Shanghai, China

Longmashen Enterprises Ltd Phone: +86 13901712880

E-Mail: Longmashen@gmail.com

Business
Intelligence
Report

ABC
Automotive

Prepared for
Customer
January 15, 2013
 Table of Contents

Key Information 3
Executive Summary 4
ABC (ABC)
 Company Origins and Ownership Structure 5
 Company Description 6
 Footprint 7
 Map of Chinese Auto OEM Locations 8
 Complex web of Foreign Invested Auto OEMs 9
 Subsidiaries & Affiliates 10
 OEM customers 12
 Recent business awards 13
 XYZ background & its effect on ABC 14
 SWOT 15
 Activities of Note 17
 ABC Financial & Management Information
o Consolidated Financials 2009, 2010, 2011 18
o Key Board & Management Bios 19
o Other Board & Management Info 20
Opinions of the Authors 21
Authors: Keith Lomason & Billy Quan
Report Methodology
This report is compiled from four sources of information:
1) Internet data, mostly in Chinese, translated, summarized and organized in a logical fashion
2) Interviews with individuals who have had direct interaction with ABC and/or XYZ Motor, including a former
buyer for Shanghai Volkswagen, a former buyer of Shanghai General Motors, a former Purchasing Manager of
First Auto Works Volkswagen, and supplier quality development engineer of SGM.
3) Financial data acquired from a government financial bureau contact
4) Personal experience of the authors with XYZ & various subsidiaries of ABC.

DISCLAIMER

This material is based upon work done without knowledge of the identity of the client or its specific intentions or concerns. Due to this restriction, and
the compressed time allotted for this study, this report is more general in nature than we prefer to publish.
Any opinions, findings, conclusions, or recommendations presented herein or developed in subsequent discussions as a result o f this report are those
of the authors and should be weighed carefully by the client for applicability.

Business Intelligence Report on ABC Automotive 2

Key Information

ABC (ABC)
No. xxx Road
Shanghai, China 200xxx
http://www.xxxxxx

PH: +86 21 xxxxxxxx

Fax: +86 21 xxxxxxxx

ABC is the automotive component-manufacturing group of XYZ Motor. It is similar in scope and
concept to Delphi of GM, and Visteon of Ford, especially in that ABC is now a publicly traded
company, but XYZ Motor holds a majority position. ABC’s core business divisions are interior and
exterior trimming, metal forming & dies, function parts, electric and electronics parts, hot-worked
parts, and new energy parts.

ABC has 28 directly invested companies at the end of 2011 covering a wide range of automotive
components and technologies. Most of these 28 companies are joint ventures with well-known
foreign suppliers. These 28 companies have set up over 166 manufacturing plants and customer
service centers in 19 locations around China. ABC is the largest domestic automotive components
supplier in China, and has reached this position by focusing on being “neutral” (not being tied to
XYZ alone), growing their capabilities to be a Tier “zero” supplier (providing complete systems to
the OEM, from within the customers factory), and more recently by being “global”.

Financial Basics
RMB (Billion) Current exchange rate: 1USD = 6.2RMB Shanghai A-Share: 600741
2011 2010
Turnover 52.3 Turnover 44
Y-Y Growth % 19% Y-Y Growth % 78%
Net Income 3 Net Income 2.5
Y-Y Growth % 20% Y-Y Growth % 67%
Total Assets 42.2 Total Assets 35.9
Total Liabilities 19.1 Total Liabilities 16.6
Total Equities 23.1 Total Equities 19.3
Debt/Assets % 45% Debt/Assets % 46%
Current P/E (Jan 7, 2012) 9.1706 Market Cap (mil CNY) 28,157
Ranking: #1779 on Forbes Global 2000

Key People
xxxx Hong Chairman
xxxx Jianhua Vice Chairman
xxxx Haitao President (GM)

Business Intelligence Report on ABC Automotive 3

Executive Summary

ABC. (ABC) is the automotive component-manufacturing group of XYZ (XYZ). Both companies are
the largest and most successful of their industry in China, and both are basically holding companies
of manufacturing operations, most of which are foreign invested joint ventures. The two companies
are very aligned in purpose and operational philosophy, and much of ABC’s management came from
and/or holds positions in XYZ as well.

ABC has six core business units and their product range can be best compared to that of Magna or
Delphi, though their engineering and technologies are not as strong. They have 28 invested
companies in their group, which have established over 166 manufacturing and service facilities
throughout China to serve multiple customers. They benefit from being well connected to the
government and to XYZ in the fast-growing China auto market, as well as from the technologies and
manufacturing know-how of their multiple foreign partners.

These partnerships that have made them so strong in the China market are also a limitation in their
ability to expand overseas. Their foreign partners will certainly not allow their JV to open facilities
in the foreign partners home markets, and they may not be willing to enter new markets with a
Chinese partner when they could do this by themselves. And because their partners tend to be
strong companies with large global footprints – Visteon, ZF, Continental, Valeo, and others – it is
almost impossible to find any market other than those that are developing that will not compete
with their partner.

ABC has enjoyed a growth rate higher than the industry average in China because they have been
successful in expanding their customer base beyond XYZ. Although they will continue this push for
the foreseeable future, they are under pressure from the government and XYZ to become more
global, regardless of the limitations listed above.

This leaves ABC with two options: expand overseas with products and technologies that they own
100% - such as PFTs and Springs – or acquire companies that have a footprint that ABC wants and
products and technologies they can absorb.

Any company being approached by ABC or one of its subsidiaries to establish an agreement, a joint
venture, or more, should understand that ABC typically has much more experience negotiating all of
these types of arrangements than any foreign partner. ABC alone has 28 invested enterprises, most
with foreign partners and has negotiated dozens if not hundreds of technical agreements and
complex contracts.

It should not be overlooked that many foreign companies have been e xtremely successful by
partnering with a Chinese company – in fact it could be argued that XYZ saved GM because their
relationship is very strong. The lesson here is not to fear negotiating a deal with ABC, but to be
properly prepared.

Business Intelligence Report on ABC Automotive 4

Company Origins and Ownership Structure

ABC. (ABC) is one of China’s largest and most successful automotive components group , similar to a
Delphi or Visteon in its product scope and origins. For several decades, the Shanghai Automotive
Industry Company (XYZ) drove auto and auto component manufacturing in China’s Yangzi River
Delta region through joint ventures with OEMs VW and General Motors, as well as through JVs with
dozens of global suppliers. In the first decade of the 2000’s, XYZ went through several
reorganizations, segregating their vehicle manufacturing from their parts manufacturing
operations. Parts companies were transferred to ABC, and OEM operations were assigned to XYZ
Motor Co. Both groups were controlled by the same state-owned enterprise, the Shanghai
Automotive Industry Corporation, Group (XYZ Group), which is given direction from the PRC
government by its bureau, The Shanghai State-owned Assets Supervision and Administration
Commission (SSASAC).

SSASAC
100%

XYZ Group

74.3% 60.1%

XYZ M otor (y y y y ) ABC O ther i nteres ts

(O EM M fg) (Parts mfg)

*Before Dec 2011

In late 2011, XYZ Motor changed direction and acquired ABC shares from XYZ Group and now the
structure is as follows:

SSASAC

100%

XYZ Group

74.3%
XYZ M otor O ther i nteres ts
(OEM M f g)
60.1%
ABC
(Parts mf g)
*After Dec 2011

Business Intelligence Report on ABC Automotive 5

As you can see by the chart above, although both XYZ Motor and ABC are publicly traded companies
on the Shanghai A-share market, both are still heavily influenced by the PRC government through its
ownership of the XYZ Group.

Company Description

ABC’s headquarters is in Shanghai – in fact they share an office building with XYZ Motor and XYZ
Group at xxxxxx Road in Shanghai. Not only is this convenient for many of the key executives who
are involved in two or all three companies management, but it is also indicative of the close
cooperation and purpose shared by these companies. Any foreign company representatives meeting
with ABC at this address should make it a point to try and be introduced to some of these key
executives during their visit.

ABC has six core business units: Interior & Exterior Trim, Metal Forming & Dies, Electric &
Electronic Parts, Hot Work Parts (castings & forgings), Functional Parts, and New Energy Parts. The
chart below will help explain what kind of products/techno logies are in each unit. ABC currently
has a market capitalization of over RMB 28Billion (4.6B USD – about the size of Magna in the mid
1990’s), and fully intends to continue to grow.

Business Intelligence Report on ABC Automotive 6

Footprint

ABC is the largest automotive component supplier in China, and 35-40% of their sales are from non-
XYZ related customers. Most of this growth from outside of XYZ is due to other OEMs in China
needing the products and technologies of ABC’s partners such as Continental, Federal Mogul, and
GKN. ABC has been very strategic in using their partners’ strengths and their own connections in
China to push their domestic expansion.

China’s auto industry is spread across the country with over 100 vehicle manufacturers, but there
are approximately 30 that produce volumes of any significance. About 20 of these are foreign
invested joint ventures. The 30 key OEMs are roughly grouped in 6 areas of China – The Northeast
(Changchun, Harbin, Shenyang), the North (Beijing, Tianjin), the East (Shanghai, Nanjing), the West
(Chengdu, Chongqing), the Southwest (Guilin, Wuhan), and South (Shenzhen, Guangzhou).

Of the foreign invested companies within the ABC group, most were established as joint ventures
directly with XYZ in the 1990’s and 2000’s. The Chinese ownership of these JV’s was changed from
XYZ to ABC between 2005 and 2011, then, as mentioned above, XYZ Motor acquired majority shares
of ABC from the XYZ Group in December 2011. The end result of these complex and extended
transactions is that XYZ Motor has effectively corralled all of its auto parts manufacturing entities
into a subsidiary company. This is advantageous to XYZ Motor for operational, financial, legal and
control issues, with the result being similar to the paths GM and Ford took in creating Delphi and
Visteon.

ABC has at least 28 invested companies under its umbrella, most of which are joint ventures with
global auto component manufacturers. These 28 companies have established over 166 factories and
service centers throughout China in order to break into the supply chains of OEMs around the
country. In this regard, it is better to compare China to Europe – China’s provinces are similar to
Europe’s countries, quite independent in what industries they support as long as it is not
“restricted” by Beijing. The central government has been trying to consolidate the auto industry
from over 100 OEMs to less than 10 for more than 20 years, yet there are still over 100 OEMs. This
is because the provincial governments refuse to force any major employer in this key industry to
close, and so they support them with low cost loans, free land, and any other benefits and incentives
they can muster. Similarly, those local OEMs tend to favor local suppliers, and only when they need
something a local supplier cannot produce will they look outside their normal “kiretsu”. One way
around this dilemma is to open supplier factories closer to the OEMs, and perhaps in partnership
with an existing local supplier. ABC has obviously been very willing to open factories in other
provinces in order to grow their business. While not always the most cost effective method of
supplying a customer, it is strategic and the politically correct thing to do, and often results in
blocking other competitors if they are the first or second in.

The following charts show why China is both the most competitive auto market in the world – every
major and most minor vehicle manufacturers and their suppliers are here – and why China is the
most complex auto market in the world – the PRC governments requirement for foreign OEMs (and
originally component manufacturers) to have a Chinese partner, coupled with the provincial
protectionism, ofter resulted in a foreign auto or component manufacturer having multip le partners
in China.

Business Intelligence Report on ABC Automotive 7

M ap of Auto OEMs in China

Business Intelligence Report on ABC Automotive 8

Appendix B – The Complex Web of Auto OEM Joint Ventures in China

Business Intelligence Report on ABC Automotive 9

ABC Subsidiaries and affiliates (Automotive business)
Year
Company Name Products Owns % Partner
est.
Interior / Exterior Trims
Interior and
exterior trims,
50% Visteon
A Seats, Safety 1994
50%
systems,
Electronics
Air bags,
TRW
B belts, Steering 50% 1997
50%
wheels
Koito
C Lamps 50% 1989
45%
D Seals 47.5% Metzeler 1995
Plastic fuel
E 33.9% SDIC 1988
tanks
Chassis components
ABSs, calipers Continental
F 51 % 1994
Brake cylinders 49%
Power steering ZF
G 49% 1994
systems 51%
H Drive shafts 35% GKN 50% 1988
I Springs 100% - 1997
R&D of brake Continental
J 49% 2010
system 51%
Electronic components
Auto electric Hong Kong
appliances, Shanghai
K 70% 1988
Motors, Industrial
Security 30%
Starters, Valeo
L 50% 1995
Alternators 50%
Motors and Guizhou
M motor control 60% Aerospace 2010
systems Industry 40%
Powertrain parts
Bearings, Federal-Mogul
N 40% 1999
Bushes 60%

Compound for Federal-Mogul

O 40% 2007
bearings 60%
Aluminum Kolbenschmidt
P 50% 1997
pistons Pierburg 50%
Air-conditioning components
Q Air systems, 38.5% Sanden 35% 2000

Business Intelligence Report on ABC Automotive 10

 Compressors Behr 17.5%
Shanghai
Air conditioning Sanden Behr
R 50% 2004
systems and Behr
GmbH
Stamped parts
S 69.9% XYZ HongKong
Body panels 2004
Co.,Ltd.
Body frames 100%
T - 1989
Forged parts
Hot-working parts
Sintering parts,
100%
U Plastic parts, - 1988
Steering hoses
Teksid 50%
Cylinder
Donghua
V blocks, Cast 25% 1998
Automotive
iron products
Industrial 25%
Large,
Hongkong-
nonferrous die
Macau
casting 60%
W International 1992
products,
Investment
Pumps, Piston
40%
pins
Cylinder
heads, Intake Kolbenschmidt
X 50% 2000
manifolds, Pierburg 50%
Water pumps
Y Forged parts 100% - 2000
Z Oil pumps 100% - 1960
Drive train systems
Clutches,
ZF Sachs
ZZ Torque 50% 2002
50%
converters

As can be seen in the table above, the only joint ventures established in the last five years are the R&
D facility with Continental and the motor and motor control development facility with Guizhou
Aerospace. This indicates that ABC is fairly well set with its manufacturing activity and is focusing
on improving its abilities and access to advanced technologies.

Business Intelligence Report on ABC Automotive 11

OEM Customers in China

- Shanghai VW
- Shanghai GM
- XYZ Motor
- Shanghai Volkswagen Nanjing Branch
- XYZ Motor Passenger Vehicle Pukou plant
- XYZ-GM-Wuling
- Shanghai GM (Shenyang) Norsom
- Shanghai GM Dong Yue
- Shanghai Huizhong
- Shanghai Volvo
- Nanjing Iveco
- Chery Automobile
- Geely Automobile
- Great Wall
- BYD Auto
- Jiangling Isuzu
- Jianghuai Automobile
- Soueast (Fujian) Motor
- Brilliance Jinbei
- BMW Brilliance
- Changan Automobile
- Changan Ford Mazda
- Changan Ford Mazda Nanjing Plant
- Changan Suzuki
- GAC Changfeng
- Dongfeng-Peugeot-Citroen
- Dongfeng Nissan
- Dongfeng Nissan Passenger Vehicle
- Zhengzhou Nissan
- GAC Honda
- Dongfeng Honda
- FAW-VW
- FAW Haima
- FAW Car
- Tianjin FAW Toyota
- Sichuan FAW Toyota
- Tianjin FAW Xiali
- Beiqi Foton
- Beijing Benz
- Beijing Hyundai

While this list is impressive, more than 60% of ABC sales come from the first 11 customers,
which are all subsidiaries or joint ventures of XYZ.

Business Intelligence Report on ABC Automotive 12

Recent business awards by part, customer, and ABC subsidiary

Cockpit and Center Console

XYZ Motor Roewe 950 Yanfeng Visteon
assembly
Fender Module BMW X5 Yanfeng Visteon
Mucell PAB door prototype JAC Binyue -
Dongfeng Peugeot
Plastic tailgate module PSA508 -
Citroen
Grand Cherokee
Door trims Chrysler -
2011
Knee airbags BMW Y7 -
Shanghai Superior
Hot forming A/B column Shanghai GM Chevrolet Malibu Die Technology Co.,
Ltd.
Kolbenschmidt
Pierburg Shanghai
Cylinder/cylinder VW EA111
Shanghai VW Nonferrous
cover/intake manifold engines
Components Co.,
Ltd.
Dongfeng Peugeot Shanghai Koito
LED Front Fog Lamp Peugeot 308
Citroen Automotive Lamp
Adaptive Front Lighting Dongfeng Peugeot Shanghai Koito
Peugeot 308
System(AFS) Citroen Automotive Lamp
Fuel tanks Shanghai VW Polo YAPP
Fuel tanks Shanghai VW Passat B5 YAPP
Fuel tanks FAW VW A-platform series YAPP
Yanfeng KSS
(Shanghai)
Air bags Geely gruop LG-3 Jinying
Automotive Safety
Systems
Steering wheels Geely gruop LG-3 Jinying Yanfeng KSS
Yanfeng Visteon
Instrument cluster Shanghai GM Chevrolet New Sail Automotive
Electronics
Yanfeng Visteon
Audio systems Shanghai GM Chevrolet New Sail Automotive
Electronics
Airbag Shanghai VW Tiguan Yanfeng Key KSS
Buckle FAW-VW Audi -
Weatherstrip Beijing Benz E series -
Lamps GAC Motor Trumpche -
Plastic tailgate module Dongfeng PSA Peugeot 508 -
Plastic fender module Brilliance BMW X5 -
Electric wiper Shanghai VW Tiguan -

Business Intelligence Report on ABC Automotive 13

Power window FAW-VW Audi -
HVAC control module Changan Ford Focus -
XYZ background & its effects on ABC

Because ABC is controlled by XYZ, it is appropriate to take some time to discuss XYZ’s growth over
the past 15 years. XYZ is more successful than its China rivals not just because they have two major
foreign partners, and not just because both of these partners are located in the same city. XYZ’s
success is largely due to Hu Maoyuan and other XYZ managers seizing the opportunity to learn from
both of their foreign OEM partners and then actively using from both what they felt was best for
XYZ Group and XYZ Motor.

XYZ realized that they would not become a global player by building GM and VW cars in China. They
also felt it would take too long to learn from their JVs what they needed in order to build their own
car and have significant independence from those partners. XYZ made the decision to acquire
capabilities by purchasing patents to specific vehicle technologies, such as Rover sedans, and by
acquiring other car companies, such as Nanjing Auto, which had bought the rights to MG cars. XYZ
also pursued a plan to have several of their key engineers, quality staff and management rotate
between SVW and SGM before coming back to XYZ where they could consolidate what they had
learned to create a bigger and more competitive company. Where other Chinese OEMs have
struggled and/or failed with acquisitions of foreign technology or acquisitions of foreign OEM
brands, XYZ bought the technology and brand but ensured they had good management to launch
their vehicles and to embark on an aggressive acquisition of other Chinese OEMs, a nd in opening
factories, sales, and purchasing offices overseas.

ABC is in a similar situation to XYZ in that most of their world-class technologies are locked into
their joint ventures with a foreign partner, but instead of trying to understand and absorb
technology and business practices from two partners, they are trying to do this with over 25
international partners. Most foreign partners share only as much technology, innovation and
processes with their Chinese partners as is absolutely necessary to manufacture the required parts
in China. If ABC is going to grow faster than the general market and expand overseas, they will need
to find alternatives to forming joint ventures with global suppliers.

Between late 2011 and mid-2012, ABC pursued a course of using its joint venture with Visteon in
Shanghai to purchase certain assets of Visteon globally after Visteon had declared bankruptcy. In
the end, ABC and Visteon could not come to terms on the value of the assets and what would or
would not be included in the deal. This indicates that ABC is not desperate in their desire to acquire
overseas assets, and is not going to make a deal that they do not feel is good for them.

Because XYZ also pulls the strings of their subsidiary Yangzhou Automotive Plastic Parts (YAPP), as
they do with ABC, it is not surprising then that YAPP too walked away from a deal with Inergy when
those two parties could not come to an agreement that YAPP/ABC/XYZ found beneficial.

In short, any company entering into negotiations with ABC needs to realize that XYZ will have
significant influence on the parameters of any agreement, so it would be beneficial to understand
the goals of both Chinese companies and how any agreement would effect them.

Business Intelligence Report on ABC Automotive 14

Business Intelligence Report on ABC Automotive 15
SWOT

SWOT ANALYSIS FOR ABC

Strengths
Largest supplier Group in China
Strong Government Ties
Deep Financial Resources
Weaknesses
60% Sales from XYZ, 5% Exports
Lack of Self Developed Technologies
Weak Self Developed Car Components
(Roewe)

Opportunities Threats
Weak global suppliers may be acquired Other China OEMs protect their suppliers
Weak domestic suppliers may be acquired Disgruntled JV Partners
Western brands benefit from Japan backlash Lack of global footprint limits robustness

Strengths:

Largest Supplier Group in China – Shanghai has a long-standing reputation of being one of the top
Chinese cities for business, and the success of XYZ and its subsidiaries certainly bolster this image.
The management of XYZ are very strategic and shrewd, and they are armed with a huge war chest
and some of the best homegrown or absorbed technologies and acumen. They are carrying the big
stick and are not afraid to use it.

Strong Government Ties - In addition to their deep pockets and 25 years of modern auto motive
industry experience, ABC is ultimately looked after and influenced by PRC government officials.
Because of this scrutiny and their success, ABC has strong relationships within the government that
can provide favorable treatment for business expansion opportunities.

Deep Financial Resources - ABC is reporting a 10% net income and has been profitable for many
years running. Between their retained capital, the government loans they could get, a nd XYZ’s deep
pockets, ABC has no problem funding any expansion plan that their management can justify.

Weaknesses:

60% Sales from XYZ, only 5% from Exports - Although ABC is the most customer-diverse
component supplier in China, some customers are still reluctant to give them business either
because they are part of an OEM in competition with XYZ or because they want to protect their local
supply base. In any case, 60% of their sales are tied to one Chinese OEM customer - XYZ - when
there are over a dozen they could be selling to.

Lack of Self Developed Technologies - Other than Plastic Fuel Tanks and Springs, there are very few
technologies that have been developed by ABC itself. Most of the technology exists within the joint

Business Intelligence Report on ABC Automotive 16

venture subsidiaries and was supplied by a foreign partner. While ABC employees are surely
learning from the foreign partners and will one day bring this expertise back into ABC directly, it is
a slow path to independence.

Weak Self Developed Car Components - ABC, in conjunction with XYZ Motor, helped design and
engineer many of the components for XYZ’s self branded vehicle, Roewe. Most experts consider this
brand “pretty good for a China brand,” but far from world class. This shows that ABC is still weak in
self-developed componentry.

Opportunities:

Weak Global Suppliers may be Acquired – ABC is in a strong position to go on a global acquisition
spree if they decide to do this. They could make weaker suppliers an enticing offer to acquire the
assets and customer relationships if they are pushed by XYZ to go global quickly.

Weak Domestic Suppliers may be Acquired – Due to provincial protectionism, the fastest way for
ABC to expand in China would be to acquire weaker suppliers around the country. The challenge
will be to identify targets that ABC could acquire without violating JV agreements or at least
upsetting one or more of their existing partners.

Western Brands Benefit from Japan Backlash – Ever since Japan’s “aggressive” move towards the
disputed Diaoyu islands, Japanese brands across the board have suffered deep sales drops in China
– especially autos. This backlash is slowly disappating, especially as people recognize that they are
putting Chinese factory workers out of work, but the disputes over these islands will continue for
years and this backlash will resurface periodically. The reason this is an opportunity for ABC is that
most of their customers are western OEMs, who enjoy the benefits of the backlash against Japan.

Threats:

Other Chinese OEMs Protect their Suppliers – Many Chinese OEMs are invested in their supply base
– either financially, politically, or both. This relationship makes it difficult for non-related suppliers
to break into these Chinese “kiretsus”.

Disgruntled JV Partners – ABC is somewhat painted into a corner, and almost any action they take to
expand could have negative ramifications with their partners in China. Most of their joint venture
agreements have been established to manufacture and sell products in China, for China. Any activity
in China or overseas that encroaches on their partners “turf” could be the beginning of the end for
many of their currently healthy joint ventures.

Lack of Global Footprint limits Robustness – Financially, this does not look to be a problem for the
next decade as the China market is predicted to continue to grow substantially during this period.
From a business expansion perspective, however, ABC does not have the cultural diversity or global
experience to move quickly into a new market.

Business Intelligence Report on ABC Automotive 17

Activities of Note

2011-2012 – ABC enters into negotiations with Visteon to acquire assets outside of China via their
JV in China with Visteon. The negotiations ended with no deal.

2011 June – ABC JV, Shanghai GKN Drive Shaft Co. (SDS) opens its operation in Changchun,
following the “one partner for all of China” philosophy that many foreign companies are now
pursuing.

2010 December – ABC forms an electronics JV with Guizhou Aerospace to bring “New Energy”
competencies into their fields of expertise.

2010 March – ABC signs an agreement with Jianghuai Automotive in a continuing effort to expand
beyond the XYZ circle of customers.
“In March 2010, the Company and Jianghuai Automobile reached a basic agreement setting the
framework to form a strategic alliance. The new collaboration is part of the Company's initiatives to
build relationships with companies having no affiliation with the Shanghai Automotive Group, its
parent company.” (From ABC press release, March 29, 2010)

2009 – ABC signs an agreement with FAW in Changchun in an effort to expand beyond the XYZ
circle of customers

Competition

With the number and range of partnerships and products under their umbrella, ABC is considered
the competition to almost every Tier One supplier in China. Companies like Magna, Bosch, Denso,
and Delphi are the major competitors when comparing breadth of product and presence in China,
but there are literally hundreds of local and international companies in China that compete with
ABC on a smaller scale.

The predicament ABC faces (as do most Chinese OEMs and parts makers) is that their partners in
China are likely their competition overseas. This is because most joint venture agreements between
Chinese suppliers and a foreign partner exist solely for business in China and do not extend to other
markets – especially not the foreign partners home market. Most of these partners are from the
developed markets, so this will create uncomfortable situations if ABC opens a facility overseas that
will directly compete with a JV partner.

For example, ABC has a JV with TRW – a long established U.S. automotive safety products and
technology supplier. The JV is in Shanghai and has been established to do business in China using
technologies from TRW. ABC now wants to enter the North American market, but could they
compete with the source of their technology by opening an air bag facility in Michigan? It is also
unlikely that ABC management would risk upsetting their partner, even if they believed they cou ld
compete.

Business Intelligence Report on ABC Automotive 18

ABC’s best options are to target the “neutral” territory of other developing auto markets or to
acquire or partner with companies that already have a foothold in the developed markets.

ABC Financial Information

RMB (Mill) 12/31/11 12/31/10 12/31/09

Current exchange rate: 1USD = 6.2RMB
Income Statement
Operational Revenue 52298.78 44062.68 24667.86
Operational Costs 43786.55 37131.74 20723.49
Operational Income 5822.72 4941.95 2690.46
Income before Tax 5943.01 4981.83 2716.73
Minus Income Tax 597.15 496.68 172.11
Net Income 5345.86 4485.14 2544.62

Balance Sheet
Cash 12354.78 9930.07 7057.69
Current Assets 27427.66 23185.86 16486.54
Fix Assets 4645.95 4065.31 3682
Total Assets 42184.88 35868.48 27527.65
Current Liabilities 17453.26 15348.31 11356.18
Non-current Liabilities 1649.99 1162.98 869.35
Total Liabilities 19103.25 16511.29 12225.53
Total Equity 23081.62 19357.19 15302.12

Cash Flow Statement

Cash and Equivalent in the Year Start 10169.94 6894.61 1205.53
Net Cash Gain from Operations 4632.87 4494.43 3416.31
Net Cash Gain from Financing -1069.6 -294.64 1074.48
Net Cash Gain from Investments -1699.01 -1352.82 1198.28
Total Net Cash Gain in the Year 1864.27 2846.97 5689.08
Cash and Equivalent in the Year End 12034.21 9741.58 6894.61

Business Intelligence Report on ABC Automotive 19

Biographies of Key Executives

Hu, Maoyuan
XYZ Group - Chairman, Party Secretary
XYZ Motor – Chairman, Party Secretary
ABC – Chairman (until 2012)

He was born in 1951, and received a master's degree from Shanghai Jiaotong University. In the
early 1980s, Hu held several positions in the Shanghai Automobile Industry Company, and in 1999
he became its president.
He began his career in the automotive industry in 1968 and became a member of the Communist
Party of China in 1980. He held senior management positions in the Shanghai Tractor Plant and
Shanghai Automotive Industry Corporation (XYZ Motor’s predecessor company). He also served as
the president of Shanghai Huizhong Automotive Manufacturing Co., Ltd, and was the first president of Shanghai General
Motors. He has initiated several advanced corporate management concepts and is the author of Dialogue with the
World, a fable storybook which interprets XYZ corporate cultures.

Chen, Hong
XYZ Motor, Vice-Chairman, President & CEO
ABC, Chairman (since 2012)

Born in 1961, a senior economist with a B.A degree, Chen Hong has been the “heir-apparent” to Hu
Maoyuan within the XYZ Motor company. Mr. Chen’s career with XYZ has included positions in both
the SVW and the SGM joint ventures, where it is assumed he learned the best of both foreign
partners operations and corporate practices so that he could drive the growth and advancement of
XYZ Motor as a global player.

Shen, Jianhua
XYZ Motor, Vice President
ABC, Vice Chairman

Born in 1953, and a senior economist with a PhD from Shanghai Tongji University, Mr. Shen held
positions of increasing responsibility in Shanghai Motorcycle Plant, Shanghai Automotive and
Tractor IJB Co., Shenzhen Zhongruy Auto Machinery Industry and XYZ Motor and Group
Companies. Mr. Shen Jianhua has been Vice Chairman of the Board in ABC Automotive Systems
Company Limited since April 20, 2009. He is also Vice Chairman of the Board in XYZ Motor
Corporation Limited. He used to be Vice President in XYZ Motor Corporation Limited, and Vice
President and President in another Shanghai-based company.

Zhang, Haitao
ABC, President (General Manager)

Mr. Zhang Haitao has been General Manager and Director in ABC Automotive Systems Company
Limited since April 20, 2009. Mr. Zhang has held positions in engineering at the Shanghai Institute
of Welding Machines, in sales and general management of Shanghai GKN, as senior management of
Ssangyong Automotive, and as Chief Economist of XYZ Motor.

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Full List of Board Members (and other positions they hold)
Chen Hong Chairman (Vice Chairman & President of XYZ Motor)
Shen Jianhua Vice Chairman (President of XYZ Group, Vice President of XYZ Motor)
Xue Jian Member (Deputy Party Secretary XYZ Group)
Zhang Haitao Member, President ABC
Sun Chiping Member (Director & Secretary of CPC Committee of ICBC Bank)
Hu Honggao Member (Director of Fudan University)
Chen Bulin Independent Director (Party and State Owned Asset Control affiliations)
Zhang Weijiong Independent Director (Vice President of China-Europe International Business School)
Zhu Rongen Independent Director (University and Investment affiliations)

List of Supervisory Board Members (and other positions they hold)

Zhu Genlin Chairman (CFO XYZ Group)
Yang Jingyi Member (Senior Administrator at XYZ Group and XYZ Motor)
Jiang Dongyue Member (Director of ABC audit department)

List of Key Managers (and other positions they hold)

Zhang Haitao President (Board Member – ME, Drive Shaft, Economic & Senior management background)
Xun Yizhong Vice President (Engine plant, PM, and Quality background)
Wu Heng CFO (XYZ Finance background)
Mao Qiwei Board Secretary (Party leader, XYZ Motor)

Business Intelligence Report on ABC Automotive 21

Opinions of the Authors

When evaluating ABC for any purpose, the influence of XYZ Motor must be considered. As a “parent
company”, XYZ is strong, protective, and demanding; successful in their partnerships, yet struggling
to develop their own brand and global footprint. ABC and XYZ are both in a predicament created out
of need that is more and more frequently becoming a hindrance.

In the 1980’s and 1990’s foreign automotive OEMs and component manufacturers were welcomed
to form joint ventures by the Chinese government, but then limited in their ownership share to
50%. Restrictions have eased on most component manufacturers today, but for eign OEMs are still
restricted to 50%. China welcomed these foreign players because they needed the technology to
build vehicles with modern performance and safety standards. After 10 -25 years of existence for
many of these JVs, Chinese partners are beginning to feel restricted by these agreements in that they
have provided access to a huge domestic market yet they can not easily grow their business
overseas.

Although there are reasonable growth opportunities within China for the foreseeable future, ABC is
setting its sights on expanding globally, and becoming a leader in technology in China.
These two targets will be the driving force in ABC’s next decade of expansion and growth.
ABC former Chairman, Hu Maoyuan, undoubtedly heavily influenced these targets, and his protégé
and successor to the Chairman’s seat, Chen Hong, will surely carry the same banner for many years.

Where Hu presided over two decades of unbridled growth and profitability, however, Chen has a
much more complicated future to manage. Consider this: ABC is mostly a collection of foreign
invested joint ventures where the foreign party has provided the technology. ABC, is effectively a
holding company, where its expertise exists within its subsidiaries and not within its own
management. If ABC wants to open an airbag facility outside of China, for example, they have two
choices: ask their JV partner to allow the JV to open a subsidiary overseas, or open a facility of their
own. In the first instance, if the JV partner says “no”, then it is unlikely to happen, even if the partner
holds a minority share of the JV. In the second instance, ABC will have to take their key staff out of
the JV to open the overseas facility because these are the only employees who will understand the
technology and the operations. These employees will be limited in their knowledge to the products
that have been built for the China market, and frankly, most Chinese automotive engineers do not
have the experience or creative thinking required to satisfy the demands of global OEMs. This
option would also very likely upset the foreign airbag partner and could cause trouble within the JV.

ABC’s most likely route to success, therefore, is to expand overseas with products and technologies
that they own 100% - such as PFTs and Springs – or to acquire companies that have a footprint that
ABC wants and products and technologies they can absorb. Agreements like the one YAPP has with
ABC is only a stepping stone in their path to global expansion, and is very much in line with the
typical way the Chinese would pursue a deeper relationship – remember that, when generalizing,
the Chinese are very patient and long-term focused. It makes sense that they want to get to know a
partner better over time before committing to something more permanent, or deciding to search for
another partner.

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For those companies that have partnered with Chinese companies in China already, the ones that
are most successful typically have two things in common: regardless of ownership ratio, they treat
each other as equals; and the two partners agree that they will pursue all China business within
their scope as a team, where neither party will open another facility by itself or with a different
partner. General Motors and Visteon were two of the first companies to pursue this arrangement
and it has produced very good results for both of them.

GM, in fact, utilized its success and very strong relationship with XYZ (ABC’s parent) to help them
through a very difficult financial situation in 2009. Shortly before GM filed for bankruptcy
protection in North America, XYZ agreed to purchase 1% of GM’s shares in Shanghai General Motors
(SGM) for 84.5m USD and assistance in getting a 400m USD loan. XYZ agreed to the stipulation that
GM could buy these shares back when they became financially healthy – as long as XYZ would be
allowed to book revenue from SGM. Effectively, XYZ “loaned” money to GM when they could not
(easily) get money from anywhere else. GM restructured its China operations when it came out of
protection so that XYZ could book the revenue. They separated operations from sales, allowed XYZ
to keep 51% of the sales company, but went back to a 50/50 ownership structure for the
operations. Sales are now booked at the sales company instead of at the operations, so XYZ can book
the sales per PRC tax laws. In addition, XYZ purchased 500m USD worth of shares of GM when they
had their IPO in 2010.

The situation between GM and XYZ is an example of a good joint venture in China. Again, speaking in
generalities, once the JV deal is signed, as long as the partners treat each other as equals, the
Chinese are very reasonable and committed to their partners success. They expect the same from
their partner.

Any company being approached by ABC or one of its subsidiaries to establish an agreement, a joint
venture, or more, should understand that ABC typically has much more experience negotiating all of
these types of arrangements than any foreign partner. ABC alone has 28 invested enterprises, most
with foreign partners. XYZ has formed joint ventures in China and overseas with foreign partners
and has negotiated dozens if not hundreds of technical agreements and complex contracts. These
companies in particular are very good at this, and any foreign party invited to the table needs to be
properly prepared.

It cannot be overstated, however, that no matter how difficult and frustrating negotiations for any
type of relationship with ABC or a subsidiary may be, once the deal is done, the performance is
likely to be very satisfactory for both parties.

Business Intelligence Report on ABC Automotive 23