Final Report Brad Podraza, Anu Banerjee, Katie Cowan, Taro Nagao December 5, 2006 Industry 6; Team A

2 Agenda Starting Point Strategic Marketing Plan –Legacy Brand Overviews –Alfa –Alec –Awesome –New Brand Overviews –Arbor –Atonka –Overall Firm Performance 2F Customer Overview Key Learnings

3 Landscape in Period 0 StrengthsWeaknesses Market share leadership in two of the three segments we compete in (Economy & Utility) Overall highest volume share of market (~32%) Highest number of dealers / great coverage Large cash balance (~$1B) Large dollar value of ST debt (~$11B) High cost structure; low margins Poorly positioned / designed ‘Family’ segment product offering (e.g Alfa engine size is considerably lower than competitors) Lowest dealer ratings Lowest firm preference ratings High utilization rate in factory (limited capacity for future growth) Inferior technology capabilities OpportunitiesThreats Large potential B2B market player Growing demand for ‘Family’ segment products Emergence of the Hybrid and Delivery market Declining real GDP growth (-2.5%) Estimated declines in annual car and truck sales Shrinking demand among Value Seeker and Singles customer segments Potential for tough B2B and consumer market competition from Firms D and E

4 Strategic Marketing Plan Firm Strategy Our firm targets the ‘2, 3, and 5’ consumer segments with a heavy focus on B2B markets We invest our resources in new and existing vehicles when opportunities and circumstances arise which allow us to better serve our core target consumers. We will maintain a broad dealer network in all regions and offer the proper training and incentives for them to sell our vehicles. Following this strategy we aim to increase consumer perceptions of our firm and recapture our market leadership position. Strategy Target Alfa Family 2F Implementation Alec Economy 2E Awesome Utility 3U Arbor Hybrid 5H Atonka Delivery B2B Marketing Mix & Reports / Upgrades / New Customers Results Market Share / ROI / Awareness / Perceptions / Dealer Ratings

5 Legacy Brand Overview Alfa Brand Positioning Category leader in small family sedan segment offering competitive attributes (Safety & Quality) at the lowest prices Marketing Mix Price – kept lowest in 2F market (stable between P5-P9) due to fears of starting a price war Intense Advertising (P3-P8) – Overall average $220M, Intense period average $280M gaining over 85% awareness in 2F mkt. consistent message of safety Dealer Discounts – Highest in industry (Overall avg. 14%) Direct mailings to ‘family ’ segment Approach to Upgrades 1 major upgrade (P4) concentrated on improving size Subsequent upgrades to stay competitive (focus on safety) Reports and Models Utilized 2F focus group – to understand competitive landscape Perceptual Mapping – Utilized to understand consumer perception of product attributes Conjoint Analysis – to determine attributes beyond price important to customers Vehicle Sales by Customer (Alfa & Competitors) Utilized for tactics and production forecasting Segment Family Target 2F Target Share 14%

6 Legacy Brand Overview alec Segment Economy Target 2E Target Share 30% Brand Positioning Mid-sized, affordable economy car that meets basic family needs and business customers’ requirements Marketing Mix Initially high-volume, low-margin (18%) strategy. Shifted to moderate-margin (25+%) strategy to maximize profit Keep product marketing budget low (around $100MM) Take advantage of B2B opportunities to cut base costs Direct mailings to ‘family’ segment Approach to Upgrades No frequent upgrades: exploit learning-curve effects Focus on quality and safety Reports and Models Utilized Concept Test: Provide detailed price elasticity of demand Product Contribution Estimation Model: Utilized to figure out profit-maximizing price/quantity mix B2B Contracts: To upgrade the vehicle in the most efficient way to meet B2B requirements Vehicle Sales by Customer: Utilized for production forecasting

7 Legacy Brand Overview AWESOME Segment Utility Target 3U Target Share 33% Brand Positioning Small, low priced utility vehicle with the focus on styling and performance attractive to the target Marketing Mix Comparatively higher dealer discounts in order to provide incentive for dealers Moderate industry advertising in all but upgrade periods in order to maintain current awareness Direct mailings to ‘singles’ segment Approach to Upgrades 2 major and 1 minor upgrade during simulation in order to better tailor styling and performance to the needs of the target Reports and Models Utilized Vehicle Sales by Customer: Utilized for production forecasting Test Market: Multiple ran for pricing decision making 3U Customer Detail: Used to track consumer preferences, market share, and awareness Focus Groups: To determine ‘hot’ buttons & preferences

8 New Brand Overview Arbor Brand Positioning Mid-priced hybrid that appeals to value seekers sense of practicality (quality) and emotion (styling) Marketing Mix Reliance upon advertising budget; higher at introduction with reduction to steady level in later periods No promotional budget Direct mailings to ‘value seeker’ segment Approach to Upgrades One major upgrade undertaken to properly size the vehicle and make it more competitive with new entrant Reports and Models Utilized Concept Test: Multiple ran to determine appropriate model to be developed and market potential Test Market: Multiple ran for pricing decision making Perceptual Mapping: Multiple ran to determine placement in the market and potential appeal to the 5H target Focus Groups: To determine ‘hot’ buttons & preferences Vehicle Sales by Customer: Utilized for production forecasting Segment Hybrid Target 5H Class Share 34%

9 New Brand Overview AtonkA Segment Delivery Target B2B Class Share 58% Brand Positioning Delivery vehicle which meets the requirements of the most demanding package delivery B2B customers Marketing Mix No advertising or promotional budget Direct Mailings to potential B2B customers Approach to Upgrades No upgrades following initial introduction Reports and Models Utilized B2B Contracts: Purchased all four available Delivery contracts to determine what specifications will allow for the maximization of return on our investment Concept Test: Ran to determine appropriate model to be developed and market potential

10 Overall Firm Performance Product Contribution +$5.5B in Period 10 Variance Analysis was performed for each product to figure out the root causes of variance between forecasted and actual results. Share, Price, and Cost Variances are paid close attention. Profit =  Product Contribution – Corporate Expenses Corporate Expenses -$6.7B in Period 10 We did not pay attention to corporate expenses as much as we should have. Increased debt level (caused by inventory and capacity increase) cost us about $1.5B/year after period 8. Cumulative Income-$1,235 MMStock Price$5.01 (-89.5%) Debt to EquityNegative (-22x)Firm Value$2,655 MM ROA (OIBI,AT / Assets) 4%

11 Variance Analysis: Example

12 2F Customer Overview Key Challenge: Intense competition Alternative Strategies Our Strategy: Diversify + Strong Awareness of product+ strong dealer incentives Rationale: 1.Had capacity to meet B2B contracts 2.B2B contracts involved limited upfront costs 3.Only 1 brand to support in segment therefore could afford to spend high on advertisement 4.Existing strong dealer network therefore higher ROI than competition on giving dealer incentives

13 Key Learnings Minimal investments in seemingly insignificant areas can yield significant returns –Even decisions based on simple ROI analysis can provide a high return –Direct sales force, B2B entry, dealership increase, minor upgrades to vehicles Pitfalls exist where you pay the least attention –Financing should have been a bigger consideration, even when the firm was performing well –Don’t ignore current strengths, they can become weaknesses in the future First mover advantage does not guarantee above average profits or dominant market share –First mover in hybrid, second in delivery –Competitors with enough resources can take a large portion fast

14 Key Learnings Decisions to invest should be make proactively, rather than reactively –Set tangible targets and develop a strategy to achieve them –If a decision makes good business sense, it should not matter if other firms have made similar moves Not all consumers are worth going after –If you try to please consumers with differing need using one product, you run the risk of losing both –The cost of introducing a new product may not be offset by the price consumers are willing to pay Achieving strong results does not mean they could not have been better –Variance analysis can offer insight into where the growth came from –Alternate strategies may lower volume sales but increase margin to more than offset it

15 Give A Car a Good Home Alfa. Alec. Arbor. Awesome. Atonka Thank you. Questions?

16 Additional Slides: Value Chain Analysis Period 3 Period 10