Transportation Update

TRANSPORTATION UPDATE

APRIL 2008

PRODUCTION AND TRENDS

The Economist Forecasts Global Car Sales Will Rise by three percent in 2008

American Honda year-over-year sales increase 0.7percent

GM's Year-over-year Sales Dropped 13 percent in February

PROJECTS AND EXPANSIONS

Toyota Motors to Build Second Plant in India

Toyota to Build Mississippi Plant

Volvo Bulks up Manufacturing Sector by Making Construction Equipment

BMW Announces $750M Investment in South Carolina Factory

PRODUCTION AND TRENDS

onomist Forecasts Global Car Sales Will Rise by 3 percent in 2008

The Economist Forecasts Global Car Sales Will Rise by three percent in 2008

The Economist Intelligence Unit forecasts global car sales will rise by three percent in 2008 as the American market remains stagnant and sales in India and China roar, increasing by 14 percent and 16 percent respectively.

Truck sales globally will motor ahead by nearly 6 percent, reflecting rising investment in emerging economies. In the developed world, truck demand will be driven by tighter environmental regulations.

High oil prices will stoke demand for cars with greater fuel efficiency. Following the pioneering lead of Toyota and Honda, most manufacturers will have an electric or hybrid vehicle on the drawing board or in production in 2008. Hybrids will face increasing competition from diesel powered vehicles, which are 20-30 percent more efficient than the petrol variety, and benefit from scrubbed-up diesel and higher-performance engines.

Honda is also investing heavily in hydrogen fuel-cell technology—with zero emissions—and will begin producing a vehicle, the FCX, in 2008. General Motors says it will have its own hydrogen-powered vehicle in showrooms in 2011. Japanese and South Korean companies are capturing ever more market share in America and Europe, and Chinese and Indian carmakers will take sales at the lower end of the market before the decade is over. With no let-up in price competition, radical restructuring to trim overcapacity and boost margins—particularly in Europe and North America—will be the order of the day. Ford, which aims to sell its Britishbased Jaguar and Land Rover brands to improve its shaky finances, will not be alone in focusing on core brands and streamlining production.

To watch: Income-generating cars. Using a modified plug-in version of Toyota’s popular hybrid, the Prius, Google and Pacific Gas & Electric are working on a system which generates electricity from the parked car and feeds it into a nearby power grid.

American Honda year-over-year sales increase 0.7%

American Honda year-over-year sales increase 0.7 percent

American Honda Motor Company Inc. posted record February sales results of 115,397 Honda and Acura vehicles, an increase of 0.7 percent over February 2007, the company announced on March 3. American Honda light trucks also posted record monthly results with sales of 52,557, up 1.9 percent. Year-to-date American Honda total vehicle sales of 213,908 were ahead of last year, but down 0.6 percent on a daily-selling-rate basis.

The Honda Division posted its best February ever with record sales of 102,313 cars and light-trucks; an increase of 1.9 percent over year-ago results. February records for individual models included Fit sales of 4,326, up 61.8 percent; CR-V sales of 15,694, up 11.4 percent; and Pilot sales of 12,881, up 19.3 percent. The division also posted record February light-truck sales of 46,303 trucks, up 3.0 percent over last year.

The Acura Division posted total vehicle sales of 13,084 units, down 8.0 percent. The MDX luxury SUV was Acura's best-selling model, with strong February sales of 4,545 and year-to-date sales of 8,527.

GM's Year-over-year Sales Dropped 13 percent in February

General Motors dealers in the United States delivered 270,423 vehicles in February, a decrease of 13 percent compared with an unusually strong February last year.

"Our new launch vehicles, including the award-winning Chevrolet Malibu and Cadillac CTS, had a sensational month, as did the Chevrolet Cobalt, Saturn Aura and the Pontiac G6," said Mark LaNeve, vice president, GM North America vehicle sales, service and marketing. "Most importantly, despite tough market conditions, we anticipate our total retail vehicle sales share to have remained flat for the first two months of the year compared to 2007. We are encouraged by our performance in the key passenger car categories, and while the overall market for trucks is challenging, we anticipate holding our share for full-size pickups and utilities."

Truck sales declined 20 percent compared with a year ago.

GM's fuel-efficient cars saw strong growth. Chevrolet Cobalt total sales were up 56 percent with retail up 24 percent; Pontiac G6 was up 50 percent total and 6 percent retail; and Buick LaCrosse total sales were up 12 percent compared with February 2007.

The Buick Enclave, GMC Acadia and Saturn Outlook together accounted for more than 11,000 vehicle sales in the month, an increase of 94 percent compared with the same month last year. Outlook sales were up 15 percent; Acadia sales increased 39 percent; and there were more than 3,800 Buick Enclaves sold.

Also of note, the Chevrolet Equinox compact crossover utility had total sales of more than 8,600 vehicles for a 15 percent increase, and a retail sales increase of 8 percent compared to a year ago.

"Our sales increase at Cadillac shows the power of new products to attract consumers - even in a tough market," LaNeve added. "Additionally, Saturn Outlook had a 15 percent total sales increase, illustrating that vehicle's contribution to the mid-utility crossover segment performance. We remain focused on offering vehicles that have industry-leading value, great fuel economy and the best warranty coverage of any full-line automaker."

GM North America Reports February 2008 Production, 2008 First-Quarter Production Forecast Unchanged at 965,000 Vehicles, 2008 Second-Quarter Production Forecast Set at 1.08 Million Vehicles

In February, GM North America produced 350,000 vehicles (129,000 cars and 221,000 trucks). This is up 1,000 units, or less than 1 percent, compared to February 2007 when the region produced 349,000 vehicles (130,000 cars and 219,000 trucks). (Production totals include joint venture production of 22,000 vehicles in February 2008 and 20,000 vehicles in February 2007.)

The region's 2008 first-quarter production forecast remains unchanged at 965,000 vehicles (357,000 cars and 608,000 trucks). Additionally, GM North America's initial 2008 second-quarter production forecast is set at 1.08 million vehicles (408,000 cars and 672,000 trucks), down 62,000 units or 5 percent from second-quarter 2007 actuals. In the second quarter of 2007, the region produced 1.142 million vehicles (402,000 cars and 740,000 trucks).

PROJECTS AND EXPANSIONS

Toyota Motors to Build Second Plant in India

LEADING AUTO makers, Toyota Motor Corporation (TM), is all set for its expansion in India and has announced an investment of more than approximately 35 billion yen, to build a second auto plant in India, which will start its operations by 2010. The demand for Toyota cars is increasing and this plant is aimed to meet the rising demand of the vehicles.

The second plant will carry the initial annual production capacity of around 100,000 vehicles for passenger vehicles, including the Corolla subcompact, as well as a new compact car. The company also plans to export the compact car to other countries in the future.

The plant will be set up in Bangalore, on the site of Toyota Kirloskar Motor Private Limited or TKM, Toyota’s automobile production base in India. Toyota’s other plant is also located on the outskirts of Bangalore, which was set up as a joint venture in 1997, by Toyota and the Kirloskar Group. This plant may be an attempt on Toyota’s part to catch up with Suzuki Motor Corporation’s (SZKMF.PK) dominance in the country, where the fast-growing economy is boosting demand.

The new car by Suzuki Motors will export 100,000 models annually to Europe and the rest of the world and will be to be manufactured at its Manesar plant at Gurgaon in India. The new model is expected to be launched by the end of this year.

Toyota to Build Mississippi Plant

Toyota Motor (TM), poised to become the biggest car company in the world this year, said it will build a $1.3 billion manufacturing plant near Tupelo, Miss., that will build 150,000 Highlander crossover utility vehicles annually when it opens in 2010.

Toyota said it will employ 2,000 factory workers at a forecast $20 an hour after three years on the job, not counting benefits.

That will bring to eight the number of Toyota's North American plants, capable of manufacturing 2.2 million vehicles a year, equivalent to 86% of the cars and trucks Toyota sold in the USA last year.

The plant is an attempt to keep up with growing U.S. demand. Toyota sales in the USA were up 12.5% last year in a new vehicle market off 2.5% from a year earlier.

General Motors (GM), Ford Motor (F) and DaimlerChrysler's (DCX) Chrysler Group are trying to shrink to fit their declining share of U.S. sales. Together they plan to ax 86,000 jobs and idle 26 factories by the end of 2009.

Toyota, meantime, says it will add more U.S. plants, if needed.

Toyota overtook DaimlerChrysler last year to become the No. 3 car company in the USA. It could overtake Ford to become No. 2 this year. Its global production plans would push it past GM as biggest car company in the world this year. In the USA, GM still sells about 60% more vehicles than Toyota.

Foreign-based car companies, including Toyota, operate a total of 13 vehicle-assembly plants in the USA. Most are in southern states, where unions are less likely to organize plant workers than in the industrial heartland, where Detroit's automakers are based. Legally, the workers, not the plant management, decide whether to unionize.

Volvo Bulks Up Manufacturing Sector by Making Construction Equipment

The Volvo Construction Equipment factory in Asheville, North Carolina, they do things big. As in a just expanded 400,000-square-foot factory. As in building excavators 36 feet long and nearly 12 feet wide that weigh up to 87,540 pounds and cost nearly $300,000. The factory has been here since 1977, when Clark Equipment opened it. Sweden's Volvo Group bought it in 1987 and made it North American headquarters for its construction-equipment subsidiary. Its other U.S. plant is in Shippensburg, Pa., where it builds road-construction machinery. Until last year, the Asheville factory built only wheel loaders.

About 300 work there, an increase of about 100 since the decision was made to expand in 2006. "We started preproduction work in September for the excavators. The first one rolled off the line in November," says Dave Million, the plant's general manager. That one was an EC160C hydraulic excavator, one of four models--the company makes 11--assembled there. The vehicles are distributed in the U.S. and Canada. "We're training people as we go. By the time we're done ramping up in April, it will take less than five days to build one." The way they're building them also is evolving as they add more parts made at the factory. "We're slowly localizing the excavator machines. We'll start working on the cabs in April. But we'll always have to import some components. We're trying to move to about 40-50% localized."

The factory also is evolving in its use of robotics. "We have a very sophisticated welding system for the cabs," Million says. "We only do manual welding on the excavator frames, and we'll be adding robotics for that. It's more efficient, and your cycle time goes down. But you have to have enough volume to absorb the costs." Even with more robotics, the company plans to nearly double the plant's work force within three years. But something else has to grow first--market share. Volvo is No. 3 in the world, behind Caterpillar and Komatsu, with 14.9%. But Million believes it will increase. "That will happen as we add models.”

BMW Announces $750M Investment in South Carolina Factory

BMW on March 10 announced it will invest an additional $750 million in its Upstate South Carolina factory to add 1.5 million square feet and 500 new jobs on site to produce three models and to increase production capacity to 240,000 units by 2012.

The investment is the largest ever announced for the Spartanburg County factory, increasing investments of the BMW Group in its South Carolina operations to $4.2 billion.

The three-year construction project includes a new 1.2 million-square-foot assembly facility north of the existing factory to accommodate the next-generation BMW X3 Sports Activity Vehicle. In addition, the paint shop will expand by about 80 percent, or 300,000 square feet. The existing body shops will be renovated.

The additional investment will prepare the factory to increase production from 160,000 units to 240,000 units. The expansion of the Spartanburg plant also means a bigger purchase and export volume in and from the NAFTA region, which will contribute considerably to the company’s natural hedging position.

After the expansion, the Spartanburg plant will manufacture the BMW X3, X5 Sports Activity Vehicle and X6 Sports Activity Coupe and their respective variants for world markets.

“Centralizing our know-how for BMW X models in Spartanburg will enable us to work more efficiently, thus supporting our long-range corporate strategy. In addition, it was a logical step for the BMW Group as a global player to increase production capacity in its largest market,” said BMW board member Frank-Peter Arndt.

A highlight will be the production of a diesel X5 Sports Activity Vehicle for the United States market starting later this year.

“The boost in the production capacity at BMW Manufacturing will positively impact the logistics, supplier and distribution networks that support the manufacturing processes,” said Josef Kerscher, president of BMW Manufacturing.

While the supplier network may grow, existing supplier companies will ramp up operations to provide automotive parts for the higher production levels, doubling parts container traffic and significantly increasing exports through the Port of Charleston.

When BMW Group announced in 1992 that it would build its first full manufacturing facility outside of Germany in South Carolina, the company pledged to invest $600 million, to employ 2,000 associates by the year 2000, and attract at least nine suppliers to the state.

By the year 2000, BMW had grown to more than 3,000 BMW associates and by 2004 that number grew to more than 4,600 associates. Within that same timeframe, in order to provide greater flexibility, BMW began to employ contract workers to primarily provide specialty and administrative services. As BMW entered 2008, the number of on-site workforce, including BMW associates and contract workers grew to more than 5,400 with a total payroll of more than $450 million annually. In addition, BMW has a contingency workforce of about 900 workers with an average annual payroll of more than $50 million.

Today, BMW has invested $3.5 billion in its South Carolina operations, more than 5,400 people work on the site. Fifty-two suppliers are located in the Palmetto State, and 40 of those 52 suppliers have chosen to place new North American operations in the state to partner with BMW. And, BMW’s North American supplier network has grown from 22 in 1992 to 194 companies today.

To meet growing customer demand, vehicle production at BMW Manufacturing has grown from 429 units in 1994, which was the first year of production to 157,530 units in 2007. In the same period the sales volume in the United States increased from 65,000 to 335,000 units in 2007.

BMW Manufacturing Company is a subsidiary of BMW AG, based in Munich, Germany.

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