Higher CAFE Standards Is America Ready? Paul Lacy Technical Research Manager, Americas

Presentation Outline Overview of Fuel Economy Standards U.S., Europe, Japan, China Global Practices to Improve Fuel Economy Approach Measures Regions Regional Comparison of Engine Efficiency Specific Output Weight to Power Fuel saving measures and technologies Aluminum Cylinder Blocks VVT Direct Injection Turbo/Superchargers Cylinder deactivation Transmissions Diesels Hybrids Conclusions Copyright 2007 Global Insight, Inc. 1

Overview of Fuel Economy Standards Methodology United States CAFE Corporate Average Fuel Economy Requires each manufacturer to meet a standard for the sales weighted fuel economy for the entire fleet sold in the U.S. CAFE only has one limit so manufacturers can produce vehicles with high and low fuel consumption Provides government with some ability to control overall fuel consumption 2011 reformed CAFE for light trucks Based on vehicle size or footprint Also applies to medium duty passenger vehicles (MDPV s) CAFE Fuel Economy Standards, mpg Year Cars Light Trucks Combined 2WD 4WD 1978 18 1979 19 17.2 15.8 1980 20 16 14 1981 22 16.7 15 1982 24 17.5 18 16 1983 26 19 19.5 17.5 1984 27 20 20.3 18.5 1985 27.5 19.5 19.7 18.9 1986 26 20 20.5 19.5 1987 26 20.5 21 19.5 1989 26.5 20.5 21.5 19 1990 27.5 20 20.5 19 1991 27.5 20.2 20.7 19.1 1992 27.5 20.2 1993 27.5 20.4 1994 27.5 20.5 1995 27.5 20.6 1996 27.5 20.7 2005 27.5 21 2006 27.5 21.6 2007 27.5 22.2 2008 27.5 22.5 2009 27.5 23.1 2010 27.5 23.5 Copyright 2007 Global Insight, Inc. 2

Fuel Legislation Proposals Too many to list! Current Senate Bill: Combined 35 mpg by 2020, 4% increase each year after Edward Markey: Combined 35 mpg by 2018 David Reichert: Combined 33 mpg by 2017 Ted Stevens: Combined 40 mpg by 2017 Dianne Feinstein: Combined 35 mpg by 2019 John Dingell 36 mpg for cars by 2022 and 30 mpg for light trucks by 2025 Terry-Hill: 35 mpg for cars and 32 for light trucks by 2022 (has some support from automakers) Recent House proposal: Combined 32 mpg by 2022 now supported by AAMA Many more Copyright 2007 Global Insight, Inc. 3

Overview of Fuel Economy Standards Methodology Japan Classified by Weight based on average vehicle fuel economy by weight class Vehicles divided into 9 weight classes Vehicles within each class are averaged by a CAFE method Gasoline passenger vehicles - 23% improvement in 2010 from 1995 Diesel passenger vehicles- 15% improvement in 2005 from 1995 Improvements required across all weight classes Government can guide the vehicles of different weight classes which it prefers to develop Vehicle Classes by Maximum Vehicle Curb Weight lbs Fuel Economy Fleet Average Target by Class mpg (CAFÉ-equivalent) <1548 49.8 1550-1824 44.2 1826-2238 42.1 2240-2789 37.6 2791-3341 30.6 3343-3892 24.7 3894-4443 20.9 4445-4994 18.3 >4997 15 Copyright 2007 Global Insight, Inc. 4

Overview of Fuel Economy Standards Methodology China Minimum Fuel Economy Limits, based on U.S. CAFÉ- Classified by Weight not based on fleet average Two Phases July equivalent (mpg) 2005 and July 2008 Vehicles divided into 16 weight classes Allowable fuel consumption limits by weight category Forces every individual model to be compliant System designed to be more stringent on heavier vehicles Phase I [2005] Phase II [2008] Weight (lbs) Manual Auto/SUV Manual Auto/SUV 1667 36.9 35 42.9 40.3 1922 36.9 35 40.9 38.5 2178 34.5 32.4 38 35.9 2422 32 30.2 35.4 33.2 2678 29.9 28.3 32.8 30.9 2933 28 26.3 30.9 29.2 3178 26.3 24.8 28.9 27.1 3422 24.8 23.5 27.4 25.8 3689 23.5 22.2 26.1 24.6 3933 22.3 21.1 24.8 23.5 4178 21.4 20.3 23.9 22.5 4444 20.8 19.5 23.1 21.8 4689 20.1 19 22.3 21.1 5066 19.4 18.3 21.6 20.4 5578 18.2 17.1 20.3 19.1 > 5578 17.1 16.2 19.1 18.1 Copyright 2007 Global Insight, Inc. 5

Overview of Fuel Economy Standards Methodology Europe Committed to reducing passenger vehicle CO 2 emissions no fuel economy legislation Voluntary agreement between the European automobile manufacturers and the European Commission Establishes industry-wide targets for average vehicle emissions from new light passenger vehicles sold in Europe to be reduced to 140 grams of CO 2 per kilometer (gco 2 /km) by 2008 Represents about a 15% reduction from current levels The agreement likely to extend to the 120 gco 2 /km target for 2012 Continued growth in diesels will likely contribute to industry efforts to meet targets Copyright 2007 Global Insight, Inc. 6

Global Practices to Improve Fuel Economy Fuel efficiency approach Measures/forms Country/region Fuel economy standards Numeric standard in mpg, km/l, or United States, Japan, Canada, L/100-km Australia, China, Taiwan, South GHG emission standards Grams/km or grams/mile European Union, California High fuel taxes Fuel taxes at least 50% greater than crude oil base price European Union, Japan Fiscal incentives Tax relief based on engine size, efficiency, and carbon dioxide emissions European Union, Japan R&D programs Incentives for particular technologies United States, Japan, European and alternative fuels Union Economic penalties Gas guzzler tax United States Technology mandates and targets Sales equivalent for ZEVs California Traffic control measures Hybrid allowed in HOV lanes; ban on SUVs Several U.S. States (hybrid HOV lanes); Paris (SUV ban) Copyright 2007 Global Insight, Inc. 7

Increases in Hp/ton Indicate Continued Focus on Performance, in Addition to Fuel Economy Despite the large truck and SUV market, 14.2% increase over the last 10 years If improvements in engines had been deployed while holding hp/ton constant, fuel economy could have increased significantly 140 120 100 80 60 40 20 0 100 80 60 40 20 0 Current Average Hp/Ton by Region - Gas +14.2% since 1996 Asia North America W.Europe Current Average Hp/Ton by Region - Diesel Asia North America W.Europe Copyright 2007 Global Insight, Inc. 10

Greater Hp/L Is Key to Increased Fuel Economy NAFTA closing the gap in power density Have we demonstrated the know-how to finish the job? Specific Output by Region 80 75 70 HP/L 65 60 55 50 2001 2003 2005 2007 2009 2011 W.Europe NAFTA ASIA Copyright 2007 Global Insight, Inc. 11

Fuel Saving Measures Where Does America Stand? The Basics Utilization of weight saving aluminum engine blocks highest in the world and growing Up to 6% improvement in fuel consumption Aluminum Block Utilization - Gas Aluminum Block Utilization - Diesel 60.% 20.% 50.% 15.% 40.% 30.% 10.% 20.% 10.% 5.% 0.% 2006 2007 2008 2009 2010 2011 0.% 2006 2007 2008 2009 2010 2011 Asia W. Europe North America Asia W. Europe North America Copyright 2007 Global Insight, Inc. 12

NAFTA Leads in the Installation of Variable Valve Timing Variable valve timing Increases performance, especially at high and low engine speeds Reduced pumping losses result in more efficient, more powerful engines Installation of VVT by Region (Gas Only) 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2005 2006 2007 2008 2009 2010 2011 NAFTA ASIA W.EUROPE Copyright 2007 Global Insight, Inc. 13

Direct Gasoline Injection Gaining Ground in NAFTA and Asia Gasoline Direct Injection Installation 20 16 12 8 4 0 NAFTA W. Eur Asia 2006 2009 2011 Direct Injection improves fuel consumption 5% to 15% fuel economy benefit over non-di engines Increased thermal efficiency cleaner burn Better throttle response, more power Allows for engine downsizing Direct injection featured on several new engines BMW Z4 engines GM 3.6L V6 for 2008 Copyright 2007 Global Insight, Inc. 14

Turbochargers and Superchargers Increase in NAFTA turbocharger installation due mostly to increase in diesel market share throughout the forecast, although GDI will benefit as well More horsepower and torque allows for engine downsizing In Europe, sequential (staged) turbo configurations used to enhance performance at different engine/rpm speeds Installation of Turbochargers/Superchargers by Fuel Type 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Diesel Gas Diesel Gas Diesel Gas North America Asia W. Europe 2006 2007 2008 2009 2010 2011 Copyright 2007 Global Insight, Inc. 15

Cylinder Deactivation Technology Allows for Continued Fuel Economy Improvement for NAFTA Light Trucks 1,000 800 600 400 200 Engines with Cylinder Deactivation - (Gas Only) (000s) 0 2006 2007 2008 2009 2010 2011 North America Asia W. Europe Copyright 2007 Global Insight, Inc. 16

The Diesels Are Coming! Production Up ~ 50% in 5 Years +25% better torque 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% NAFTA Diesel Production +35% better fuel economy 2006 2007 2008 2009 2010 2011 Potential new diesel engines from 2007-11: - BMW L6 3l/3.5l for X5 - Dodge Caliber VW based diesel - Nissan V8 for Titan - Toyota V6/V8 for Tundra - Honda 2.2l L4 for Accord? - Ford 4.4L V8 for F-150 for 2010 - GM 4.5L Duramax for Silverado/Sierra- 2009 - DCX-Cummins 4.2L V6 and 5.6L V8 for Ram 1500 2009 - FGP L4 for Saturn models - Mercedes-Benz Bluetech system for multiple models across DCX line - More.. Copyright 2007 Global Insight, Inc. 17

Hybrid Technology to Play Small Role for NAFTA America appears to be accepting hybrid technologies as currently configured; however, given the availability of other choices (including diesels), is it the best solution? According to industry, hybrids have 40% better fuel economy in city driving but only 5% improvement on highways (due to engine downsizing and duty cycle) May be used in conjunction with other enhancements Allows downsizing (or rightsizing) the engine Increased cost will continue to be a deterrent +40% better fuel economy (Full Hybrid) Hybrid Up to +25% better torque Copyright 2007 Global Insight, Inc. 18

Hybrid Production Hybrid Production by Region % of total production 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 2006 2007 2008 2009 2010 2011 NORTH AMERICA ASIA W. EUROPE Western Europe will continue to favor diesel as their powertrain solution to fuel economy Asia currently supplies 85% of hybrids globally Copyright 2007 Global Insight, Inc. 19

Evolving Transmission Technology Will Lead to Additional Improvements in Fuel Economy 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% NAFTA Transmission Forecast 0.0% 0.5% 0.6% 0.2% 0.4% 0.4% 0.8% 0.9% 87.3% 89.7% 90.2% 90.2% 91.1% 89.5% 85.4% 82.9% 83.4% 82.5% 82.1% 81.9% 80.9% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 AUTO CVT DCT MAN Copyright 2007 Global Insight, Inc. 20

Evolving Transmission Technology Will Lead to Additional Improvements in Fuel Economy 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% NAFTA Vehicle Production: Number of Gears, Automatic Gearboxes Trend from 4- to 6-speed and from 5- to 7-speed automatic, 8-speed automatics begin to appear in luxury models 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 AUTO-4 AUTO-5 AUTO-6 AUTO-7 AUTO-8 Copyright 2007 Global Insight, Inc. 21

NAFTA TRANSMISSIONS Summary FORD: Six speed gearboxes become a priority across much of the vehicle lineup. Eight speed automatics begin to arrive for premium vehicles. Ford 6-Speed RWD (6R) Explorer Ford 6-Speed FWD (6F) collaboration with GM ZF 6-Speed RWD Aisin 6-Speed FWD- Ford Five Hundred ZF 8-Speed for Navigator in 2008 Getrag-Ford DCT in Irapuato for 2011? DCX: 7-speed 7G-Tronic introduced on Mercedes and Chrysler Group vehicles. 6-speed transmissions: 62TE 68RFE Cooperation with Getrag for DCT Minivans and mid-size cars likely main target Copyright 2007 Global Insight, Inc. 22

NAFTA TRANSMISSIONS Summary GM: Phasing out all manual transmissions for light trucks, moving to 6-speed automatic. GMT900 pickups and SUV's will be fitted with 6L80, most out of Toledo transmission plant. 8-speed automatic expected for 2008 Escalade. TOYOTA: Toyota trucks using TR60-SN 6-speed automatics in Tundra and Sequoia; U660E 6-speed for FWD applications, starting with Camry; Future MC platform vehicles VW: AUTOE-6 by Aisin for New Beetle Convertible first application outside of luxury segment Copyright 2007 Global Insight, Inc. 23

Conclusions: NAFTA, ready for tougher CAFE The ability exists to meet the more stringent fuel economy standards for gasoline engines Questions still remain about soon to come CAFÉ legislation. NAFTA leads in the installation of aluminum blocks and heads, cylinder deactivation technology and VVT Further Improvements in powertrain technology and an increased usage of lightweight materials will play a major role Direct fuel injection Turbochargers and Superchargers Engine downsizing 6-speed and DCT transmissions Diesels are overcoming U.S. consumer stigma and will become a player in the light vehicle market, but the availability of production capacity will continue to be constrained by the uncertainties over future emission standards Hybrids will stay in some form, but combined with one or several other fuel saving technologies America, through technology and innovation, continues to make gains in fuel economy Copyright 2007 Global Insight, Inc. 24

Data included in this presentation available in the Global Insight Powertrain Database Thank You Paul Lacy Technical Research Manager, Americas E-mail: paul.lacy@globalinsight.com 248-614-0040