales growth achieved over the same period

(this should prevent companies which have invested in growth capex being penalized). (See Exhibit 100).

7. Revenues/net assets: Capital turn is a further measure of capital efficiency, and together with operating profit, is a key driver

of return on invested capital (Exhibit 101).

8. Research and development/sales: This compares the percentage of sales car manufacturers invest in research and

development (Exhibit 102).



Exhibit 93: 2.1 Global labor footprint (indexed to US) Exhibit 94: 2.1 Manufacturing labor cost by country relative to US, 2007

0

20

40

60

80

100

120

140

BMW

Dai

mle

r

Ford

PSA

Ren

ault

GM

Hon

da

Nis

san

Toyo

ta

VW Fiat

Hyu

ndai

Suzu

ki

Glo

bal L

abor

Foo

tprin

t (In

dexe

d)

0

20

40

60

80

100

120

140

160

Ger

man

ySw

eden

Belg

ium

Net

herla

nds

Aust

ralia

Uni

ted

King

dom

Can

ada

Fran

ceIta

lyU

nite

d St

ates

Spai

nJa

pan

Kore

a (R

epub

lic o

f)Po

rtuga

lC

zech

Rep

ublic

Hun

gary

Sout

h Af

rica

Slov

enia

Slov

akia

Pola

ndAr

gent

ina

Braz

ilSe

rbia

Rom

ania

Turk

eyIn

done

sia

Thai

land

Mal

aysi

aM

exic

oR

ussi

aIn

dia

Philip

pine

sC

hina

Man

ufac

turin

g La

bour

Cos

t per

hou

r 200

7 (U

S =

100)


Source: US Bureau of Labor Statistics.

Exhibit 95: 2.2 Units per employee (5-year average) Exhibit 96: 2.3 Revenue per employee (3-year average)

0

10

20

30

40

50

60

Suzu

ki

Fiat

Hyu

ndai

GM

Hon

da

Toyo

ta

Ford

PSA

Nis

san

Ren

ault

VW BMW

Dai

mle

r

Uni

ts p

er E

mpl

oyee

0

100

200

300

400

500

600

Fiat

BMW

Dai

mle

r

GM

Hyu

ndai

Ford

Toyo

ta

Hon

da

Suzu

ki

Nis

san

PSA

VW

Ren

ault

Rev

enue

per

Em

ploy

ee '0

00 (€

)





Exhibit 97: 2.4 Empirically, auto companies reach operating break-even at

70% capacity utilization

Exhibit 98: Measure of average margin relative to the implied margin, based

on observed capacity utilization, 2007

y = 0.2561x - 0.1792R2 = 0.301

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

60% 65% 70% 75% 80% 85% 90% 95% 100% 105%

Capacity utilization

EBIT

Mar

gin

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

Nis

san

Dai

mle

r

Toyo

ta

Hyu

ndai

Fiat

Ren

ault

Hon

da VW BMW

Suzu

ki

PSA

GM

Ford

Brea

keve

n po

int i

mpl

ied

delta

EBI

T(%

)





Exhibit 99: 2.5 Capacity utilization (average 2004-2008) Exhibit 100: 2.6 Growth adjusted capex/depreciation (2004-2007)

60%

65%

70%

75%

80%

85%

90%

95%

100%

BMW

Hon

da

Toyo

ta

Suzu

ki

PSA

VW Ford

Dai

mle

r

Hyu

ndai

GM

Nis

san

Ren

ault

Fiat

Cap

acity

Utili

satio

n (%

)

0.0x

0.2x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

1.8x

VW GM

Ford

BMW

Toyo

ta

PSA

Dai

mle

r

Suzu

ki

Fiat

Nis

san

Hyu

ndai

Hon

da

Ren

ault

Gro

wth

Adj

uste

d C

apex

/Dep

reci

atio

n



Exhibit 101: 2.7 Asset turn (average 2004-2007) Exhibit 102: 2.8 R&D/sales average 2004-2008)

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

4.5x

5.0x

Suzu

ki

GM

Hon

da

PSA

Ren

ault

Toyo

ta

Ford

Dai

mle

r

Fiat

VW

Hyu

ndai

BMW

Nis

san

Asse

t Tur

ns

0%

1%

2%

3%

4%

5%

6%

7%

BMW

Ren

ault

Hon

da VW Ford

Nis

san

GM

Dai

mle

r

Toyo

ta

PSA

Suzu

ki

Fiat

Hyu

ndai

Cas

h R

&D/S

ales

(%)





GS Scorecard: 3 – Economies of scale

As the industry faces structural challenges from CO2 regulation and a weakening product mix, we believe economies of scale are

becoming more important. To establish relative scale, we focus on: (1) unit sales; (2) revenues; (3) the average capacity of the

plants accounting for 80% of production; (4) percentage of cars produced from top-five platforms; and, (5) total numbers of cars

produced from top-five platforms. In our analysis, we recognize scale benefits from the Renault and Nissan alliance and Fiat

Chrysler in our scale assumptions.

Exhibit 103: Toyota, VW and GM screen as the leaders in terms of economies of scale

GS Scorecard: 3 – Economies of scale

Factor Weight BMW Daimler Fiat VW Peugeot Renault Toyota Honda Nissan Suzuki Hyundai Ford GM3. Economies of scale 17% ● ● ●● ●●●●● ●● ●●●● ●●●●● ●●● ●●●● ● ●●● ●●●● ●●●●●3.1 Size (unit sales) ● ● ●● ●●● ●● ●●●● ●●●●● ●●● ●●●● ● ●●● ●●●● ●●●●● 3.2 Size (revenues) ●●● ●● ●●● ●●●●● ● ●●● ●●●●● ●● ●●● ● ● ●●●● ●●●●● 3.3 Average capacity in plants accounting for 80% of production ● ● ●●●● ●●●● ●●●●● ●●● ●●● ●● ●●● ●●●●● ●●●●● ●● ●3.4.1 Percentage of cars produced on top f ive platforms ●●●●● ●● ●●● ●● ●●●● ●●●● ● ●●●●● ●●● ●●●●● ●●● ● ●3.4.2 Number of cars produced on top f ive platforms ● ● ● ●●●●● ●●● ●● ●●●●● ●●●●● ●●● ●● ●●●● ●●● ●●●●3.5 Research and development budget ●● ●●● ●● ●●● ● ●●●● ●●●●● ●●● ●●●● ● ● ●●●●● ●●●●●


Exhibit 104: 3.1 Size (Group consolidated unit sales), 2008 Exhibit 105: 3.2 Size (revenues), 2008

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

GM

Toyo

ta

Ford

VW

Hyu

ndai

Hon

da

Nis

san

PSA

Ren

ault

Suzu

ki

Fiat

BMW

Dai

mle

r

Sale

s ('0

00)

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

Toyo

ta

VW GM

Ford

BMW

Nis

san

Hon

da

Dai

mle

r

Hyu

ndai

PSA

Ren

ault

Fiat

Suzu

ki

Rev

enue

s (€

mn)





Exhibit 106: 3.3 Average capacity in plants accounting for 80% of production

in 2008

Exhibit 107: 3.5 Cash R&D (average 2004-2008)

0

100

200

300

400

500

600

Hyu

ndai

Suzu

ki

PSA

VW Fiat

Nis

san

Toyo

ta

Ren

ault

Ford

Hon

da GM

BMW

Dai

mle

r

Aver

age

Cap

acity

in p

lant

s ac

coun

ting

for 8

0% o

f pro

duct

ion

('000

)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Toyo

ta

Ford GM

Dai

mle

r

VW

Hon

da

BMW

Nis

san

Ren

ault

PSA

Fiat

Hyu

ndai

Suzu

ki

Cas

h R

&D(€

mn)



Exhibit 108: 3.4.1 Percentage of cars produced on top-five platforms in 2008 Exhibit 109: 3.4.2 Number of cars produced on top-five platforms in 2008

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Hon

da

BMW

Suzu

ki

Peug

eot

Ren

ault

Hyu

ndai

Nis

san

Fiat

Dai

mle

r

VW

Toyo

ta

Ford GM

Perc

enta

ge o

f car

s pr

oduc

ed in

the

top

five

pla

tform

s

0

1000000

2000000

3000000

4000000

5000000

6000000

Toyo

ta

VW

Hon

da

Hyu

ndai

GM

Ford

Nis

san

Peug

eot

Suzu

ki

Ren

ault

Fiat

BMW

Dai

mle

rNum

ber o

f car

s pr

oduc

ed in

the

top

five

plat

form

s





GS Scorecard: 4 – Financial health

Global winners are likely to benefit from good profitability, cash generation and strong balance sheets, as these factors provide a

good basis for companies to invest in new technologies, maintain product development levels and manage the cyclical and

structural challenges facing the industry.

Exhibit 110: BMW, Daimler and Honda screen as having the strongest financials

GS Scorecard: 4 – Financial health

Factor Weight BMW Daimler Fiat VW Peugeot Renault Toyota Honda Nissan Suzuki Hyundai Ford GM4. Financial health 17% ●●●●● ●●●●● ●●● ●●●● ● ● ●●●● ●●●●● ●● ●● ●● ●● ●4.1 Net Debt/EBITDA (2010E) ●●●●● ●●●●● ●●● ●●●●● ●● ● ●●●● ●●●● ●● ●●● ● ● n.a4.2 Credit Rating ●●●●● ●●●● ●● ●●●● ●● ● ●●●●● ●●●●● ●●● ●●● ●●● ● ●4.3 Future Margin (2011E) ●●●●● ●●●●● ●●●● ●●● ● ● ●● ●●●●● ●● ● ●●●● ●●● n.a4.4 CROCI(2011E) ●●●● ●●●●● ●●● ● ● ● ●●●● ●●●●● ●●● ●● ●● ●●●●● n.a


Exhibit 111: 4.1 Net debt/EBITDA, 2010E Exhibit 112: 4.2 Credit rating ranking (current S&P long-term issuer credit

rating (or equivalent if not available))

-200%

-150%

-100%

-50%

0%

50%

100%

150%

200%

250%

VW

Dai

mle

r

BMW

Toyo

ta

Hon

da GM

Suzu

ki

Fiat

Nis

san

PSA

Ford

Hyu

ndai

Net

Deb

t/EBI

TDA

(201

0)

Toyo

ta

Hon

da

BMW

VW

Dai

mle

r

Suzu

ki

Nis

san

Hyu

ndai

PSA

Fiat

Ren

ault

Ford GM

Cre

dit R

atin

g R

ank


Source: Credit rating agencies, Goldman Sachs Research estimates.



Exhibit 113: 4.3 Future margin (2011E) Exhibit 114: 4.4 CROCI (2011E)

0%

1%

2%

3%

4%

5%

6%

7%

Dai

mle

r

BMW

Hon

da Fiat

Hyu

ndai

VW Ford

Nis

san

Toyo

ta

Suzu

ki

PSA

Ren

ault

Fore

cast

ed E

BIT

Mar

gin

(%)

0%

2%

4%

6%

8%

10%

12%

14%

Ford

Hon

da

Dai

mle

r

Toyo

ta

BMW

Fiat

Nis

san

Suzu

ki

Hyu

ndai

Volk

swag

en PSA

Ren

ault

CR

OC

I 201

1E





GS Scorecard: 5 – Growth

Access to growth regions and segments will be a key factor driving relative growth profiles over the next ten years, we believe. We

attempt to measure the exposure of a business model to these two key drivers: (1) we calculate a theoretical organic sales growth

rate, based on 2008 sales split by geography and our 2010-2020 regional growth forecasts; (2) we derive a theoretical organic

growth profile for each company, based on 2008 segment exposures and our forecast mix-shift by segment to 2020.

Exhibit 115: Fiat, VW, Suzuki and Hyundai screen as companies with the best growth profile

GS Scorecard: 5 – Growth

Factor Weight BMW Daimler Fiat VW Peugeot Renault Toyota Honda Nissan Suzuki Hyundai Ford GM5. Growth 17% ● ● ●●●● ●●●● ●● ●●● ●● ●●● ●● ●●●●● ●●●● ● ●●●5.1 Theoretical organic growth (geography) ● ● ●●● ●●●● ● ●● ●●● ●●●● ●●● ●●●●● ●●●●● ●● ●●●●● 5.2 Theoretical organic growth (segments) ● ● ●●●●● ●●●● ●●●●● ●●●●● ●●● ●●● ●● ●●●● ●●● ● ●●


Exhibit 116: 5.1 Geographical growth Exhibit 117: 5.2 Segment-based growth

0%

1%

2%

3%

4%

5%

6%

7%

Suzu

ki

Hyu

ndai

GM

VW

Hon

da

Nis

san

Fiat

Toyo

ta

Ford

Ren

ault

PSA

BMW

Dai

mle

r

Geo

grap

hic

wei

ghte

d im

plie

d vo

lum

e gr

owth

CAG

R (2

010-

2020

E)

-20

0

20

40

60

80

100

Ren

ault

Fiat

PSA

VW

Suzu

ki

Hon

da

Hyu

ndai

Toyo

ta

Nis

san

GM

Ford

BMW

Dai

mle

r

Segm

ent w

eigh

ted

impl

ied

volu

me

grow

th b

ps (2

010-

2020

E)





Exhibit 118: Geographical exposure by company and regionally weighted organic sales growth

Western E. Europe EM EMEurope USA Japan Triad Brazil Russia India China BRIC ex Russia Asia RoW ex BRIC inc BRIC World

Volume mn units2007 16.8 16.2 5.2 38 2.4 2.6 1.7 8.0 14.7 2.9 4.7 9.0 17 31.3 69.5

2010E 13.5 12.0 4.3 30 2.7 1.8 2.1 11.2 17.8 2.0 4.2 8.0 14 32.0 61.82020E 14.5 15.0 4.5 34 5.7 5.7 8.4 30.2 49.9 3.2 6.8 13.1 23 73.0 107.0

Volume growth2007-2020E -1% -1% -1% -1% 7% 6% 13% 11% 10% 1% 3% 3% 3% 7% 3%2010E-2020E 1% 2% 1% 1% 8% 12% 15% 10% 11% 5% 5% 5% 5% 9% 6%

Unit Sales exposure by region Implied vol Implied volWestern E. Europe EM EM growth growth Europe USA Japan Triad Brazil Russia India China BRIC ex Russia Asia RoW ex BRIC inc BRIC World 2007-2020E 2010E-2020E

BMW 57% 21% 3% 82% 0% 2% 0% 5% 7% 2% 3% 6% 12% 18% 100% 0.1% 2.2%Daimler 61% 16% 4% 81% 1% 2% 0% 3% 5% 4% 4% 7% 14% 19% 100% 0.0% 2.1%Fiat 57% 0% 0% 58% 28% 1% 0% 1% 30% 7% 0% 5% 12% 42% 100% 1.7% 3.4%PSA 64% 0% 0% 65% 5% 2% 0% 5% 12% 6% 0% 17% 23% 35% 100% 0.9% 2.8%Renault 60% 0% 0% 60% 5% 5% 1% 0% 11% 13% 5% 11% 29% 40% 100% 0.7% 3.0%VW 49% 6% 1% 55% 10% 2% 0% 17% 29% 7% 1% 8% 16% 45% 100% 2.3% 4.1%Ford 30% 37% 0% 67% 5% 4% 1% 4% 14% 4% 3% 11% 19% 33% 100% 1.0% 3.4%GM 19% 39% 0% 58% 7% 5% 1% 7% 19% 3% 4% 16% 23% 42% 100% 1.8% 4.1%Honda 6% 38% 16% 60% 3% 3% 1% 12% 20% 2% 9% 10% 20% 40% 100% 2.0% 4.0%Nissan 11% 28% 20% 58% 0% 5% 0% 11% 16% 2% 6% 18% 26% 42% 100% 1.7% 3.8%Suzuki 9% 4% 30% 42% 0% 2% 30% 8% 40% 3% 10% 5% 17% 58% 100% 4.9% 6.8%Toyota 10% 26% 25% 60% 1% 3% 1% 7% 11% 2% 13% 13% 28% 40% 100% 1.3% 3.4%Hyundai 10% 15% 0% 25% 1% 6% 5% 11% 24% 5% 23% 24% 51% 75% 100% 3.6% 5.8%Global 23% 20% 8% 51% 4% 5% 3% 13% 24% 4% 7% 14% 25% 49% 100% 3.4% 5.7%




Exhibit 119: Segment exposure by company and implied organic sales growth from forecast segment shift

BMW Daimler Fiat PSA Renault VW Ford GM Honda Nissan Suzuki Toyota HyundaiA 0.0% 6.4% 14.7% 5.8% 4.5% 3.7% 1.9% 5.1% 5.3% 3.5% 47.2% 7.0% 19.2%B 14.8% 1.0% 46.6% 32.4% 41.0% 22.0% 12.1% 17.2% 18.0% 12.6% 23.2% 15.7% 8.4%C 12.7% 17.8% 8.4% 28.4% 24.5% 41.8% 23.3% 25.7% 36.4% 30.7% 13.7% 27.4% 37.5%D 44.1% 22.7% 5.1% 15.7% 6.6% 16.5% 37.7% 31.2% 31.9% 28.3% 0.1% 25.3% 23.6%E 27.0% 33.2% 0.2% 0.4% 3.7% 7.7% 6.0% 9.7% 3.6% 7.4% 0.0% 8.3% 1.2%Other 0.2% 1.4% 2.8% 3.5% 3.6% 2.1% 0.4% 0.5% 0.0% 0.4% 3.7% 0.1% 0.3%LCV 1.2% 17.5% 22.3% 13.8% 16.1% 6.2% 18.6% 10.6% 4.8% 17.2% 12.2% 16.1% 9.8%Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Passenger Car Mkt Share Chg2007 2010E 2020E 2007-2020E 2010-2020E

A 9.1% 10.6% 11.0% 1.9% 0.4%B 19.8% 21.5% 23.0% 3.2% 1.5%C 32.3% 34.6% 36.0% 3.7% 1.4%D 27.7% 23.5% 23.0% -4.7% -0.5%E 8.2% 6.7% 6.0% -2.2% -0.7%Other 2.8% 3.1% 1.0% -1.8% -2.1%Total 100.0% 100.0% 100.0%

OSG Potential (bp of growth) impact from passenger car mix shiftBMW Daimler Fiat PSA Renault VW Ford GM Honda Nissan Suzuki Toyota Hyundai

2007-2020 -174 -102 176 136 182 131 -64 -11 41 8 205 26 862010-2020 -1 -9 79 75 84 74 28 40 61 43 64 46 59




GS Scorecard: 6 – CO2 efficiency

This part of our GS Auto Scorecard is intended to quantify the impact of tighter CO2 regulations facing the global automotive

industry. We calculate the distance to required targets for each manufacturer in the US and Europe. In addition, we analyze by how

much a manufacturer has improved its fleet CO2 emission over the last three years.

Exhibit 120: Peugeot, Toyota and Hyundai screen as best positioned to meet challenging CO2 targets

GS Scorecard: 6 – CO2 efficiency

Factor Weight BMW Daimler Fiat VW Peugeot Renault Toyota Honda Nissan Suzuki Hyundai Ford GM6. CO2 Efficiency 17% ●●● ● ●●● ● ●●●●● ●● ●●●●● ●●● ●●● ●● ●●●●● ●●●● ●6.1 CO2 : Distance to target (Europe) ●●●●● ● ●●●● ●● ●●●●● ●●●●● ●●● ●●● ● ● ●●●● ●●● ●●6.2 CO2 : Distance to target (US) ● ● n.a ●● n.a n.a ●●●● ●●●●● ●●●● ●●● ●●●●● ●●● ●●6.3 CO2 : Last 3 year improvement (Europe) ●●●●● ●● ●●● ● ●●● ● ●●●●● ●● ●●●● ●●● ●●●●● ●●●● ●6.4 CO2 : Last 3 year improvement (US) ●● ●● n.a ● n.a n.a ●●●● ●●● ●●●●● ●●●● ●●● ●●●●● ●


Exhibit 121: 6.1 Distance to 2015 target (Europe) Exhibit 122: 6.2 Distance to 2016 target (US)

0%

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Exhibit 123: 6.3 Improvement over last three years (Europe) Exhibit 124: 6. Improvement over last three years (US)

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Industry analysis: Consolidation



The industry has achieved significant cost cutting over the last decade…

The auto industry operates is a highly challenging environment with significant structural headwinds to profitability. Exhibit 125

shows our analysis of the evolution of the global profit pool from 1998 to 2007. Given the headwinds to profits from raw material

costs, regulatory pressures, foreign exchange rates and depreciation, the global automotive industry has had to deliver 800 bp of

restructuring benefits, despite a 600 bp contribution from volume growth, simply to prevent profit decline. To achieve these levels

of cost savings, the automotive industry strives for annual efficiency gains of around 5% pa, and periodically undertakes significant

restructuring initiatives. As material costs (ex raw materials) account for 50% of an average OEM’s cost structure the industry

suppliers are typically considered a key source of cost savings (Exhibit 126).

Exhibit 125: On average, the auto industry saves 100 bp pa

Automotive industry EBIT walk, 1998-2007

Exhibit 126: Material costs (ex raw materials) account for 50% of costs

Automotive cost structure

-12%

-10%

-8%

-6%

-4%

-2%

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1998

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50%

Raw materials8%

Warranty3%

R&D7%

Depreciation5%

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8%

Corp Overhead2%

Dealer Margin6%

Marketing5%

Prof it and Other6%





…and has managed to improve capacity utilization in the mature markets

A frequent criticism of the automotive industry and a suggested explanation for its poor capital returns is industry overcapacity.

This broad view of the global automotive industry is confirmed in Exhibit 127: in it we compare annual production volumes with

annual capacity. On average, the automotive industry carried 20% overcapacity in the last cycle. The exhibit also suggests that

current industry capacity expansion plans are likely to increase overcapacity in the next three years, as the industry absorbs the

impact of the credit crisis. This broad conclusion becomes more differentiated, however, when capacity in the developed and

emerging markets are compared. As per Exhibit 128, until the recent crisis the automotive industry has achieved an average 85%

capacity utilization level from its developed markets production footprint, given relatively stable overall European capacity and

absolute declines in the North American market over this period. Against a normalized backdrop, we believe that the industry is

break-even at a 70% capacity utilization level. Hence, an 85% utilization implies on average a 5%-6% EBIT margin (based on our

regression analysis of industry returns and utilization) implying a return on capital in excess of 8% assuming an average capital

turn of 2.5x. While capacity utilization in the emerging markets also improved in the last cycle (despite an increase in capacity), we

believe that existing capacity expansion plans will reduce utilization levels in these markets in the short term although our above

consensus BRIC volume growths means this could potentially be resolved in the longer term. We would also highlight that in the

past, OEMs have tended to operate at lower levels of utilization in emerging markets given the differential in labour costs.

Exhibit 127: The global automotive industry carried on average 20%

overcapacity in the last cycle…

Annual production volume and production capacity, 2001-2012E

Exhibit 128: …but managed to improve its capacity utilization in the

developed markets

Capacity utilization developed and emerging markets, 2001-2012E

40

50

60

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80

90

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2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E

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2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E

Cap

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Mature markets (NA/Europe/Japan/Korea) Emerging Markets

Source: CSM.

Source: CSM.



Structural headwinds over next 10 years require twice the cost response

We conclude from our analysis of the significant profit headwinds the global automotive industry is likely to have to absorb, that

industry consolidation is likely to become a part of the answer, given the significant opportunity this would present to restructure

capacity, cut costs and extract efficiency gains. In 1998-2007, we estimate that the industry saved on average 100 bp of EBIT margin

pa. To maintain stable profit margins over the next decade, we calculate the industry would need to save on average 200 bp pa.

Therefore, we believe it is likely that companies will start to explore combined synergy potential.

Exhibit 129: Industry faces substantial profit headwinds over the next

decade

Global auto industry aggregate EBIT walk, 1998-2007

Exhibit 130: Industry faces substantial profit headwinds over the next

decade

Global auto industry EBIT walk 2010-2020E

-20%

-18%

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Auto companies are efficient but suffer from weak pricing power

Car manufacturers are typically well-managed industrial companies but suffer from weak pricing power. As discussed earlier, on

average we calculate that the automotive industry generated 100 bp of net cost savings pa through the last cycle. Exhibit 131 shows

that the auto industry ranks among the most capital-efficient industries in terms of asset turn. Nevertheless, the industry is plagued

by volatile and stubbornly low operating profitability and capital returns. In addition to the automotive industry’s exposure to the

economic cycle, car manufacturers’ operating profitability is typically correlated to its product cycle. In a mature market, such as the

Triad, a car manufacturer with a younger product line tends to enjoy better market share in any given year. This typically translates

into higher operating profitability, capital returns and cash flow. While car makers tend to be highly efficient, a lack of pricing power

is the Achilles heel of the industry. Exhibit 132 shows that car prices have fallen in real terms in Europe and the US. A more

concentrated automotive industry, with fewer marginal players prepared to disrupt pricing with campaigns (i.e. incentives) to

attract incremental sales and to support legacy dealership networks, would help car manufacturers to achieve better pricing levels,

we believe.

Exhibit 131: The auto industry is efficient, but…

Asset turn 2008

Exhibit 132: …suffers from weak pricing power

European and US new car prices in real terms, relative to consumer price indices

0.00

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Europe (new car prices real terms) USA (new car prices real terms)


Source: Datastream.



Consolidation offers greatest potential for synergies, but is not without risk

Historically, the track record of M&A in the automotive industry has been poor. A McKinsey study showed that among the variety of

M&A and alliances that have occurred over the last 15 years, only one created shareholder value. Exhibit 133 shows a conclusion

from a McKinsey study, “Anticipating the 2015 Automotive Landscape”, which suggests that the synergy potential of M&A is

superior to that available in joint venture or strategic partnership arrangements, albeit with significantly greater risk. Over the last

cycle, the automotive industry has focused more on strategic partnerships and joint ventures around platform sharing and joint

engine developments. Given the challenges we expect for the industry in the next cycle, we believe that companies will have to

reassess their views regarding consolidation.

Exhibit 133: McKinsey estimates pure M&A and cross holdings offer the greatest potential synergies but also the highest risk

* Cumulative amount of synergies for J3+K – Big 3, LCC – Big 3, LCC acqu. 1/10 of European generalists, LCC – LCC partnerships. Minority stake assumes no SG&A synergies and only 50% of revenue synergies. JV and Strategic partnerships show synergies from synergy matrix calculated by function

** Does not include potential dividends

USD BillionHighLow

Minority Stake/Cross shareholding

Pure M&A

Equity investment

JV or Strategic Partnership (without JV)

2,6

11,1 **

9,2 **

3,8

1,4

2,5

▪Daimler – Chrysler merger (ended in 2007)▪ BMW acquisition of Rover (sold in 2005)

▪Renault – Nissan cross shareholding▪GM stake in Fiat (ended in 2005)

Purchasing / Sourcing

▪ Toyota / Nissan / Isuzu common sourcing in Thailand▪ PSA supplies diesel engines to Toyota▪ Isuzu supplies diesel engines to Renault

Distribution▪Hyundai sells Mercedes trucks in Korea▪Chrysler sells Hyundai Atos as Dodge in Mexico▪ FAW / Mazda to develop distribution in China

R&D▪ BMW / Daimler / GM / VW “Clean Energy

Partnership” for Hydrogen powertrain▪ Toyota / Nissan partnership for hybrid cars

Manufacturing ▪OEM manufacturing of compact cars by

Nissan for Chrysler▪Dongfeng / PSA JV manufacture cars in China

Alliance Type Synergies* Risk Examples

USD BillionHighLowUSD BillionHighLow


Pure M&A

Equity investment


2,6

11,1 **

9,2 **

3,8

1,4

2,5












Pure M&A

Equity investment


2,6

11,1 **

9,2 **

3,8

1,4

2,5

















Source: McKinsey Corporate Finance – Auto & Assembly.



Consolidation offers significant cost synergy potential

Assessing potential synergies from mergers and acquisitions, McKinsey concluded that cost synergies from sourcing,

manufacturing, research and development and SG&A constitute 90% of the total synergy potential. Exhibit 134 summarizes

McKinsey’s findings, and highlights that more than 60% of the synergies are to be found in pooling R&D, and in a more efficient

sales and distribution organization. The exhibit also highlights the cost saving potential within the sourcing operations of car

manufacturers (accounting for 20% of the total synergy potential). In contrast, manufacturing offers a comparatively small amount

of synergies. McKinsey also found that revenue synergies between two companies are limited.

Exhibit 134: Cost synergies constitute 90% of total synergy potential according to McKinsey

Synergy type, synergy source, McKinsey calculation methodology and overall impact (% total)

*Based on the hypothetical example of a merger between J3 and Big 3 players. 100% = 13 billion

▪Acquisition of additional market share by leveraging differences in– Geography– Product portfolio– Customer brand

perception

Synergy type

7

10

20

33

31

▪Market share gained only by the smaller player in the region▪Similar customer brand perception, but different product

portfolios allow for maximum share gain (max 60 percent of bigger player’s share)▪Calculated as function of current market share, “growth

factor” and cannibalization effect

▪Economies of scale ▪Uses predefined “sourcing cost curve” to calculate percent of cost reduction for combined entity▪ Impact is high at lower purchasing volumes, and phases out

at extremely high volumes

▪ Improvement of utilization ▪Shift of production to

existing plants at LCC

▪Calculated as the net effect of a labor cost decrease, depreciation savings and the one-off cost of plant closure▪Based on estimation of combined production capacity and

assembly volume in 2015

▪Elimination of redundant projects/products

▪Cost savings between 5% and 25% of combined R&D expenses, depending on similarities in customer brand perception and product portfolios▪R&D expenses forecast for 2015 allocated to regions

according to regional sales volumes

▪Cost reduction in overlapping functions

▪Savings potential assumed as 50 percent of regional SG&A overlap▪SG&A expenses forecast for 2015 allocated to regions


Revenue

Sourcing

Manufac-turing

R&D

SG&A

Cos

t

Synergy type Synergy source Calculation methodology Impact*Percent

▪Acquisition of additional market share by leveraging differences in– Geography– Product portfolio– Customer brand

perception

Synergy typeSynergy type

7

10

20

33

31

▪Market share gained only by the smaller player in the region▪Similar customer brand perception, but different product

portfolios allow for maximum share gain (max 60 percent of bigger player’s share)▪Calculated as function of current market share, “growth

factor” and cannibalization effect

▪Economies of scale ▪Uses predefined “sourcing cost curve” to calculate percent of cost reduction for combined entity▪ Impact is high at lower purchasing volumes, and phases out

at extremely high volumes

▪ Improvement of utilization ▪Shift of production to

existing plants at LCC

▪Calculated as the net effect of a labor cost decrease, depreciation savings and the one-off cost of plant closure▪Based on estimation of combined production capacity and

assembly volume in 2015

▪Elimination of redundant projects/products

▪Cost savings between 5% and 25% of combined R&D expenses, depending on similarities in customer brand perception and product portfolios▪R&D expenses forecast for 2015 allocated to regions


▪Cost reduction in overlapping functions

▪Savings potential assumed as 50 percent of regional SG&A overlap▪SG&A expenses forecast for 2015 allocated to regions


Revenue

Sourcing

Manufac-turing

R&D

SG&A

Cos

t

Synergy type Synergy source Calculation methodology Impact*Percent

Source: McKinsey Corporate Finance – Auto & Assembly.



Merger analysis highlights attractive industrial combinations

To assess the potential benefits to companies from a merger or comprehensive industrial combination, we have developed a

merger analysis tool based on our GS Auto Scorecard. In our analysis, we measure the impact of a merger between two companies

on their respective scorecard scores. Exhibit 135 illustrates the potential scorecard improvement for each theoretical combination of

partners, and highlights (shading) industrial combinations which see improvements to both constituents’ scores. Fiat, Peugeot and

Suzuki screen as the most attractive potential partners in the automotive industry. BMW, Daimler and Suzuki look to be the

companies who would most benefit from entering into a partnership.

Exhibit 135: Fiat, Peugeot and Suzuki screen as most attractive partners, while BMW, Daimler and Suzuki likely to benefit from entering into a partnership

Improvement in GS Scorecard aggregate score from entering into a merger with another auto manufacturer

Improvement in individual company score if company ties up with partner Average Current Scorecard

Company Partner improvementCompany Score BMW Daimler Fiat VW Peugeot Renault Toyota Honda Nissan Suzuki Hyundai Ford GM from combinationBMW 16 0 3 7 5 7 4 10 5 4 5 8 6 7 5.5Daimler 16 3 0 7 4 7 5 10 5 6 5 8 6 5 5.5Fiat 20 2 2 0 3 5 3 5 3 3 2 5 4 3 3.1VW 21 2 1 5 0 5 1 7 3 2 4 6 3 2 3.2Peugeot 15 2 2 5 3 0 3 5 3 3 2 3 3 4 2.9Renault 14 2 3 6 2 6 0 8 4 0 5 7 4 4 3.9Toyota 24 0 0 0 0 0 0 0 0 0 0 0 0 0 0.0Honda 19 1 1 4 2 4 2 6 0 2 3 5 3 3 2.8Nissan 15 2 3 5 2 5 0 7 3 0 5 6 3 4 3.5Suzuki 16 2 2 4 4 4 4 7 4 5 0 6 6 4 4.0Hyundai 19 1 1 3 2 1 2 3 2 2 2 0 2 2 1.8Ford 15 1 1 4 1 3 1 5 2 1 4 4 0 3 2.3GM 15 2 0 3 0 4 1 5 2 2 2 4 3 0 2.2

Average attractiveness 1.5 1.5 4.1 2.2 3.9 2.0 6.0 2.8 2.3 3.0 4.8 3.3 3.2as partner (average score improvement)

Denotes mutual benefit where score for each partner in merger would increase by 3 or more BMW and Daimler see greatest benefit from a tie up with another auto maker

BMW and Daimler offer the lowest attraction to partners given relatively small scale and limited exposure to emerging markets and small carsToyota looks an attractive partner, offering an average Scorecard improvement to partner of 6 points




• Most attractive companies for partnerships: We find that Toyota, Hyundai and Fiat give the greatest benefit to a partner

(as measured by our scorecard) on average, as a result of their potential scale, low cost or CO2 efficiency synergies. In contrast,

we find that BMW, Daimler and Renault remain the least attractive partners, with VW surprisingly unattractive in our view (a

result of its relatively low score as a standalone company in the low cost and CO2 efficiency categories).

• Key beneficiaries from partnerships: Based on our analysis, BMW, Daimler, and Suzuki see the greatest improvement to

their scorecard from a partnership with another auto maker, reflecting their low scores in economies of scale or CO2 efficiency

and (for BMW and Daimler) in potential scale. Furthermore, given their geographical sales distribution, each of these

companies has very little in the form of negative revenue synergy, as for almost all countries combined market share with a

partner would not exceed the 20% threshold at which we expect potential volume losses. While Toyota would see no scorecard

improvement from a merger with a partner, Honda, GM and Ford would also see below average benefits, given high potential

negative revenue synergies, large scale and already efficient cost positions.

• Strategic assets: We also highlight in Exhibit 135 combinations of companies for which a potential merger offers mutually

beneficial scorecard improvements in industrial positioning. Cells highlighted in blue represent those where both parties to a

merger would see an increase in their respective score of three points or more. Among the 13 companies, Fiat is a mutually

attractive partner for eight companies. Peugeot would achieve mutual benefits with seven companies and Suzuki with five.



GS M&A analysis

To assess potential benefits from consolidation across the sector we consider two factors, potential revenue synergies on a

geographical basis, and industrial fit.

• To measure potential geographical revenue synergies we assess to what extent sales might be cannibalized at a country

level from the combination of two companies and their respective brands

Exhibit 136 summarises the decision tree process used to calculate the retained share for each combination. For a given country,

we take the combined individual market shares of two companies being assessed. If the combined market share is less than 20%,

we believe the combination would lead to no market share loss. If market share is greater than 20%, we determine if both are

dominant players (e.g. market share of over 20% each). If this is the case, we assume the combination’s final market share would be

that of the larger player (e.g. the negative revenue synergy would be equal to the market share of the smaller player). If one

company has a market share of more than 20%, and the other less than 20%, we assume the combination’s final market share

would tend to that of the larger player. If both companies are below 20% market share, but the combined level is over 20%, we

assume the final market share for the combined entity equals 20%. We repeat this analysis for the 88 countries where we have

country level market share data, and then volume weight by country the market share losses. The overall revenue synergy is

expressed as a proportion of the combination’s original volume that would be lost. Two companies with perfectly complementary

geographic footprints would therefore retain a share of 100% in this analysis (e.g. no volume would be lost). At the lower end, two

companies with identical geographic footprints and each with 20% market share in each region would score 50%, as half the

volume would be potentially cannibalized.

• To measure industrial fit between two companies we re-run the GS Scorecard on the basis of the combined entities

The GS Autos Scorecard measures a company’s relative position for six metrics: (1) price/mix position; (2) low-cost position; (3)

economies of scale; (4) financial health; (5) growth; and, (6) CO2 efficiency. Companies are ranked on each measure and given a

total score (out of a potential maximum 30). To measure the potential industrial fit between two companies we re-run the GS

Scorecard analysis for a notional combined entity, versus the remaining peer group and allowing for potential synergies. We see

potential synergies in three areas: low-cost position, economies of scale and CO2 efficiency. For low-cost position, we assume that

the merged entity will be able to achieve the best score of the two individual companies, through knowledge and process

technology transfer. Within economies of scale, we re-compute our ranking scores allowing for the combination of companies on

size (3.1), size (revenues) and research and development budget (3.5). For CO2 efficiency, we measure potential synergy by

assuming that combined entity will still be able to achieve the ranking of the higher individual score (e.g. CO2 knowledge is

transferred across companies).

• We do not assume synergy benefits in price/mix, financial health or in growth

We believe achieving price synergies is difficult in the auto industry, with brand and price premium typically the result of prolonged

investment in products, service and customer networks, rather than a result of new associations. Therefore, we assume no

potential synergy. Similarly, we assume no synergies in the financial health category, with differences in respective balance sheet

strength likely to be equalized through the terms of any combination, with growth addressed separately through the retained share

calculation.



Exhibit 136: Methodology to calculate potential market share losses on a geographical basis during combination process

Is A > 20%and B > 20%

No

Is A >20% mkt sh

Company B mkt share Yes

No

YesNo

Yes

Company A mkt share

Mkt Share B

20% mkt share

Max A or B mkt share

Combined mkt share A+B

greater than 20%

No

Is B > 20% mkt sh

Mkt share A + B

Yes Mkt Share A


Exhibit 137: Methodology for calculating potential benefit of consolidation using GS Scorecard measure of industrial positioning

Category Synergy assumption Methodology1. Pricing/mix No synergies Current ranking

2. Low cost position Synergy Highest of two individual companies scores

3. Economies of scale3.1 Size (unit sales) Synergy Recalculate ranking on basis of combined entity3.2 Size (revenues) Synergy Recalculate ranking on basis of combined entity3.3 Average capacity in plants accounting for 80% of production No Synergy Current ranking3.4.1 Percentage of cars produced on top five platforms No Synergy Current ranking3.4.2 Number of cars produced on top five platforms No Synergy Current ranking3.5 Research and development budget Synergy Recalculate ranking on basis of combined entity

4. Financial health No Synergy Current ranking

5. Growth No Synergy Current ranking

6. CO2 Efficiency Synergy Highest of two individual companies scores




Investment framework



The sector has a long history of underperformance, but…

The automotive industry has a long track record of relative underperformance (Exhibit 138). Given an unattractive operating

environment, the automotive industry constantly struggles to earn its cost of capital. As automotive companies tend to destroy

value over time, the sector tends to underperform. We calculate that on average the annual relative performance of the global

automotive sector versus the global equity market since 1973 has been -1% with an almost perfect symmetric distribution profile of

annual relative returns(Exhibit 139).

Exhibit 138: A long history of underperformance

Global auto sector versus global equity market index, 1971-2009

Exhibit 139: Average annual relative performance of –1%

Ranked annual relative sector performance to global equity market (%)

40

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130

Jan-7

3Ja

n-75

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n-79

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% a

nnua

l ret

urn

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to m

arke

t

Annual return Average relative return (1973-2008)

Source: Datastream.

Source: Datastream, Goldman Sachs Research.



…can offer significant annual performance potential

While the outperformance potential of the automotive sector relative to the global or relevant local equity market might appear far

from compelling, historically there has been a significant alpha opportunity within the sector in any given year. Investing in the 25th

percentile performer relative to the 75th percentile performer in any given year since 1973 would have generated an average alpha

of 34%. Identifying the top and bottom performers in any given year over the same time period would have generated an average

alpha of 102%. This suggests the automotive sector is potentially an attractive and active trading sector.

Exhibit 140: Investing in the 25th percentile stock and selling the 75th

percentile stock has generated an 34% average annual return since 1973

Exhibit 141: Investing in the top performing stock and selling the worst

performing stock has generated an 102% average annual return since 1973

0%

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Exhibit 142: Global Auto sector offers attractive annual performance potential

Global autos: Annual share price performance by company (1995-2009 to date)

BMW DCX POR REN DCX REN PSA POR NISS HYU NISS DCX VW O POR VW O FIAT POR DCX POR VW O BMW DCXPOR VW O VW O VW P VW O FORD TOY FORD GM VW P HYU REN VW O VW O VW P FIAT PSAVW P HON FORD HON MAZ HYU MAZ KIA MAZ VW P GM REN VW PTOY PSA NISS MMC TOY HON MAZ FORD HYU

TOY SUZ KIA HONMAZ NISSSUZ

GM HON BMW DCX BMW POR BMW REN POR PSA POR BMW POR PSA DCX HON NISS FIAT MMC TOYFIAT GM HYU GM HON REN VW P FIAT

KIA SUZPOR VW O FORD TOY GM FIAT PSA HYU NISS BMW REN BMW DCX REN MMC TOY REN HYU BMW REN BMW DCX PORKIA SUZ VW P SUZ SUZ HON KIA SUZ HON MAZ SUZ

TOY SUZVW P FORD GM MMC MMC HON PSA VW O VW P NISS HYU KIA HON PSA POR KIA PSA NISS FORD PSA HYU PSATOY MAZ VW P KIA REN SUZ

BMW DAI FIAT PSA HYU DAI FIAT FIAT MMC VW O GM POR MAZ BMW DCX BMW MMCNISS SUZ KIA MAZ FORD TOY TOY SUZ FIAT NISS

SUZ FORDFIAT PSA NISS REN NISS HON TOY VW O FORD SUZ PSA HON FIAT MMC VW P MMC FORD GMREN HYU NISS HONMMCMAZ MAZ MMC VW P GM TOY FIAT REN BMW VW P VW O GM HYU KIA TOY

MAZ GM

HYU KIA MMC KIA NISS KIA DAI HYU FORD MMC DCX FIAT MMC FORD GM KIA MAZ BMW DCX VW O GMMAZ VW O FORD FIAT PSA

POR RENVW P FORDGM HYUKIA HONMAZ MMCNISS TOYSUZ

2007 2008 20092003 2004 2005 20061999 2000 2001 20021995 1996 1997 1998

2009

-10% - 0%

-20% -10%

-30% -20%

2008200620051997 20071998

<=-30%

>= 30%

20% - 30%

10% - 20%

0% - 10%

200420032002200119961995 20001999

-10%

-8%

-6%

-4%

-2%

0%

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1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

World car sales (LHS) World GDP (RHS)




…reflecting low but highly volatile comparative returns

The automotive industry remains at the bottom of a ranking of return on capital across global sectors. Exhibit 143 compares the

average returns on capital of listed companies with market values of more than US$10 bn across major industry groups.

The auto industry not only suffers comparatively low returns, it also suffers from very volatile returns. Exhibit 144 compares the

average returns on capital generated by companies in each MSCI level-one sector (excluding financials) since the start of the

decade, with the average annual change in industry returns over the same period. In general, we observe a positive relationship;

industries in which returns are most variable tend to have the highest absolute returns. However, the autos sector stands out, with

a combination of low and highly variable returns over the period; the industry has struggled with structurally low and highly

cyclical profitability.

Exhibit 143: Automotive has low returns relative to other sectors

Average CROCI (cash return on cash invested) of companies in major global

industries (2006-08)

Exhibit 144: Auto industry returns on capital have been lower and more

variable than those of other sectors

Average CROCI (2000-08) vs. average annual change in CROCI (2000-08), averages

across MSCI L1 sectors

0.0

2.0

4.0

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8.0

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Ret

ail

Oil &

Gas

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l

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& B

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age

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mic

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Lei

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Auto

mob

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& Pa

rts

Telecom Svcs

Materials

Technology Hardw are

Softw are & Services

Transportation

Commercial Svcs

Capital Goods

Pharma

Health Care Equip & Services

Energy

HHPC

Food, Bev & Tobacco

Food & Staples Retail

Retailing

Media

Consumer Services

Cons Durables & Apparel

Automobiles

0%

5%

10%

15%

20%

25%

0.0% 0.5% 1.0% 1.5% 2.0% 2.5%

Average absolute annual change in CROCI (00-08)

Aver

age

CR

OC

I (00

-08)

Whereas most sectors show a positive relationship betw een average returns and volatility, the Autos industry has offered investors relatively low returns, relative to the volatility of those returns.

Source: Goldman Sachs Research, Quantum database.

Source: Goldman Sachs Research, Quantum database.



Through the last cycle, sector performance improved in line with better returns

After decades of relative underperformance, over the last decade the global automotive sector has started to perform in line with

the global equity market, mirroring the improvement in returns. A combination of better volume growth, as a result of strong

growth in BRIC countries (3% global volume growth vs. 2% longer-run average), and company-specific cost cutting and

restructuring measures have allowed the industry’s return on invested capital to improve to a level that on average is close to an

8% cost of capital.

Exhibit 145: Global auto sector has started to perform in line with the global equity market over the last 10 years, with relative performance reflecting the

sector’s changes in return on capital

Global autos: Sector performance relative to global market (1973 to present and 1998 to present); Sector CROCI (1998 to 2011E)

Sector has been a long term underperformer... ...but in line over the last decade... ...as the industry has been close to covering its cost of capital

40

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73

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E

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E

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E

CROCI




Returns drive valuations also in the global automotive sector

We find that returns-based measures of financial performance show a stronger relationship to valuation than other, more traditional

financial measures, such as growth-based metrics (Exhibit 146). By focusing on cash flow rather than earnings, and gross rather than

net assets, CROCI avoids the distorting influences of different accounting policies on reported earnings and asset values (Exhibit

147). Consequently, we find a closer correlation between CROCI and EV/GCI (enterprise value/gross cash invested) than between

other measures of return on capital and earnings multiples.

Exhibit 146: Cash returns provide a globally consistent performance measure… Exhibit 147: ...and are highly correlated with valuation multiples across

global autos

Strength of correlation between financial and valuation measures (2006-08 avg.)

Non-cash items and the company’s financial structure have no impact, making comparisons more

meaningful

This represents all the cash invested in the business. Depreciation policies do not have any

impactC

RO

CI

Debt-adjusted cash flow (DACF)= CFO - (Increase)/decrease in working capital -

[(1-tax rate) * Net interest income/(expense)]

Average Gross Cash Invested (GCI) = Gross tangible & intangible assets +

Investment in associates + working capital)

Over

EV/EBITDAvs

EBITDA growth

EV/GCIvs

CROCI/WACC

Yieldvs

DPS Growth

P/Evs

EPS Growth

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

R2





Exhibits 148 and 149 highlight the strong relationship between returns and EV/GCI valuation for the auto sector over the period

2000-2008, and average returns and valuations in 2005-07.

Exhibit 148: Good correlation between returns and valuation in autos

EV/GCI vs. CROCI/WACC (8%) 2000-2008 individual companies

Exhibit 149: Returns drive valuation

EV/GCI vs. CROCI/WACC (2005-07 average)

y = 0.3206x + 0.1753R2 = 0.4623

0.0x

0.2x

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EV/G

CI

BMWFiat

Ford

Honda Motor

Hyundai Motor

Nissan*

Peugeot

Suzuki Motor

Volksw agen

Daimler AG

Renault*

Toyota Motor

y = 0.4068x + 0.0594R2 = 0.4902

y = 0.4631x

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CROCI/WACC

EV/G

CI





Sector CROCI analysis highlights four types of return profiles

From our analysis of the CROCI evolution of our coverage universe, we identify four generic types of automotive investments: (1)

long-term winners – companies which have had consistently above-average capital returns (such as Toyota, Honda, BMW and

recently Suzuki); (2) long-term laggards – companies such as GM, Renault and Peugeot, whose capital returns have been

consistently eroded and are now consistently below the industry average; (3) positive mean-reversion plays – companies which

have recently seen a strong improvement in capital returns, most likely as result of very strong sales growth and/or restructuring

efforts. In this group, we would include Fiat, Volkswagen, Daimler and looking into our forecast period Ford; and, (4) negative

mean-reversion plays – companies which over a short period have seen a significant decline in capital returns. Over the last ten

years, we would include Hyundai and Nissan in this group.

Exhibit 150: Japanese auto makers have consistently delivered above-average CROCI – however, a demand crisis, foreign exchange moves and restructuring

suggest 2010E and 2011E CROCI dispersion among manufacturers will be at its lowest level since at least 1998

Global autos: CROCI by company and region (1998-2011E)

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011EBMW 10.9% 11.2% 20.9% 19.5% 17.3% 15.5% 14.3% 14.5% 14.0% 14.7% 6.6% 6.0% 8.9% 11.1%Daimler 19.7% 20.8% 13.3% 9.2% 14.0% 12.1% 10.7% 7.9% 8.3% 19.4% 10.5% 3.4% 9.6% 11.9%Fiat 9.5% 3.4% 5.4% 1.4% 0.5% -2.0% 0.7% 9.4% 10.0% 10.7% 9.1% 6.3% 8.4% 10.2%PSA 9.0% 10.9% 11.5% 11.4% 13.4% 11.6% 9.2% 7.6% 5.9% 7.8% 4.5% 1.7% 5.7% 8.0%Renault 12.0% 12.4% 11.4% 6.2% 10.1% 9.3% 11.9% 8.8% 7.5% 7.8% 4.6% 3.7% 5.7% 7.2%Volkswagen 10.9% 8.6% 10.8% 10.4% 9.2% 7.2% 9.0% 11.2% 13.5% 17.5% 10.1% 5.8% 6.3% 8.2%

Honda 12.0% 13.8% 15.2% 23.0% 23.7% 15.2% 21.5% 15.6% 23.4% 23.6% 11.1% 12.4% 13.0% 12.5%Nissan 4.4% 9.3% 8.7% 13.5% 11.5% 4.2% 8.0% 12.4% 9.8% 10.3% 8.6% 9.7% 10.0%Suzuki 9.6% 13.4% 14.3% 14.4% 11.3% 4.8% 8.7% 9.5% 9.5%Toyota 7.6% 12.0% 9.1% 14.6% 13.9% 16.3% 16.0% 17.1% 14.3% 6.2% 8.3% 11.5% 11.7%

Hyundai 3.4% 10.3% 15.2% 7.3% 7.7% 13.8% 9.4% 13.7% 15.6% 10.9% 4.1% 8.1% 8.5% 9.4%

Ford 31.8% 26.0% 7.7% 5.2% -0.9% 3.7% 8.5% 2.9% 5.1% -3.2% 3.5% 8.9% 12.6%

Industry Average 12.7% 12.2% 13.1% 9.4% 11.4% 9.5% 10.2% 11.3% 12.1% 13.0% 7.1% 6.5% 9.0% 10.4%Max 19.7% 31.8% 26.0% 23.0% 23.7% 15.5% 21.5% 16.0% 23.4% 23.6% 11.1% 12.4% 13.0% 12.6%Min 3.4% 3.4% 5.4% 1.4% 0.5% -2.0% 0.7% 7.6% 2.9% 5.1% -3.2% 1.7% 5.7% 7.2%Dispersion (max vs min) 16.3% 28.4% 20.6% 21.7% 23.2% 17.4% 20.8% 8.4% 20.5% 18.5% 14.3% 10.6% 7.4% 5.4%Standard deviation 4.5% 8.0% 5.6% 6.0% 6.2% 5.8% 5.8% 3.3% 5.5% 5.4% 4.1% 3.0% 2.2% 1.8%

Regional AggregatesEuropeans 13.0% 11.9% 11.5% 8.9% 10.4% 8.8% 9.2% 9.8% 10.0% 13.7% 8.1% 4.8% 7.4% 9.4%Japanese 12.0% 7.5% 11.7% 10.9% 15.6% 13.3% 13.6% 13.7% 16.5% 14.2% 8.1% 9.2% 11.2% 11.3%Korean 3.4% 10.3% 15.2% 7.3% 7.7% 13.8% 9.4% 13.7% 15.6% 10.9% 4.1% 8.1% 8.5% 9.4%N.American 31.8% 26.0% 7.7% 5.2% -0.9% 3.7% 8.5% 2.9% 5.1% -3.2% 3.5% 8.9% 12.6%




Exhibit 151: Long-term winners: Toyota, BMW, Honda, and Suzuki Exhibit 152: Long-term laggards: Renault and Peugeot

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Industry Average Renault PSA



Exhibit 153: Positive mean reversion plays: VW, Fiat, Daimler and Ford Exhibit 154: Negative mean reversion plays: Nissan and Hyundai

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Industry Average Hyundai Nissan





Back-test highlights successful investment strategies in global autos

We back tested our four returns-based investment strategies and found that stock selection based on our Director’s Cut framework

(EV/GCI vs. CROCI/WACC) has on average produced the highest average annual return (Exhibit 155).

Exhibit 155: Director’s Cut investment strategy generated highest annual performance in our back-test

Back-test analysis of four key investment strategies

Methodology Description Date Range Stock selection basis Return (%)

Director's Cut -Equity ValueWe plot the EV/GCI Vs CROCI/WACC plot for each year and calculate the upside/downside in Market Cap to the line of best fit. 1998-2008

Market Cap- Long stocks with above median upside in Market Cap and Short stocks with below median upside in Market Cap. 14.6

CROCIWe buy the stocks with above median CROCI and sell the stocks with below median CROCI 1998-2008 CROCI 8.9

Change in CROCI

We buy the stocks with above median change in CROCI from previous year and sell the stocks with below median change in CROCI from previous year. 1999-2008 Change in CROCI 8.3

Low EV/GCI (<0.4) We buy the stocks that have EV/GCI <0.4 1998-2008 EV/GCI 9.4Sector Average return 1998-2008 6.4


• Director’s Cut: Picking stocks based on our Director’s Cut framework would have produced on average, superior annual

performance. In this strategy back-test, we bought the 50% of companies with potential upside to their enterprise value and

market cap according to this methodology (i.e. enterprise value adjusted for forecast net debt, pension and equity stakes) and

sold the other 50%.

• CROCI: In this strategy back-test, we bought the 50% of companies with the greatest absolute CROCI and sold the remaining

50%. This strategy would have generated on average of 8.9% annual return.

• Change in CROCI: To reflect the volatility of returns in the automotive sector, we carried out a back-test in which we selected

stocks based on their relative absolute change in CROCI in any given year. We bought the 50% of companies with the greatest

relative change in CROCI and sold the remaining 50%. This strategy would have generated on average of 8.3% annual return.

• Low EV/GCI: In this strategy back-test, we bought stock which traded below a threshold level of 0.4x EV/GCI, irrespective of

forecast returns, based on a view that management will either restructure (to improve returns) or the company could attract

corporate attention (in both scenarios share prices tend to respond positively). This strategy would have generated on average

a 9.4% annual return, but highlights the risk of selling shares with poor returns trading below 0.4x EV/GCI.



Exhibit 156: Director’s Cut strategy: average annual return 14.6%

Back-test of Director’s Cut – Equity Value

Exhibit 157: Low EV/GCI strategy: average annual return 9.4%

Back-test of buying low EV/GCI (<0.4) stocks

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Buy Sell

Source: DataStream, Goldman Sachs Research estimates.

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Sector Average Long EV/GCI <0.4

Source: DataStream, Goldman Sachs Research estimates.

Exhibit 158: CROCI strategy: average annual return 8.9%

Back-test of CROCI-based strategy

Exhibit 159: Change in CROCI strategy: average annual return 8.3%

Back-test of change in CROCI-based strategy

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Exhibit 160: CROCI by company 2010E CY Exhibit 161: CROCI by company 2011E CY

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OC

I 201

1E



Exhibit 162: Change in CROCI 2010E vs. 2009E Exhibit 163: Change in CROCI 2011E vs. 2010E (calendar years)

0%

1%

2%

3%

4%

5%

6%

7%

Dai

mle

r

Ford

PSA

Toyo

ta

BMW

Fiat

Ren

ault

Nis

san

Suzu

ki

Hon

da

Volk

swag

en

Hyu

ndai

Cha

nge

in C

RO

CI 2

010E

vs

2009

E

-1%

-1%

0%

1%

1%

2%

2%

3%

3%

4%

4%

Ford

Dai

mle

r

PSA

BMW

Volk

swag

en Fiat

Ren

ault

Hyu

ndai

Nis

san

Toyo

ta

Suzu

ki

Hon

da

Cha

nge

in C

RO

CI 2

011E

vs

2010

E





Comprehensive investment framework for the global autos sector

To identify long-term global automotive winners, we have developed a comprehensive investment framework which includes four

key elements: (1) industry positioning; (2) M&A potential; (3) Director’s Cut, and (4) GS SUSTAIN methodologies.


We believe that the relative competitive positioning of any automotive company is a good proxy for its long-term return potential.

We use our GS Auto Scorecard to assess the competitive positioning of each company in our coverage. With companies’ return on

capital converging through our forecast period, to a historically low level, we expect them to diverge beyond 2011 as

company-specific actions and relative positioning in the face of significant industry headwinds begin to dominate. Exhibit 166 plots

our EV/GCI valuation for each company relative to its score on our GS Scorecard to identify potential longer-term valuation

anomalies. Toyota, Volkswagen, Fiat and Hyundai screen as best positioned car companies in our scorecard.

M&A potential

Given our view that industry consolidation is likely to become part of the industry’s answer to offset the significant headwinds to

profitability over the next decade, we recognize strategic value companies offer to potential strategic partners. Fiat, Peugeot and

Hyundai screen as having strategic value to potential partners.

Director’s cut

We use our Director’s Cut framework to identify relative valuation opportunities within our global coverage group. We find that

returns-based measures of financial performance show a stronger relationship to valuation than other, more traditional financial

measures (such as growth-based metrics). By focusing on cash flow rather than earnings, and gross rather than net assets, CROCI

avoids the distorting influences of different accounting policies on reported earnings and asset values. Consequently, we find a

closer correlation between CROCI and EV/GCI (enterprise value/gross cash invested) than between other measures of return on

capital and earnings multiples. Our Director’s Cut screen (using our 2011 return forecasts) identifies Ford, Renault, Volkswagen, and

Fiat as trading at attractive valuations relative to their return potential.

GS SUSTAIN

The GS SUSTAIN framework for mature industries identifies the companies in each global industry best placed to sustain

competitive advantage and superior returns on capital over the long term (3-5 years). Our analysis shows that companies able to

sustain industry-leading returns on capital for three years or longer have consistently delivered equity market outperformance. The

GS SUSTAIN framework is designed to identify those companies in each industry best positioned to sustain those returns in the

future. That framework integrates analysis of the key drivers of corporate performance: (1) returns on capital; (2) industry

positioning; and, (3) management quality with respect to environmental, social and governance (ESG) issues.







GS SUSTAIN


Exhibit 165: Director’s Cut (on 2011 estimates) Exhibit 166: GS Auto Scorecard; a useful proxy for long-term return potential

BMW

Daimler AG

Fiat

Ford

Honda Motor

Hyundai Motor

Nissan

Peugeot

Renault

Suzuki Motor

Toyota Motor

Volksw agen

y = 0.6113x - 0.3193R2 = 0.4104

y = 0.3362x

0.0x

0.1x

0.2x

0.3x

0.4x

0.5x

0.6x

0.7x

0.8x

0.9x

1.0x

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

CROCI/WACC

EV/G

CI

BMW

Daimler AG

Fiat

Ford

Honda MotorHyundai Motor

Nissan

Peugeot

Renault

Suzuki Motor

Toyota Motor

Volksw agen

0.0x

0.1x

0.2x

0.3x

0.4x

0.5x

0.6x

0.7x

0.8x

0.9x

1.0x

10 12 14 16 18 20 22 24 26

Scorecard

EV/G

CI





GS SUSTAIN: Overview



GS SUSTAIN identifies sustainable industry leaders

The GS SUSTAIN framework for mature industries identifies the companies in each global industry which our analysis show to be

best placed to sustain competitive advantage and superior returns on capital (CROCI) over the long term (3-5 years).

Our analysis shows that companies able to sustain industry-leading returns on capital for three years or longer consistently deliver

equity market outperformance. The GS SUSTAIN framework is designed to identify those companies in each industry best

positioned to sustain superior returns in the future. The framework integrates analysis of objective, quantifiable measures of the

key drivers of corporate performance: (1) returns on capital; (2) industry positioning; and, (3) management quality with respect to

environmental, social and governance (ESG) issues.

The GS SUSTAIN webpage (http://portal.gs.com/gs/portal/home/fdk/?n=/kiwi/portal/research/sustain/page) contains links to research

in which we have applied the GS SUSTAIN framework to other global sectors as well as details of the leaders identified in each

industry examined.

Exhibit 167: The GS SUSTAIN framework

Management quality Industry positioning

Return on capital

GS SUSTAIN

Management quality Industry positioning

Return on capital

GS SUSTAIN




The GS SUSTAIN Focus List brings together the leaders identified across the industries to which we have applied the framework to

date. It comprises 63 leaders in mature industries well positioned to sustain superior returns on capital and 29 emerging industry

leaders well positioned to sustain rapid growth.

The GS SUSTAIN framework has successfully generated alpha

Since its launch on June 22, 2007, the GS SUSTAIN focus list has outperformed the MSCI World benchmark by 23% on an equally

weighted basis, and by 25% in the year to date. Mature industry leaders have outperformed by 39% and emerging industry leaders

by 8% since launch.

Exhibit 168: Year-to-date: GS SUSTAIN focus list +25.3% versus MSCI World

Relative performance, January 1, 2009 – November 25, 2009

Exhibit 169: List-to-date: GS SUSTAIN focus list +22.9% versus MSCI World

Relative performance, June 22, 2007 – November 25, 2009

+0%

+5%

+10%

+15%

+20%

+25%

+30%

1/01/09 2/01/09 3/01/09 4/01/09 5/01/09 6/01/09 7/01/09 8/01/09 9/01/09 10/01/09 11/01/09

Tota

l ret

urn

rela

tive

to M

SC

I Wor

ld

Source: Bloomberg, MSCI, Goldman Sachs Research.

GS SUSTAIN Focus List

(40%)

(35%)

(30%)

(25%)

(20%)

(15%)

(10%)

(5%)

+0%

+5%

+10%

+15%

+20%

+25%

+30%

+35%

+40%

06/25/07 01/30/08 09/05/08 04/12/09 11/17/09

Tota

l ret

urn

rela

tive

to M

SC

I Wor

ld

Mature industry leaders in GS SUSTAIN

Emerging industry leaders in GS SUSTAIN

GS SUSTAIN F Li t

Source: Bloomberg, MSCI, Goldman Sachs.

Source: Bloomberg, MSCI, Goldman Sachs.

Note: Results presented should not and cannot be viewed as an indicator of future performance.

Performance is calculated on an equally-weighted basis relative to the MSCI World index (market-cap-weighted total return series in US$).

Full details of the performance of stocks in the GS SUSTAIN universe can be provided upon request.



Exhibit 170 outlines the themes and areas of analysis we have examined in applying the GS SUSTAIN framework to the global

automotive industry. We assess companies using objective, quantifiable measures of performance in each of the three areas of

analysis:

• Returns on capital: Cash return on cash invested (adjusted to exclude financing businesses);

• Industry positioning: Conclusions of the industrial scorecard applied to this industry;

• Management quality with respect to ESG issues: Proprietary analysis of the effectiveness with which companies manage the

ESG issues facing the automotive industry.

Exhibit 170: The global autos industry faces structural change – GS SUSTAIN provides a roadmap

Turning point

Drivers of corporate performance

Themes

Auto OEMs


The credit crisis resulted in an unprecedented downturn in demand and

intensified financial stress

Return on capitalIndustry positioningManagement quality GS SUSTAIN

CROCI



ESG


governance issues

Significant demand growth and rising strategic challenges will drive bifurcation in

performances across the industry

Economies of scale


auto demand

The carbon challengeGlobal CO2 emission standards must toughen substantially and converge across regions if long term global emissions targets are to be

met

Negative mix shiftGrowth will be fastest for smaller vehicles, in which segments the industry has historically

generated lower levels of profitability

Growth exposureFinancial health CO2 efficiency




No companies stand out in global autos in the GS SUSTAIN framework

Exhibit 171 summarizes our ranking of companies relative to their industry peers on each dimension of our analysis. None of the

companies we have examined, which collectively represent c.85% of global industry sales, stand out as well placed to sustain

industry-leading returns relative to peers. Broadly speaking, this lack of leaders reflects the high level of volatility in the industry,

making it inherently rare that companies sustain superior returns for extended periods. Toyota achieves above-median scores on

all three dimensions of our framework, but given the challenges the industry faces in sustaining leadership, we have not

highlighted the company as a GS SUSTAIN leader. We highlight three as watch list companies; relatively well placed, but not

outstanding across three areas of analysis: Toyota, VW and Fiat.

Exhibit 171: Global autos in GS SUSTAIN: No companies stand out for leadership across all areas of analysis

Companies with above-median scores on each dimension of analysis

Management quality

Return on capital






Honda

Renault

Nissan

Hyundai

Peugeot

Volkswagen

ToyotaBMW

Daimler

Fiat

Suzuki

Management quality

Return on capital






Honda

Renault

Nissan

Hyundai

Peugeot

Volkswagen

ToyotaBMW

Daimler

Fiat

Suzuki




While we find that cash returns have been closely correlated with valuation multiples historically, and that companies generating

high returns on capital have consistently delivered equity market outperformance (in common with the results of our analysis on

other industries), the autos industry is characterized by a particularly high level of turnover in industry leadership. Few companies

have sustained industry-leading returns on capital for long periods.

Indeed, among the companies examined in this report, three companies (BMW (2000-05), Honda (2001-08), and Toyota (2002-06)

have delivered first-quartile returns on capital for more than three sequential years since 2000 (Exhibit 172).

The sector’s track record of short-lived returns challenges the identification of companies able to sustain superior returns on capital

for three years or longer in future years.

Exhibit 172: Annual average CROCI by company

Annual average cash return on cash invested (CROCI) across global automotive, ranked by 2009-11E average

CROCI 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E Av. 09-11E Honda 15.2% 23.0% 23.7% 15.2% 21.5% 15.6% 23.4% 23.6% 11.1% 12.4% 13.0% 12.5% 12.6%Toyota 12.0% 9.1% 14.6% 13.9% 16.3% 16.0% 17.1% 14.3% 6.2% 8.3% 11.5% 11.7% 10.5%Nissan 9.3% 8.7% 13.5% 11.5% 4.2% 8.0% 12.4% 9.8% 10.3% 8.6% 9.7% 10.0% 9.4%Suzuki - - - 9.6% 13.4% 14.3% 14.4% 11.3% 4.8% 8.7% 9.5% 9.5% 9.2%Hyundai 15.2% 7.3% 7.7% 13.8% 9.4% 13.7% 15.6% 10.9% 4.1% 8.1% 8.5% 9.4% 8.7%BMW 20.9% 19.5% 17.3% 15.5% 14.3% 14.5% 14.0% 14.7% 6.6% 6.0% 8.9% 11.1% 8.6%Ford 26.0% 7.7% 5.2% -0.9% 3.7% 8.5% 2.9% 5.1% -3.2% 3.5% 8.9% 12.6% 8.3%Daimler 13.3% 9.2% 14.0% 12.1% 10.7% 7.9% 8.3% 19.4% 10.5% 3.4% 9.6% 11.9% 8.3%Fiat 5.4% 1.4% 0.5% -2.0% 0.7% 9.4% 10.0% 10.7% 9.1% 6.3% 8.4% 10.2% 8.3%VW 10.8% 10.4% 9.2% 7.2% 9.0% 11.2% 13.5% 17.5% 10.1% 5.8% 6.3% 8.2% 6.8%Renault 11.4% 6.2% 10.1% 9.3% 11.9% 8.8% 7.5% 7.8% 4.6% 3.7% 5.7% 7.2% 5.5%Peugeot 11.5% 11.4% 13.4% 11.6% 9.2% 7.6% 5.9% 7.8% 4.5% 1.7% 5.7% 8.0% 5.1%

Fourth QuartileTop Quartile Second Quartile Third Quartile


The industry positioning element of the GS SUSTAIN framework reflects the conclusions of the GS Autos Scorecard, detailed in this

report and summarized in Exhibit 173.



Exhibit 173: Our GS Autos Scorecard is based on rankings in six categories



2. Low cost position 17% ● ●●● ●●●●● ●● ●●● ● ●●●●● ●●● ● ●●●●● ●●●● ●● ●●●●2.1 Global Labor Footprint ● ● ●●●●● ●●●● ●● ●● ●●●● ●●● ●●● ●●●●● ●●●●● ● ●●●2.2 Units per Employee ● ● ●●●●● ● ●●● ●● ●●● ●●●● ●● ●●●●● ●●●●● ●●● ●●●●2.3 Revenues per employee ●●●●● ●●●●● ●●●●● ● ● ● ●●● ●●● ●● ●● ●●●● ●●● ●●●●2.4 Break-even point ●● ●●●●● ●●●● ●●● ● ●●● ●●●●● ●●● ●●●●● ●● ●●●● ● ●2.5 Capacity utilisation ●●●●● ●●● ● ●●● ●●●● ● ●●●●● ●●●●● ● ●●●● ●● ●●● ●●2.6 Growth adjusted capex/depreciation ●●●● ●●● ●● ●●●●● ●●● ● ●●●● ● ●● ●●● ● ●●●●● ●●●●●2.7 Revenues/net assets ● ●●● ●● ●● ●●●●● ●●●● ●●●● ●●●●● ● ●●●●● ● ●●● ●●●●●2.8 Research and development/Sales ● ●●● ●●●●● ●● ●●●● ● ●●●● ● ●●● ●●●●● ●●●●● ●● ●●●

3. Economies of scale 17% ● ● ●● ●●●●● ●● ●●●● ●●●●● ●●● ●●●● ● ●●● ●●●● ●●●●●3.1 Size (unit sales) ● ● ●● ●●● ●● ●●●● ●●●●● ●●● ●●●● ● ●●● ●●●● ●●●●●3.2 Size (revenues) ●●● ●● ●●● ●●●●● ● ●●● ●●●●● ●● ●●● ● ● ●●●● ●●●●●3.3 Average capacity in plants accounting for 80% of production ● ● ●●●● ●●●● ●●●●● ●●● ●●● ●● ●●● ●●●●● ●●●●● ●● ●3.4.1 Percentage of cars produced on top five platforms ●●●●● ●● ●●● ●● ●●●● ●●●● ● ●●●●● ●●● ●●●●● ●●● ● ●3.4.2 Number of cars produced on top five platforms ● ● ● ●●●●● ●●● ●● ●●●●● ●●●●● ●●● ●● ●●●● ●●● ●●●●3.5 Research and development budget ●● ●●● ●● ●●● ● ●●●● ●●●●● ●●● ●●●● ● ● ●●●●● ●●●●●


5. Growth 17% ● ● ●●●● ●●●● ●● ●●● ●● ●●● ●● ●●●●● ●●●● ● ●●●5.1 Theoretical organic growth (geography) ● ● ●●● ●●●● ● ●● ●●● ●●●● ●●● ●●●●● ●●●●● ●● ●●●●●5.2 Theoretical organic growth (segments) ● ● ●●●●● ●●●● ●●●●● ●●●●● ●●● ●●● ●● ●●●● ●●● ● ●●


SCORE 16 16 20 21 15 14 24 19 15 16 19 15 15

RANK 6 7 3 2 12 13 1 4 11 8 5 9 10

●●● ●●● ●●●● ●●●●● ●● ●● ●●●●● ●●●● ●● ●●● ●●●● ●● ●●


Exhibit 174 ranks companies according to the overall scores we calculate for each through our analysis of companies’ management

of the environmental, social and governance issues important to each industry. Our ESG analysis is based on objective, quantifiable

measures of performance in each of the areas examined. The overall scores shown in Exhibit 174 provide the basis for our ranking

of management quality within the GS SUSTAIN framework.



Exhibit 174: Autos ESG framework – overall performance scored on 2008 data

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

BM

W

Dai

mle

r

Fiat

Toyo

ta

Peu

geot

Ren

ault

VW

Ford

Hon

da

Suz

uki

Nis

san

Hyu

ndai

ESG

per

form

ance

(as

perc

enta

ge o

f max

imum

pos

sibl

e, b

ased

on

2008

dat

a)

Corporate governance Social: Leadership Social: Employees Social: Stakeholders Environment

First quartile Second quartile Third quartile Fourth quartile

Source: Company data, Goldman Sachs Research.



Exhibit 175 brings together the results of our analysis of companies’ relative positioning in each of the three dimensions of the GS

SUSTAIN framework: (1) returns on capital; (2) industry positioning; and, (3) management quality with respect to environmental

social and governance issues.

Overall leaders, which we consider will be best placed to sustain industry-leading returns on capital over the long term, must lead

peers on each of these dimensions. Within global autos, we find that none of the companies stand out as leaders across these three

areas of analysis. Consequently, we have added no autos companies to the GS SUSTAIN focus list.

Exhibit 175: Global autos – GS SUSTAIN winners table

Summary performance of companies across the key drivers of sustained competitive advantage in the autos sector

Score as a % of maximum Percentile Total score Percentile 2009-11E % change vs.

2006-08 Percentile

Honda 57% 27% 2 3 3 5 3 3 19 64% 12.6% (7%) 100%Toyota 64% 72% 3 5 5 4 2 5 24 100% 10.5% (2%) 90%Nissan 50% 9% 3 1 4 2 2 3 15 9% 9.4% (1%) 81%Suzuki 52% 18% 1 5 1 2 5 2 16 36% 9.2% (1%) 72%Hyundai 40% 0% 1 4 3 2 4 5 19 64% 8.7% (2%) 63%BMW 70% 100% 5 1 1 5 1 3 16 36% 8.6% (3%) 54%Ford 59% 36% 2 2 4 2 1 4 15 27% 8.3% 7% 45%Daimler 69% 90% 5 3 1 5 1 1 16 36% 8.3% (4%) 36%Fiat 66% 81% 3 5 2 3 4 3 20 82% 8.3% (2%) 27%VW 63% 45% 5 2 5 4 4 1 21 91% 6.8% (7%) 18%Renault 63% 45% 3 1 4 1 3 2 14 0% 5.5% (1%) 9%Peugeot 63% 45% 2 3 2 1 2 5 15 9% 5.1% (1%) 0%

Financial health

Aut

os

Overall Industry PercentileESG (2008)

Management quality

Economies of scale

Growth exposure

Company

Return on capital

CO2 efficiency


Pricing / mix Low cost position CROCI




GS SUSTAIN: ESG framework



Effective management of ESG issues is becoming increasingly important

Across global industries, we believe that effective management of the environmental, social and governance challenges facing each

sector is becoming increasingly important to sustaining competitive advantage.

The auto industry faces intensifying environmental challenges. It is under increasing pressure to reduce the emissions impact of its

products, through regulation and changing consumer demands. Failure to adapt to those changing demands will likely undermine

companies’ abilities to sustain long-run leadership. Similarly, the industry has long been a focus of social and political attention.

The industry’s far greater importance as an employer than its market value implies in many major economies also puts it in the

middle of political and social demands to secure employment and to provide adequate benefits to employees. We believe effective

management of these other environmental and social issues will become increasingly important to sustained industry leadership.

Exhibit 176: Emissions intensity has been falling in Europe

Average CO2 emissions intensity, EU15

Exhibit 177: New technologies can reduce emissions

Life-cycle emissions in average use, gasoline vehicle average = 100

140

145

150

155

160

165

170

175

180

185

190

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Gra

ms

CO

2e p

er k

m tr

avel

led

0

10

20

30

40

50

60

70

80

90

100

FCHVGasoline Vehicle

Driving Fuel production Vehicle production Material production Others

Source: Eurostat.

Source: Toyota.



Our ESG framework – a proxy for management quality

Our analysis of companies’ management of environmental, social and governance issues is designed to reflect the key ESG issues

facing each industry. We apply objective and quantifiable measures across the key areas of performance, based on publicly

reported information. We have used the most recently reported public information throughout – typically calendar year 2008.

Indicators are determined on a sector-by-sector basis through a bottom-up assessment of the key issues facing each industry. We

believe the indicators we use to assess performance with respect to environmental, social and corporate governance issues provide

a basis for analyzing a company’s ability to compete successfully and sustainably over the long term.

Frequently, there are areas of performance that we consider important, but for which we are unable to gather the information in an

accurate and consistent form, and consequently are unable to include. As a result, we recognize that our ESG framework does not

quantify all issues relevant to companies. We are challenged by inconsistencies in data, regional differences in policy focus,

differences in business models and diverse product portfolios across the companies in our ESG universe. Furthermore, we do not

believe that sufficient quantifiable and comparable data exists to objectively measure issues such as minority diversity, protection

of human rights, and product sustainability comprehensively. Nonetheless, taken together, we believe the breadth of indicators that

we use provides a rounded view of companies’ management of the issues important to their industry.

The indicators that we assess fall into five categories:

• Corporate governance: We assess companies on six measures of corporate governance, which are common to all industries.

Collectively, we believe these indicators provide an objective gauge of the extent to which ordinary shareholders’ interests are

represented in board decisions, the degree of independent oversight of business performance and strategic decisions, as well

as the alignment of management incentives with shareholder interests.

• Social: Leadership: The engagement of senior management and board members is critical in improving firm performance in

environmental and social areas. Transparency of reporting provides an indication of the importance companies attach to

environmental and social performance.

• Social: Employees: Human capital is a key asset to every industry. Recruiting and retaining the best talent, incentivising

employees and raising their productivity is a key source of competitive advantage.

• Social: Stakeholders: Building and maintaining strong relationships with local communities, suppliers and other external

stakeholders is a vital aspect of sustainable business models. It is likely to become even more important as expectations placed

on companies in the industry to play a social role rise.

• Environment: Especially for the autos industry, we consider assessment of companies’ resource use and environmental and

product development strategies to be a valuable proxy for operating efficiency and strategies in place to address an emerging

area of social concern and market differentiation.

Scores are calculated on a scale of 1 (low) to 5 (high) for each company, on each of the 23 indicators we apply to autos companies.

These scores are aggregated to calculate an overall ranking of companies, and reflect over 90 individual data points collected for

each company from their public reporting.



Social: Employees

Environment

Social: Stakeholders

Social: Leadership

Corporate Governance

CEO compensation

Independence of board and leadership

Minority shareholders’

rights

Leadership responsibility for and compensation links to environmental

and social performance

Environmental and social reporting and assurance

Compensation Gender diversity

Resource consumption and emissions

Technology development

Investment in communities

Access to growth, exposure to disciplined markets, cost leadership

Stock market performance

Economy

Society

Industry

Environment

Competitive position and financial performance

Investment in R&D

Productivity

Business ethics and human rights

Transparency of audit and

stock options

Employee training and management

Environmental management

Excess cash returns, premium multiple applied to asset base

Fatalities and injuries

Social: Employees

Environment

Social: Stakeholders

Social: Leadership

Corporate Governance

CEO compensation

Independence of board and leadership

Minority shareholders’

rights

Leadership responsibility for and compensation links to environmental

and social performance

Environmental and social reporting and assurance

Compensation Gender diversity

Resource consumption and emissions

Technology development

Investment in communities

Access to growth, exposure to disciplined markets, cost leadership

Stock market performance

Economy

Society

Industry

Environment

Competitive position and financial performance

Investment in R&D

Productivity

Business ethics and human rights

Transparency of audit and

stock options

Employee training and management

Environmental management

Excess cash returns, premium multiple applied to asset base

Fatalities and injuries




We use 23 objective, quantifiable indicators to rank companies on ESG

Exhibit 178: Autos ESG framework – 23 objective, quantifiable indicators across five categories

Criteria Automotive specific Description Purpose Weighting

Independent board leadership Separation of CEO and Chairman roles and appointment of independent Lead Director Maintain balance of power

Independent Board directors & committees Percentage of independent, non-executive directors and wholly independent compensation and nomination committees Shareholder representation

Auditor independence Audit committee impendence and ratio of non-audit to audit fees paid to the auditor Independence of audit process

CEO compensation CEO compensation (including salary, bonus, stock grants and options) as % of cash flow Shareholder / Management incentives

Share-based compensation Fair value of share-based compensation expense as % of cash flow Employee incentives

Minority shareholders' rights Block of ownership greater than 5%, staggered board, poison pill, unequal voting rights and other provisions Strength of individual shareholders

Reporting and assurance of ESG performance Number of years of reporting on environmental and social ("ES") issues and external assurance of data Transparency

Leadership responsibility for ESG performance ES responsibility of Board and Senior Executives; and compensation linked to performance Integration of ES issues into strategy

Fatality rate Number of fataliites per 50,000 employees, total number of fatalities Workplace safety

Injury rate Number of lost time injuries and total injuries for employees and contractors per 1mn hours worked (LTIF) Workplace safety

Employee compensation Total payroll costs divided by average number of employees Employee incentives

Employee productivity Cash flow divided by average number of employees Labour efficiency

Gender diversity Gender diversity of total workforce, senior executives, and Board directors Workforce diversity

Employee training and management Risk assessment policy, Behaviour based health and safety training policy, Training hours reported, Training expenses reported Employee development

Community investment Community expenditures as a % of cash flow Community relations

R&D investment Research & development expenditure as a % of cash flow Product innovation

Business ethics and human rights Whistle blowing mechanism, procedures for stakeholder dialogue, support for Universal Declaration on Human Rights or equivalent, human rights assessment of suppliers Communication & Ethics

Environmental management and certification Environmental performance assessment of suppliers, Carbon emission target, renewable energy use polict, >75% of production from ISO14001 certified sites Environmental governance

Energy consumption Direct Energy Consumption as ratio of gross cash invested Energy efficiency

GHG emissions Direct greenhouse gas emissions as ratio of gross cash invested Impact of operations

Water & Waste Management Water consumption and waste generated as ratio of gross cash invested Impact of operations

Fleet Emission A Lowest emission model, Average fleet emission Product innovation

Technology Development A Development and avaibility of hybrid technology, Development and avaibility of cell fuel/electric technology Product innovation

Empl

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26%

26%

13%

Stak

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Cor

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Companies fall into distinct tiers on ESG framework overall scores


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

BM

W

Dai

mle

r

Fiat

Toyo

ta

Peu

geot

Ren

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VW

Ford

Hon

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ESG

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(as

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Corporate governance Social: Leadership Social: Employees Social: Stakeholders Environment

First quartile Second quartile Third quartile Fourth quartile





Global Software and Services ESG frameworkESG framework performance - based on 2007 data

Leadership Employees Stakeholders

BMW 16 7 24 10 24 81 70%Daimler 16 7 22 12 22 79 69%Fiat 19 9 19 10 19 76 66%Toyota 16 9 12 11 26 74 64%Peugeot 17 7 21 10 18 73 63%Renault 16 7 20 10 20 73 63%VW 16 8 23 8 18 73 63%Ford 24 9 11 6 18 68 59%Honda 14 6 14 8 23 65 57%Suzuki 11 6 11 9 23 60 52%Nissan 8 8 15 10 16 57 50%Hyundai 8 9 12 6 11 46 40%

Average score 15.1 7.7 17.0 9.2 19.8 68.8 60%Maximum score 30 10 30 15 30 115Weighting 26% 9% 26% 13% 26%

Company Corporate governanceSocial

Environment 2008 ESG 2008 ESG (% of maximum)




Corporate governance: Ford and Fiat lead

We assess companies on six measures of corporate governance which are common to all industries. Collectively, we believe these

indicators provide an objective gauge of the extent to which ordinary shareholders’ interests are represented in board decisions,

the degree of independent oversight of business performance and strategic decisions, and the alignment of management

incentives with shareholder interests.

Independent board leadership: We view the separation of roles and division of responsibilities between the Chief Executive Officer

and the Chairman of the Board as an indication of the balance of power at the head of a company. The appointment of an

independent lead director (also known as a presiding director in the US or a senior independent director in the UK) to convene the

non-executive directors in the absence of the CEO/Chair is an effective measure to ensure balance of power, in our view, and allows

concerns to be conveyed to the board independently of the CEO/Chair.

Independent board directors and committees: In our view, to ensure effective independent oversight of companies’ activities and

strategic decision-making, boards and board committees should include a majority of independent, non-executive directors, as

recommended by corporate governance codes, including the Higgs Combined Code in the UK and the NYSE in the US. Directors

are considered to be independent when they: (1) have not been employed by the company in the past five years; (2) are not a

significant (>1%) shareholder in the company; and, (3) are not a representative or family member of a significant shareholder.

Auditor independence: The central role of the audit committee and external auditors is to ensure the integrity of financial

disclosure and present an accurate view of a company’s financial position. The appointment of wholly independent, non-executive

directors to the audit committee represents best practice to ensure the integrity of financial disclosure. To safeguard auditor

independence and prevent potential conflicts of interest, we believe that the ratio of non-audit to audit fees paid to the company

assigned as auditor should be as low as possible.

CEO compensation: We believe equity owners’ interests are best represented where senior management is adequately

incentivised. CEO compensation is widely disclosed, and we assess this as an indication of the remuneration level of senior

executive leaders. CEO compensation includes salary, bonus, stock grants and options, where disclosed. We calculate this indicator

by dividing CEO compensation by debt-adjusted cash flow to compare how boards incentivise performance relative to the key

driver of shareholder value.

Share-based compensation: We believe equity owners’ interests are best represented where the interests of managers (agents)

are aligned with those of shareholders (principals). We view the use of stock option compensation positively, as it aligns the

interests of management with those of shareholders. However, we believe that the value of such share-based compensation

compared with cash flow should be moderated within the mid-range for the industry, to minimize the risk that executives engage in

fraudulent activities when over-incentivised in the form of stock options.

Minority shareholder rights: We evaluate whether companies’ shareholder registers include block shareholdings and view the

absence of a large block-holding as an indicator of a well-balanced ownership structure. Staggered or classified boards (in which

board members are not elected annually by shareholders), poison pills (provisions that allow existing shareholders to prevent

hostile takeovers by purchasing shares at a substantial discount to market price), unequal voting rights (limitations on the voting

rights of shareholders and dual listings in which different voting rights apply to different share classes), and other restrictions in

which a single large shareholder holds voting rights exceeding share ownership or voting rights are restricted to a certain limit, can

all have a negative impact on minority shareholder rights.



Exhibit 181: Autos ESG framework – corporate governance rankings scored on 2008 data

Independent board leadership

Independent Board directors & committees Independent auditors CEO compensation Share-based

compensationMinority shareholders'

rightsFord 5 5 4 2 3 5 24 80%Fiat 4 3 4 3 3 2 19 63%Peugeot 4 1 2 4 5 1 17 57%Daimler 4 2 2 4 1 3 16 53%Renault 4 2 2 5 1 2 16 53%BMW 4 3 2 4 1 2 16 53%VW 4 2 2 4 3 1 16 53%Toyota 4 1 1 1 5 4 16 53%Honda 4 1 2 1 1 5 14 47%Suzuki 1 1 2 1 1 5 11 37%Hyundai 1 2 1 1 1 2 8 27%Nissan 1 1 2 1 1 2 8 27%

Average 3.3 2.0 2.2 2.6 2.2 2.8 15.1 50.28%Maximum 5 5 5 5 5 5 30

Company 2008 Governance (% of maximum)2008 Governance score

Independence Incentives and shareholder protection


Exhibit 182: Independent board leadership, board committees and auditors are key indicators of corporate governance, scored on 2008 data

Region Company Name of CEO Name of Chairman Lead director % Independent Board directors Nomination committee

Compensation committee Audit committee Ratio of non-audit to audit fees

BMW Norbert Reithofer Joachim MilbergDaimler Dieter Zetsche Manfred BischoffFiat Sergio Marchionne Luca Cordero di MontezemoloPeugeot Christian Streiff Thierry PeugeotRenault Carlos Ghosn Louis SchweitzerVW Martin Winterkorn Ferdinand K. Piech

N. America Ford Alan R.Mulally William Clay Ford, Jr Irvine HockadayHonda Takanobu Ito Satoshi AokiHyundai Mong-Koo Chung Mong-Koo ChungNissan Carlos Ghosn Carlos GhosnSuzuki Osamu Suzuki Osamu SuzukiToyota Akio Toyoda Fujio ChoGlobal average

Independent Board leadership

Europe

Asia

Independent Board directors & committees Auditor independence

0% 25% 50% 75% 100% 0.0x 0.5x 1.0x 1.5x




Exhibit 183: CEO and share-based compensation relative to cash flow, and restrictions to shareholder rights scored on 2008 data

Region Company CEO compensation as a % cash flow

Share-based compensation as a % of cash flow

Block ownership (%) Staggered board Poison pill Unequal voting

rights Other restrictions

BMW 47%Daimler 9%Fiat 36%Peugeot 30%Renault 30%VW 71%

N. America Ford 0%Honda 0%Hyundai 26%Nissan 44%Suzuki 0%Toyota 6%Global average

Incentives

Europe

Asia

Minority shareholders' rights

0.0% 0.1% 0.2% 0.3%

1.8%-0.590%

0.00% 0.25% 0.50% 0.75% 1.00%

1.4%

2.4%

1.8%

-0.1%

-1.1%-0122%

Source: Company data, Datastream, Bloomberg, Goldman Sachs Research.



Social performance: BMW and Peugeot lead

The social indicators we assess span three areas of performance:

• Leadership: The engagement of senior management and board members is critical in improving firm performance in

environmental and social areas. Transparency of reporting provides an indication of the importance companies attach to

environmental and social performance.

• Employees: Human capital is a key asset to every industry. Recruiting and retaining the best talent, incentivising employees

and raising their productivity is a key source of competitive advantage.

• Stakeholders: Building and maintaining strong relationships with local communities, suppliers and other external stakeholders

is a vital aspect of sustainable business models and likely to become more so as the expectations placed on companies in the

industry to play a social role rise.

We assess companies on eleven social indicators.

Reporting and assurance of ESG performance: Provision of external assurance is a signal of the importance a company places on

environmental and social reporting and accountability. In our view, conducting a sustainability audit gives validity to the

environmental, social and financial data presented.

Leadership responsibility for ESG performance: The extent to which senior leadership is engaged in improving social and

environmental performance can be measured by the assignment of responsibility for environmental and social issues at the board

and senior executive level, and by linking compensation to performance in those areas.

Employee compensation: We believe employee compensation is a key indication of the importance companies place on recruiting

and retaining employees. In many regions, companies increasingly face pressure – in some cases through regulation – to ensure

minimum levels of total compensation and benefits to low-paid employees. We compare average compensation per employee

across companies.

Employee productivity: Cash flow per employee is a measure of workforce productivity. In our view, a higher proportion of cash

flow generated by each member of the workforce indicates superior management of human capital and operational efficiency. We

note that geographical spread influences this metric, as companies with large operations in emerging markets tend to have larger

workforces at lower cost (we do not adjust for PPP).

Gender diversity: Faced with growing human capital shortages across different levels of seniority, the ability of companies to

recruit workers from diverse backgrounds represents a potential source of competitive advantage. We assess the extent of gender

diversity in companies’ overall workforces, among senior management and at the board level as a proxy for recruitment of

employees from diverse backgrounds.

Fatality rate: We measure employee and contractor fatalities both in absolute terms and as a rate per 50,000 employee/1 million

man-hours worked; the number of fatalities is one of the most visible indicators of health and safety and in addition carries

significant reputational risk. Reporting of fatalities is required in most countries and is considered a key indicator of health and

safety management by regulators and host governments. We also view safety performance to be a measure of operational

efficiency and continuity.



Injury rate: We view health and safety performance as an indication of companies’ operational efficiency and stability. As a gauge

of overall health and safety performance, we compare companies’ TRI and LTI rates. The LTI rate (lost time injury rate) is the

number of injuries resulting in fatalities, permanent total disabilities and lost workday cases per million hours worked, not

restricted to workday cases and medical treatment cases. The TRI rate (total recordable injury) includes the number of workplace

incidents per million hours worked.

Employee training and management: We believe companies focusing on employee development and specific functional training

will most effectively attract and retain highly skilled employees in their workforce. We measure reported average training hours per

employee and average training expenditure per employee. While comparability of data across companies is difficult, reflecting

limited disclosure of all data and inconsistencies in definitions, we view public reporting of initiatives as a valuable gauge of the

importance companies attach to training.

Community investment: Investments in local community initiatives help companies to establish positions as strong corporate

citizens, build relationships with local stakeholders and raise their profiles with governments and NGOs. We note definitional

differences between companies, as community investment may or may not include voluntary and mandatory social investments,

philanthropy, sponsorship of cultural events and political contributions. In addition, the consistency of reporting varies: some

companies report only cash-in-kind contributions, while others add the estimated value of volunteered staff time and donations of

products. We evaluate community investment as a percentage of cash flow to account for size and compare companies across

different businesses.

R&D investment: Investment in research and development (R&D) is critical to companies’ abilities to innovate and to adapt to the

changing pressures facing the industry from regulators and consumers. We compare companies based on R&D investment relative

to cash flow.

Business ethics and human rights: We assess whether companies have implemented management systems to ensure the ethical

and transparent conduct of employees. A code of conduct including whistleblower mechanisms (allowing employees to quickly

escalate concerns) is a clear message to employees of a company’s commitment to ensuring sustainable, ethical practices. Active

stakeholder dialogue, and focus on employee human rights through adherence to the UN Declaration on Human Rights are further

elements for maintaining a good relationship with local communities and customers. We also highlight the importance of a track

record on human rights issues through the value chain by comparison of companies’ policies to assess suppliers on labour issues.



Exhibit 184: Autos ESG framework – social rankings scored on 2008 data

Reporting and assurance of

ESG performance

Leadership responsibility

for ESG performance

Employee compensation

Employee productivity

Gender diversity Fatalities rate Injury rate

Employee training and

management

Community investment

R&D investment

Business ethics and human

rights

Daimler 3 4 5 3 4 4 2 4 4 3 5 41 75%VW 5 3 4 4 4 5 3 3 1 2 5 39 71%Peugeot 5 2 3 1 5 4 3 5 1 5 4 38 69%Fiat 5 4 2 3 2 4 3 5 3 2 5 38 69%Renault 5 2 4 2 5 1 3 5 1 5 4 37 67%BMW 5 2 5 5 2 5 3 4 1 4 5 41 75%Nissan 4 4 2 4 1 1 4 3 3 2 5 33 60%Toyota 5 4 1 5 1 1 1 3 5 3 3 32 58%Honda 4 2 1 5 1 1 3 3 1 4 3 28 51%Ford 5 4 1 1 3 1 3 2 2 1 3 26 47%Hyundai 5 4 3 3 1 1 1 3 1 1 4 27 49%Suzuki 4 2 1 4 1 1 1 3 1 5 3 26 47%

Average 4.6 3.1 2.7 3.3 2.5 2.4 2.5 3.6 2.0 3.1 4.1 33.8 62%Maximum 5 5 5 5 5 5 5 5 5 5 5 55

Employees

2008 Social scoreCompany

Leadership2008 Social

(% of maximum)

Stakeholders


Exhibit 185: Social leadership: Responsibility, compensation links and reporting on environmental and social performance scored on 2008 data

Region Company Board Individual Senior Executive Board Senior Executives Years of ESG reporting Assurance provider

BMW Rainer Feurer 11Daimler Thomas Weber, Herbert Kohler 3 Oko Institut e.V.Fiat John Elkann Alessandro Baldi 5 SGS Italia S.p.APeugeot Virginie de Chassey 8 PWCRenault 10 Deloitte, Ernst&YoungVW Ulrich Menzel 7 PWC

N. America Ford Homer A Neal Sue Cischke 8 CeresHonda Masaaki Kato 8Hyundai Mong-koo Chung R&D director 7 DeloitteNissan Toshiyuki Shiga Alan Buddenbeck 11Suzuki Osamu Suzuki 9Toyota Katsuaki Watanabe Yasumori Ihara 8 Deloitte

Europe

Asia

Reporting and assuranceResponsibility for ESG performance Compensation linked to ESG performance




Exhibit 186: Employee compensation and productivity, and gender diversity scored on 2008 data

Region Company Payroll per employee (US$ '000) Cash flow per employee (US$ '000) Total workforce (% female) Senior executives (% female) Board directors (% female)

BMWDaimlerFiatPeugeotRenaultVW

N. America FordHonda Hyundai Nissan Suzuki Toyota Global average

Europe

Asia

0 25 50 75 100 0% 5% 10% 15% 20% 25%0 30 60 90 0% 5% 10% 15% 20% 25% 0% 5% 10% 15% 20% 25%

-106

-49-16


Exhibit 187: Health & safety / employee training & management performance scored on 2008 data

Region Company Total number of fatalities Fatality rate per 50,000 employees Lost time injuries per mn hrs worked Total recordable injuries per mn hrs worked

Behaviour based training

Risk assessment policy

Training hours reported

Training expenses reported



Employee healthHealth and safety

Asia

Europe

0 5 10

0

0.0 0.5 1.0 1.5 2.0 2.5 0 5 10 15 0.0 2.5 5.0

0

00

0

00

0

000

000

15.5




Exhibit 188: Business ethics, community investment, R&D and human rights scored on 2008 data

Region Company R&D as a % of DACF Community Investment as a % of DACF

Whistle blowing mechanism

Procedure for stakeholder

dialogue

HR assessment of suppliers

Support for UDHR or equivalent



Asia

Business Ethics and human rights

Europe

0.00% 0.25% 0.50% 0.75% 1.00%0% 30% 60% 90%

300.6%

-34%

-0.3%

-122%




Environmental performance: Toyota, Honda and BMW lead

Environmental management and certification: Automotive companies have relatively significant environmental footprints,

through their supply chains and the products they sell, as well as via their direct environmental impacts. Almost all have created

and published group environmental policies. In our view, a stronger indicator of the seriousness with which companies approach

environmental issues is the more concrete actions they take. We examine whether companies have established procedures to

assess suppliers’ environmental performance, set up carbon-emission targets and made efforts to increase the use of energy from

renewable sources in their own operations. ISO 14 001 is an international standard applied to manufacturing facilities. We view the

extent to which companies have sought and received ISO accreditation as indicative of the extent to which they monitor their

operations’ performance.

Energy consumption: In a world of high energy prices and limited resources, energy consumption can be directly related to costs.

We believe that evaluating companies’ energy use relative to asset base captures efficient cost control, use of resources, and

climate change management.

Greenhouse gas emissions: We measure the intensity of a company’s total GHG emissions relative to its asset base. We note

definitional differences between companies; greenhouse gas emissions may or may not include direct emissions and indirect

emissions. In addition, the consistency of reporting varies, as some companies report only CO2 emissions, while others consider

GHG emissions as a whole.

Water and waste management: Waste and fresh water consumption efficiency are key measures of companies’ operational

efficiency. We measure waste production and water use relative to GCI (gross cash invested). We note that the automotive industry

is a heavier user of fresh water than average.

Fleet emissions: The auto industry’s major environmental impact is through the products it sells. Regulation of fleet emissions is

toughening across major economies and standards are converging. Given the slow speed with which average fleet emissions

change, reflecting relatively long development times and model lives, we believe those companies that have moved earliest to

reduce the emissions intensity of their fleets will be better-positioned. We assess companies’ average fleet emissions and the

emissions of each company’s lowest emission models (both measured in grams of CO2 per km).

Technology development: We expect development of new technologies to prove an important element of sustained competitive

advantage. We are not able to judge the relative merits of the technologies each company owns, but consider the extent to which

companies have announced concrete investment plans in hybrid and fuel cell technologies to provide a valuable measure of their

commitment to innovation in this area. Consequently, we assess companies in two areas: (1) the technology areas in which they

have announced investment plans; and, (2) the extent to which those technologies have been commercialized.



Exhibit 189: Autos ESG framework – environment rankings scored on 2008 data

Toyota 5 3 4 5 5 4 26 87%BMW 4 5 5 4 3 3 24 80%Honda 5 2 4 4 3 5 23 77%Suzuki 5 4 4 4 3 3 23 77%Daimler 3 3 4 4 3 5 22 73%Renault 4 5 4 4 1 2 20 67%Fiat 2 5 3 3 3 3 19 63%Ford 2 2 4 1 5 4 18 60%Peugeot 3 2 3 4 3 3 18 60%VW 2 3 3 3 3 4 18 60%Nissan 1 4 5 1 1 4 16 53%Hyundai 1 1 2 1 3 3 11 37%Average 3.1 3.3 3.8 3.2 3.0 3.6 19.8 66%Maximum score 5 5 5 5 5 5 30

Company Environmental mgmt & Certification Water & Waste mgmtEnergy consumption Greenhouse gas emissions Fleet Emissions Technology Development 2008 Environment (% of

maximum)2008 Environment


Exhibit 190: Environmental performance indicators – water consumption, energy efficiency, carbon emissions, waste generated and environmental

management scored on 2008 data

Region Company Energy consumption relative to asset base (PJ / 000 US$ GCI)

Greenhouse gas emission relative to asset base (Tonne CO2 / GCI)

Water consumption relative to asset base (litres / US$ mn GCI)

Waste production (tonnes / US$ mn GCI)

Suppliers assessed on Environmental performance Carbon Emission Target Renewable energy use

policyISO 14001 certification of

production > = 75%



Asia

Environmental management and certificationEnvironmental issues

Europe

0.0 0.3 0.60 250 500 750 1000 0 25 50 75 0 8 16 24

Source: Company data, Carbon Disclosure Project, Goldman Sachs Research.



Exhibit 191: Specific indicators – fleet emissions and technology development scored on 2008 data

Region Company Fleet Emission (g C02 /km) Lowest emission model characteristics (g CO2 /km) Model Development of Hybrid

Technology Technology availability Development of advanced fossil fuel technology Technology availability

BMW MINI Hatchback Cooper D 3dr

Daimler Smart fortwo pure (45bhp)

Fiat Fiat 500 1.3 MultiJet

Peugeot Peugeot 107 1.0 Urban Lite 3dr

Porsche Porsche Boxster 2.9 litres

Renault Renault Clio Dynamique 1.5 dCi 86

VW Seat Ibiza Ecomotive 1.4 TDI

N. America Ford Ford Fiesta Econetic 1.6 TDCi DPF 3dr

Honda Honda Insight 1.3 IMA SE Hybrid

Hyundai Hyundai i20 1.4 CRDi Comfort 5dr

Nissan Nissan NOTE 1.5 dCi Visia

Suzuki Suzuki Swift 1.3 DDiS 5dr

Toyota Toyota Prius T4 Hybrid 1.5 VVT-i 5dr

Global average

Asia

Advanced Technology Development

Europe

Fleet Emission

100 130 160 190 220 250 75 105 135 165 195 225




Company profiles



BMW

Exhibit 192: BMW

Dec Y/E (€mn ) 2007 2008 2009E 2010E 2011E Stock performance relative to local/global market 2008 Sales by Geography Revenues 56,018 53,197 49,291 49,626 51,069 Revenues growth -5% -7% 1% 3%EBITDA 7,269 4,357 3,590 4,967 6,697 EBITDA Margin 13.0% 8.2% 7.3% 10.0% 13.1%EBIT 3,804 3,101 155 1,423 3,069 EBIT Margin 6.8% 5.8% 0.3% 2.9% 6.0%Net Income 3,126 322 73 961 2,170 EPS 4.8 0.5 0.1 1.5 3.3 DPS 1.1 0.3 0.3 0.6 0.9 Payout ratio 22% 61% 267% 41% 27%

Capex -4,267 -4,204 -3,722 -3,881 -4,180Capex as % sales 8% 8% 8% 8% 8%Book value PS 33.2 31.0 30.8 32.0 34.7 Invested capital 28,938 30,289 30,061 31,047 32,212 Gross Cash Invested 46,646 49,578 49,285 50,190 51,630

Market cap 29,209 19,564 20,585 20,585 20,585 Net Debt (+debt/-cash) -7,052 -4,765 -3,446 -3,770 -4,897Pension 4,627 3,314 1,814 1,814 1,814Minorities 11 8 8 8 8StakesEV (inc pensions) 26,795 18,121 18,962 18,638 17,510

ValuationEV/Sales 48% 34% 38% 38% 34%EV/EBITDA 3.7 4.2 5.3 3.8 2.6 Shareholder structure 2008 Sales by segmentEV/EBIT 7.0 5.8 122.5 13.1 5.7 P/E 9.4 58.8 288.0 22.0 9.7Dividend yield 2% 1% 1% 2% 3%CROCI 15% 7% 6% 9% 11%EV/GCI 0.6 0.4 0.4 0.4 0.3CROCI/WACC 1.74 0.78 0.71 1.05 1.31ROIC 10% 7% 0% 3% 7%EV/IC 0.9 0.6 0.6 0.6 0.5ROIC/WACC 1.1 0.9 0.0 0.4 0.8PB 1.3 0.7 1.0 1.0 0.9ROE 14% 2% 0% 5% 10%Net Debt/EBITDA -1.0 -1.1 -1.0 -0.8 -0.7

Valuation (EV ex pension)EV (mn) 22,168 14,807 17,148 16,824 15,696 EV/Sales 40% 28% 35% 34% 31%EV/EBITDA 3.0 3.4 4.8 3.4 2.3EV/EBIT 5.8 4.8 110.8 11.8 5.1EV/GCI 0.48 0.30 0.35 0.34 0.30 EV/IC 0.8 0.5 0.6 0.5 0.5

China5%

India0.2%

Russia2%Brazil0.2%

Japan3%

USA21%

W Europe58%

Asia3%

E. Europe2%

RoW6%

Stefan Quandt, 17%

Johana Quandt, 17%

Suzanne Katlen, 13%

Free float, 53%

B15%

C13%

D44%

E27%

LCV1%

0

50

100

150

200

250

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

BMW BMW vs. MSCI Europe BMW vs. FTSE World




Exhibit 193: BMW

(€ mn and %)

Group sales & EBIT margin Group EBIT and EBIT margin Capex and Capex as a % of sales

EV (pension) vs. CROCI EV/Sales vs. EBIT Margin EVGCI vs. CROCI/WACC

-

5,000

10,000

15,000

20,000

25,000

30,000

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

E

2010

E

2011

E

0%

5%

10%

15%

20%

25%

EV (ex pension) Pension CROCI

05,000

10,00015,00020,00025,00030,00035,00040,00045,00050,00055,00060,000

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

E

2010

E

2011

E

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

Sales EBIT Margin

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

E

2010

E

2011

E

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

EBIT EBIT margin

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

E

2010

E

2011

E

0%

2%

4%

6%

8%

10%

12%

Capex Capex as % sales

19992000

20012002

2003

20042005

2006

2007

2008

2009E2010E

2011E

20%

25%

30%

35%

40%

45%

50%

55%

60%

65%

0% 2% 4% 6% 8% 10%

EBIT Margin

EV

/Sal

es

1999

20002002

2011E

2001

200320042005

20062007

2008

2009E2010E

0.0x

0.1x

0.2x

0.3x

0.4x

0.5x

0.6x

0.7x

0.8x

0.9x

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

CROCI/WACC

EV

/GC

I




Exhibit 194: BMW scorecard details

(€)

BMW BMWFactor Score Average Median Minimum Maximum Quintile

1. Pricing/mix ●●●●●1.1 Average unit price 34,867 18,220 15,885 7,501 39,781 ●●●●● 1.2 Price premium 58% 1% -11% -34% 84% ●●●●●

2. Low cost position ●2.1 Theoretical average labour cost 130 76 69 38 130 ●2.2 Units per Employee 14 26 23 12 50 ●2.3 Revenues per employee 519 419 415 301 529 ●●●●● 2.4 Break-even point -1% 1% 1% -4% 6% ●●2.5 Capacity utilisation 95% 83% 80% 73% 95% ●●●●● 2.6 Growth adjusted capex/depreciation 0.9x 1.0x 1.0x 0.6x 1.6x ●●●●2.7 Revenues/net assets 2.0x 2.6x 2.4x 1.9x 4.4x ●2.8 Research and development/Sales 0.1x 0.0x 0.0x 0.0x 0.1x ●

3. Economies of scale ●3.1 Size (unit sales) 1,436 4,436 4,244 1,273 8,356 ●3.2 Size (revenues) 64,507 76,360 64,507 17,099 138,955 ●●●3.3 Average capacity in plants accounting for 80% of production 234 314 300 229 555 ●3.4.1 Percentage of cars produced on top five platforms 96% 77% 79% 42% 96% ●●●●● 3.4.2 Number of cars produced on top five platforms 1,405,760 2,827,677 2,644,685 1,219,162 5,378,733 ●3.5 Research and development budget 3,030 3,881 4,666 677 5,931 ●●

4. Financial health ●●●●●4.1 Net Debt/EBITDA (2010) -0.8x 0.5x 0.7x -1.4x 3.3x ●●●●● 4.2 Credit Rating 3 8 7 1 16 ●●●●● 4.3 Future Margin (2011E) 6.0% 4.8% 5.0% 2.4% 6.2% ●●●●● 4.4 CROCI(2011) 11.1% 10.0% 10.1% 6.9% 12.5% ●●●●

5. Growth ●5.1 Theoretical organic growth (geography) 2.2% 3.8% 3.4% 2.1% 6.8% ●5.2 Theoretical organic growth (segments) -1 50 59 -9 84 ●

Key Factors 2004 2005 2006 2007 2008 6. CO2 Efficiency ●●●Average unit price 35,197 34,534 34,766 35,862 33,974 6.1 CO2 : Distance to target (Europe) 12% 18% 18% 9% 30% ●●●●● Units per employee 13 13 14 16 15 6.2 CO2 : Distance to target (US) 36% 23% 22% 9% 42% ●Capacity utilisation 98% 94% 91% 98% 92% 6.3 CO2 : Last 3 year improvement (Europe) 18% 6% 5% 3% 18% ●●●●● R&D/Sales 6.4% 6.7% 6.5% 5.6% 5.4% 6.4 CO2 : Last 3 year improvement (US) 2% 6% 6% 2% 11% ●●Capex/Depreciation 148% 109% 113% 114% 120%

Total ●●●

Group

0

1

2

3

4

51. Pricing/mix



4. Financial health

5. Growth

6. CO2 Efficiency




Exhibit 195: BMW scorecard comments

1. Price mix 4. Financial health

BMW has a strong average price realization due to its focus on premium cars.

However, it also benefits from its overall product mix, with a high share of larger

cars with big engines and high vehicle content. The average realized price is

negatively impacted by the weakening US dollar, as BMW sells 21% into the

important US market. That BMW’s real average price is above the mix-based

theoretical price highlights BMW’s brand equity and ability to achieve a price

premium, and to add to the portfolio products such as theX5, 5-series GT, aiming

to maintain volumes in the higher-margin segments within the BMW brand.

BMW ranks as one of the best companies among our global coverage in terms of

financial health. BMW had net cash of €4.8 bn at end-2008, enjoys one of the best

credit ratings within the sector, and has a large proportion (60%) of its debt

maturities beyond one year (average maturity of 2.1 years). We forecast that it will

achieve among the best profit margins and ROICs until 2011.

2. Low cost position 5. Growth

Naturally, as premium manufacturer, BMW is not a low-cost producer when

compared to global volume producers. BMW’s high product complexity results in a

low number of units produced per employee and low asset turnover. BMW’s

production footprint is largely concentrated in high-cost areas such as Germany,

the UK and the US and results in comparatively high average labour costs. These

negative factors are partially offset by high revenue per employee and high

average capacity utilization rates.

With 82% of annual sales in the Triad, BMW does not appear to have a substantial

exposure to the emerging markets (most notably BRICs), although BMW sold

1.4 mn units in 2008. While our organic sales growth benchmark does not pick up

the potential structural growth in the premium market, we would expect BMW to

deliver above-average growth per annum, as the company adds new add-to-

portfolio products and the premium segment continues to increase its global reach

to countries such as China and Russia (where the proportion of premium as a

percentage of the total market is below the global average of 9.3%).

3. Economies of scale 6. CO2 efficiency

With an annual sales and production volume of 1.4 mn units, BMW ranks low in

terms of economies of scale compared to the global automotive industry. However,

BMW aims to achieve ‘relevant’ scale by utilizing shared parts, components and

systems and increasing volumes to 1.6 mn units by 2012.

Climate change and reduced CO2 emissions are the big strategic challenge for

BMW, given its large car product foot print. To address this issue, BMW has started

to market Efficient Dynamics, a brand name for CO2-reducing technologies. The

company leads its peers in terms of progress towards targets over the past three

years. While BMW has made good progress towards the tough 2015 CO2 targets in

Europe, it still has to master this challenge in the US (where BMW tends to sell

bigger cars with bigger engines). Improvements in aerodynamics, the energy

management system, lightweight construction and improved engine technology

will contribute to addressing these challenges.




Exhibit 196: BMW segment and geography split

2008 Geographic split per segmentWestern E. Europe EM EMEurope USA Japan Triad Brazil Russia India China BRIC ex Russia Asia RoW ex BRIC inc BRIC World

Passenger Cars 57% 22% 3% 83% 0% 2% 0% 5% 7% 2% 3% 5% 10% 17% 100%A 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%B 62% 23% 6% 91% 0% 0% 0% 1% 2% 1% 2% 4% 7% 9% 100%C 82% 5% 3% 90% 0% 1% 0% 0% 2% 2% 2% 4% 7% 10% 100%D 54% 25% 4% 83% 0% 2% 0% 3% 5% 2% 3% 7% 12% 17% 100%E 45% 26% 2% 74% 0% 3% 0% 11% 15% 3% 4% 5% 12% 26% 100%Other 51% 11% 12% 74% 0% 2% 0% 5% 6% 1% 2% 17% 19% 26% 100%

LCV 3% 0% 0% 3% 3% 0% 0% 0% 3% 15% 28% 51% 94% 97% 100%Total 57% 21% 3% 82% 0% 2% 0% 5% 7% 2% 3% 6% 12% 18% 100%

2008 Segment split per regionWestern E. Europe EM EMEurope USA Japan Triad Brazil Russia India China BRIC ex Russia Asia RoW ex BRIC inc BRIC World


LCV 0% 0% 0% 0% 22% 0% 0% 0% 1% 10% 11% 11% 11% 7% 1%Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

2008 Total sales split by segment and geographyWestern E. Europe EM EMEurope USA Japan Triad Brazil Russia India China BRIC ex Russia Asia RoW ex BRIC inc BRIC World


LCV 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 1% 1% 1% 1%Total 57% 21% 3% 82% 0% 2% 0% 5% 7% 2% 3% 6% 12% 18% 100%




Daimler

Exhibit 197: Daimler

Dec Y/E (€mn ) 2007 2008 2009E 2010E 2011E Stock performance relative to local/global market 2008 Sales by Geography Revenues 99,399 95,873 77,880 80,500 85,890 Revenues growth -4% -19% 3% 7%EBITDA 11,894 5,853 1,635 6,873 9,098 EBITDA Margin 12.0% 6.1% 2.1% 8.5% 10.6%EBIT 8,710 2,730 -1,766 3,274 5,334EBIT Margin 8.8% 2.8% -2.3% 4.1% 6.2%Net Income 3,979 1,348 -2,339 1,851 3,259EPS 3.8 1.4 -2.3 1.8 3.2DPS 2.0 0.6 0.6 0.6 1.0 Payout ratio 52% 43% -26% 33% 31%


Market cap 65,323 40,132 35,430 36,284 36,284 Net Debt (+debt/-cash) -12,912 -3,106 -5,738 -6,768 -8,442Pension 2,600 5,800 5,800 5,800 5,800Minorities 1,512 1,508 1,508 1,558 1,694Stakes -4,224 -2,580 -2,135 -2,135 -2,135EV (inc pensions) 52,299 41,754 34,865 34,739 33,200

ValuationEV/Sales 53% 44% 45% 43% 39%EV/EBITDA 4.4 7.1 21.3 5.1 3.6 Shareholder structure 2008 Sales by segmentEV/EBIT 6.0 15.3 -19.7 10.6 6.2P/E 13.5 24.5 17.3 10.8Dividend yield 3% 1% 2% 2% 3%CROCI 19% 11% 3% 10% 12%EV/GCI 1.0 0.7 0.6 0.6 0.5CROCI/WACC 2.30 1.24 0.40 1.14 1.41ROIC 13% 5% -3% 6% 9%EV/IC 1.4 0.9 0.9 0.9 0.8ROIC/WACC 1.5 0.6 -0.3 0.7 1.1PB 1.9 0.8 1.2 1.2 1.1ROE 10% 4% -7% 6% 9%Net Debt/EBITDA -1.1 -0.5 -3.5 -1.0 -0.9

Valuation (EV ex pension)EV (mn) 49,699 35,954 29,065 28,939 27,400 EV/Sales 50% 38% 37% 36% 32%EV/EBITDA 4.2 6.1 17.8 4.2 3.0EV/EBIT 5.7 13.2 -16.5 8.8 5.1EV/GCI 0.94 0.59 0.50 0.48 0.44 EV/IC 1.3 0.8 0.7 0.7 0.7

RoW7%

E. Europe4%

Asia4%

W Europe60%

USA15%

Japan4%

Brazil1%

Russia2%

India0.2% China

3%

Aabar Investment, 9%

Kuwait, 7%

Free float, 84%

LCV18%

Other1%

E33%

D23%

C18%

B1%

A6%

0

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Daimler Daimler vs. MSCI Europe Daimler vs. FTSE World




Exhibit 198: Daimler

(€ mn and %)


EV (pension) vs. CROCI EV/Sales vs. EBIT Margin EV/GCI vs. CROCI/WACC

-

10,000

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20082009E 2010E

2011E

20%

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-5.0% -3.0% -1.0% 1.0% 3.0% 5.0% 7.0% 9.0% 11.0%

EBIT Margin

EV

/Sal

es

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-4.0%

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Sales EBIT Margin

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CROCI/WACC

EV

/GC

I




Exhibit 199: Daimler scorecard details

(€)

Daimler DaimlerFactor Score Average Median Minimum Maximum Quintile

1. Pricing/mix ●●●●●1.1 Average unit price 39,781 18,220 15,885 7,501 39,781 ●●●●● 1.2 Price premium 84% 1% -11% -34% 84% ●●●●●

2. Low cost position ●●●2.1 Theoretical average labour cost 125 76 69 38 130 ●2.2 Units per Employee 12 26 23 12 50 ●2.3 Revenues per employee 515 419 415 301 529 ●●●●● 2.4 Break-even point 6% 1% 1% -4% 6% ●●●●● 2.5 Capacity utilisation 80% 83% 80% 73% 95% ●●●2.6 Growth adjusted capex/depreciation 1.0x 1.0x 1.0x 0.6x 1.6x ●●●2.7 Revenues/net assets 2.4x 2.6x 2.4x 1.9x 4.4x ●●●2.8 Research and development/Sales 0.0x 0.0x 0.0x 0.0x 0.1x ●●●

3. Economies of scale ●3.1 Size (unit sales) 1,273 4,436 4,244 1,273 8,356 ●3.2 Size (revenues) 57,054 76,360 64,507 17,099 138,955 ●●3.3 Average capacity in plants accounting for 80% of production 229 314 300 229 555 ●3.4.1 Percentage of cars produced on top five platforms 74% 77% 79% 42% 96% ●●3.4.2 Number of cars produced on top five platforms 1,219,162 2,827,677 2,644,685 1,219,162 5,378,733 ●3.5 Research and development budget 5,005 3,881 4,666 677 5,931 ●●●

4. Financial health ●●●●●4.1 Net Debt/EBITDA (2010) -1.0x 0.5x 0.7x -1.4x 3.3x ●●●●● 4.2 Credit Rating 5 8 7 1 16 ●●●●4.3 Future Margin (2011E) 6.2% 4.8% 5.0% 2.4% 6.2% ●●●●● 4.4 CROCI(2011) 11.9% 10.0% 10.1% 6.9% 12.5% ●●●●●

5. Growth ●5.1 Theoretical organic growth (geography) 2.1% 3.8% 3.4% 2.1% 6.8% ●5.2 Theoretical organic growth (segments) -9 50 59 -9 84 ●

Key Factors 2004 2005 2006 2007 2008 6. CO2 Efficiency ●Average unit price 40,455 39,309 41,069 40,543 37,527 6.1 CO2 : Distance to target (Europe) 30% 18% 18% 9% 30% ●Units per employee 12 12 12 13 14 6.2 CO2 : Distance to target (US) 42% 23% 22% 9% 42% ●Capacity utilisation 80% 78% 78% 83% 81% 6.3 CO2 : Last 3 year improvement (Europe) 4% 6% 5% 3% 18% ●●R&D/Sales 4.0% 3.7% 3.4% 4.2% 4.6% 6.4 CO2 : Last 3 year improvement (US) 5% 6% 6% 2% 11% ●●Capex/Depreciation 119% 102% 91% 109% 119%

Total ●●●

Group

0

1

2

3

4

51. Pricing/mix



4. Financial health

5. Growth

6. CO2 Efficiency

c




Exhibit 200: Daimler scorecard comments


Daimler has a strong average price realization in its Mercedes Car Group (MCG),

reflecting its strong brand premium. The group also benefits from its overall

product mix (a high share of larger cars with big engines and high vehicle content).

The average realized price is negatively impacted by a weakening US dollar as MCG

sells 15% into this important market. The fact that MCG’s real average price is

above the mix-based theoretical price highlights MCGs brand equity and ability to

achieve a price premium.

Daimler scores highly on financial health measures as a result of its net cash

position, above-average credit rating and our forecast recovery in margins and

ROIC over the coming years.


Daimler’s cost position score is in line with the industry average. On the

below-average side, Mercedes’ production footprint which is concentrated in

Germany and the US generates among the highest theoretical labour cost in the

industry. High product complexity and model mix skewed to larger vehicles results

in a low number of units produced per employee, relative to the industry average.

This is compensated by high revenues per employee and strong level of

profitability relative to average capacity utilization levels. Asset turnover, R&D

efficiency and investment efficiency have been in line with the industry average.

Given a low relative exposure to small cars, and below-average presence in BRIC

markets (just 5% of sales volumes in 2008 vs. 24% of the global market in volume

terms) Daimler scores below average on organic growth prospects. Further

expansion into small cars in the A and B segments is likely in our view, while

penetration in emerging markets is set to increase, we believe, as the premium

market develops in these regions.


At just 1.3mn units, it is relatively unsurprising that Daimler scores among the

lowest in the sector on measures of economies of scale. With auto revenue of

€57 bn (including associated financial services revenues) Daimler is over 20% below

the industry average, although we recognize that this ignores potential, but hard to

quantify, synergies with Daimler’s Van and Truck divisions. Average plant capacity

(for the top 80% of production) of 229K units is almost 100K units below the

industry average, and we believe driven by a combination of legacy plant

investment decisions and smaller overall volumes per model.

Daimler, as of 2008, had the greatest distance to improve to reach its target level of

CO2/fuel economy in Europe and the US, after delivering among the lowest

improvement over the last three years. Recent technology and design introductions

should aid this process, but will likely add both fixed and variable cost to Daimler

over the coming years.




Exhibit 201: Daimler segment and geography split



LCV 61% 0% 8% 70% 2% 2% 0% 0% 4% 10% 6% 10% 26% 30% 100%Total 61% 16% 4% 81% 1% 2% 0% 3% 5% 4% 4% 7% 14% 19% 100%



LCV 17% 0% 37% 15% 68% 18% 0% 0% 14% 47% 27% 25% 31% 27% 17%Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%



LCV 11% 0% 1% 12% 0% 0% 0% 0% 1% 2% 1% 2% 4% 5% 17%Total 61% 16% 4% 81% 1% 2% 0% 3% 5% 4% 4% 7% 14% 19% 100%




Fiat

Exhibit 202: Fiat

Dec Y/E (€mn ) 2007 2008 2009E 2010E 2011E Stock performance relative to local/global market 2008 Sales by Geography Revenues 58,529 59,380 48,109 49,559 55,569 Revenues growth 1% -19% 3% 12%EBITDA 5,890 5,873 3,859 4,857 6,294 EBITDA Margin 10.1% 9.9% 8.0% 9.8% 11.3%EBIT 3,152 2,972 725 1,571 2,887 EBIT Margin 5.4% 5.0% 1.5% 3.2% 5.2%Net Income 1,953 1,612 -469 532 1,579EPS 1.5 1.3 -0.4 0.4 1.3DPS 0.4 0.0 0.0 0.0 0.1Payout ratio 26% 0% 0% 0% 8%


Market cap 24,502 13,431 11,775 11,775 11,775 Net Debt (+debt/-cash) -355 5,949 4,877 3,819 2,477Pension 3,579 3,579 3,579 3,579 3,579Minorities 673 747 717 707 727Stakes 0 0 -2,000 -2,000 -2,000EV (inc pensions) 28,399 23,706 18,947 17,880 16,557

ValuationEV/Sales 49% 40% 39% 36% 30%EV/EBITDA 4.8 4.0 4.9 3.7 2.6 Shareholder structure 2008 Sales by segmentEV/EBIT 9.0 8.0 26.1 11.4 5.7P/E 12.8 8.7 23.5 7.9Dividend yield 2% 0% 0% 0% 1%CROCI 11% 9% 6% 8% 10%EV/GCI 0.6 0.4 0.4 0.3 0.3CROCI/WACC 1.26 1.07 0.74 0.99 1.21ROIC 11% 9% 2% 5% 9%EV/IC 1.4 1.0 0.8 0.8 0.7ROIC/WACC 1.3 1.2 0.3 0.6 1.1PB 2.1 0.5 1.3 1.2 1.0ROE 17% 15% -4% 5% 12%Net Debt/EBITDA -0.1 1.0 1.3 0.8 0.4

Valuation (EV ex pension)EV (mn) 24,820 20,127 15,368 14,301 12,978 EV/Sales 42% 34% 32% 29% 23%EV/EBITDA 4.2 3.4 4.0 2.9 2.1EV/EBIT 7.9 6.8 21.2 9.1 4.5EV/GCI 0.57 0.38 0.29 0.27 0.24 EV/IC 1.2 0.8 0.7 0.6 0.6

RoW5%

E. Europe7%

W Europe58%

Brazil28%

Russia1%

China1%

Free float, 70%

IFIL Investment Sp.A, 30%

LCV22%

Other3%

D5%

C8%

B47%

A15%

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FIAT Fiat vs. MSCI Europe Fiat vs.FTSE World




Exhibit 203: Fiat

(€ mn and %)


EV (pension) vs.CROCI EV/Sales vs. EBIT Margin EV/GCI vs. CROCI/WACC

-

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Exhibit 204: Fiat scorecard details

(€)

Fiat FiatFactor Score Average Median Minimum Maximum Quintile

1. Pricing/mix ●●●1.1 Average unit price 12,794 18,220 15,885 7,501 39,781 ●1.2 Price premium 9% 1% -11% -34% 84% ●●●●●

2. Low cost position ●●●●●2.1 Theoretical average labour cost 60 76 69 38 130 ●●●●● 2.2 Units per Employee 38 26 23 12 50 ●●●●● 2.3 Revenues per employee 529 419 415 301 529 ●●●●● 2.4 Break-even point 2% 1% 1% -4% 6% ●●●●2.5 Capacity utilisation 73% 83% 80% 73% 95% ●2.6 Growth adjusted capex/depreciation 1.0x 1.0x 1.0x 0.6x 1.6x ●●2.7 Revenues/net assets 2.4x 2.6x 2.4x 1.9x 4.4x ●●2.8 Research and development/Sales 0.0x 0.0x 0.0x 0.0x 0.1x ●●●●●

3. Economies of scale ●●3.1 Size (unit sales) 3,468 4,436 4,244 1,273 8,356 ●●3.2 Size (revenues) 59,966 76,360 64,507 17,099 138,955 ●●●3.3 Average capacity in plants accounting for 80% of production 322 314 300 229 555 ●●●●3.4.1 Percentage of cars produced on top five platforms 75% 77% 79% 42% 96% ●●●3.4.2 Number of cars produced on top five platforms 1,821,378 2,827,677 2,644,685 1,219,162 5,378,733 ●3.5 Research and development budget 2,423 3,881 4,666 677 5,931 ●●

4. Financial health ●●●4.1 Net Debt/EBITDA (2010) 0.8x 0.5x 0.7x -1.4x 3.3x ●●●4.2 Credit Rating 11 8 7 1 16 ●●4.3 Future Margin (2011E) 5.5% 4.8% 5.0% 2.4% 6.2% ●●●●4.4 CROCI(2011) 10.2% 10.0% 10.1% 6.9% 12.5% ●●●

5. Growth ●●●●5.1 Theoretical organic growth (geography) 3.4% 3.8% 3.4% 2.1% 6.8% ●●●5.2 Theoretical organic growth (segments) 79 50 59 -9 84 ●●●●●

Key Factors 2004 2005 2006 2007 2008 6. CO2 Efficiency ●●●Average unit price 11,943 12,722 12,843 12,909 13,553 6.1 CO2 : Distance to target (Europe) 14% 18% 18% 9% 30% ●●●●Units per employee 37 35 42 43 39 6.2 CO2 : Distance to target (US) - 23% 22% 9% 42% -Capacity utilisation 70% 72% 76% 76% 71% 6.3 CO2 : Last 3 year improvement (Europe) 5% 6% 5% 3% 18% ●●●R&D/Sales 3.9% 3.3% 3.1% 3.0% 3.3% 6.4 CO2 : Last 3 year improvement (US) - 6% 6% 2% 11% -Capex/Depreciation 113% 113% 126% 149% 187%

Total ●●●●

Group

0

1

2

3

4

51. Pricing/mix



4. Financial health

5. Growth

6. CO2 Efficiency




Exhibit 205: Fiat scorecard comments


Under the leadership of CEO Sergio Marchionne, Fiat has recorded a gradual

increase in its average realized price per vehicle. This is the result of an explicit

strategy which offers a basic car at a competitive price but without almost any

additional content (though this is available at additional cost). By pursuing this

strategy, Fiat has achieved a better price realization. Also, Fiat has started to focus

on its product mix within its product portfolio, working with special editions and

launching Amarth brand vehicles, all of which have helped improve Fiat’s average

pricing. Interestingly, based on our methodology, Fiat now achieves a small price

premium, when comparing the realized average price with the theoretical implied

average price based on mix.

Fiat ranks in line with the sector average on financial health, although the market

remains concerned about Fiat’s net debt levels and potential requirements to raise

capital given a poor credit rating. However, on our estimates, Fiat will be one of the

most profitable car makers in 2009 with positive cash generation. We expect Fiat’s

financial position to continue to improve, leveraging the company’s low cost

position into improving agricultural, truck and automotive markets.


On our analysis, Fiat has one of the lowest cost positions among or global auto

coverage group. Fiat enjoys comparatively low labour costs, helped by low cost

production capacity in Brazil and Poland. Fiat also benefits from higher labour

productivity, helped by its small car mix and competitive revenue per employee

ratio. The fact that Fiat has the lowest capacity utilization among our global

coverage group highlights further restructuring potential, or the ability to benefit

significantly from future volume growth.

Fiat ranks above average on its geographical and segment growth potential. This is

not surprising in our view, given its relatively strong market position in markets

outside the Triad, which accounts for 42% of group sales. Fiat also looks to benefit

from the structural mix-shift towards smaller, more fuel-efficient cars.


CEO Sergio Marchionne is on record as viewing Fiat’s scale as uncompetitive in a

global context. In his vision, Fiat should become a global small car producer and he

often uses the term ‘Walmart of the auto industry’ to visualize his strategic vision

for Fiat. To address this strategic disadvantage partially, Sergio Marchionne

pursued a partnership (including a 20% equity stake in return for management time

and technology sharing) with Chrysler. Together, both car makers become the fifth

largest manufacturer, with total production volume of 4.5 mn units. A start, but by

no means the end of the strategic vision. Fiat’s pursuit of ailing GM subsidiary Opel

failed, reflecting a lack of political support for what we considered an otherwise

sensible industrial solution.

As a small car producer, Fiat ranks in line with the industry average on CO2

efficiency measures. Having invented the common rail diesel technology, Fiat is

currently working on the development of a two-cylinder small car engine and has

also been able to develop a very good understanding of flex fuel engines given its

leading market position in Brazil, the major market for these kind of engines.




Exhibit 206: Fiat segment and geography split



LCV 50% 0% 0% 50% 26% 1% 0% 4% 31% 14% 0% 4% 19% 50% 100%Total 57% 0% 0% 58% 28% 1% 0% 1% 30% 7% 0% 5% 12% 42% 100%



LCV 20% 0% 0% 20% 21% 24% 0% 96% 24% 45% 38% 22% 36% 27% 23%Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%



LCV 11% 0% 0% 11% 6% 0% 0% 1% 7% 3% 0% 1% 4% 11% 23%Total 57% 0% 0% 58% 28% 1% 0% 1% 30% 7% 0% 5% 12% 42% 100%




Peugeot

Exhibit 207: Peugeot

Dec Y/E (€mn ) 2007 2008 2009E 2010E 2011E Stock performance relative to local/global market 2008 Sales by Geography Revenues 60,613 54,356 47,446 47,794 50,286 Revenues growth -10% -13% 1% 5%EBITDA 4,933 3,700 1,945 3,379 4,665 EBITDA Margin 8.1% 6.8% 4.1% 7.1% 9.3%EBIT 1,752 550 -762 236 1,584EBIT Margin 2.9% 1.0% -1.6% 0.5% 3.1%Net Income 885 -343 -1162 -179 808EPS 3.9 -1.5 -5.1 -0.8 3.5DPS 1.5 - - - - Payout ratio 39% 0% 0% 0% 0%


Market cap 12,917 7,927 5,472 5,472 5,472 Net Debt (+debt/-cash) -1,404 2,906 2,543 2,945 2,474Pension 885 699 699 699 699Minorities 310 134 117 132 202Stakes 0 0 0 0 0EV (inc pensions) 12,708 11,666 8,831 9,248 8,847

ValuationEV/Sales 21% 21% 19% 19% 18%EV/EBITDA 2.6 3.2 4.5 2.7 1.9 Shareholder structure 2008 Sales by segmentEV/EBIT 7.3 21.2 -11.6 39.2 5.6P/E 14.6 6.8Dividend yield 3% 0% 0% 0% 0%CROCI 8% 4% 1% 5% 7%EV/GCI 0.3 0.3 0.2 0.2 0.2CROCI/WACC 0.9 0.5 0.2 0.6 0.8ROIC 5% 2% -3% 0% 3%EV/IC 0.6 0.5 0.4 0.4 0.4ROIC/WACC 0.6 0.2 -0.3 0.0 0.4PB 0.8 0.2 0.5 0.5 0.4ROE 6% -3% -10% -2% 6%Net Debt/EBITDA -0.3 0.8 1.3 0.9 0.5

Valuation (EV ex pension)EV (mn) 11,823 10,967 8,132 8,549 8,148 EV/Sales 20% 20% 17% 18% 16%EV/EBITDA 2.4 3.0 4.2 2.5 1.7EV/EBIT 6.7 19.9 -10.7 36.2 5.1EV/GCI 0.29 0.26 0.21 0.22 0.21 EV/IC 0.5 0.5 0.3 0.4 0.3

China5%

Russia2% Brazil

5%Japan0.2%

W Europe65%

Asia0.5%

E. Europe6%

RoW17%

Free float, 64%

PSA corporate mutualfund, 3%

(4%)

Treasury stocks, 3%

Peugeot family, 30% (45%)

A6%

B33%

C28%

D16%

Other3%

LCV14%

0

50

100

150

200

250

300

350

400

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

PSA PSA vs. MSCI Europe PSA vs. FTSE World




Exhibit 208: Peugeot

(€ mn and %)

Group sales & Automotive EBIT margin Group EBIT and EBIT margin Capex and Capex as a % of sales


-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

E

2010

E

2011

E

0%

2%

4%

6%

8%

10%

12%

14%

16%


19981999

2000

2001

2002

2003

2004

20052006

2007

2008

2009E 2010E2011E

15%

17%

19%

21%

23%

25%

27%

29%

31%

33%

35%

-2% 0% 2% 4% 6%

EBIT Margin

EV

/Sal

es

05,000

10,00015,00020,00025,00030,00035,00040,00045,00050,00055,00060,00065,000

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

E

2010

E

2011

E

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Sales EBIT Margin

-1,000

-500

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

E

2010

E

2011

E

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

EBIT EBIT margin

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

E

2010

E

2011

E

0%

1%

2%

3%

4%

5%

6%

7%


1998

2000

2002

2009E 2010E 2011E

1999

2001

2003

2004

200520062007

2008

0.0x

0.1x

0.2x

0.3x

0.4x

0.5x

0.6x

0.0x

0.2x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

1.8x

CROCI/WACC

EV

/GC

I




Exhibit 209: Peugeot scorecard details

(€)

Peugeot PeugeotFactor Score Average Median Minimum Maximum Quintile

1. Pricing/mix ●●1.1 Average unit price 13,999 18,220 15,885 7,501 39,781 ●●1.2 Price premium -11% 1% -11% -34% 84% ●●●

2. Low cost position ●●●2.1 Theoretical average labour cost 84 76 69 38 130 ●●2.2 Units per Employee 23 26 23 12 50 ●●●2.3 Revenues per employee 331 419 415 301 529 ●2.4 Break-even point -2% 1% 1% -4% 6% ●2.5 Capacity utilisation 85% 83% 80% 73% 95% ●●●●2.6 Growth adjusted capex/depreciation 0.9x 1.0x 1.0x 0.6x 1.6x ●●●2.7 Revenues/net assets 2.7x 2.6x 2.4x 1.9x 4.4x ●●●●● 2.8 Research and development/Sales 0.0x 0.0x 0.0x 0.0x 0.1x ●●●●

3. Economies of scale ●●3.1 Size (unit sales) 3,081 4,436 4,244 1,273 8,356 ●●3.2 Size (revenues) 43,731 76,360 64,507 17,099 138,955 ●3.3 Average capacity in plants accounting for 80% of production 347 314 300 229 555 ●●●●● 3.4.1 Percentage of cars produced on top five platforms 85% 77% 79% 42% 96% ●●●●3.4.2 Number of cars produced on top five platforms 2,494,660 2,827,677 2,644,685 1,219,162 5,378,733 ●●●3.5 Research and development budget 2,187 3,881 4,666 677 5,931 ●

4. Financial health ●4.1 Net Debt/EBITDA (2010) 0.9x 0.5x 0.7x -1.4x 3.3x ●●4.2 Credit Rating 10 8 7 1 16 ●●4.3 Future Margin (2011E) 3.1% 4.8% 5.0% 2.4% 6.2% ●4.4 CROCI(2011) 6.9% 10.0% 10.1% 6.9% 12.5% ●

5. Growth ●●5.1 Theoretical organic growth (geography) 2.8% 3.8% 3.4% 2.1% 6.8% ●5.2 Theoretical organic growth (segments) 75 50 59 -9 84 ●●●●●

Key Factors 2004 2005 2006 2007 2008 6. CO2 Efficiency ●●●●●Average unit price 13,769 13,872 14,095 14,742 13,516 6.1 CO2 : Distance to target (Europe) 9% 18% 18% 9% 30% ●●●●● Units per employee 24 24 24 26 26 6.2 CO2 : Distance to target (US) - 23% 22% 9% 42% -Capacity utilisation 91% 87% 87% 84% 74% 6.3 CO2 : Last 3 year improvement (Europe) 5% 6% 5% 3% 18% ●●●R&D/Sales 3.8% 3.9% 3.9% 3.4% 4.4% 6.4 CO2 : Last 3 year improvement (US) - 6% 6% 2% 11% -Capex/Depreciation 119% 114% 87% 71% 73%

Total ●●

Group

0

1

2

3

4

51. Pricing/mix



4. Financial health

5. Growth

6. CO2 Efficiency




Exhibit 210: Peugeot scorecard comments


PSA suffers as a small car producer and underperforms French peer Renault and

Italian peer Fiat in terms of average price realization. As PSA’s European market

share is declining, the company appears to become more aggressive on price in

terms of incentives and promotions. Our analysis also reveals that PSA is

underperforming in terms of achieving a price premium relative to its theoretical

average price, as well as suffering currently from a negative country mix.

PSA’s financial health measures are among the weakest in the industry. PSA swung

from a net cash position of €1.4bn in 2007 to a net debt position of €2.9 bn at

end-2008 as a result of negative operating cash flow and negative working capital

developments, in part owing to changes in payment terms in France. PSA also

scores below average on our forecast EBIT and ROIC returns, given volume

headwinds in Europe in 2010E and the absence of a significant restructuring

response.


PSA’s cost position in aggregate is in line with the industry average, despite its

focus on smaller cars. Given production concentration in high-cost France,

theoretical average labour cost remains slightly below the industry average. Units

per employee are in line with the industry average, while low revenue per unit

results in below-average revenue per employee. Low profitability, despite very high

capacity utilization, translates into a below-average break-even point. Capacity

utilization remains above-average, as does asset turn (aided by PSA’s historically

negative net working capital position), while R&D spending remains in line with the

industry average.

PSA’s positioning in terms of growth prospects is mixed. The company scores

highly in terms of its positioning towards the structural shift in the market that we

expect towards small cars over the coming years. Geographically, PSA is below

average, having just 12% overall exposure to the BRIC economies and just 6% share

in China.


PSA’s size in terms of units and automotive revenues remains below the industry

average. Average plant size is better than average, with the top 80% of PSA’s plants

by size having an average capacity of 347K units, vs. the industry average of 314K.

PSA has historically been an industry leader in terms of platform strategies, and on

this measure the company is above-average, with 85% of its volumes coming from

PSA’s top-5 platforms vs. an industry average of 77%.

PSA scores among the highest of its peers on measures of CO2 efficiency. Not only

is the company among the closest to its target in Europe, it has also managed to

make improvements in CO2 emissions in line with the median of the industry over

the last three years in Europe. Given zero presence in North America, we score PSA

on CO2 efficiency based solely on its positioning in Europe.




Exhibit 211: Peugeot segment and geography split



LCV 77% 0% 0% 77% 1% 1% 0% 0% 2% 13% 0% 7% 21% 23% 100%Total 64% 0% 0% 65% 5% 2% 0% 5% 12% 6% 0% 17% 23% 35% 100%



LCV 17% 0% 0% 17% 3% 6% 0% 0% 2% 32% 3% 6% 13% 9% 14%Total 100% 0% 100% 100% 100% 100% 0% 100% 100% 100% 100% 100% 100% 100% 100%



LCV 11% 0% 0% 11% 0% 0% 0% 0% 0% 2% 0% 1% 3% 3% 14%Total 64% 0% 0% 65% 5% 2% 0% 5% 12% 6% 0% 17% 23% 35% 100%




Renault

Exhibit 212: Renault

Dec Y/E (€mn ) 2007 2008 2009E 2010E 2011E Stock performance relative to local/global market 2008 Sales by Geography Revenues 40,682 37,791 32,975 31,496 32,543 Revenues growth -7% -13% -4% 3%EBITDA 2,756 1,649 1,096 2,063 2,821 EBITDA Margin 6.8% 4.4% 3.3% 6.5% 8.7%EBIT 626 -494 -1042 -32 780EBIT Margin 1.5% -1.3% -3.2% -0.1% 2.4%Net Income 2,669 571 -2,592 307 1,042EPS 10.3 2.2 -10.1 1.2 4.1DPS 3.8 - - - 1.0 Payout ratio 37% 0% 0% 0% 25%


Market cap 25,830 13,727 8,535 8,535 8,535 Net Debt (+debt/-cash) 2,088 7,944 6,963 6,810 6,250Pension 1,203 1,203 1,056 1,056 1,056Minorities 492 457 497 547 607Stakes -15,277 -13,848 -14,571 -14,571 -14,571EV (inc pensions) 14,336 9,483 2,480 2,377 1,877

ValuationEV/Sales 35% 25% 8% 8% 6%EV/EBITDA 5.2 5.8 2.3 1.2 0.7 Shareholder structure 2008 Sales by segmentEV/EBIT 22.9 -19.2 -2.4 -73.6 2.4P/E 9.7 24.0 27.8 8.2Dividend yield 4% 0% 0% 0% 3%CROCI 8% 5% 4% 6% 7%EV/GCI 0.3 0.2 0.1 0.1 0.0CROCI/WACC 0.92 0.55 0.44 0.67 0.85ROIC 2% -2% -4% 0% 3%EV/IC 0.8 0.5 0.1 0.1 0.1ROIC/WACC 0.3 -0.3 -0.6 0.0 0.5PB 1.2 0.3 0.5 0.5 0.5ROE 12% 3% -15% 2% 6%Net Debt/EBITDA 0.8 4.8 6.4 3.3 2.2

Valuation (EV ex pension)EV (mn) 13,133 8,280 1,424 1,321 821 EV/Sales 32% 22% 4% 4% 3%EV/EBITDA 4.8 5.0 1.3 0.6 0.3EV/EBIT 21.0 -16.8 -1.4 -40.9 1.1EV/GCI 0.30 0.17 0.03 0.03 0.02 EV/IC 0.7 0.4 0.1 0.1 0.0

China0.2%

Russia5%

W Europe60%

E. Europe13%

RoW11%

French state, 15%

Nissan, 15%

Employees, 3%

Treasury stocks, 3%

Free float, 64%

A5%

B40%

C24%

D7%

E4%

Other4%

LCV16%

0

50

100

150

200

250

300

350

400

450

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Jan-

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Jan-

09

RENAULT Renault vs.MSCI Europe Renault vs. FTSE World




Exhibit 213: Renault

(€ mn and %)



-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1998

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2004

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E

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E

0%

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1998

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2009E 2010E 2011E

0%

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15%

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40%

45%

50%

-5% -3% -1% 1% 3% 5% 7%

EBIT Margin

EV

/Sal

es

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,00019

98

1999

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2004

2005

2006

2007

2008

2009

E

2010

E

2011

E

-4%

-3%

-2%

-1%

0%

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4%

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Sales EBIT Margin

-1,500

-1,000

-500

0

500

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2,000

1998

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2004

2005

2006

2007

2008

2009

E

2010

E

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E

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

EBIT EBIT margin

0

500

1,000

1,500

2,000

2,500

3,000

1998

1999

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2003

2004

2005

2006

2007

2008

2009

E

2010

E

2011

E

0%

1%

2%

3%

4%

5%

6%

7%

8%


1998

1999

20022008

2011E

2000

2001

2003

2004

2005

2006

2007

2009E2010E

0.0x

0.1x

0.1x

0.2x

0.2x

0.3x

0.3x

0.4x

0.4x

0.5x

0.5x

0.0x

0.2x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

CROCI/WACC

EV

/GC

I




Exhibit 214: Renault scorecard details

(€)

Renault RenaultFactor Score Average Median Minimum Maximum Quintile

1. Pricing/mix ●●●1.1 Average unit price 15,567 18,220 15,885 7,501 39,781 ●●●1.2 Price premium 3% 1% -11% -34% 84% ●●●●

2. Low cost position ●2.1 Theoretical average labour cost 74 76 69 38 130 ●●2.2 Units per Employee 20 26 23 12 50 ●●2.3 Revenues per employee 301 419 415 301 529 ●2.4 Break-even point 1% 1% 1% -4% 6% ●●●2.5 Capacity utilisation 74% 83% 80% 73% 95% ●2.6 Growth adjusted capex/depreciation 1.6x 1.0x 1.0x 0.6x 1.6x ●2.7 Revenues/net assets 2.5x 2.6x 2.4x 1.9x 4.4x ●●●●2.8 Research and development/Sales 0.1x 0.0x 0.0x 0.0x 0.1x ●

3. Economies of scale ●●●●3.1 Size (unit sales) 5,792 4,436 4,244 1,273 8,356 ●●●●3.2 Size (revenues) 96,579 76,360 64,507 17,099 138,955 ●●●3.3 Average capacity in plants accounting for 80% of production 298 314 300 229 555 ●●●3.4.1 Percentage of cars produced on top five platforms 85% 77% 79% 42% 96% ●●●●3.4.2 Number of cars produced on top five platforms 1,908,028 2,827,677 2,644,685 1,219,162 5,378,733 ●●3.5 Research and development budget 5,172 3,881 4,666 677 5,931 ●●●●

4. Financial health ●4.1 Net Debt/EBITDA (2010) 3.3x 0.5x 0.7x -1.4x 3.3x ●4.2 Credit Rating 13 8 7 1 16 ●4.3 Future Margin (2011E) 2.4% 4.8% 5.0% 2.4% 6.2% ●4.4 CROCI(2011) 7.2% 10.0% 10.1% 6.9% 12.5% ●

5. Growth ●●●5.1 Theoretical organic growth (geography) 3.0% 3.8% 3.4% 2.1% 6.8% ●●5.2 Theoretical organic growth (segments) 84 50 59 -9 84 ●●●●●

Key Factors 2004 2005 2006 2007 2008 6. CO2 Efficiency ●●Average unit price 15,430 15,567 16,276 15,550 15,015 6.1 CO2 : Distance to target (Europe) 11% 18% 18% 9% 30% ●●●●● Units per employee 20 20 20 21 19 6.2 CO2 : Distance to target (US) - 23% 22% 9% 42% -Capacity utilisation 82% 81% 72% 73% 63% 6.3 CO2 : Last 3 year improvement (Europe) 3% 6% 5% 3% 18% ●R&D/Sales 4.9% 5.5% 5.8% 6.1% 5.9% 6.4 CO2 : Last 3 year improvement (US) - 6% 6% 2% 11% -Capex/Depreciation 139% 153% 172% 155% 149%

Total ●●

Group

0

1

2

3

4

51. Pricing/mix



4. Financial health

5. Growth

6. CO2 Efficiency




Exhibit 215: Renault scorecard comments


Renault’s price/mix position remains in line with the industry average. An average

unit price of €15,600 is below the global mean of €18,200, but in line with the

median figure of €15,800. Renault’s average price remains above that predicted by

our mix model, indicating a potential above-average price premium. It also reflects

measures from 2006 onwards to reduce its exposure to discounted sales channels.

Renault has among the lowest scores for financial health; we forecast a net debt

position of just less than €7 bn for end-2009. We do not include the value of Nissan

or Volvo in this measure, given the absence of a clear management commitment to

monetise all or part of the value of these stakes. Renault’s low score is also

attributable to our below-average EBIT and ROIC forecast for the business in

2010/2011, given volume headwinds from Renault's key Western European market

in 2010, post the end of scrappage schemes.


Renault has among the lowest scores for its overall cost position. A large

manufacturing footprint in Western Europe results in an average labour cost score

above the industry median. Capacity utilization on a straight line basis remains low

at 74%, reflecting lower than expected growth levels in recent years. Similarly,

capex/depreciation in recent years has been high, relative to the growth delivered,

as emerging market ambitions and market share gains in Europe have failed to

match expectations. Asset turn remains above the industry average, although in

part this reflects (as with PSA) the benefit of historical negative net working capital,

a feature which is likely to be more difficult to maintain going forward as a result of

changes to payment terms in France in 2009.

Renault has an average growth score. The company scores above average on

segment exposure, reflecting its above average sales mix towards smaller A and B

segment vehicles (which we expect to take an increasing share of the global market

through 2010-2020E). With almost zero direct sales exposure to the Chinese market,

and a high dependence on Western Europe (60% of unit sales), Renault scores

below average on geographic sales exposure.


Renault scores above average on economies of scale. Given Renaults' 44% equity

stake in Nissan and a high level of operational integration through the Renault-

Nissan Purchasing Organisation, we have included combined Nissan and Renault

figures for unit sales, revenues and R&D budget. Average plant capacity of 298K is

in line with the industry median of 300K units. Renault is also further down its

platform convergence strategy than other manufacturers, with 85% of Renault

volume coming from its top-5 platforms vs. an industry average of 77%.

Renault scores slightly below average on CO2 efficiency measures. The company

has one of the narrowest gaps to its 2015 CO2 emissions target in Europe, but has

made among the lowest improvements in Europe over the last three years. Given

zero direct sales exposure to the US market, we have based Renault's overall score

solely on its positioning within Europe.




Exhibit 216: Renault segment and geography split



LCV 72% 0% 0% 72% 2% 0% 0% 0% 2% 16% 0% 9% 26% 28% 100%Total 60% 0% 0% 60% 5% 5% 1% 0% 11% 13% 5% 11% 29% 40% 100%



LCV 19% 0% 0% 19% 5% 1% 0% 0% 3% 19% 1% 12% 14% 11% 15%Total 100% 0% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%



LCV 11% 0% 0% 11% 0% 0% 0% 0% 0% 3% 0% 1% 4% 4% 15%Total 60% 0% 0% 60% 5% 5% 1% 0% 11% 13% 5% 11% 29% 40% 100%




Volkswagen

Exhibit 217: Volkswagen

Dec Y/E (€mn ) 2007 2008 2009E 2010E 2011E Stock performance relative to local/global market 2008 Sales by Geography Revenues 108,897 113,808 106,258 103,983 108,954 Revenues growth - 5% -7% -2% 5%EBITDA 10,933 10,388 6,741 7,266 10,544 EBITDA Margin 10.0% 9.1% 6.3% 7.0% 9.7%EBIT 5,545 5,526 1,550 1,795 4,873 EBIT Margin 5.1% 4.9% 1.5% 1.7% 4.5%Net Income 4,120 4,753 1,063 1,750 4,272 EPS 10.4 12.0 2.6 4.4 10.7 DPS 1.9 2.0 2.0 2.0 2.1 Payout ratio 18% 17% 75% 46% 19%


Market cap 45,818 73,529 32,342 32,323 32,306Net Debt (+debt/-cash) -13,478 -8,039 -10,964 -9,767 -10,896Pension 12,603 12,603 12,955 12,955 12,955Minorities 63 2,377 2,377 2,377 2,377 Stakes -9,814 -5,876 -6,914 -6,780 -6,780EV (inc pensions) 35,191 74,593 29,797 31,108 29,962

ValuationEV/Sales 32% 66% 28% 30% 27%EV/EBITDA 3.2 7.2 4.4 4.3 2.8 Shareholder structure 2008 Sales by segmentEV/EBIT 6.3 13.5 19.2 17.3 6.1 P/E 7.9 7.1 21.8 13.2 5.4Dividend yield 2% 2% 3% 3% 4%CROCI 18% 10% 6% 6% 8%EV/GCI 48% 75% 30% 30% 28%CROCI/WACC 2.1 1.2 0.7 0.7 1.0ROIC 9% 8% 2% 2% 6%EV/IC 0.8 1.3 0.5 0.6 0.5ROIC/WACC 1.1 0.9 0.2 0.3 0.7PB 1.2 0.4 0.7 0.7 0.6ROE 13% 13% 3% 5% 11%Net Debt/EBITDA -1.2 -0.8 -1.6 -1.3 -1.0

Valuation (EV ex pension)EV (mn) 22,588 61,990 16,842 18,153 17,007 EV/Sales 21% 54% 16% 17% 16%EV/EBITDA 2.1 6.0 2.5 2.5 1.6EV/EBIT 4.1 11.2 10.9 10.1 3.5EV/GCI 0.3 0.6 0.2 0.2 0.2EV/IC 0.5 1.1 0.3 0.3 0.3

RoW8%

E. Europe7%

Asia1%

W Europe48%

USA6%

Japan1%

Brazil10%

Russia2%

India0.3%

China17%

Free float, 43%

Porsche Automobil holding

, 37% (51%)

Qatar holding, 5% (6.8%)

State of Lower Saxony, 15%

(20%)

LCV6%Other

2%E8%

D16%

C42%

B22%

A4%

0

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VW Pref VW vs. MSCI Europe VW vs. FTSE World




Exhibit 218: Volkswagen

(€ mn and %)



-

10,000

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2011E

10%

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0% 1% 2% 3% 4% 5% 6%

EBIT Margin

EV

/Sal

es

010,00020,00030,00040,00050,00060,00070,00080,00090,000

100,000110,000120,000

1998

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E

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EBIT EBIT margin

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2005 2006

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2010E 2011E

0.0x

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1.1x

1.3x

1.5x

1.7x

1.9x

2.1x

2.3x

CROCI/WACC

EV

/GC

I




Exhibit 219: Volkswagen scorecard details

(€)

VW VWFactor Score Average Median Minimum Maximum Quintile

1. Pricing/mix ●●●●●1.1 Average unit price 18,578 18,220 15,885 7,501 39,781 ●●●●● 1.2 Price premium 8% 1% -11% -34% 84% ●●●●

2. Low cost position ●●2.1 Theoretical average labour cost 68 76 69 38 130 ●●●●2.2 Units per Employee 16 26 23 12 50 ●2.3 Revenues per employee 325 419 415 301 529 ●2.4 Break-even point 0% 1% 1% -4% 6% ●●●2.5 Capacity utilisation 83% 83% 80% 73% 95% ●●●2.6 Growth adjusted capex/depreciation 0.6x 1.0x 1.0x 0.6x 1.6x ●●●●● 2.7 Revenues/net assets 2.2x 2.6x 2.4x 1.9x 4.4x ●●2.8 Research and development/Sales 0.0x 0.0x 0.0x 0.0x 0.1x ●●

3. Economies of scale ●●●●●3.1 Size (unit sales) 5,283 4,436 4,244 1,273 8,356 ●●●3.2 Size (revenues) 109,943 76,360 64,507 17,099 138,955 ●●●●● 3.3 Average capacity in plants accounting for 80% of production 329 314 300 229 555 ●●●●3.4.1 Percentage of cars produced on top five platforms 69% 77% 79% 42% 96% ●●3.4.2 Number of cars produced on top five platforms 4,237,548 2,827,677 2,644,685 1,219,162 5,378,733 ●●●●● 3.5 Research and development budget 4,666 3,881 4,666 677 5,931 ●●●

4. Financial health ●●●●4.1 Net Debt/EBITDA (2010) -1.4x 0.5x 0.7x -1.4x 3.3x ●●●●● 4.2 Credit Rating 4 8 7 1 16 ●●●●4.3 Future Margin (2011E) 5.0% 4.8% 5.0% 2.4% 6.2% ●●●4.4 CROCI(2011) 8.2% 10.0% 10.1% 6.9% 12.5% ●

5. Growth ●●●●5.1 Theoretical organic growth (geography) 4.1% 3.8% 3.4% 2.1% 6.8% ●●●●5.2 Theoretical organic growth (segments) 74 50 59 -9 84 ●●●●

Key Factors 2004 2005 2006 2007 2008 6. CO2 Efficiency ●Average unit price 18,053 18,274 19,101 18,767 18,695 6.1 CO2 : Distance to target (Europe) 20% 18% 18% 9% 30% ●●Units per employee 14 15 17 18 18 6.2 CO2 : Distance to target (US) 33% 23% 22% 9% 42% ●●Capacity utilisation 79% 77% 85% 90% 84% 6.3 CO2 : Last 3 year improvement (Europe) 4% 6% 5% 3% 18% ●R&D/Sales 4.7% 4.3% 4.0% 4.5% 5.2% 6.4 CO2 : Last 3 year improvement (US) 2% 6% 6% 2% 11% ●Capex/Depreciation 98% 79% 63% 85% 133%

Total ●●●●●

Group

0

1

2

3

4

51. Pricing/mix



4. Financial health

5. Growth

6. CO2 Efficiency




Exhibit 220: Volkswagen scorecard comments


Volkswagen achieves the best average price realization across all global

manufactures (apart from premium makers BMW and Daimler). While VW’s average

is supported by premium brand Audi’s above-average price point, Volkswagen’s

brand is the most desirable volume brand in Europe, commanding a high

single-digit price premium over volume peers. The Volkswagen and Audi brand

equity is highlighted by the average realized price for the group, which is

significantly above the theoretical and mix-based derived average price.

VW achieves an above-average score in terms of financial health. The group has

€12 bn of net cash and a strong credit rating and should be able to improve its

relative cost position through good top-line growth. We forecast above-average

operating margins and capital returns for VW, compared to our coverage group.


Despite its scale, Volkswagen ranks below average in terms of low cost position,

highlighting the further potential for efficiency gains and cost savings. Although

VW appears to enjoy a comparatively low labour cost position, it does suffer from

an apparently low labour productivity and low revenues by employee. We

recognize that the inclusion of Audi is negatively impacting the results. Volkswagen

does, however, benefit from a good score in terms of capital discipline, a key area

of focus of CFO Hans-Dieter Poetsch. With average break-even points and capacity

utilization, Volkswagen scores below average on capital efficiency (i.e. capital turn),

highlighting another area in which VW can improve its overall cost position in the

industry.

VW scores highly in terms of growth. The company is well positioned to benefit

from geographical and segmental growth. VW’s sales footprint is almost balanced

between Triad and emerging markets. The Triad accounts for 55% of sales with

emerging markets contributing 45%. Also, VW is well positioned to benefit from the

mix-shift towards smaller, more fuel-efficient cars. Almost 70% of VW’s products

are within the A, B, and C segments.


Including equity-accounted China joint ventures, VW benefits from industry-leading

scale, the benefit of which is fully realized by VW’s platform/component strategy.

The latest evolution of VW’s platform strategy aims to develop two sets of

component concepts, the MLQ (longitudinal) and MQB (transverse) systems for the

Audi and VW/Seat/Skoda brands respectively. VW has been leading the industry for

many years in terms of platform/component strategies, in an attempt to maximize

its ‘relevant’ scale. VW also scores well in terms of the average capacity of plants

which account for 80% of the group’s production.

VW scores rather poorly on our measures of CO2 efficiency. The group has made

below-average progress towards achieving 2015/2016 targets in Europe and the US

compared to other companies in our global coverage universe. At the same time,

our analysis suggests that VW has to make more progress than the average

automotive company in terms of reducing the CO2 emissions of its cars. This score

is most likely negatively impacted by Audi, which naturally would inflate the CO2

data.




Exhibit 221: VW segment and geography split



LCV 52% 0% 0% 52% 16% 2% 0% 0% 18% 20% 3% 8% 31% 48% 100%Total 49% 6% 1% 55% 10% 2% 0% 17% 29% 7% 1% 8% 16% 45% 100%



LCV 7% 0% 0% 6% 10% 5% 0% 0% 4% 17% 15% 6% 12% 7% 6%Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%



LCV 3% 0% 0% 3% 1% 0% 0% 0% 1% 1% 0% 0% 2% 3% 6%Total 49% 6% 1% 55% 10% 2% 0% 17% 29% 7% 1% 8% 16% 45% 100%




Ford

Exhibit 222: Ford

Dec Y/E USD (mn) 2007 2008 2009E 2010E 2011E Stock performance relative to local/global market 2008 Sales by Geography Revenues 154,379 129,166 104,411 119,909 129,131 Revenues growth -16% -19% 15% 8%EBITDA 6,367 2,108 3,542 10,082 12,917 Pension/OPEB expense 2126 1479 751 548 545Adj EBITDA 8493 3587 4292 10630 13461Adj EBITDA Margin 5.5% 2.8% 4.1% 8.9% 10.4%EBIT -396 -3713 -775 4601 6477Adjusted EBIT 1730 -2234 -24 5148 7021Adj EBIT Margin 1.1% -1.7% 0.0% 4.3% 5.4%Net Income -366 -7101 -824 2514 3902EPS 0 -3 0 1 1DPS 0 0 0 0 0Payout ratio 0% 0% 0% 0% 0%

Capex -5,971 -6,620 -5,030 -6,577 -7,084Capex as % sales 4% 5% 5% 5% 5%Book value PS 3 -8 -3 -2 -2Invested capital 62,414 59,428 52,202 51,309 51,661 Gross Cash Invested 71,950 66,682 72,811 76,355 82,247

Market cap 16,098 11,556 26,520 30,498 31,095 Net Debt (+debt/-cash) -6,340 10,173 10,475 9,246 7,101Pension 27,484 28,159 18,880 18,880 18,880Minorities 1,421 1,195 1,480 1,748 2,029Book Value of FMCC -12,095 -9,301 -7,613 -7,863 -8,150EV (inc pensions) 26,568 41,782 49,742 52,509 50,955

Shareholder structure 2008 Sales by segmentValuationEV/Sales 17% 32% 48% 44% 39%EV/EBITDA 3.1 11.6 11.2 4.9 3.8EV/EBIT 15.4 -18.7 363.0 10.2 7.3P/E 12.1 8.0Dividend yield 0% 0% 0% 0% 0%CROCI 5% -3% 4% 9% 13%EV/GCI 0.4 0.6 0.5 0.5 0.4CROCI/WACC 0.60 -0.38 0.42 1.06 1.49ROIC 1% -5% 0% 7% 10%EV/IC 0.4 0.7 1.0 1.0 1.0ROIC/WACC 0.1 -0.6 0.0 0.9 1.2PB 2.4 ROE -5% 44% 10% -37% -114%Net Debt/EBITDA -0.7 2.8 2.4 0.9 0.5

Valuation (EV ex pension)EV (mn) NA 13,623 30,862 33,629 32,075 EV/Sales NA 11% 30% 28% 25%EV/EBITDA NA 3.8 7.2 3.2 2.4EV/EBIT NA -6.1 -1288.4 6.5 4.6EV/GCI NA 0.2 0.4 0.4 0.4EV/IC NA 0.2 0.6 0.7 0.6

RoW11%

E. Europe4%

Asia3% W Europe

30%

USA38%

Japan0.2%

Brazil5%

Russia4%

India1%

China4%

Free float , 97%

Ford family, 3% (40%) LCV

19%

Other0%

E6%

D38%

C23%

B12%

A2%

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Ford Ford vs. S&P 500 Ford vs. FTSE World




Exhibit 223: Ford

(US$ mn and %)


EV (pension) vs. ROIC EV/Sales vs. EBIT Margin EV/GCI vs. CROCI/WACC

-

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EBIT Margin

EV

/Sal

es

010,00020,00030,00040,00050,00060,00070,00080,00090,000

100,000110,000120,000130,000140,000150,000160,000170,000

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Sales EBIT Margin

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CROCI/WACC

EV

/GC

I




Exhibit 224: Ford scorecard details

(€)

Ford FordFactor Score Average Median Minimum Maximum Quintile

1. Pricing/mix ●●1.1 Average unit price 17,194 18,220 15,885 7,501 39,781 ●●●1.2 Price premium -13% 1% -11% -34% 84% ●●

2. Low cost position ●●2.1 Global Labor Footprint 88 76 69 38 130 ●2.2 Units per Employee 23 26 23 12 50 ●●●2.3 Revenues per employee 454 419 415 301 529 ●●●2.4 Break-even point -4% 1% 1% -4% 6% ●2.5 Capacity utilisation 80% 83% 80% 73% 95% ●●●2.6 Growth adjusted capex/depreciation 0.9x 1.0x 1.0x 0.6x 1.6x ●●●●●2.7 Revenues/net assets 2.4x 2.6x 2.4x 1.9x 4.4x ●●●2.8 Research and development/Sales 0.0x 0.0x 0.0x 0.0x 0.1x ●●

3. Economies of scale ●●●●3.1 Size (unit sales) 5,532 4,436 4,244 1,273 8,356 ●●●●3.2 Size (revenues) 99,150 76,360 64,507 17,099 138,955 ●●●●3.3 Average capacity in plants accounting for 80% of production 284 314 300 229 555 ●●3.4.1 Percentage of cars produced on top five platforms 56% 77% 79% 42% 96% ●3.4.2 Number of cars produced on top five platforms 2,871,025 2,827,677 2,644,685 1,219,162 5,378,733 ●●●3.5 Research and development budget 5,709 3,881 4,666 677 5,931 ●●●●●

4. Financial health ●●4.1 Net Debt/EBITDA (2010E) 1.0x 0.5x 0.7x -1.4x 3.3x ●4.2 Credit Rating 15 8 7 1 16 ●4.3 Future Margin (2011E) 5.0% 4.8% 5.0% 2.4% 6.2% ●●●4.4 CROCI(2011E) 12.0% 10.0% 10.1% 6.9% 12.5% ●●●●●

5. Growth ●5.1 Theoretical organic growth (geography) 3.4% 3.8% 3.4% 2.1% 6.8% ●●5.2 Theoretical organic growth (segments) 28 50 59 -9 84 ●

Key Factors 2004 2005 2006 2007 2008 6. CO2 Efficiency ●●●●Average unit price 17,400 18,220 17,292 17,188 15,870 6.1 CO2 : Distance to target (Europe) 18% 18% 18% 9% 30% ●●●Units per employee 27 26 27 32 32 6.2 CO2 : Distance to target (US) 24% 23% 22% 9% 42% ●●●Capacity utilisation 82% 81% 81% 83% 75% 6.3 CO2 : Last 3 year improvement (Europe) 7% 6% 5% 3% 18% ●●●●R&D/Sales 4.3% 4.5% 4.5% 4.3% 5.0% 6.4 CO2 : Last 3 year improvement (US) 11% 6% 6% 2% 11% ●●●●●Capex/Depreciation 105% 92% 76% 89% 115%

Total ●●

Group

0

1

2

3

4

51. Pricing/mix



4. Financial health

5. Growth

6. CO2 Efficiency




Exhibit 225: Ford scorecard comments


This is an area where we expect to see an improvement relative to Ford’s history, as

the company has fundamentally shifted from a discount strategy (moving as much

volume as it can to cover fixed costs), to operating with a smaller but more

profitable market share. Correspondingly, the company has reduced inventories to

75 days supply in October, from 103 days in October of last year. We also see

broader price improvements for the entire market, as the Big Three have

announced plans to take more than 2.2 mn units of North American capacity out of

the system. Correspondingly, Ford has seen price increases in North America in

each of the last two quarters. We see this as partially offset by mix headwinds as

the US market continues to gravitate towards small cars as gas prices are likely to

rise in line with an economic recovery.

This remains a disadvantage for Ford, as we believe it will take until 2011 to

properly de-lever its balance sheet and achieve levels of profitability that are in line

with the industry average. We believe Ford has the edge in terms of profitability

over GM, as it is further along in its revenue management efforts, with a stronger

product range that is likely to continue to drive share gains in our view. However,

Ford’s debt balance of US$26.8 bn is a disadvantage relative to GM, which exited

bankruptcy with a much smaller debt load of US$17.3 bn. As such, we believe

further capital structure actions to address Ford’s leverage are likely.


Even with pricing benefits, we believe GM and Ford will have a revenue and

contribution per unit disadvantage relative to European and Japanese peers given

their weaker brand positioning. As such, cost will be a key competitive factor. While

Ford screens poorly on this metric today, we believe the significant restructuring

the company has done and continues to undertake will materially change its cost

profile going forward. We forecast Ford’s global capacity utilization to exceed 80%

by 2011 (from an estimated 62% currently), and we have identified restructuring

opportunities which we believe can drive fixed costs as a percentage of sales to

28%, from an estimated 34% currently.

On our scorecard, Ford is below average in the growth category. The main reason

for its relative underperformance is the current under-representation of segments

such as small cars (where we expect faster growth as gas prices recover) and its

relatively small presence in emerging markets (15% of 2008 sales). Nevertheless,

we believe growth prospects are better than these historical metrics might suggest

for two reasons: (1) In the near term, Ford has high exposure to the North American

market where we expect sales to outperform every other country in 2010, with the

exception of Russia; and, (2) Ford is also converting truck capacity to broaden its

offerings in passenger cars. Its current target is to transform its product portfolio

from 48% cars and crossovers in 2007 to 60% cars and crossovers by 2010.


Ford has a significant advantage in terms of scale, which we believe will continue to

play a critical role in allowing it to make the kinds of technology investments it

needs to succeed over the next decade. Ford ranks fourth globally in terms of sales,

and has the second largest capex budget of all the OEMs. It looses a little ground in

terms of the concentration of its production as it has below-average volume on a

per platform basis, although this is an area the company continues to improve on.

Its ultimate goal is having 80% of its volume coming from eight global platforms.

On powertrain technology, Ford comes in above average on our scorecard and well

above GM, reflecting the significant investment it has made in its engine

programme. While Ford has invested in electrification as well, the core of vehicles

is benefiting from cost-effective technologies such as turbo charging, gasoline

direct injection, and six speed transmissions. Fleet fuel economy should climb

further as Ford’s new eco-boost engines are extended to 85% of nameplates by

2012 and 95% by 2015.




Exhibit 226: Ford segment and geography split



LCV 21% 12% 0% 34% 8% 2% 0% 3% 12% 7% 8% 39% 54% 66% 100%Total 30% 37% 0% 67% 5% 4% 1% 4% 14% 4% 3% 11% 19% 33% 100%



LCV 14% 6% 0% 9% 27% 8% 0% 15% 17% 35% 45% 64% 54% 38% 19%Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%



LCV 4% 2% 0% 6% 1% 0% 0% 1% 2% 1% 1% 7% 10% 12% 19%Total 30% 37% 0% 67% 5% 4% 1% 4% 14% 4% 3% 11% 19% 33% 100%




GM

Exhibit 227: GM scorecard details

(€)

GM GMFactor Score Average Median Minimum Maximum Quintile

1. Pricing/mix ●1.1 Average unit price 13,870 18,220 15,885 7,501 39,781 ●●1.2 Price premium -33% 1% -11% -34% 84% ●

2. Low cost position ●●●●2.1 Theoretical average labour cost 73 76 69 38 130 ●●●2.2 Units per Employee 33 26 23 12 50 ●●●●2.3 Revenues per employee 463 419 415 301 529 ●●●●2.4 Break-even point -2% 1% 1% -4% 6% ●2.5 Capacity utilisation 80% 83% 80% 73% 95% ●●2.6 Growth adjusted capex/depreciation 0.9x 1.0x 1.0x 0.6x 1.6x ●●●●● 2.7 Revenues/net assets 3.3x 2.6x 2.4x 1.9x 4.4x ●●●●● 2.8 Research and development/Sales 0.0x 0.0x 0.0x 0.0x 0.1x ●●●

3. Economies of scale ●●●●●3.1 Size (unit sales) 8,356 4,436 4,244 1,273 8,356 ●●●●● 3.2 Size (revenues) 101,259 76,360 64,507 17,099 138,955 ●●●●● 3.3 Average capacity in plants accounting for 80% of production 244 314 300 229 555 ●3.4.1 Percentage of cars produced on top five platforms 42% 77% 79% 42% 96% ●3.4.2 Number of cars produced on top five platforms 3,247,992 2,827,677 2,644,685 1,219,162 5,378,733 ●●●●3.5 Research and development budget 5,443 3,881 4,666 677 5,931 ●●●●●

4. Financial health ●4.1 Net Debt/EBITDA (2010) - 0.5x 0.7x -1.4x 3.3x -4.2 Credit Rating 16 8 7 1 16 ●4.3 Future Margin (2011E) - 4.8% 5.0% 2.4% 6.2% -4.4 CROCI(2011) - 10.0% 10.1% 6.9% 12.5% -

5. Growth ●●●5.1 Theoretical organic growth (geography) 4.1% 3.8% 3.4% 2.1% 6.8% ●●●●● 5.2 Theoretical organic growth (segments) 40 50 59 -9 84 ●●

Key Factors 2004 2005 2006 2007 2008 6. CO2 Efficiency ●Average unit price 14,446 14,027 14,983 13,879 12,017 6.1 CO2 : Distance to target (Europe) 20% 18% 18% 9% 30% ●●Units per employee 31 30 33 35 34 6.2 CO2 : Distance to target (US) 26% 23% 22% 9% 42% ●●Capacity utilisation 81% 83% 83% 82% 70% 6.3 CO2 : Last 3 year improvement (Europe) 3% 6% 5% 3% 18% ●R&D/Sales 3.4% 3.5% 3.3% 4.5% 5.4% 6.4 CO2 : Last 3 year improvement (US) 2% 6% 6% 2% 11% ●Capex/Depreciation 90% 81% 96% 91% 93%

Total ●●

Group

0

1

2

3

4

51. Pricing/mix



4. Financial health

5. Growth

6. CO2 Efficiency




Exhibit 228: GM scorecard comments


While GM clearly lags peers in terms of pricing we do expect an improvement

relative to history as the company has significantly reduced its fixed-cost footprint,

allowing it to produce a smaller number of more profitable vehicles. This is in stark

contrast to the last several years, when GM was discounting heavily to “move the

metal” and cover fixed costs. The company has reduced inventories to about 70

days supply in October from 126 days in the same period last year. We also expect

GM to see better pricing from capacity reductions across the industry. That said, we

believe its price improvement lags Ford, as we do not believe the company has yet

found a market share bottom, opening the door to greater incentive spending. We

also see a mix headwind at GM in coming years, though one that is likely to be less

pronounced than at Ford, as trucks are a smaller part of its overall portfolio.

A still shrinking market share (on our estimates), and a general need to re-focus on

the product post the considerable distractions leading up to bankruptcy are likely to

present a tough backdrop. GM has one relative advantage, however, lower leverage

– the company has emerged from Chapter 11 with a dramatically reduced debt

balance of US$17.3 bn vs. Ford’s debt balance of US$26.8 bn. Using GM’s own cash

projections and EBITDA projections from Evercore provided in the bankruptcy

filings, GM would have net leverage of 0.6x on 2010 EBITDA versus 1.1x for Ford.


As with Ford, we believe low cost positioning will be a key factor for GM over the

next several years. Having shuttered plants, reduced wages, and lowered retiree

expense under Chapter 11, we see GM’s cost structure as much more competitive

going forward. The company has a target of bringing its North America fixed cost

base to below US$24 bn by 2010, from over US$30 bn in 2008. Under this new

footprint, the company has estimated it could be breakeven with US sales of 10-10.5

mn versus a breakeven point 16-17 mn just a few years ago. We note that the

company recently said that its breakeven point may shift due to changes from fresh

start accounting.

GM is below average in the growth category of our scorecard, which is mostly due

to its significant truck mix relative to its global peers. GM screens relatively well on

geographic growth, due to its relatively large presence in emerging markets which

accounted for 27% of sales in 2008. Emerging markets should account for an even

higher proportion as we go forward. We believe that future growth prospects may

be better than these metrics imply, given improved near-term volume prospects in

the US and the company’s drive to bolster its presence in small cars.


Like Ford, GM has a significant advantage in scale, ranking third largest globally in

terms of sales and capex spending. This is a key competitive advantage in a world

of increasing environmental regulation. On the flip side, GM is penalized in this

category for having below-average platform concentration. We believe reducing

this manufacturing complexity will represent an important cost opportunity for the

company going forward.

On powertrain technology GM comes in below average. The company has invested

in many of the high return ICE technologies that will be needed to meet the first

phase of government regulation. However, these technologies have not been rolled

out as broadly to its global product portfolio as they have at some competitors.

With Chapter 11 behind it, the company is now refocusing more management

resources on the product. A clear objective is an improved powertain programme

and GM intends to have 23 models with over 30 MPG by 2012.




Hyundai

Exhibit 229: Hyundai

Dec Y/E (Kwon mn) 2007 2008 2009E 2010E 2011E Stock performance relative to local/global market 2008 Sales by Geography Revenues 69,601,516 79,736,351 78,372,239 81,260,226 85,508,650Revenues growth 15% -2% 4% 5%EBITDA 5,634,455 6,514,973 7,493,860 7,682,734 8,014,633EBITDA Margin 8.1% 8.2% 9.6% 9.5% 9.4%EBIT 2,848,022 3,072,043 4,171,993 4,215,527 4,414,347EBIT Margin 4.1% 3.9% 5.3% 5.2% 5.2%Net Income 1,514,087 799,894 1,809,112 1,792,774 1,920,342EPS 6,954 3,637 8,213 8,139 8,718DPS 1,000 850 900 1,000 1,200Payout ratio 14% 23% 11% 12% 14%

Capex -2,137,937 -5,042,280 -4,000,000 -4,000,000 -4,000,000Capex as % sales 3% 6% 5% 5% 5%Book value PS 80,006 86,572 93,625 100,491 107,797Invested capital 39,207,937 46,846,254 48,679,756 48,575,417 49,100,818Gross Cash Invested 49,551,964 60,412,804 66,184,705 68,823,208 71,290,867

Market cap 15,099,497 14,974,712 22,027,648 22,027,648 22,027,648Net Debt (+debt) 16,410,301 20,066,161 19,103,835 17,590,177 15,808,631Pension 0 0 0 0 0Minorities 5,956,816 5,951,086 6,466,298 6,978,725 7,529,726EV (inc pensions) 37,466,614 40,991,959 47,597,781 46,596,549 45,366,005

ValuationEV/Sales 54% 51% 61% 57% 53%EV/EBITDA 6.6 6.3 6.4 6.1 5.7 Shareholder structure 2008 Sales by segmentEV/EBIT 13.2 13.3 11.4 11.1 10.3P/E 10.0 18.9 12.2 12.3 11.5Dividend yield 1% 1% 1% 1% 1%CROCI 11% 4% 8% 9% 9%EV/GCI 0.8 0.7 0.7 0.7 0.6CROCI/WACC 1.3 0.5 1.0 1.0 1.1ROIC 5% 5% 6% 6% 6%EV/IC 1.0 0.9 1.0 1.0 0.9ROIC/WACC 0.7 0.6 0.8 0.8 0.8PB 0.9 0.5 1.1 1.0 0.9ROE 6% 3% 7% 6% 6%Net Debt/EBITDA 2.9 3.1 2.5 2.3 2.0

Valuation (EV ex pension)EV (mn) 37,466,614 40,991,959 47,597,781 46,596,549 45,366,005EV/Sales 54% 51% 61% 57% 53%EV/EBITDA 6.6 6.3 6.4 6.1 5.7EV/EBIT 13.2 13.3 11.4 11.1 10.3EV/GCI 0.8 0.7 0.7 0.7 0.6EV/IC 1.0 0.9 1.0 1.0 0.9

China11%

India5%

Russia6%

Brazil1%

USA15%

W Europe10%

Asia23%

E. Europe5%

RoW24%

v

A19%

B8%

C38%

D24%

E1%

Other0.3%

LCV10%

Free Float, 75%

Treasury, 5%

Hyundai Mobis, 16% (22%)

MK Chung & Family, 4.%

(5.%)

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Hyundai Hyundai vs. TOPIX Hyundai vs. FTSE World




Exhibit 230: Hyundai

(Won mn and %)



-

5,000,000

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EBIT Margin

EV

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EBIT EBIT margin

19992000

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0.0x

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1.0x

1.2x

1.4x

1.6x

1.8x

2.0x

CROCI/WACC

EV

/GC

I




Exhibit 231: Hyundai scorecard details

(€)

Hyundai HyundaiFactor Score Average Median Minimum Maximum Quintile

1. Pricing/mix ●1.1 Average unit price 12,150 18,220 15,885 7,501 39,781 ●1.2 Price premium -31% 1% -11% -34% 84% ●

2. Low cost position ●●●●2.1 Theoretical average labour cost 49 76 69 38 130 ●●●●● 2.2 Units per Employee 36 26 23 12 50 ●●●●● 2.3 Revenues per employee 460 419 415 301 529 ●●●●2.4 Break-even point 3% 1% 1% -4% 6% ●●●●2.5 Capacity utilisation 80% 83% 80% 73% 95% ●●2.6 Growth adjusted capex/depreciation 1.2x 1.0x 1.0x 0.6x 1.6x ●2.7 Revenues/net assets 2.2x 2.6x 2.4x 1.9x 4.4x ●2.8 Research and development/Sales 0.0x 0.0x 0.0x 0.0x 0.1x ●●●●●

3. Economies of scale ●●●3.1 Size (unit sales) 4,244 4,436 4,244 1,273 8,356 ●●●3.2 Size (revenues) 50,331 76,360 64,507 17,099 138,955 ●3.3 Average capacity in plants accounting for 80% of production 555 314 300 229 555 ●●●●● 3.4.1 Percentage of cars produced on top five platforms 84% 77% 79% 42% 96% ●●●3.4.2 Number of cars produced on top five platforms 3,493,140 2,827,677 2,644,685 1,219,162 5,378,733 ●●●●3.5 Research and development budget 1,356 3,881 4,666 677 5,931 ●

4. Financial health ●●4.1 Net Debt/EBITDA (2010) 2.3x 0.5x 0.7x -1.4x 3.3x ●4.2 Credit Rating 8 8 7 1 16 ●●●4.3 Future Margin (2011E) 5.2% 4.8% 5.0% 2.4% 6.2% ●●●●4.4 CROCI(2011) 9.4% 10.0% 10.1% 6.9% 12.5% ●●

5. Growth ●●●●5.1 Theoretical organic growth (geography) 5.8% 3.8% 3.4% 2.1% 6.8% ●●●●● 5.2 Theoretical organic growth (segments) 59 50 59 -9 84 ●●●

Key Factors 2004 2005 2006 2007 2008 6. CO2 Efficiency ●●●●●Average unit price 10,778 11,973 13,557 13,244 11,199 6.1 CO2 : Distance to target (Europe) 15% 18% 18% 9% 30% ●●●●Units per employee 32 34 34 35 37 6.2 CO2 : Distance to target (US) 12% 23% 22% 9% 42% ●●●●● Capacity utilisation 81% 83% 86% 74% 76% 6.3 CO2 : Last 3 year improvement (Europe) 11% 6% 5% 3% 18% ●●●●● R&D/Sales 2.8% 3.0% 2.9% 2.7% 2.7% 6.4 CO2 : Last 3 year improvement (US) 6% 6% 6% 2% 11% ●●●Capex/Depreciation 170% 156% 130% 157% 144%

Total ●●●●

Group

0

1

2

3

4

51. Pricing/mix



4. Financial health

5. Growth

6. CO2 Efficiency




Exhibit 232: Hyundai scorecard comments


Hyundai arguably scores poorly on the pricing mix metric for two reasons: (1) its

product-mix overseas is yet to improve; and, (2) recent currency weakness has

allowed it to price its products more competitively. We believe that the high ratio of

fleet sales overseas also contributes to this. However, we believe that as it

continues to improve its product-mix overseas (such as the recent introduction of

premium sedan Genesis in the US market), it is slowly raising its price points. Even

in the European market, we expect its new plants to focus more on the C/D

segment, raising its ASPs. Hyundai is consciously trying to move up the value

chain, as it believes that its current pricing points may come under further pressure

when Chinese carmakers begin to export more. It is still a work in progress

however, and may come undone if residual values are weakened further by fleet

sales.

In an industry with poor financials, many investors argue Hyundai’s financials

appear reasonable. Korean regulations allow only parent accounts to be filed every

quarter, and it is only in the fully consolidated accounts that problems can be

identified. The net debt/EBITDA ratio for the company remains quite high (even by

industry standards). Substantial capex plans, to be followed by significant R&D for

next-generation powertrains, could hold the ratio at high levels. Hyundai’s returns

have deteriorated in the past few years, and though currency weakness in 2009

appears to have helped, this could be a fleeting recovery. We also believe that the

high level of fleet sales will continue for a while, as new capacity comes on stream,

and that financing these sales could keep leverage high while making returns

structurally lower.


Until now, this has been the great strength of Hyundai’s as it operates from a

country with relatively low costs, especially for white-collar executives and

engineers. Additionally, Korea has traditionally been a country with low material

costs, thanks to an efficient supply chain. Having a dominant 70% share of domestic

production has also given Hyundai much power with its suppliers. However, as it

grows its manufacturing plants globally, it will likely need to hire local workers and

increase local suppliers – this might adversely impact its position on the cost curve.

Even the strengthening won could raise the company’s costs at home, where

blue-collar wages have risen quite fast, thanks to annual strikes and negotiations.

It is on the outlook for growth that Hyundai really outperforms its peers on our

scorecard. In terms of its geographical reach, it has a well-balanced portfolio: it has

a decent, and growing, 5% share in the US market, while also retaining top-3

positions in India and China (where its capacity now exceeds 1mn units). Its growth

in Europe should accelerate, following the planned start (in November 2009) of its

first plant in Europe in the Czech Republic (subsidiary Kia already runs a plant in

Slovakia). It is also setting up a plant in Russia (where sales used to be strong

before the recent collapse of the market) and is considering one in Brazil. Overall,

its capacity should rise to 6.5 mn units by 2012, from 4 mn at the end of 2005.

Growth has a price, however: fast growth in capacity means that Hyundai may need

to continue using incentives and fleet sales until such time as demand catches up

with its capacity.


When the company was making 3 mn cars in one country – 1.7 mn of them in the

world’s largest-single car plant at Ulsan, South Korea – Hyundai enjoyed huge

economies of scale. It also helped that Hyundai did not have a very diversified

product range. However, as it has expanded beyond Korean shores, such

economies of scale have fallen. We expect that by 2012, Hyundai will increase its

capacity to 6.5 mn units (from just 4 mn at the end of 2005). Most of this is likely to

be overseas, with plants in the US, Eastern Europe and China set to account for

almost half of its capacity. While each plant is at least 300,000 units in size (and

individually, they will have minimum economic size), this process could still reduce

Hyundai’s overall efficiencies. However, there are few car companies set to produce

over 6 mn cars from such few large, modern, fully automated plants, suggesting

that Hyundai should remain quite efficient compared to peers.

Though Hyundai is yet to bring its first full hybrid to the market, it has managed to

cut its CO2 emissions considerably in the past three years. While having a portfolio

of smaller, lighter cars has helped, that portfolio has been growing larger in recent

years. Even with this growth, Hyundai is reasonably close to regulatory CO2 targets

in Europe and the US. Hyundai aims to bring its first full hybrid to the market by

2010, and the first plug-in EV by 2013.




Exhibit 233: Hyundai segment and geography split



LCV 2% 0% 0% 2% 14% 2% 0% 0% 15% 4% 49% 30% 83% 98% 100%Total 10% 15% 0% 25% 1% 6% 5% 11% 24% 5% 23% 24% 51% 75% 100%



LCV 2% 0% 0% 1% 83% 2% 0% 0% 6% 7% 19% 11% 15% 12% 9%Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%



LCV 0% 0% 0% 0% 1% 0% 0% 0% 1% 0% 4% 3% 7% 9% 9%Total 10% 15% 0% 25% 1% 6% 5% 11% 24% 5% 23% 24% 51% 75% 100%




Honda

Exhibit 234: Honda

March Y/E (Yen mn) 2007/2008 2008/2009 2009/2010 2010/2011 2011/2012 Stock performance relative to local/global market 2008 Sales by Geography Revenues 12,002,834 10,011,241 8,620,000 9,490,000 10,410,000Revenues growth 8% -17% -14% 10% 10%EBITDA 1,370,409 597,843 621,000 838,000 891,000EBITDA Margin 11.4% 6.0% 7.2% 8.8% 8.6%EBIT 953,109 189,643 241,000 500,000 575,000EBIT Margin 7.9% 1.9% 2.8% 5.3% 5.5%Net Income 600,039 137,005 195,200 387,700 439,200EPS 330.5 75.5 107.6 213.7 242.0 DPS 86.0 63.0 32.0 60.0 70.0 Payout ratio 26% 83% 30% 28% 29%

Capex -654,000 -599,100 -390,000 -429,000 -500,000Capex as % sales 5% 6% 5% 5% 5%Book value PS 2,504.4 2,208.4 2,284.0 2,437.6 2,609.7 Invested capital 4,858,915 5,460,494 5,162,356 5,521,076 5,393,905 Gross Cash Invested 5,179,906 5,980,263 6,384,154 6,865,011 7,424,114

Market cap 6,955,602 5,123,487 5,071,705 5,071,705 5,071,705Net Debt (+debt/-cash) -705,296 98,531 -195,025 -149,092 -38,625Other EV adjustment -222,110 -133,234 -133,200 -133,200 -133,200Pension 1,329,061 1,329,061 1,329,061 1,329,061 1,329,061Minorities 87,460 87,460 87,460 87,460 87,460EV (inc pensions) 7,444,716 6,505,305 6,160,001 6,205,933 6,316,400

ValuationEV/Sales 63% 65% 71% 65% 61%EV/EBITDA 5.5 10.9 9.9 7.4 7.1 Shareholder structure 2008 Sales by segmentEV/EBIT 7.9 34.3 25.6 12.4 11.0 P/E 11.6 37.4 26.0 13.1 11.5Dividend yield 2% 2% 1% 2% 3%CROCI 24% 11% 12% 13% 12%EV/GCI 1.4 1.1 1.0 0.9 0.9CROCI/WACC 2.79 1.31 1.47 1.54 1.48ROIC 15% 3% 3% 7% 7%EV/IC 1.5 1.2 1.2 1.1 1.2ROIC/WACC 1.9 0.3 0.4 0.8 0.9PB 1.1 1.0 1.2 1.1 1.1ROE 13% 3% 5% 9% 9%Net Debt/EBITDA -0.5 0.2 -0.3 -0.2 0.0

Valuation (EV ex pension)EV (mn) 6,115,655 5,176,244 4,830,940 4,876,872 4,987,339 EV/Sales 51% 52% 56% 51% 48%EV/EBITDA 4.5 8.7 7.8 5.8 5.6EV/EBIT 6.4 27.3 20.0 9.8 8.7EV/GCI 1.18 0.87 0.76 0.71 0.67 EV/IC 1.3 0.9 0.9 0.9 0.9

China12%India1%

Russia3%

Brazil3%

Japan16%

USA38%

W Europe6%

Asia9%

E. Europe2%

RoW10%

Treasury stocks, 2%

Free float, 98%

A5%

B18%

C36%

D32%

E4%

LCV5%

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Honda Honda vs.TOPIX Honda vs. FTSE World




Exhibit 235: Honda

(Yen mn and %)



0

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2005

2006

2007

2008

2009

E

2010

E

2011

E

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

EBIT EBIT margin

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

E

2010

E

2011

E

0%

1%

2%

3%

4%

5%

6%

7%


0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

8000000

9000000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

E

2010

E

2011

E

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

EV (mn) Pension ROIC

2006

2011E

20002001

2002

2003

2004 20052007

2008

2009E

2010E

40%

45%

50%

55%

60%

65%

70%

75%

0% 2% 4% 6% 8% 10% 12%

EBIT Margin

EV

/Sal

es

1999

2000

2002

20082009E

2010E

1998 2001

2003

20042005

2006

2007

2011E

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

1.0x

1.2x

1.4x

1.6x

1.8x

2.0x

2.2x

2.4x

2.6x

2.8x

3.0x

CROCI/WACC

EV

/GC

I




Exhibit 236: Honda scorecard details

(€)

Honda HondaFactor Score Average Median Minimum Maximum Quintile

1. Pricing/mix ●●1.1 Average unit price 15,885 18,220 15,885 7,501 39,781 ●●●1.2 Price premium -15% 1% -11% -34% 84% ●●

2. Low cost position ●●●2.1 Theoretical average labour cost 69 76 69 38 130 ●●●2.2 Units per Employee 29 26 23 12 50 ●●●●2.3 Revenues per employee 415 419 415 301 529 ●●●2.4 Break-even point 1% 1% 1% -4% 6% ●●●2.5 Capacity utilisation 91% 83% 80% 73% 95% ●●●●● 2.6 Growth adjusted capex/depreciation 1.4x 1.0x 1.0x 0.6x 1.6x ●2.7 Revenues/net assets 3.1x 2.6x 2.4x 1.9x 4.4x ●●●●● 2.8 Research and development/Sales 0.1x 0.0x 0.0x 0.0x 0.1x ●

3. Economies of scale ●●●3.1 Size (unit sales) 3,517 4,436 4,244 1,273 8,356 ●●●3.2 Size (revenues) 57,531 76,360 64,507 17,099 138,955 ●●3.3 Average capacity in plants accounting for 80% of production 273 314 300 229 555 ●●3.4.1 Percentage of cars produced on top five platforms 96% 77% 79% 42% 96% ●●●●● 3.4.2 Number of cars produced on top five platforms 3,799,579 2,827,677 2,644,685 1,219,162 5,378,733 ●●●●● 3.5 Research and development budget 3,681 3,881 4,666 677 5,931 ●●●

4. Financial health ●●●●●4.1 Net Debt/EBITDA (2010) -0.2x 0.5x 0.7x -1.4x 3.3x ●●●●4.2 Credit Rating 2 8 7 1 16 ●●●●● 4.3 Future Margin (2011E) 5.5% 4.8% 5.0% 2.4% 6.2% ●●●●● 4.4 CROCI(2011) 12.5% 10.0% 10.1% 6.9% 12.5% ●●●●●

5. Growth ●●●5.1 Theoretical organic growth (geography) 4.0% 3.8% 3.4% 2.1% 6.8% ●●●●5.2 Theoretical organic growth (segments) 61 50 59 -9 84 ●●●

Key Factors 2004 2005 2006 2007 2008 6. CO2 Efficiency ●●●Average unit price 15,891 17,142 16,224 14,964 15,204 6.1 CO2 : Distance to target (Europe) 18% 18% 18% 9% 30% ●●●Units per employee 33 30 28 28 25 6.2 CO2 : Distance to target (US) 9% 23% 22% 9% 42% ●●●●● Capacity utilisation 89% 91% 90% 94% 89% 6.3 CO2 : Last 3 year improvement (Europe) 4% 6% 5% 3% 18% ●●R&D/Sales 5.4% 5.2% 5.0% 4.9% 5.6% 6.4 CO2 : Last 3 year improvement (US) 5% 6% 6% 2% 11% ●●●Capex/Depreciation 165% 175% 165% 160% 144%

Total ●●●●

Group

0

1

2

3

4

51. Pricing/mix



4. Financial health

5. Growth

6. CO2 Efficiency




Exhibit 237: Honda scorecard comments


Honda’s production platform covers compact to mid-sized passenger vehicles, and

while its sales prices trend at the average, it maintains top-class profitability. Honda

has low exposure to large vehicles such as pickup trucks, but is generally highly

evaluated by JD Power in the used vehicle price band. It is therefore able to enjoy a

price premium in this segment. We believe Honda will continue to focus on

compact and mid-sized vehicles, and sales prices should stay stable. Honda is

developing Acura as a premium brand, but still faces stiff competition from Lexus,

BMW, Mercedes, etc.

After Toyota, Honda has the highest credit rating, and maintains a net cash

position. The company carries out its own sales financing, mainly in the US, and

has about ¥5 tn worth of loan assets. Its high credit rating allows it to keep fund

procurement costs low, and to channel resources to sales.


Honda scores higher than average on cost competitiveness. It has proved cautious

on capex, in order to maintain relatively high capacity utilization. It was in the lead

in postponing new factory investment when auto demand started to slump from the

second half of 2008. The withdrawal of F1 indicates its aggressive attitude on

cutting variable/fixed costs. We believe Honda can be the first of the Japanese Big 3

to return to profitability, and it has the highest visibility on recovering peak-period

margins.

Honda had an average score in terms of growth potential. Although strong in

compact/mid-sized vehicles, its major regional presence is in the US and Japan. In

recent years, it has started to more actively introduce new vehicles into the Chinese

market and has boosted production in Dongfeng and Guangzhou. Honda has not

revealed a clear strategy on low-priced vehicles for emerging markets. However, as

a motorization culture starts to spread in China and elsewhere, customers will likely

move from low-end to middle-end vehicles, and Honda’s low-price positioning will

not be the sole factor in determining future potential. Honda is also the world’s

number one motorcycle manufacturer. Motorcycle demand growth in emerging

markets is striking, and this survey (which focuses mainly on 4-wheel vehicles) may

not have fully captured that potential.


Annual sales of 3.5 mn are in line with the survey average. However, Honda

displays sales efficiency per product. Mainstay products like the Civic, Accord, Fit

and CR-V account for two-thirds of sales. Honda has not been aggressive on tie-

ups/acquisitions, and we believe it is likely to pursue an independent course.

Honda scored higher than average in its fuel efficiency score. It is well placed to

respond to US fuel consumption standards with its highly fuel-efficient gasoline

engines in the passenger vehicle segment. Honda also introduced its Insight Hybrid

globally in 2009 (mild hybrid) and is looking to achieve the same status as Toyota

as a hybrid maker. Future developments include the development of a strong

hybrid that could be equipped on large vehicles, and the introduction of an under-

2L diesel engine for the European market.




Exhibit 238: Honda segment and geography split



LCV 0% 0% 20% 20% 5% 0% 0% 0% 5% 1% 24% 51% 75% 80% 100%Total 6% 38% 16% 60% 3% 3% 1% 12% 20% 2% 9% 10% 20% 40% 100%



LCV 0% 0% 6% 2% 7% 0% 0% 0% 1% 1% 14% 26% 18% 10% 5%Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%



LCV 0% 0% 1% 1% 0% 0% 0% 0% 0% 0% 1% 2% 4% 4% 5%Total 6% 38% 16% 60% 3% 3% 1% 12% 20% 2% 9% 10% 20% 40% 100%




Nissan

Exhibit 239: Nissan

March Y/E (Yen mn) 2006/2007 2007/2008 2008/2009 2009/10E 2010/11E Stock performance relative to local/global market 2008 Sales by Geography Revenues 10,824,238 8,436,974 7,560,000 8,040,000 8,368,000Revenues growth 3% -22% -10% 6% 4%EBITDA 1,166,513 288,062 574,783 689,783 771,900EBITDA Margin 10.8% 3.4% 7.6% 8.6% 9.2%EBIT 790,830 -137,921 180,000 300,000 390,000EBIT Margin 7.3% -1.6% 2.4% 3.7% 4.7%Net Income 482,261 -233,709 24,000 168,000 220,100EPS 117.8 -57.4 5.9 41.2 54.0 DPS 40.0 11.0 11.0 12.0 20.0 Payout ratio 34% -19% 187% 29% 37%

Capex -428,900 -383,600 -325,000 -340,000 -400,000Capex as % sales 4% 5% 4% 4% 5%Book value PS 860 645 640 669 703Invested capital 5,886,574 5,331,191 5,153,814 5,137,695 4,688,849Gross Cash Invested 9,908,509 9,869,033 8,001,246 8,539,980 8,938,392

Market cap 4,763,822 2,523,617 2,594,705 2,594,705 2,594,705Net Debt (+debt/-cash) 684,774 910,995 1,172,697 1,142,417 968,742Other EV adjustment -942,551 -483,959 -843,563 -889,689 -902,954Pension 480,771 480,771 480,771 480,771 480,771Minorities 342,765 298,331 298,331 313,248 410,392EV (inc pensions) 5,329,581 3,729,755 3,702,940 3,641,451 3,551,655

ValuationEV/Sales 49% 44% 49% 45% 42%EV/EBITDA 4.6 12.9 6.4 5.3 4.6 Shareholder structure 2008 Sales by segmentEV/EBIT 6.7 -27.0 20.6 12.1 9.1P/E 9.9 108.1 15.4 11.8Dividend yield 3% 2% 2% 2% 3%CROCI 10% 10% 9% 10% 10%EV/GCI 0.5 0.4 0.5 0.4 0.4CROCI/WACC 1.16 1.22 1.02 1.15 1.18ROIC 9% -2% 2% 4% 6%EV/IC 0.9 0.7 0.7 0.7 0.8ROIC/WACC 1.2 -0.2 0.3 0.5 0.7PB 1.0 0.5 1.0 1.0 0.9ROE 13% -8% 1% 6% 7%Net Debt/EBITDA 0.6 3.2 2.0 1.7 1.3

Valuation (EV ex pension)EV (mn) 4,848,810 3,248,984 3,222,169 3,160,680 3,070,884EV/Sales 45% 39% 43% 39% 37%EV/EBITDA 4.2 11.3 5.6 4.6 4.0EV/EBIT 6.1 -23.6 17.9 10.5 7.9EV/GCI 0.5 0.3 0.4 0.4 0.3 EV/IC 0.8 0.6 0.6 0.6 0.7

China11%Russia

5% Brazil0.5%

Japan20%

USA27%

W Europe11%

Asia6%

E. Europe2%

RoW18%

Treasury stocks, 3%

Free float, 53%

Renault, 44% (46%)

LCV17%

Other0%

E7%

D28%

C32%

B13%

A3%

0

50

100

150

200

250

300

350

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Nissan Nissan vs.TOPIX Nissan vs. FTSE World




Exhibit 240: Nissan

(Yen mn and %)



0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,00019

97

1998

1999

2000

2001

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2003

2004

2005

2006

2007

2008

2009

E

2010

E

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Sales EBIT Margin

-200,000

0

200,000

400,000

600,000

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1,000,000

1997

1998

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2000

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2004

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2006

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2008

2009

E

2010

E

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

EBIT EBIT margin

0

100,000

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500,000

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1999

2000

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2004

2005

2006

2007

2008

2009

E

2010

E

2011

E

0%

1%

2%

3%

4%

5%

6%

7%


2000

2001

2002

2003

2004

20052006

2007

2008

2009E

2010E

1999

1998

40%

45%

50%

55%

60%

65%

70%

75%

80%

85%

90%

-5% 0% 5% 10% 15%

EBIT Margin

EV

/Sal

es

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

1998

1999

2 00 0

2001

2 00 2

2003

2 00 4

2005

2 00 6

2007

2 00 8

2 00 9

E

2010

E

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%


1999

2000

2002

2001

2003

20042005

2006

2007

2008

2009E 2010E

2011E

0.2x

0.3x

0.4x

0.5x

0.6x

0.7x

0.8x

0.9x

1.0x

0.2x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

1.8x

CROCI/WACC

EV

/GC

I




Exhibit 241: Nissan scorecard details

(€)

Nissan NissanFactor Score Average Median Minimum Maximum Quintile

1. Pricing/mix ●●●1.1 Average unit price 17,414 18,220 15,885 7,501 39,781 ●●●●1.2 Price premium -11% 1% -11% -34% 84% ●●●

2. Low cost position ●2.1 Theoretical average labour cost 68 76 69 38 130 ●●●2.2 Units per Employee 20 26 23 12 50 ●●2.3 Revenues per employee 354 419 415 301 529 ●●2.4 Break-even point 6% 1% 1% -4% 6% ●●●●● 2.5 Capacity utilisation 76% 83% 80% 73% 95% ●2.6 Growth adjusted capex/depreciation 1.1x 1.0x 1.0x 0.6x 1.6x ●●2.7 Revenues/net assets 1.9x 2.6x 2.4x 1.9x 4.4x ●2.8 Research and development/Sales 0.0x 0.0x 0.0x 0.0x 0.1x ●●●

3. Economies of scale ●●●●3.1 Size (unit sales) 5,792 4,436 4,244 1,273 8,356 ●●●●3.2 Size (revenues) 96,579 76,360 64,507 17,099 138,955 ●●●3.3 Average capacity in plants accounting for 80% of production 313 314 300 229 555 ●●●3.4.1 Percentage of cars produced on top five platforms 79% 77% 79% 42% 96% ●●●3.4.2 Number of cars produced on top five platforms 2,644,685 2,827,677 2,644,685 1,219,162 5,378,733 ●●●3.5 Research and development budget 5,172 3,881 4,666 677 5,931 ●●●●

4. Financial health ●●4.1 Net Debt/EBITDA (2010) 0.8x 0.5x 0.7x -1.4x 3.3x ●●4.2 Credit Rating 7 8 7 1 16 ●●●4.3 Future Margin (2011E) 4.7% 4.8% 5.0% 2.4% 6.2% ●●4.4 CROCI(2011) 10.0% 10.0% 10.1% 6.9% 12.5% ●●●

5. Growth ●●5.1 Theoretical organic growth (geography) 3.8% 3.8% 3.4% 2.1% 6.8% ●●●5.2 Theoretical organic growth (segments) 43 50 59 -9 84 ●●

Key Factors 2004 2005 2006 2007 2008 6. CO2 Efficiency ●●●Average unit price 17,857 18,099 18,704 16,534 15,876 6.1 CO2 : Distance to target (Europe) 23% 18% 18% 9% 30% ●Units per employee 19 20 19 24 20 6.2 CO2 : Distance to target (US) 15% 23% 22% 9% 42% ●●●●Capacity utilisation 77% 83% 75% 73% 73% 6.3 CO2 : Last 3 year improvement (Europe) 6% 6% 5% 3% 18% ●●●●R&D/Sales 4.6% 4.7% 4.4% 3.7% 4.7% 6.4 CO2 : Last 3 year improvement (US) 11% 6% 6% 2% 11% ●●●●● Capex/Depreciation 134% 126% 129% 104% 90%

Total ●●

Group

0

1

2

3

4

51. Pricing/mix



4. Financial health

5. Growth

6. CO2 Efficiency




Exhibit 242: Nissan scorecard comments


Nissan scored above average in this category. The company has a wide product

mix from compact to large-size, and is developing the Infiniti as a luxury brand,

mainly in the US. The Global A platform will be introduced from 2010 (targeting 1

mn unit sales), signaling Nissan’s commitment to the development of low-priced

vehicles and their introduction to emerging markets. Sales prices may of course

fall, but of the Japanese Big 3, Nissan has expressed the strongest commitment to

expanding sales volumes in emerging markets.

The result was below average in terms of credit rating/potential return. However,

Nissan’s D/E ratio and shareholders’ equity ratio look stable coming out of the

credit crunch (e.g. from the second half of 2008). We forecast consecutive operating

losses for Renault over 2008-2010, and forecast a continuing weak financial

situation. Nissan’s equity-method earnings will act as a drag on periodic earnings.

Renault’s financial position may also lower Nissan’s flexibility on fund

procurement. Nissan also runs a sales financing business in the US. Its rating is

lower versus Toyota and Honda, but we believe it can maintain profitability in this

segment.


An analysis of Nissan’s costs puts the company below the average. We believe this

may be related to the fairly unfavorable results of a 2008 CSM analysis of Nissan’s

capacity utilization and net assets (including its financing business). However, we

believe Nissan’s cost reductions —including layoffs— have been progressing above

market expectations from 2HCY08, and this may not necessarily be entirely factored

into the report under discussion. We expect lower costs on Nissan’s cost

management in the expanding Chinese market and use of the new “A” platform.

Nissan scored in line with the average on growth potential. This reflects a high

sales weighting in the US/Japan. The company has been aggressive introducing

new vehicles to the Chinese market and has achieved high growth. The Global A

platform will be introduced from 2010 (targeting 1 mn sales units), signaling

Nissan’s commitment to the development of low-priced vehicles and their

introduction to emerging markets. Production in the Thailand factory should start

January-March 2010, with Nissan subsequently targeting expanded production in

BRICs (China and India). Expectations on Nissan may rise strongly depending on

the success of this strategy.


In conjunction with Renault, Nissan achieved a high score in this category, with

sales volumes just under 6 mn units. The company is also looking at aggressive

lead investment, including R&D. In 2009, Nissan announced that it would attempt to

deepen the tie-up with Renault and achieve more benefits (targeting FCF of over

¥100 bn). Although it will take time to assess the long-term benefits of the tie-up,

expectations are high on the Renault/Nissan association, one of the very few to

demonstrate medium-term success.

Nissan scored above average in this category. The company has developed

technology to meet European/US CO2 standards. Nissan is focusing on electric

vehicles to enhance fuel efficiency, with the EV Leaf scheduled for release in 2010.

Nissan has also expressed confidence in the batteries being produced by AESC, its

JV with NEC. However, we believe it will take more than five years for EVs to make

a profit contribution for auto makers. In the near-term, we believe development of

hybrid technology is essential. Although still some way from mass production,

Nissan is developing its own hybrid, and we expect this to be introduced in 2010 at

the earliest. Although behind Toyota and Honda, Nissan is gearing up for global

competition.




Exhibit 243: Nissan segment and geography split



LCV 10% 0% 17% 27% 1% 1% 0% 0% 2% 2% 23% 47% 71% 73% 100%Total 11% 28% 20% 58% 0% 5% 0% 11% 16% 2% 6% 18% 26% 42% 100%



LCV 16% 0% 15% 8% 38% 2% 0% 0% 2% 15% 63% 43% 46% 29% 17%Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%



LCV 2% 0% 3% 5% 0% 0% 0% 0% 0% 0% 4% 8% 12% 12% 17%Total 11% 28% 20% 58% 0% 5% 0% 11% 16% 2% 6% 18% 26% 42% 100%




Suzuki

Exhibit 244: Suzuki

March Y/E (Yen mn) 2007/2008 2008/2009 2009/10E 2010/11E 2011/12E Stock performance relative to local/global market 2008 Sales by Geography Revenues 3,502,419 3,004,888 2,534,000 2,573,000 2,670,000 Revenues growth 11% -14% -16% 2% 4%EBITDA 311,005 218,126 195,000 228,000 245,000 EBITDA Margin 8.9% 7.3% 7.7% 8.9% 9.2%EBIT 149,405 76926 65000 95,000 115,000 EBIT Margin 4.3% 2.6% 2.6% 3.7% 4.3%Net Income 80,255 27430 34700 49,200 59,900 EPS 178.0 61.7 79.8 113.2 137.8 DPS 16.0 16.0 10.0 20.0 30.0 Payout ratio 9% 26% 13% 18% 22%

Capex -243,600 -216,200 -185,000 -180,000 -180,000Capex as % sales 7% 7% 7% 7% 7%Book value PS 1,726.2 1,471.2 1,578.2 1,668.4 1,768.6 Invested capital 771,394 796,462 819,334 868,995 925,613 Gross Cash Invested 1,804,241 1,955,116 1,598,840 1,716,288 1,841,106

Market cap 1,451,077 861,764 912,779 912,779 912,779 Net Debt (+debt/-cash) -157,258 79,298 111,720 154,777 194,438Other EV adjustmentPension 0 0 0 0 0Minorities 124,285 103,482 87,300 88,600 91,900EV (inc pensions) 1,418,103 1,044,544 1,111,799 1,156,156 1,199,117

ValuationEV/Sales 40% 35% 44% 45% 45%EV/EBITDA 4.6 4.8 5.7 5.1 4.9 Shareholder structure 2008 Sales by segmentEV/EBIT 9.5 13.6 17.1 12.2 10.4 P/E 18.1 31.4 26.3 18.6 15.2Dividend yield 0% 1% 0% 1% 1%CROCI 11% 5% 9% 9% 9%EV/GCI 0.8 0.5 0.7 0.7 0.7CROCI/WACC 1.34 0.57 1.03 1.12 1.12ROIC 14% 7% 6% 8% 9%EV/IC 1.8 1.3 1.4 1.3 1.3ROIC/WACC 1.7 0.9 0.7 1.0 1.1PB 1.5 1.1 1.3 1.3 1.2ROE 9% 4% 4% 6% 7%Net Debt/EBITDA -0.5 0.4 0.6 0.7 0.8

Valuation (EV ex pension)EV (mn) 1,418,103 1,044,544 1,111,799 1,156,156 1,199,117 EV/Sales 40% 35% 44% 45% 45%EV/EBITDA 4.6 4.8 5.7 5.1 4.9EV/EBIT 9.5 13.6 17.1 12.2 10.4EV/GCI 0.8 0.5 0.7 0.7 0.7 EV/IC 1.8 1.3 1.4 1.3 1.3

RoW5.2%

E. Europe2.6%

Asia9.5%

W Europe8.9%

USA3.7%

Japan29.7%

Russia1.7%

India30.5%

China8.1%

LCV12%

Other4%

D0.1%

C14%

B23%

A47%

Free float, 80%

Treasury stocks, 20%

(0%)

0

50

100

150

200

250

300

350

Jan-

98

Jan-

99

Jan-

00

Jan-

01

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Jan-

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Jan-

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Jan-

08

Jan-

09

SUZUKI Suzuki vs.TOPIX Suzuki vs. FTSE

Source: Company data, Goldman Sachs Research estimates



Exhibit 245: Suzuki

(Yen mn and %)


EV (ex pension) vs. ROIC EV/Sales vs. EBIT Margin EV/GCI vs. CROCI/WACC

2000

2001

2002 2003

2004

2005

2006

2007

2008

2009E

2010E2011E

20%

25%

30%

35%

40%

45%

50%

0% 1% 2% 3% 4% 5% 6%

EBIT Margin

EV

/Sal

es

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1998

1999

2000

2001

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2003

2004

2005

2006

2007

2008

2009

E

2010

E

2011

E

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

EV (mn) ROIC

0

500,000

1,000,000

1,500,000

2,000,000

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3,500,000

4,000,00019

98

1999

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2007

2008

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E

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E

0.0%

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5.0%

Sales EBIT Margin

0

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160,000

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

E

2010

E

2011

E

0%

1%

1%

2%

2%

3%

3%

4%

4%

5%

5%

EBIT EBIT margin

0

50,000

100,000

150,000

200,000

250,000

300,000

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

E

2010

E

2011

E

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%


2008

2011E

2003

2004

2005

2006

2007

2009E

2010E

0.4x

0.5x

0.5x

0.6x

0.6x

0.7x

0.7x

0.8x

0.8x

0.9x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

1.8x

CROCI/WACC

EV

/GC

I




Exhibit 246: Suzuki scorecard details

(€)

Suzuki SuzukiFactor Score Average Median Minimum Maximum Quintile

1. Pricing/mix ●1.1 Average unit price 7,501 18,220 15,885 7,501 39,781 ●1.2 Price premium -34% 1% -11% -34% 84% ●

2. Low cost position ●●●●●2.1 Theoretical average labour cost 38 76 69 38 130 ●●●●● 2.2 Units per Employee 50 26 23 12 50 ●●●●● 2.3 Revenues per employee 372 419 415 301 529 ●●2.4 Break-even point -1% 1% 1% -4% 6% ●●2.5 Capacity utilisation 89% 83% 80% 73% 95% ●●●●2.6 Growth adjusted capex/depreciation 1.0x 1.0x 1.0x 0.6x 1.6x ●●●2.7 Revenues/net assets 4.4x 2.6x 2.4x 1.9x 4.4x ●●●●● 2.8 Research and development/Sales 0.0x 0.0x 0.0x 0.0x 0.1x ●●●●●

3. Economies of scale ●3.1 Size (unit sales) 2,328 4,436 4,244 1,273 8,356 ●3.2 Size (revenues) 17,099 76,360 64,507 17,099 138,955 ●3.3 Average capacity in plants accounting for 80% of production 354 314 300 229 555 ●●●●● 3.4.1 Percentage of cars produced on top five platforms 93% 77% 79% 42% 96% ●●●●● 3.4.2 Number of cars produced on top five platforms 2,238,112 2,827,677 2,644,685 1,219,162 5,378,733 ●●3.5 Research and development budget 677 3,881 4,666 677 5,931 ●

4. Financial health ●●4.1 Net Debt/EBITDA (2010) 0.7x 0.5x 0.7x -1.4x 3.3x ●●●4.2 Credit Rating 6 8 7 1 16 ●●●4.3 Future Margin (2011E) 4.3% 4.8% 5.0% 2.4% 6.2% ●4.4 CROCI(2011) 9.5% 10.0% 10.1% 6.9% 12.5% ●●

5. Growth ●●●●●5.1 Theoretical organic growth (geography) 6.8% 3.8% 3.4% 2.1% 6.8% ●●●●● 5.2 Theoretical organic growth (segments) 64 50 59 -9 84 ●●●●

Key Factors 2004 2005 2006 2007 2008 6. CO2 Efficiency ●●Average unit price 7,530 7,847 7,511 7,272 7,345 6.1 CO2 : Distance to target (Europe) 28% 18% 18% 9% 30% ●Units per employee 55 56 56 55 53 6.2 CO2 : Distance to target (US) 20% 23% 22% 9% 42% ●●●Capacity utilisation 90% 89% 91% 90% 84% 6.3 CO2 : Last 3 year improvement (Europe) 5% 6% 5% 3% 18% ●●●R&D/Sales 3.7% 3.3% 2.9% 3.1% 3.8% 6.4 CO2 : Last 3 year improvement (US) 8% 6% 6% 2% 11% ●●●●Capex/Depreciation 139% 148% 112% 131% 144%

Total ●●●

Group

0

1

2

3

4

51. Pricing/mix



4. Financial health

5. Growth

6. CO2 Efficiency




Exhibit 247: Suzuki scorecard comments


Suzuki scores relatively low in terms of pricing and product mix, but this is to be

expected given the company’s dominant presence in India and its product strategy

of specializing in A and B platforms. Of greater importance, in our view, is that

while focusing on lower-priced products, Suzuki is able to achieve higher ROIC than

peers. We believe the company will continue focusing on development of compact

vehicles, but expect prices to gradually rise; in addition to planned entry into the CD

segment in the US market, we believe Suzuki should benefit from a growing need

for upscale models in emerging markets, where motorization is ongoing.

Net debt/EBITDA is in line with the industry average, and debt ratings are stable.

Emerging markets account for a high share of Suzuki’s sales, and the company has

implemented a strategy that provides access to sufficient liquidity to cover high

levels of volatility in these markets. Suzuki operates a financial structure that

enables it to maintain operating level profitability even during a global auto

industry downturn. The company intends to keep as treasury stock the 20% holding

of its own shares acquired from GM, and will review its capital relationship with

GM once the latter has emerged from bankruptcy.


In Japan, Suzuki has secured a cost control advantage over peers through its

development of mini-vehicle production. Even when global car markets shrank from

the second half of FY2008 Suzuki remained profitable on a quarterly basis. We

attribute this to the company’s building of a profitable structure in mini-vehicles

through improving productivity, progressing with joint procurement of parts, and

achieving high levels of capacity utilization without excessive capex. Moreover, the

company was quick to shift production to emerging markets such as India,

Indonesia, and Pakistan, and its strategy is to maintain high local production ratios.

Product and regional mixes show Suzuki’s strong medium/long-term growth

potential. Our analysis shows high organic growth of 7%, versus an industry

average of just 3%. Of particular note is the company’s 50% share of the Indian

market, which we expect to show annualized growth of 15% through 2020. While

global players are likely to start entering the market, if Suzuki continues to expand

capacity appropriately and develop products that meet local needs, we believe it

can leverage its brand strength, production cost competitiveness, and dealer

network to maintain top share in India. The company also has production facilities

in Indonesia, Thailand, Pakistan, and Hungary.


Suzuki’s consolidated annual production volume of just over 2 mn vehicles is short

of the average of almost 4 mn revealed by this analysis. The company had

previously planned to achieve economies of scale through a tie-up with GM, but the

relationship has weakened due to GM’s recent difficulties. However, Suzuki scores

highly in sales volume per platform, and despite total production volume of only

just over 2 mn it is top class within the industry in terms of profitability and

efficiency. The company’s dominant share of 50% in the Indian market means it is

highly likely to see sales volume expand as that market grows, and we believe

sustainable growth should enable Suzuki to reach industry average scale.

Suzuki’s fuel efficiency score is relatively low. Development of technologies in

response to tightening of European CO2 emission regulations is an issue for the

company, and to achieve the necessary increase in gasoline and diesel engine fuel

efficiency it is exploring tie-up options such as licensing of technologies from Fiat.

It is not at the stage of starting mass production of hybrid or electric vehicles. In

line with its relatively small scale in terms of sales volume, and its strong presence

in emerging markets, which have been slow to introduce emission regulations, we

believe Suzuki lags rivals in investment in fuel efficiency improvement.




Exhibit 248: Suzuki segment and geography split



LCV 1% 0% 48% 48% 0% 0% 2% 0% 2% 0% 37% 12% 49% 52% 100%Total 9% 4% 30% 42% 0% 2% 30% 8% 40% 3% 10% 5% 18% 58% 100%



LCV 1% 0% 20% 14% 100% 0% 1% 0% 1% 1% 47% 28% 35% 11% 12%Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%



LCV 0% 0% 6% 6% 0% 0% 0% 0% 0% 0% 5% 1% 6% 6% 12%Total 9% 4% 30% 42% 0% 2% 30% 8% 40% 3% 10% 5% 18% 58% 100%




Toyota

Exhibit 249: Toyota

March Y/E (Yen mn) 2007/2008 2008/2009 2009/10E 2010/11E 2011/12E Stock performance relative to local/global market 2008 Sales by Geography Revenues 26,289,240 20,529,570 18,300,000 19,000,000 20,200,000Revenues growth 10% -22% -11% 4% 6%EBITDA 3,312,775 611,089 1,000,000 1,650,000 1,790,000EBITDA Margin 12.6% 3.0% 5.5% 8.7% 8.9%EBIT 2,270,375 -461,011 0 750,000 940,000EBIT Margin 8.6% -2.2% 0.0% 3.9% 4.7%Net Income 1,717,879 -436,937 106,000 809,000 963,000EPS 540.7 -139.1 33.8 258.0 307.1 DPS 140.0 100.0 50.0 80.0 90.0 Payout ratio 26% -72% 148% 31% 29%

Capex -1,480,200 -1,302,500 -760,000 -760,000 -850,000Capex as % sales 6% 6% 4% 4% 4%Book value PS 3,769.0 3,208.4 3,192.1 3,370.1 3,587.1 Invested capital 10,566,110 9,845,583 10,303,304 10,218,994 9,421,830 Gross Cash Invested 20,686,161 18,729,164 16,999,377 17,264,728 17,791,464

Market cap 20,920,606 12,891,666 10,725,120 10,725,120 10,725,120Net Debt (+debt/-cash) -699,157 -351,415 -445,796 -540,796 -625,796Other EV adjustment -2,765,685 -1,503,173 -1,196,735 -1,196,735 -1,196,735Pension 1,514,222 1,514,222 1,514,222 1,514,222 1,514,222Minorities 656,667 539,530 539,530 539,530 596,000EV (inc pensions) 19,626,653 13,090,830 11,136,341 11,041,341 11,012,811

ValuationEV/Sales 75% 64% 61% 58% 55%EV/EBITDA 5.9 21.4 11.1 6.7 6.2 Shareholder structure 2008 Sales by segmentEV/EBIT 8.6 -28.4 NA 14.7 11.7 P/E 12.2 101.2 13.3 11.1Dividend yield 2% 2% 1% 2% 3%CROCI 14% 6% 8% 11% 12%EV/GCI 0.9 0.7 0.7 0.6 0.6CROCI/WACC 1.69 0.74 0.99 1.36 1.38ROIC 15% -3% 0% 5% 7%EV/IC 1.9 1.3 1.1 1.1 1.2ROIC/WACC 1.9 -0.4 0.0 0.6 0.8PB 1.3 1.0 1.1 1.0 1.0ROE 14% -4% 1% 7% 8%Net Debt/EBITDA -0.2 -0.6 -0.4 -0.3 -0.3

Valuation (EV ex pension)EV (mn) 18,112,431 11,576,608 9,622,119 9,527,119 9,498,589EV/Sales 69% 56% 53% 50% 47%EV/EBITDA 5.5 18.9 9.6 5.8 5.3EV/EBIT 8.0 -25.1 12.7 10.1EV/GCI 0.9 0.6 0.6 0.6 0.5 EV/IC 1.7 1.2 0.9 0.9 1.0

RoW13%

E. Europe2%

Asia13%

W Europe10%

USA25%

Japan25%

Brazil1%

Russia3%

India1%

China7%

Treasury stocks, 9%

Free float, 91%

Toyota Industry, 5.8% (5.9%)

A7%

B16%

C28%

D25%

E8%

LCV16%

0

50

100

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200

250

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

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Jan-

06

Jan-

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Jan-

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Jan-

09

Toyota Toyota vs. TOPIX Toyota vs. FTSE World




Exhibit 250: Toyota

(Yen mn and %)



0

4,000,000

8,000,000

12,000,000

16,000,000

20,000,000

24,000,000

28,000,00019

97

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

E

2010

E

2011

E

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Sales EBIT Margin

-1,000,000

-500,000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

1997

1998

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2005

2006

2007

2008

2009

E

2010

E

2011

E

-4%

-2%

0%

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8%

10%

12%

EBIT EBIT margin

0

200,000

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1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

1999

2000

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2002

2003

2004

2005

2006

2007

2008

2009

E

2010

E

2011

E

0%

1%

2%

3%

4%

5%

6%

7%

8%


-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

E

2010

E

2011

E

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%


2001

2002

200320042005

2006

2007

20082009E

2010E

40%

50%

60%

70%

80%

90%

100%

-10% -5% 0% 5% 10% 15% 20%

EBIT Margin

EV

/Sal

es

1998 1999

2000

2001

2002

2003

2004

2005

20062007

20082009E

2010E2011E

0.0x

0.2x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

CROCI/WACC

EV

/GC

I




Exhibit 251: Toyota scorecard details

(€)

Toyota ToyotaFactor Score Average Median Minimum Maximum Quintile

1. Pricing/mix ●●●1.1 Average unit price 17,258 18,220 15,885 7,501 39,781 ●●●●1.2 Price premium -1% 1% -11% -34% 84% ●●●

2. Low cost position ●●●●●2.1 Theoretical average labour cost 68 76 69 38 130 ●●●●2.2 Units per Employee 25 26 23 12 50 ●●●2.3 Revenues per employee 415 419 415 301 529 ●●●2.4 Break-even point 4% 1% 1% -4% 6% ●●●●● 2.5 Capacity utilisation 89% 83% 80% 73% 95% ●●●●● 2.6 Growth adjusted capex/depreciation 0.9x 1.0x 1.0x 0.6x 1.6x ●●●●2.7 Revenues/net assets 2.4x 2.6x 2.4x 1.9x 4.4x ●●●●2.8 Research and development/Sales 0.0x 0.0x 0.0x 0.0x 0.1x ●●●●

3. Economies of scale ●●●●●3.1 Size (unit sales) 7,567 4,436 4,244 1,273 8,356 ●●●●● 3.2 Size (revenues) 138,955 76,360 64,507 17,099 138,955 ●●●●● 3.3 Average capacity in plants accounting for 80% of production 300 314 300 229 555 ●●●3.4.1 Percentage of cars produced on top five platforms 65% 77% 79% 42% 96% ●3.4.2 Number of cars produced on top five platforms 5,378,733 2,827,677 2,644,685 1,219,162 5,378,733 ●●●●● 3.5 Research and development budget 5,931 3,881 4,666 677 5,931 ●●●●●

4. Financial health ●●●●4.1 Net Debt/EBITDA (2010) -0.3x 0.5x 0.7x -1.4x 3.3x ●●●●4.2 Credit Rating 1 8 7 1 16 ●●●●● 4.3 Future Margin (2011E) 4.7% 4.8% 5.0% 2.4% 6.2% ●●4.4 CROCI(2011) 11.7% 10.0% 10.1% 6.9% 12.5% ●●●●

5. Growth ●●5.1 Theoretical organic growth (geography) 3.4% 3.8% 3.4% 2.1% 6.8% ●●●5.2 Theoretical organic growth (segments) 46 50 59 -9 84 ●●●

Key Factors 2004 2005 2006 2007 2008 6. CO2 Efficiency ●●●●●Average unit price 17,090 17,611 17,708 16,789 17095 6.1 CO2 : Distance to target (Europe) 16% 18% 18% 9% 30% ●●●Units per employee 26 25 25 24 20 6.2 CO2 : Distance to target (US) 15% 23% 22% 9% 42% ●●●●Capacity utilisation 89% 95% 91% 88% 82% 6.3 CO2 : Last 3 year improvement (Europe) 9% 6% 5% 3% 18% ●●●●● R&D/Sales 4.1% 3.9% 3.7% 3.6% 4.4% 6.4 CO2 : Last 3 year improvement (US) 7% 6% 6% 2% 11% ●●●●Capex/Depreciation 107% 126% 103% 99% 91%

Total ●●●●●

Group

0

1

2

3

4

51. Pricing/mix



4. Financial health

5. Growth

6. CO2 Efficiency




Exhibit 252: Toyota scorecard comments


Toyota scored high on sales prices. The company has a wide product line-up from

compact to large, and development of the luxury brand Lexus has supported a rise

in sales prices. We believe Toyota will be able to maintain a price premium over

peers on JD Power brand competitiveness and high used vehicle prices. In the US,

Toyota maintains the lowest incentives per vehicle versus peers. Under new

President Akio Toyoda, Toyota’s motto is superior products/low costs, and it is

pursuing a pricing strategy that integrates lowered COGS. We believe it is planning

to distinguish itself clearly on price discounting strategy.

Toyota maintains the highest credit rating. Consolidated assets are over ¥3 tn, and

its capital ratio of 35% is well ahead of peers. With group production capacity at

over 10 mn units, there are near-term concerns on delayed profit recovery.

However, we do not see the company’s strong financial position being threatened.

Toyota conducts its own sales finance operations, mainly in the US, and has ¥10 tn

worth of loan assets. Its high credit rating allows it to keep fund procurement costs

low and to channel resources to sales.


Under the kaizen motto, Toyota has maintained high labour/plant productivity.

COGS have been cut by an annual ¥300 bn over the past three years, supporting a

rise in profitability. Toyota very quickly expanded group capacity to 10 mn units per

year as sales expanded from 2000. However, capacity utilization has now dropped

below 70% in the wake of the sharp fall in auto demand from 2008. This is

squeezing profitability. Toyota halted production at its JV with GM, NUMMI, and

has temporarily halted some production lines. However, it has not announced any

other major restructuring measures. With its strong financial position, we believe

Toyota is steadily eyeing the timing for a rebound in auto demand.

Toyota scores in line with the peer group average on growth potential. Sales

weightings are 60% in industrialized countries and only 11% in BRICs. In addition to

expanding share in industrialized countries, product development for the BRICs

market will be a major theme. Consolidated subsidiary Daihatsu has achieved top

share in the Malaysian and Indonesian markets. Low-priced vehicles such as the

Entry Family Car (EFC) are scheduled for introduction in the first half of decade

2010-2020.


Toyota is top in annual global sales. It is aggressive in leveraging scale merits for

lead investment. Its R&D is focused on the coming energy-mix era, when a variety

of power trains will be available. Toyota is second to none in hybrid technology and

it has an extensive R&D roadmap for fuel cells and EVs. Its purchasing strategy also

effectively leverages scale merits, and it is constructing a joint development system

with globally renowned parts makers such as Denso and Aisin Seiki.

Toyota scored highest on fuel efficiency. In addition to improving conventional

gasoline engine efficiency, Toyota is ahead of competitors on hybrid mass

production, and we believe it will achieve annual production of 1 mn units in 2010.

Exploiting scale merits, Toyota’s strong lead investment has put it in a leading

position not just in hybrids, but in overall fuel efficiency strategy. We believe

Toyota will expand supply of hybrid units to other companies. Toyota both

develops and produces the key components for hybrids and EVs (batteries, motors,

inverters) in-house.




Exhibit 253: Toyota segment and geography split



LCV 4% 0% 20% 24% 2% 0% 3% 0% 6% 1% 45% 24% 70% 76% 100%Total 10% 26% 25% 60% 1% 3% 1% 7% 11% 2% 13% 13% 28% 40% 100%



LCV 7% 0% 14% 7% 43% 1% 83% 1% 9% 6% 56% 31% 41% 32% 17%Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%



LCV 1% 0% 3% 4% 0% 0% 1% 0% 1% 0% 7% 4% 12% 13% 17%Total 10% 26% 25% 60% 1% 3% 1% 7% 11% 2% 13% 13% 28% 40% 100%




Appendix: ESG scoring methodology

Exhibit 254: Autos ESG framework: indicators, methodology and company scores – Corporate governance

Score Corporate governance Companies (based on 2008 data)Independent Board leadership

5 Separate CEO/Chair and Lead Director Ford, 4 Separate CEO/Chair, no Lead Director Toyota , VW, Honda , Daimler, BMW, Fiat, Renault, Peugeot, 3 Lead director, no separate CEO/Chair21 No separate CEO/Chair, no Lead Director Nissan , Hyundai , Suzuki ,

Independent Board directors & committees5 >= 75% independent directors with independent nomination -AND- compensation committees Ford, 4 50 - 75% independent directors with independent nomination -AND- compensation committees3 >50% independent directors with independent nomination -OR- compensation committee BMW, Fiat, 2 >50% independent directors -OR- independent nomination -OR- compensation committee VW, Daimler, Hyundai , Renault, 1 <50% independent directors, non-independent nomination and compensation committees Toyota , Honda , Nissan , Suzuki , Peugeot,

Independent auditors5 Audit committee comprised of independent Board directors and <0.1x non-audit to audit fees4 Audit committee comprised of independent Board directors and <0.25x non-audit to audit fees Fiat, Ford, 3 Audit committee comprised of independent Board directors and >0.25x non-audit to audit fees2 Non-independent audit committee and disclosure of audit fees and non-audit fees VW, Honda , Daimler, BMW, Nissan , Suzuki , Renault, Peugeot, 1 No disclosure of audit fees and non-audit fees Toyota , Hyundai ,

CEO compensation versus cash flow5 <= 0.06% CEO compensation as a % of cash flow Renault, 4 0.06 - 0.14% VW, Daimler, BMW, Peugeot, 3 0.14 - 0.5% Fiat, 2 negative OR > 0.5% Ford, 1 No disclosure of CEO compensation Toyota , Honda , Nissan , Hyundai , Suzuki ,

Share-based compensation versus cash flow5 0.07% - 2.18% share-based compensation as a % of cash flow Toyota , Peugeot, 43 < 0.07% OR > 2.18% VW, Fiat, Ford, 21 No disclosure of share-based compensation Honda , Daimler, BMW, Nissan , Hyundai , Suzuki , Renault,

Minority shareholders' rights5 No block shareholdings -AND- no defenses against minority shareholders, staggered Boards, poison

pills, and unequal voting rightsHonda , Suzuki , Ford,

4 No block shareholdings and one defense against minority shareholders -OR- block shareholdings < 25% and no defense against minority shareholders

Toyota ,

3 No block shareholdings and two defenses against minority shareholders -OR- block shareholdings < 25% and no more than 2 defenses against minority shareholders

Daimler,

2 Block shareholdings < 50% and less than three defenses against minority shareholders BMW, Nissan , Hyundai , Fiat, Renault, 1 Block shareholdings > 50% OR three defenses against minority shareholders VW, Peugeot,




Exhibit 255: Autos ESG framework: indicators, methodology and company scores – Social (Leadership and Employee)

Score Social: Employee indicators Companies (based on 2008 data)Employee compensation

5 > US$ 71,000 reported payroll expense per employee Daimler, BMW, 4 US$ 53,000 - 71,000 VW, Renault, 3 US$ 31,000 - 53,000 Hyundai , Peugeot, 2 < US$ 31,000 Nissan , Fiat, 1 No disclosure of payroll expenses Toyota , Honda , Suzuki , Ford,

Cash flow per employee5 > US$ 40,000 post-tax cash flow from operations per employee Toyota , Honda , BMW, 4 US$ 36,000 - 41,000 VW, Nissan , Suzuki , 3 US$ 31,000 - 36,000 Daimler, Hyundai , Fiat, 2 US$ 20,000 - 31,000 Renault, 1 < US$ 20,000 Ford, Peugeot,

Gender diversity (% female)5 All above median Renault, Peugeot, 4 Two above median, all reported VW, Daimler, 3 Two above median Ford, 2 One above median BMW, Fiat, 1 No disclosure, none above median Toyota , Honda , Nissan , Hyundai , Suzuki ,

Fatalities rate5 Fatalities = 0 VW, BMW, 4 Fatalities < 2 and Fatality rate < 1 / 50,000 employees Daimler, Fiat, Peugeot, 3 Fatalities < 10 and Fatality rate < 5 / 50,000 employees 2 Fatalities > 10 and Fatality rate > 5 / 50,000 employees

1 No disclosure of fatalities Toyota , Honda , Nissan , Hyundai , Suzuki , Renault, Ford,

Injury Rate5 LTI and TRI below median and decreasing4 Only one reported below median with improvement Nissan , 3 Only one reported below median without improvement VW, Honda , BMW, Fiat, Renault, Ford, Peugeot, 2 Only one reported above median Daimler, 1 No disclosure of LTI and TRI Toyota , Hyundai , Suzuki ,

Employee training and management5 Risk assessment policy, behaviour based health and safety training policy, training hours reported,

training expenses reportedFiat, Renault, Peugeot,

4 three of four Daimler, BMW, 3 two of four Toyota , VW, Honda , Nissan , Hyundai , Suzuki , 2 one of four Ford, 1 None




Exhibit 256: Autos ESG framework: indicators, methodology and company scores – Social (Stakeholder)

Score Social: Stakeholders Companies (based on 2008 data)Community investment as % of Debt adjusted cash flow

5 > 0.75% community investments as a % of cash flow Toyota , 4 0.4 - 0.75% Daimler, 3 0.10 - 0.4% Nissan , Fiat, 2 0.10% < Ford, 1 No disclosure of community investments VW, Honda , BMW, Hyundai , Suzuki , Renault, Peugeot,

R&D expenditures as % of Debt adjusted cash flow5 > 49% R&D as a % of cash flow Suzuki , Renault, Peugeot, 4 45 - 49% Honda , BMW, 3 36 - 45% Toyota , Daimler, 2 36% < VW, Nissan , Fiat, 1 No disclosure of R&D Hyundai , Ford,

Business ethics and human rights5 Whistle blowing mechanism, procedures for stakeholder dialogue, support for Universal Declaration on

Human Rights or equivalent, human rights assessment of suppliersVW, Daimler, BMW, Nissan , Fiat,

4 three of four Hyundai , Renault, Peugeot, 3 two of four Toyota , Honda , Suzuki , Ford, 2 one of four1 None




Exhibit 257: Autos ESG framework: indicators, methodology and company scores – Environment

Score Environment Companies (based on 2008 data)Energy consumption versus asset base

5 </= 0.75 PJ / '00 US$ GCI Toyota , Honda , Suzuki , 4 0.75 - 1.8 PJ / '00 US$ GCI BMW, Renault, 3 1.8 - 2.8 PJ / '00 US$ GCI Daimler, Peugeot, 2 > 4.1 PJ / '00 US$ GCI VW, Fiat, Ford, 1 No disclosure of energy consumption Nissan , Hyundai ,

Greenhouse gas emissions versus asset base5 </= 0.16 tonnes / '00 US$ GCI BMW, Fiat, Renault, 4 0.16 - 0.29 tonnes / '00 US$ GCI Nissan , Suzuki , 3 0.29 - 0.46 tonnes / '00 US$ GCI Toyota , VW, Daimler, 2 > 0.46 tonnes / '00 US$ GCI Honda , Ford, Peugeot, 1 No disclosure of greenhouse gas emissions Hyundai ,

Water consumption and waste generated versus asset base5 Both below median Toyota , 4 One below median Honda , Daimler, BMW, Suzuki , Renault, Peugeot, 3 Both above median VW, Fiat, 2 Disclosure of one figure1 No disclosure Nissan , Hyundai , Ford,

Environmental management and certification5 Environmental performance assessment of suppliers, carbon emission target, renewable energy use

policy, > 75% of production from ISO14001 certified sitesBMW, Nissan ,

4 three of four Toyota , Honda , Daimler, Suzuki , Renault, Ford, 3 two of four VW, Fiat, Peugeot, 2 one of four Hyundai , 1 None

Fleet Emission5 Lowest emission model and average fleet emission below median Toyota , Ford,

3 One below median VW, Honda , Daimler, BMW, Hyundai , Suzuki , Fiat, Peugeot,

1 Lowest emission model and average fleet emission above median Nissan , Renault, Technology Development

5 Development, availability of hybrid technology, development, availability of cell fuel / electric technology Honda , Daimler, 4 three of four Toyota , VW, Nissan , Ford, 3 two of four BMW, Hyundai , Suzuki , Fiat, Peugeot, 2 one of four Renault, 1 None




Financial Advisory disclosures

Goldman Sachs is acting as financial advisor to Porsche Automobil Holding SE in an announced strategic transaction.

Goldman Sachs is acting as financial advisor to Fiat S.p.A. in an announced strategic transaction.

Reg AC

We, Stefan Burgstaller, Tim Rothery, CFA, Patrick Archambault, CFA, Kota Yuzawa, Andrew Howard and Rajeev Das, hereby certify that all of the views expressed in this report accurately reflect our

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Distribution of ratings/investment banking relationships

Goldman Sachs Investment Research global coverage universe

Rating Distribution Investment Banking Relationships

Buy Hold Sell Buy Hold Sell

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As of October 1, 2009, Goldman Sachs Global Investment Research had investment ratings on 2,674 equity securities. Goldman Sachs assigns stocks as Buys and Sells on various regional Investment

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Price target and rating history chart(s)


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