Competitive Environment Overall Industry Slowdown (see Ex. 3) Low Capacity Utilization (75%) Slow growing consumer base Entry of global competitors Low RONA (5%)

European Manufacturers Under Pressure Non-European competitors gaining market share (Ex. 3) Japanese “voluntary restraints” may end soon Customer satisfaction is lower for European cars (Ex. 4) Europeans lag behind Japanese and Americans on quality and labor efficiency levels (Ex. 5) Productivity gains from new manufacturing techniques exacerbate over-capacity

Competitive Position of Pininfarina Heavy dependence on two models (Ex. 7) Shrinking operating margins (Ex. 7) Manufacturing performance has improved, but still lags U.S. (Ex. 5 and 6) Design and manufacturing appear decoupled

Challenges for Pininfarina Two big customers (Peugeot and Fiat) have lost market share, probably to lean competitors Volume producers have 2X FC than niche producers, but have been lowering VC significantly recently Lean lessons were applied elsewhere under very different conditions Customers are in a very powerful bargaining position Pininfarina in weak bargaining position with suppliers

Niche Versus Volume Producer Costs Total Labor Hours 20M 18M 15 M 12 M 10M 80M 6M 4M 2M 050K100K150K200K250K JVP PF Cumulative volume of vehicles produced (five years)

Opportunities Productivity improvement provides opportunities (Ex. 6) What if you keep fixed costs low and improve variable cost|productivity significantly? Higher margins for final assembly versus bodies only Increase revenue from design contracts What if PLCs become shorter due to frequent product discontinuation, finer market segments, more seasonal demand?

Accept Mitsubishi Business? Financial calculation: Assume revenue is Ł900B per year 1.5 % margin = Ł13.5B per year If PF needs to spend 10% of Ł300B for general purpose equipment, then payback is Ł30B/13.5B or 2.2 years. If PF needs to spend 30%, the payback Ł90B/13.5 is 6.7 years or more than the length of the 5 year contract

Fit With Current Manufacturing Strategy Doubles capacity and increase fixed costs More specialized equipment, paint Sub-optimal work flow (paint shop) Add 150 new suppliers (overhead expense) Longer supply-chain (from Japan and Holland) 600 new workers (200 to 240 indirect workers) Underutilization of design and production skills

Short-term and Long-term Risks Short ramp-up (three months) Have to pay overages if do not meet target cost Hire new workers (up to 840) Can PF still add a third niche customer for low volume car? They may transfer skills by learning from Mitsubishi.