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Russian Auto Component Vendors Competitive Strategies within the «new» Market Conditions March 2007 11 enterprises There are five enterprises in the management SOK-AUTOMOTIVE № 1 Company in the Russian auto component market

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Russian Auto Component Vendors Competitive Strategies within the «new» Market Conditions

March 2007


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11 enterprises

There are five enterprises

in the management

SOK-AUTOMOTIVE

  • № 1 Company in the Russian auto component market

  • 12 years of rapid growth due to M&A and effective asset management

SOK-AUTOMOTIVE

«Car Assembly»

Division

«Auto Components»

Division

OJSC «IzhAvto»

SOK-AUTOMOTIVE Sales Revenue Trend, $ billion

CJSC «Roslada»

CJSC «VazInterServis»

(automobile manufacture)

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«Auto Components» Division

OJSC «SchetMash»

Kursk

CJSC «VAZINTERSERVIS»

Togliatti

OJSC «Zavod Avtosve»

Kirzhach

OJSC «OSVAR»

Vyazniki

  • Instrument Sets

  • Trip Computer

  • On-board Monitoring System

  • Automobile Speed Sensors

  • Environment Air Temperature Sensors

  • Adsorbers

  • Clutch plates and components

  • Steering gear connection

  • Stabilizers

  • Rear brake assemblies

  • Pedal assemblies

  • Lamps: fog lamps, interior, exterior, lamp clusters

  • Lamps: rear lamps, clearance lamps, head lamps, trunk lamps, cab lamps, number plate lamps

  • Optical assemblies

  • Lamps: head lamps, spotlamps, rear lights, fog head lamp assemblies, turn signals

  • Lamps: rear lamps, number plate lamps, rear lights, turn signals

CJSC «SKK»

Samara

OJSC «BelZAN»

Belebey

CJSC «PES SKK»

Samara (JV with Delphi)

CJSC «MOTOR SUPER»

Togliatti

  • Automotive industry cables

  • Heavy-duty vehicle hardware

  • Springs

  • Vehicle wire harnesses

  • Air filters

  • Heaters

  • Plastic parts

CJSC «Kinelagroplast»

Kinel

OJSC «SAZ»

Syzran

OJSC «Komplekt-LTD»

Togliatti

The enterprises are managed by SOK Group

  • Air pipes

  • Washer jars and overflow bottles

  • Moldings

  • Spot-facing

  • Electric window lift, window raiser

  • Sun visors

  • Die fixtures

  • Screens

  • Safety bars

  • Front leg assembly module

  • Cooling assembly module

  • Radio fixture panel

  • Fill piece assembly

  • OJSC «Dimitrovgrad Illumination Appliences Plant»

  • OJSC «Dimitrovgrad Power Metallurgy Plant»

  • OJSC «Dimitrovgrad Bearing Liners Plant»

  • OJSC «Dimitrovgrad Radiator Plant»

  • OJSC «Dimitrovgrad Valve Plant»

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Year 2006

Lada

Russian brands

Foreign brands

88,7%

46%

54%

Other Russian

brands

11,3%

New automobile market trend (thousand pcs)

Year 2000

Lada

Foreign brands

Russian brands

72,4%

5%

95%

Other Russian

brands

27,6%

Source: RUSSIAN AUTO MARKET – 2006, «LADAONLINE»

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New automobile market trend ($ billion)

  • Market capacity for new automobiles in the year 2006 is $28 billion.

Source: RUSSIAN AUTO MARKET - 2006, «LADAONLINE»

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Sales forecast for new automobiles (thousand pcs)

  • The share of new foreign autos has increased from 5 to 54 % (in monetary terms, that is from $1,5 to $22 billion in the period 2000-2006)

Focus Group

  • The capacity of the chosen vehicle focus group will increase sevenfold by 2012 and will make $37 billion (at present, the capacity of the segment of the selected focus group plus current models of LADA is approx. $8 billion)

  • Technical solutions used in designing and manufacturing the focus group vehicles are at a high level

Russian-assembled foreign autos

Lada (forecast)

General level of requirements put to car component suppliers in the world

Source: RUSSIAN AUTO MARKET - 2006, «LADAONLINE», evaluation by SOK-Automotive

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Aftermarket (pessimistic forecast)

Aftermarket (optimistic forecast)

OEM (pessimistic forecast)

OEM (optimistic forecast)

Auto component market capacity forecast for the chosen focus group:

ОЕМ + Aftermarket ($ million)

  • The capacity of the auto component market for the chosen vehicle focus group will increase by 26 to 34 times by the year 2012 and will make $15 to 20 billion (at present, the capacity of the segment of the selected focus group plus current models of LADA is approx. $10 billion)

  • Foreign auto component vendors are seeking opportunities to start business in the Russian Federation

Forecast for automobile sales

  • Russian ОЕМs show interest in the engineering potential of foreign auto component vendors

Optimistic forecast – 50 %

Pessimistic forecast – 30 %

Level of localization of Russian-assembled foreign autos by 2012

Russia is on the eve of joining the WTO and a gradual decrease of duties on both ready autos

(duties reaching 15% within 7 years) and the average customs dues on imported auto components

Source: RUSSIAN AUTO MARKET - 2006, «LADAONLINE», evaluation by SOK-Automotive

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Auto components market

Trend

Current state

Domestic brands sector

  • Stability of supply and demand

  • High competition between domestic vendors

  • Large amount of low-quality and counterfeit products

  • Cooperation of foreign auto component suppliers with Russian ОЕМs

  • Increase in competition between domestic and foreign auto component vendors

Russian-assembled

foreign automobile sector

  • Rapid growth in demand coupled with a deficit of supply

  • Competition between suppliers of original and counterfeit spare parts on the aftermarket

  • Expansion of warehousing and service infrastructure

  • Localization of auto components to fit the assembly lines

The Russian automobile market has entered the active globalization phase

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today

tomorrow

Quality

Quality

Foreign

vendors

Foreign

vendors

Domestic

vendors

Price

Price

Implementing

European

Domestic

vendors

Standards

Integration of the Russian car component vendors into the world automobile industry

  • Objectives:

  • Supply of auto components for perspective models of Russian ОЕМs (development of engineering potential: Joint Ventures, creation of outsourcing partners system, developing engineering functions on enterprises)

  • Supply of car components for Russian-assembled foreign cars

    («establish the reputation» as a class 1 or 2 Supplier)

  • Export supplies within specialization

    (study the requirements of the Global Client, benchmarking, reference for general production development)

  • Conditions of competitive capacity in the global market:

  • Client-oriented pattern

    (constant contact, study of demands, complex solutions)

  • Deep specialization

    (understand the competitors’ products, quality, shop price structure, problems and strong points to develop own goals and tasks)

Competitive Capacity Matrix

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Strategy for the Russian auto component vendor development

Global auto component market

World level of production and supply organization

Innovative technologies

Business Transparency

Compliance with Standards

International Alliances

  • Transition to IFRS

  • Adjustment of corporate management to international requirements

  • Building of transparent legal structure

  • ISO/TS 16949 Implementation

  • Lean Production system implementation

  • Introduction of logistics standards

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Basics for Russian auto component vendors’ competitive capacity

  • Long – term and smoothly running relationships ability with material Suppliers

  • Convenient location referenced to the potential customers, infrastructural production prepared facilities ability

  • Optimal price policy leading possibility

  • Technological, human resources and investment potential

  • Logistical convoying delivery possibility

  • Administration management ability in regions

  • Running business experience at Russian «infrastructure problems» conditions (absence of specialized mediators and outsourcings; strict business scope conducting, defined by regulating authorities; strict observance obligations between the partners, developed professional personnel market etc.)

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Tasks under way capacity

Certification to comply with ISO/TOR 16949 requirements

  • Certification to comply with ISO/TOR 16949 completed:

  • CJSC «SKK» Jan 2005

  • CJSC «PES SKK» Jan 2005

  • CJSC «MOTOR-SUPER» May 2005

  • CJSC «Kinelagroplast» Aug 2006

  • CJSC «VAZINTERSERVIS» Nov 2006

  • PLC «Komplekt LTD» Jan 2007

  • OJSC «SchetMash» Feb 2007

  • Terms of certification to comply with ISO/TOR 16949:

  • OJSC «OSVAR», OJSC «SAZ» Mar 2007

  • OJSC «BelZAN», OJSC «Zavod Avtosvet» Jul 2007

Preparation and auditing of reports in compliance with IFRS

All companies of the «Auto Component» Division Nov 2007

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Tasks under way capacity

«Lean production» Program

Introduction of Lean processes in the regular activities of ALL enterprises of the SOK-Automotive Division

CEO

Directors of Divisions

Deputy Director General in

Lean Production

(process master)

Heads of Divisions

  • Building maps of current and desired value creation

  • Loss analysis

  • Design and implementation of improvement plans

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OUR PARTNERS capacity

Partner in exterior/interior system production

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