Team presentation at Leadership 2.0, University of the Aftermarket, Northwood University, April 15, 2010. This presentation outlines a roadmap for international growth, with a general matrix for market entry decisions.

1. Road Map to
International Growth
Todd Erwin One Stop Parts Source
Jeremy Denton AASA
Mike McKee Federal-Mogul
Debbie Vandecaveye Tenneco
Leadership 2.0 (2009-2010)

2. Agenda
• North American Market Overview
– Key Aftermarket Metrics
• Roadmap for International Growth
– Country Risk Assessment
– Operational Risk Analysis
– Evaluation of Market Entry Options
– Understand Exit Strategies
– Market Entry

3. International Crisis

4. Looking Ahead – North American
Market Key Points
• North American aftermarket will face a dramatically
different landscape in the next decade
– Historically the growing car “PARC” has been almost “automatic;” the rate of
growth that we experienced in the past may not return for another decade
– It is likely that we will not see the previous levels of vehicle usage for many
years to come
– The average age of vehicles will slowly change as people are keeping their
vehicles longer
– There is a shift towards smaller, more fuel efficient passenger cars and away
from light trucks
– The vehicle population is becoming fragmented with many different OEM
brands and “orphaned” older car makes
– North American aftermarket should remain stable for next decade at around
$210 billion annually (No collision)
– To achieve top lines sales growth, many companies will and have made the
decision to enter into emerging markets like China, India and Mexico

5. North American Market
• North America
– GDP (per capita) down 4% since 2007
– VIO ~ 242 Million
– Light Vehicle Sales down 38% since 2005
18,000,000
16,000,000
14,000,000
12,000,000
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
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SA
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6. North American Market –
Miles Driven
• Single most important factor for our sector in the short-
term
• Annual growth in vehicle usage has stopped
• Vehicle usage now 200 billion lower than peak
Annual Miles Driven - U.S.
3,050
3,000
Billions of Miles
2,950
2,900
2,850
2,800
2007 2008 2009 SAAR
Source: U.S. Dept. of Transportation; Federal Hwy. Admin.; Office of Hwy. Policy, May 2009

7. Projected Aftermarket Growth Trends
By Vehicle Age
• Average age of vehicles is increasing
• Consumers are keeping car longer
• Aftermarket “Sweet Spot” for repairs is flattening out
Age “Sweet Spot” Flattens Out
Source: IMR and RL Polk

8. U.S. Average Age of Light
Vehicles
• The average age of light vehicles in the US is
predicted to continue to grow for a few more years
Source: RL Polk

9. North American Vehicles in
Operation “VIO”
• Detroit manufacturers are losing market share to
foreign competitors
% Vehicles in Operation - North America
80% 74.0%
69.0%
63.0%
57.0%
60%
43.0%
37.0%
40% 31.0%
26.0%
20%
0%
Foreign Nameplate Detroit 3
1998 2003 2008 2013(f)
Source: Desrosiers Automotive Consultants, Ward’s Automotive, RL Polk

10. Looking Ahead – Key Markets
• China
– GDP (per capita) up 16% since 2007
– Light Vehicle Sales up 150% since 2005
– VIO ~ 40 Million
• India
– GDP (per capita) up 11% since 2007
– Light Vehicle Sales up 60% since 2005
– VIO ~ 11 Million
• Mexico
– GDP (per capita) down 6% since 2007
– Light Vehicle Sales down 15% since 2005
– VIO ~ 13.6 Million
• North America
– GDP (per capita) down 4% since 2007
– Light Vehicle Sales down 38% since 2005
– VIO ~ 242 Million

11. Agenda
• North American Market Overview
– Key Aftermarket Metrics
• ROADMAP FOR INTERNATIONAL GROWTH
– Country Risk Assessment
– Operational Risk Analysis
– Evaluation of Market Entry Options
– Understand Exit Strategies
– Market Entry

12. Roadmap for International Growth
Road Map for Evaluation of Understand
Country Risk Operational
International Assessment Risk Analysis
Market Entry Exit Market Entry
Growth Options Strategies
• COUNTRY RISK ASSESSMENT
• Operational Risk Analysis
• Evaluation of Market Entry Options
• Understand Exit Strategies
• Market Entry

13. Country Risk Assessment
Country Natural
Resources & Competition
Risk Physical
STEP Analysis
Analysis
Assessment Infrastructure
• Country Risk Assessment
– Natural Resources & Physical Infrastructure
– STEP Analysis
• Socio/cultural/demographic
• Technical
• Economic
• Political
– Competition Analysis

14. Country Risk Assessment
Country
Indicator China India Mexico
coal, iron ore, petroleum, coal (fourth-largest
natural gas, mercury, tin, reserves in the world),
Natural tungsten, antimony, iron ore, manganese,
Resource manganese, molybdenum, mica, bauxite, titanium
Endowments vanadium, magnetite, ore, chromite, natural petroleum, silver,
aluminum, lead, zinc, uranium, gas, diamonds, copper, gold, lead,
hydropower potential (world's petroleum, limestone, zinc, natural gas,
largest) arable land timber
Self-sufficiency Renewable Water 2,829.6 cu km 1,907.8 cu km 457.2 cu km
in Raw Proven Oil Reserves 15.55 billion bbls (13) 5.625 billion bbls (21) 10.5 billion bbls (17)
Materials Proven Natural Gas
(ranking) Reserves 2.46 trillion cu m (13) 1.08 trillion cu m (26) 372.7 billion cu m (35)
Airports 482 (15) 349 (23) 1,744 (3)
Infrastructure Ports 8 9 7
(ranking)
Railways 77,834 km (3) 63,327 km (4) 17,516 km (16)
Roadways 3,583,715 km (2) 3,316,452 km (3) 356,945 km (19)
Sources: CIA World Factbook; World Bank Development Diamond

15. Country Risk Assessment
“Water, water, everywhere but…”
With about 1,000 rivers and lakes,
Yunnan ranks third in China when
it comes to water resources. It also
wins bronze for its annual average
rainfall. So in a region with such
natural abundance, why are
millions continuing to thirst as the
southwest suffers its worst drought
in 100 years?
A farmer sits on the bed of the dried Niujiehe reservoir in Jiulong town, China Daily Updates
Luoping county, Yunnan province. Since September, the region has been March 30, 2010
gripped by the worst drought in 100 years.

16. Country Risk Assessment
Country
Indicator China India Mexico
Life Expectancy 71 years 66 years 76 years
Access to Safe Water 88% 89% 90%
Social, Education Spend/%GDP
Cultural, & (year, ranking) 1.9 (1999, 170) 3.2% (2005, 140) 5.5% (2005, 49)
Demographic
Indicators School Life Expectancy 11 years 10 years 13 years
Population in Millions, 2009
(ranking) 1.339 (1) 1.157 (2) 111 (11)
Adult Literacy 91% 61% 91%
Sources: CIA World Fact book; World Bank Development Diamond

17. Country Risk Assessment
Country
Indicator China India Mexico
Internet Users in Millions, 2008
(ranking) 298 (1) 81 (4) 23 (16)
Technological Mobile Phones in Millions 634 (2008) 545 (2010) 75 (2008)
Indicators Energy Consumption per Person (in
Million BTU) 56.2 15.9 68.5
E-Readiness Rankings 56 58 40
Sources: CIA World Fact book; World Bank Development Diamond, The Economist, Energy Information Administration

18. Country Risk Assessment
Country
Indicator China India Mexico
GDP in $US Trillions, 2009 (ranking) $8.791 (3) $3.561 (5) $1,473 (12)
GDP Real Growth Rate, 2009 est. 8.7% 6.5% -7.1%
Manufacturing Percent of GDP 27.2% 20% 34.5%
Percent Employment in Industry 48.1% (2006) 14% 25.70%
Economic Investment % of GDP, 2009 est. 42.6% (3) 32.1% (17) 20.8% (79)
Indicators
Unemployment, 2009 est. (ranking) 4.3% (38) 10.7% (119) 6.2% (59)
Consumer Price Inflation, 2009 est.
(ranking) -0.8% (9) 10.7% (194) 5.3% (146)
Average Annual Inflation (ranking) 2.78% (131) 9.05% (192) 5.3% (148)
Operational Risk Index (1=low risk) 47 51 44
Sources: CIA World Fact book; World Bank Development Diamond, The Economist

19. Country Risk Assessment
Country
Indicator China India Mexico
Political "Corruption Perceptions Index“ (ranking) 3.6 (72) 3.4 (85) 3.6 (72)
Indicators
Political Instability Index (1=low risk) 124 135 79
Sources: The Economist, Transparency International

20. Country Risk Assessment
• Competition Analysis
– Determine What Customers in the Country Need
• What Vehicles Do They Drive?
• How Old is the Average Vehicle?
– Research Competitors in the Market
• Quality, Price, Availability and Service
• Learn Who is Successful, Who is Failing, and Why
– Determine if There is Room in the Market Based
on Your Competitive Strategy

21. Roadmap for International Growth
Road Map for Evaluation of Understand
Country Risk Operational
International Assessment Risk Analysis
Market Entry Exit Market Entry
Growth Options Strategies
• Country Risk Assessment
• OPERATIONAL RISK ANALYSIS
• Evaluation of Market Entry Options
• Understand Exit Strategies
• Market Entry

22. Operational Risk Analysis
Operational Physical
Political Currency
Risk Facilities &
Risk Risk
Analysis IT Risk
• Managing Ongoing Operations
– Set up risk management policies
• Facilities and IT risk management
• Political risk insurance
• Currency hedging strategies
– On-going monitoring country risks

23. Operational Risk Analysis
• Physical Facilities & IT Risk
– Physical Security
• Natural Disaster
• Terrorism
• Theft
– IT Security
• Virus Protection
• Hackers
• Data Theft
– Intellectual Property
• Copyrights, Trademarks, Patents, Domain Names

24. Operational Risk Analysis
• Political Risk
– Currency Inconvertibility
– Expropriation
– Political Violence
– Terrorism
• Coverage Options
– Overseas Private Investment Corporation
• No OPIC Agreement with China
• Coverage Options Available in India, Mexico
– Export Import Bank of the US
– Multilateral Investment Guarantee Agency (Miga) – World
Bank

25. Operational Risk Analysis

26. Operational Risk Analysis

27. Operational Risk Analysis
• Currency Risk
– Risk identification
• Translation Risk
• Transaction Risk
• Competitor Pricing
– Hedging Techniques
• Forward Contracts – Speculation
• Currency Investments or Borrowing
• Call or Put Options

28. Roadmap for International Growth
Road Map for Evaluation of Understand
Country Risk Operational
International Assessment Risk Analysis
Market Entry Exit Market Entry
Growth Options Strategies
• Country Risk Assessment
• Operational Risk Analysis
• EVALUATION OF MARKET ENTRY OPTIONS
• Understand Exit Strategies
• Market Entry

29. Market Entry Options
Evaluate Wholly-
Joint
Market Entry Exporting Licensing Owned
Venture
Options Subsidiary
• Evaluating Market Entry Strategies
– Exporting
– Licensing/Franchising
– Joint venture
– Wholly-owned subsidiary

30. Risk Analysis Matrix
Country Risks
Country Risks Moderate Country Risks Unreasonable
Favorable for Success
Direct Exporting Should Limit
Operational If Competitive Strategy is Risk; Review Insurance Options
Consider All Market Entry
Risks Favorable Favorable – Consider All Market for a Wholly Owned Subsidiary;2
Strategies Available
for Success Entry Strategies Available JV’s and Franchises Remain
Viable Options1
If Competitive Strategy is
Review Operational Insurance Favorable, Review Operational
Operational Options for a Wholly Owned Insurance Options for a Wholly Exporting
Risks Moderate Subsidiary; JV’s, Franchises and Owned Subsidiary; JV’s, Franchises Recommended
Exporting Remain Viable Options1 and Exporting Remain Viable
Options1
JV with an Established Presence in
the Market may Enhance Chances
of Success while Limiting
Operational Operational Liabilities;1
Exporting Exporting
Risks Operational Risk Insurance
Recommended Recommended
Unreasonable Imperative for Wholly Owned
Subsidiary; Franchises and
Exporting Viable Options.
1 JV’s and possibly Franchises can increase your operational risks by opening up IP intelligence to other entities. Be sure you trust any potential partners.
2 Consider a subsidiary in a friendly, neighboring country (if possible) for quick access to the market and IP protection.

31. Roadmap for International Growth
Road Map for Evaluation of Understand
Country Risk Operational
International Assessment Risk Analysis
Market Entry Exit Market Entry
Growth Options Strategies
• Country Risk Assessment
• Operational Risk Analysis
• Evaluation of Market Entry Options
• UNDERSTAND EXIT STRATEGIES
• Market Entry

32. Understand Exit Strategies
Exporting
• Stop
Exporting
• Sell
Licensing
Licenses or
Business
Unit
• Disengage
Joint
Venture from
Partners
Wholly-
Owned
• IPO or Seek
Subsidiary Buyer

33. Roadmap for International Growth
Road Map for Evaluation of Understand
Country Risk Operational
International Assessment Risk Analysis
Market Entry Exit Market Entry
Growth Options Strategies
• Country Risk Assessment
• Operational Risk Analysis
• Evaluation of Market Entry Options
• Understand Exit Strategies
• MARKET ENTRY

34. Market Entry
• Keys to Success
– Research, Research, Research
• Country-Based Research
• Competitive Market Research – Pricing, Competitors
• Define Your Long and Short Term Strategies
• Learn Local Laws Concerning General Operations
• Understand Your Ongoing Operational Management Risks
– Choose the Appropriate Market Entry Strategy
– Choose Trusted Partners (If Applicable)
• Build Relationships With Partners Prior to Engagement
• Determine if Locals or Expatriates Should Manage
Operations

35. Conclusion
 Perform Country Risk Assessment
 Perform Operational Risk Analysis
 Evaluate Market Entry Options
 Understand Your Potential Exit Strategies
 Use Insight Gleaned to Enter the Market
Wisely

36. Thomas Friedman
“There was a time when America's semiconductors industry
dominated the world, but then companies from other
countries came along and gobbled up the low end of the
market. Some even moved into the higher end. American
companies were then forced to find newer, deeper
specialties in the expanded market. If that weren't
happening, Intel would be out of business today. Instead,
it is thriving.”
-Thomas Friedman, The World is Flat

37. References
 Automotive Aftermarket Suppliers Association, 2009-2010 Automotive Aftermarket Status
Report & World Motor Vehicle Market Report
 China Daily Updates
 CIA World Fact book
 Desrosiers Automotive Consultants
 The Economist
 Energy Information Administration
 Export Import Bank of the USA
 Friedman, Thomas. The World is Flat, 2005
 Ginn, Dr. Jane. “Global Business Strategies,” Presentation for the Filter Manufacturers Council,
September 2008
 Miga-EIU Political Risk Survey, December 2009
 Overseas Private Investment Corporation
 R.L. Polk
 Transparency International
 U.S. Dept. of Transportation; Federal Highway Administration; Office of Highway Policy
 Ward’s Automotive
 Weckesser, Dr. Tim. “Doing Business in China,” Presentation at AAPEX, November, 2010
 World Bank Development Diamond