pgm process rev1

PGM PROCESSBUSINESS CASE STUDY

FOR GM DO BRASIL

MAY – 2007

Rev.1

PGM PROCESS AND BUSINESS CASE FOR LAAM

BACKGROUND Platinum Group Metal (PGM) is currently controlling the process of procurement and usage of Platinum, Palladium and Rhodium, required for the Catalytic Converter, in USA and Europe;

These precious metals are considered commodities in the market place, thus their prices vary constantly;

GM Corporation is willing to include the LAAM group in this process, starting with GM do Brasil.

At current market prices the annual usage of these metals, for GMB, has been estimated in US$ 36 millions;

Estimated savings, as per preliminary study done by the PGM group, is US$ 2.1 millions.


ISSUES OR CONTRAINTS

Consignment process in Brasil requires a dedicated group to control it, due to its taxes and legal complexities, thus becomes very expensive (6%);

Transfer price policy for businesses between companies of the same group ( affiliated or allied ), involves a high risk of tax paying and penalties, if it is not done as per the established rules ( 20 to 60 %);

Paper or virtual companies to cover this process are not allowed in Brasil;

Insurance coverage must be defined, who pays what, depending on the INCOTERM, and including Inland portion, both at origin and arriving ports.


SCENARIOS BEING CONSIDERED

CURRENT PROCESS

GMB IMPORTING FROM GM WORLWIDE METAL POOL

a) Consigns to Coater / Sell to Canner

TRADING CO. IN BRASIL AS IMPORTER


PGM CURRENT PROCESS FOR GM DO BRASIL

TIER 1 -SUPPLIERS

CONVERTER(CANNER)

WASHCOAT(COATER)

UMICOREBRASIL

UMICORETRADING

(EUROPE/USA)GMB

UMICORETRADING

BUYS RAWMATERIAL FROM

THE MARKETAND SELLS TO

UMICORE BRASIL

UMICOREBRASIL

BUYS RAWMATERIAL

FROM UMICOREABROAD

UMICOREBRASIL

SELLS ANDSEND RAW

MATERIAL TOCOATERS

UMICOREBRASIL

IMPORT ANDRECEIVING

PROCESS ISDONE BYUMICOREBRASIL

COATER

BUYS ANDRECEIVE RAW

MATERIAL FROMUMICORE

COATERPROCESS RAWMATERIAL ANDPRODUCES THE

BRICK

COATERSENDS THEBRICK TOCANNER

CANNER

RECEIVES THEBRICK ANDPROCESS

ENCAPSULATION

CANNERSELLS AND

SENDSUNDERFLOOR

TO GMB

PLATINUM,PALLADIUMRHODIUM

GMB

RECEIVESUNDERFLOOR

AND SEND IT TOTIER 1 -

SUPPLIER TIER - 1SUPPLIER

WELDSUNDERFLOORINTO FRONT

PIPE

SUPPLIER

SENDS FRONTPIPE TO GMB

CANNERSELLS AND SENDSCLOSE COUPLED

TO GMB-SJC(POWER TRAIN)

POWER TRAINASSEMBLIES

CLOSECOUPLED INTO

THE ENGINE

GMB

ASSEMBLIESFRONT PIPE

INTO THE CAR

END OFPROCESS

CONSIGNMENTPROCESS

GMB

RECEIVESCLOSE

COUPLED ANDSEND IT TO

POWER TRAIN


PGM PROCESSES TAXES COST

Current STEPS PER PROCESS IMPORT

PIS/COFIN

S ICMSTRANSFER PRICE ADD-ON

STEP 1

UMICORE Brasil imports from UMICORE Europe/USA.(Import duty is not recoverable ; PIS/COFINS and ICMS are recoverable; Transfer price policy does not apply, as it is a non-related transaction) 2% 9,25% 18% N/A 4,50%

STEP 2 UMICORE sells to Washcoater ( Taxes on sales ) N/A 9,25% 18% N/A ?

STEP 3 WashCoater sells BRICKS to Canner. ( Taxes on sales ) N/A 9,25% 18% N/A ?

STEP 4Canner sells UNDERFLOOR and CLOSE COUPLED to GM do Brasil ( Taxes on sales ) N/A 9,25% 18% N/A ?

STEP 5

GMB sends in consignment, UNDERFLOOR, to TIER-1 supplier, with local invoice in consigment( Nota Fiscal- For industralization ). Note: This consignment is not taxed if material returns within a 180 days period, if not, then it will be taxable. N/A N/A N/A N/A 6%

STEP 6

TIER-1 supplier sends FRONT PIPE with UNDERFLOOR to GMB with local invoice of return( Nota Fiscal- Return from Industralization, where material and manpower used should be detailed ). N/A 9,25% 18% N/A ?

STEP 7GMB sells and sends CLOSE COUPLED to Power Train to install it the engine. ( Taxes on sales ) N/A 9,25% 18% N/A ?

Note - 1Add-on cost in step 1, refers to Global PGM handling (2%); Financing charges (1.5% )and PGM Logistic ( 1%).

Note - 2Add-on cost in step 5, refers to GMB administrative control on the Consignment process.

Note - 3 Do not know percentages of cost for steps 2, 3, 4, 6 and 7


PGM PROPOSED PROCESS FOR GMB - ALTERNATIVE “A”

TIER 1 -SUPPLIERSGMBCONVERTER

(CANNER)WASHCOAT(COATER)

GM PLATS(SOUTHAFRICA)

GMWORLDWIDEMETAL POOL

GMB

BUYS RAWMATERIAL

FROM GM CORP.

GM CORP

SELLS RAWMATERIAL TO

GM-BRASIL

GMB

CONSIGNS RAWMATERIAL TO

COATER

COATER

RECEIVES RAWMATERIAL IN

CONSIGNMENT

CONSIGNMENTPROCESS

COATER

PROCESS RAWMATERIAL,PRODUCESBRICK AND

SEND IT TO GMB

GMBRECEIVES

BRICK FROMCOATER

GMBSELLS AND

SENDS BRICKTO CANNER

CANNER

RECEIVES BRICKAND PROCESS

ENCAPSULATION

CANNERSENDS

UNDERFLOORTO GMB

CANNERSENDS CLOSE

COUPLED TO GMB-SJC

(POWER TRAIN)

GMB

RECEIVESUNDERFLOOR

AND SEND IT TOTIER 1 -

SUPPLIER

SUPPLIER

SENDS FRONTPIPE TO GMB

TIER - 1SUPPLIER

WELDSUNDERFLOORINTO FRONT

PIPE

GMB

RECEIVESCLOSE

COUPLED ANDSEND IT TO

POWER TRAIN

POWER TRAINASSEMBLIES

CLOSECOUPLED INTO

THE ENGINE

GMB

ASSEMBLIESFRONT PIPE

INTO THE CAR

END OF PROCESS

CONSIGNMENTPROCESS



IMPORT THROUGH GM BRASIL STEPS PER PROCESS IMPORT

PIS/COFINS ICMS

TRANSFER PRICE ADD-ON

Alternative " A "

STEP 1GMB imports PGM from a GM Worldwide Metal Pool. ( Import duty is not recoverable ; PIS / COFINS and ICMS are recoverable). Transfer price applies. 2% 9,25% 18% 20% / 60% N/A

STEP 2

GMB consigns and sends PGM to Washcoater, with local invoice in consignment ( Nota Fiscal - For industralization ). This consigment is not taxed if material returns within 180 days period, if not, then it will be taxable. N/A N/A N/A N/A 6%

STEP 3

Washcoater ( Coater ) returns processed material, BRICKS, to GMB with a local invoice of return. ( Nota Fiscal - Return from Industralization, where material and manpower used should be detailed ) Taxes on sales. N/A 9,25% 18% N/A ?

STEP 4 GMB sells and sends BRICKS to Canner ( Taxes on sales ) N/A 9,25% 18% N/A ?

STEP 5Canner sells UNDERFLOOR and CLOSE COUPLED to GMB ( Taxes on sales ) N/A 9,25% 18% N/A ?

STEP 6

GMB sends in consignment, UNDERFLOOR, to TIER-1 supplier, with local invoice in consigment( Nota Fiscal- For industrialization ). This consignment is not taxed if material returns within a 180 days period, if not, then it will be taxable. N/A N/A N/A N/A 6%

STEP 7

TIER-1 supplier sends FRONT PIPE with UNDERFLOOR to GMB with local invoice of return( Nota Fiscal- Return from Industralization, where material and manpower used should be detailed ).Taxes on sales. N/A 9,25% 18% N/A ?

STEP 8GMB sells and sends CLOSE COUPLED to Power Train to install it the engine. ( Taxes on sales ) N/A 9,25% 18% N/A ?

Note - 1 Do not know percentages of cost for steps 3, 4, and 5.

Note - 2Add-on cost in steps 2 and 6, refers to GMB administrative control on the Consignment process.

Note - 3 Do not know percentages of cost for steps 7 and 8


PGM PROPOSED PROCESS FOR GMB - USING TRADING IN BRASIL

TIER 1 -SUPPLIER ANDPOWER TRAIN

GMBCONVERTER(CANNER)

WASHCOAT(COATER)

TRADING(BRASIL)

GM WORLWIDEMETAL POOL

TRADINGRECEIVES

BRICKS FROMCOATER, SELLSAND SENDS TOCANNER, ANDPAY SERVICES

TO COATERCANNERPROCESS

ENCAPSULATION,SELLS AND SENDS

TO GMB

COATER

RECEIVES ANDPROCESS RAW

MATERIAL

CANNER

RECEIVES BRICKSTO BE PROCESSED

GM CORP.SELLS RAW

MATERIAL TOTRADING -

BRASIL

COATERPRODUCES

BRICKS, SENDSTO TRADINGAND INVOICE

SERVICES

PLATINUM,PALLADIUMRHODIUM

TRADING

SENDS RAWMATERIAL TOCOATERS FOR

INDUSTRIALIZATION

GMBBUYS

UNDERFLOORAND CLOSE

COUPLED FROMCANNER

TRADING

IMPORT ANDRECEIVES RAW

MATERIAL

TIER - 1

SUPPLIER WELDSUNDERFLOOR

INTO FRONT PIPE

GMBRECEIVES

CLOSECOUPLED ANDUNDERFLOOR,

AND PAYSCANNER

SUPPLIER

SELLS ANDSENDS FRONTPIPE TO GMB

GMB

SENDS CLOSECOUPLED TOPOWER TRAIN

GMB

SENDSUNDERFLOOR TOTIER-1 SUPPLIER

FORINDUSTRIALIZATION

GMBRECEIVES

FRONT PIPEAND PAY TIER-1

SUPPLIER

POWER TRAIN

ASSEMBLIESCLOSE COUPLEDINTO THE ENGINE

POWER TRAINSENDS ENGINE TO

GMB

GMB

RECEIVESENGINE



IMPORT THROUGH TRADING - BRASIL STEPS PER PROCESS IMPORT

PIS/COFINS ICMS

TRANSFER PRICE ADD-ON

STEP 0

A Trading Co. should be hired, in Brasil, to run the PGM process where the GM Corporation will be making the required controls.( Cost is estimated based on previous quotation received from CISA Trading Co. for a similar project ). 3,5%

STEP 1

Trading Co. - Brasil imports from GM WORLWIDE METAL POOL.(Import duty is not recoverable ; PIS/COFINS and ICMS are recoverable; Transfer price policy does not apply, as it is a non-related transaction) 2% 9,25% 18% N/A ?

STEP 2 Trading Co. - Brasil sends raw material to Washcoater for industrialization. N/A N/A N/A N/A ?

STEP 3WashCoater sells BRICKS to Trading Co. - Brasil.( Taxes on sales/services ) N/A 9,25% 18% N/A ?

STEP 4Trading Co. - Brasil sells and sends BRICKS to Canner.( Taxes on sales ) N/A 9,25% 18% N/A ?

STEP 5Canner sells and sends UNDERFLOOR and CLOSE COUPLED to General Motors do Brasil ( Taxes on sales ) N/A 9,25% 18% N/A ?

STEP 6

General Motors do Brasil sends UNDERFLOOR to Tier-1 supplier, for industrialization and CLOSE COUPLED to Power Train. ( Taxes on sales/services ). N/A 9,25% 18% N/A ?

STEP 7Tier - 1 supplier sells and sends FRONT PIPE to GMB. ( Taxes on sales ) N/A 9,25% 18% N/A ?

STEP 8 Power Train sends engine to GMB ( Local Transference Invoice ) N/A N/A N/A N/A ?

Note - 1All taxes are recoverable.( ICMS, PIS, COFINS), but Income Tax on profits will apply.

Note - 2This alternative includes an industrialization / consignment process, to be made by the Trading Co., whose estimated cost needs to be defined.

Note - 3 Do not know percentages of cost for steps 2 through 8.


PRELIMINARY ANALYSISThe figures in the GM do Brasil option are showing that processes involving Consignment made through GM, represent a high cost in Brasil. A more detailed study should be made, in order to identify cost drivers and compare them with the Trading option.

Purchasing should complete data related to the cost of sales for every transaction in each alternative, in order to compare all financial data.

Purchasing should also verify with local Trading Companies in Brasil, through a normal bid, with corresponding SOR, the cost and scope of the operations.


To avoid high cost and still become part of the PGM process initiative, we suggest to choose the Trading Co. option.

All controls and quality surveillance that PGM in the States requires should be part of the process to be negotiated with the Trading and suppliers.If it is required to Export original parts, Catalytic Converter, to GM-Argentina or any other LAAM allied company, the Trading Co. could also do it.

SUGGESTIONS.

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