Magna International Inc. - OMEGA

RECENT TRENDS IN THE AUTOMOTIVE INDUSTRY
A number of trends have had a significant impact on the global automotive industry in recent years, including the:
• increasing pressure on automotive suppliers to reduce their prices;
• globalization and consolidation of the automotive industry, including both automobile manufacturers and automotive
components suppliers;
• evolving role of independent automotive components suppliers and their progression up the “value chain”;
• increasing out-sourcing and modularization of vehicle production;
• increasing prevalence of lower volume “niche” vehicles built off high volume global vehicle platforms; and
• growth of North American subsidiaries of foreign-based automobile manufacturers.
Increasing Pressure on Automotive Suppliers to Reduce Their Prices
Automobile manufacturers have sought ways in which to reduce their cost of producing vehicles as competition for market
share among these automobile manufacturers has become more intense. In addition to seeking cost efficiencies in their own
production, marketing and administrative structures, automobile manufacturers have placed enormous pressure on automotive
suppliers to reduce the price of the components, assemblies and modules they supply. This price pressure has come in different
forms, including through: long-term agreements containing pre-determined price reductions for each year of a vehicle production
program; one-time price reduction demands in addition to those contained in any long-term agreement; pressure to absorb more
design and engineering costs previously paid for by the automobile manufacturer and to recover these costs through amortization
in the piece price of the particular components designed or engineered by the supplier; and pressure to own and/or capitalize
tooling and recover these costs through amortization in the price of the components produced by this tooling. In many cases,
suppliers bear the risk of not being able to fully recover the design, engineering and tooling costs if vehicle production volumes
are lower than anticipated. Automotive suppliers face additional pricing pressures as a result of various electronic commerce
initiatives which facilitate electronic quoting, sourcing and transaction processing.
Globalization and Consolidation of the Automotive Industry
In recent years, the automotive industry has undergone a wave of global consolidation of automobile manufacturers. This
globalization can be attributed to several factors, including increasing pressure on automobile manufacturers to reduce costs and
achieve greater economies of scale, the expansion of free trade zones between major trading partners in North America, Europe
and elsewhere, the accelerated growth of emerging markets in Asia and Latin America and the development of free market
economies in Eastern Europe. Some examples of the globalization and consolidation of automobile manufacturers include:
• the merger of Daimler-Benz and Chrysler and the acquisition by DaimlerChrysler of a significant equity interest in
Mitsubishi;
• the acquisition by Ford of a significant equity interest in Mazda and Ford’s acquisition of Jaguar, Volvo and Land Rover;
• the acquisition by General Motors of all of the equity of SAAB, the acquisition of equity interests in Fuji Heavy
Industries Inc. (the maker of Subaru vehicles), Isuzu and Fiat, the announced acquisition of an equity interest in a new
company which will own and operate certain facilities of Daewoo and the development of a relationship with Suzuki;
• the acquisition by Renault of a significant equity interest in Nissan and the acquisition by Nissan of an equity interest
in Renault; and
• the acquisition by Volkswagen of SEAT, Skoda, Bentley, Lamborghini and Bugatti.
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