OESA News 2021 - First Quarter - Edition 2 by MEMA Original Equipment Suppliers

NEWS Original Equipment Suppliers Association

2021 First Quarter â&#x201D;&#x201A; Edition 2

Automotive Supplier Legal Hot Topics February 3, 2021

IN THIS ISSUE... 1 On Your Behalf 2 Industry Update 4 Council Highlight

6 OESA Events 8 Welcome New Members 9 OESA Event Calender

Contact Your Account Manager Audrey White at (248) 763-3146

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On Your

Behalf

Late last year, OESA was alerted about the shortage of silicon wafers and semiconductors and the impact it was starting to have on the automotive industry. As many of you know, this shortage is a global issue. It is the direct result of capacity reallocation in the silicon wafer foundry industry from the motor vehicle sector to the consumer product sector during the COVID-19 shutdown. Subsequently, this reduction in capacity has not been completely restored following the global restart of motor vehicle production. Since January, Ann Wilson, SVP, Government Affairs, MEMA, and I have been hosting meetings with automotive companies and trade associations to better assess the impact of the crisis and determine next steps. This work has resulted in a series of actions, including: • Writing a letter to the Biden administration urging the President’s economic team to encourage silicon wafers manufacturers to ramp-up production of automotive grade wafers; • Supporting a United States Senate letter, led by Senators Brown and Portman, to the administration urging action on this issue; and • Updating and advising the nominee for U.S. Secretary of Commerce, Gina Raimondo, and the department staff of the urgency of the crisis. We also continue to work closely with the OEMs. Although the public news on wafer production appears to be moving in the right direction, we will continue to work with all parties until we are assured of an acceptable path forward. As always, please feel free to contact me at 248.430.5963 or jfream@oesa.org.

Julie A. Fream President and CEO OESA

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INDUSTRY UPDATE

Capitalizing on White Space Opportunities Mike Jackson Executive Director, Strategy and Research 248.430.5954 │ mjackson@oesa.org

Automakers and suppliers are constantly assessing markets to evaluate changing consumer needs to identify the potential for new product opportunities. Any portfolio gaps between existing products are commonly referred to as ‘white space’, representing a blank canvas of opportunity, so long as any new product offerings executed closely represent the genuine needs of consumers. To explore a few recent or pending examples, consider the Jeep Gladiator, the Ford Mustang Mach-E, the Kia Telluride, the Chevy Trailblazer, the seven-passenger Jeep Grand Cherokee L, or the Hyundai Santa Cruz compact pickup among many others. What do they all have in common? They represent a wide variety of all-new light truck entries intended to grow market share and drive profitability by taking up residence in what was previously denoted as white space. For a variety of reasons, consumers over the past decade have shifted away from passenger cars toward of a growing range of light trucks, including Pickups, Sport Utility Vehicles (SUVs) and Light Commercial Vehicles (LCVs) in the form of various Van offerings. Manufacturers are more than happy to comply with these shifting preferences, as light truck offerings tend to command far greater pricing power than passenger cars on average. Moreover, light truck portfolios benefit from more lenient fuel economy and emissions standards, which do not require as much costly technology investment to meets such targets, which further bolsters profit potential. For this reason, many manufacturers have pruned their passenger car portfolios, meaning dealers would have fewer nameplates available for sale, unless new light truck entries are evaluated and introduced into the market. This is especially important for unibody light vehicles, where platforms are designed to accommodate a wide range of product types including passenger cars, crossover utility vehicles (CUVs) and others, as a means to reduce costs by achieving strong economies of scale. Recall that Ford’s C1 platform was also the basis for the Transit Connect as well as the now discontinued Focus sedan and C-Max Compact MPV. However, the phasing out of low margin passenger cars or other entries can dramatically reduce total platform volume and sabotage the business case for what had initially been profitable programs. To counter this effect, Ford is pursuing a proven strategy of differentiation within its compact CUV portfolio. FCA took a similar path to portfolio expansion, as it successfully spawned unique entries on a common platform by pairing a more rounded and organic aesthetic for the Jeep Compass with a rugged two-box design for the Jeep Renegade that appeals to different consumers. Ford has 2 │ OESA News - 2021 First Quarter

INDUSTRY UPDATE already taken this approach even further by leveraging Escapeâ&#x20AC;&#x2122;s sleek modern exterior with a refined Lincoln variant in the Corsair CUV. Moreover, Fordâ&#x20AC;&#x2122;s expansion introduces a much more capable Bronco Sport along with a more attainable lifestyle-oriented Ford Maverick compact pickup. Some may be skeptical of just how capable the Maverick will be once it arrives later this year, yet bear in

mind this entry is not intended to compete with the rugged duty cycle of the larger, more robust fullframe Ranger entry. Maverick will leverage the same reinforced unitized platform as the well-received Bronco Sport, which in principle, served to underpin the Transit Connect a worthy competitor in the Compact Van category. The Ford Maverick is expected to succeed by offering the right blend of size and compact capability. The Ford Ranger and F-150 entries have continued to grow in size over successive model redesigns, offering extraordinary payload and towing capability that far exceed the needs of many consumers. In many markets, the Compact and Subcompact CUV/SUV categories have thrived at the expense of passenger cars as consumers are eager to realize capability and functionality within a more compact dimension and at a more affordable price point.

In this case, Ford also benefits considerably with its Mexican sourcing strategy, as the Bronco Sport and Maverick entries will capitalize on strong export volume. Mexico holds a wide range of free trade agreements that provide favorable terms to nearly 40 countries, making export opportunities especially attractive. Both programs are poised to gain from broad global demand for more capable and attainable compact CUVs as well as strong interest and very limited competition for a compact pickup. New entries offer the opportunity for volume growth, yet without any sales history, knowing how to account for proposed planning volumes can be tricky. It is important to confirm a competitive vehicle set to the best of your ability. Moreover, it is key to understand markets where the entry will be sold, including export planning volumes over the lifecycle of the vehicle, considering the prospect for sourcing changes.

Contact Mike Jackson to learn more about automotive supplier sentiment. He can also provide information on economic and industry trends, as well as the Chief Financial and Chief Purchasing Officers Councils. OESA News - 2021 First Quarter

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COUNCIL HIGHLIGHT

Learn More About The Advanced Technology Council Are you interested in vehicle technology? The Advanced Technology Council (ATC) is OESA's primary council for discussing vehicle technologies. It is co-led by Brian Daugherty, CTO, MEMA, and Steve Horaney, VP of Membership and Sales, OESA. Every year, the ATC has four quarterly meetings with guest speakers and unmatched peer-to-peer technology discussions. Speakers and discussion topics typically revolve around four main areas: 1) Automated Driving Systems (ADS) and Advanced Driver Assistance Systems (ADAS) technology – including Sensors, Software, and Electronics 2) Vehicle Cybersecurity and Software 3) Vehicle Connectivity – including Vehicle-to-Vehicle Communication (V2V, V2I, V2X), Over-the Air (OTA) Updates, Human-Machine-Interface (HMI), Telematics, and Connected Infotainment 4) Fuel Economy and Advanced Propulsion – including Battery Electric Vehicle (BEV) technology, Hybrid vehicle technology, Alternative Fuels, Corporate Average Fuel Economy (CAFE), Green House Gas (GHG) related topics, Light-weighting, Advanced Materials, and Advanced Internal Combustion Engine (ICE) Technology The January 14th meeting featured a speaker from FCA Innovation (now Stellantis). He discussed how suppliers can most effectively bring new vehicle technology to Stellantis. A team from McKinsey and Company also gave a presentation and forecast on automated vehicle technology and advanced driver awareness systems (ADAS). Remaining ATC dates for 2021 are: ● April 13 ● July 13 ● October 19 Council members are the top technology experts from OESA member companies including CTOs, Director/VPs of engineering or R&D, and Chief Strategy Officers and anyone leading their company’s charge on advanced technology or heading up a technology area at a large supplier. For additional information, click here. If you are interested in joining the ATC, please contact Brian Daugherty (bdaugherty@mema.org) or Steve Horaney (shoraney@oesa.mema.org) for more information.

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COUNCIL HIGHLIGHT

Join the OESA Diversity, Equity & Inclusion Council OESA had great success with the Diversity, Equity & Inclusion (DE&I) forums in 2020, and there is even greater interest in continuing the dialogue. As we move into 2021 with our DE&I efforts, OESA is excited to announce the launch of the OESA DE&I Council. This new council is committed to help supplier members address DE&I issues, develop strategies and share best practices with professionals in the automotive supplier community. Council membership is available to supplier executives, managers, and anyone leading DE&I efforts in their organization. The DE&I Council will meet quarterly (virtually until further notice) to: ● Develop and promote diversity and inclusion best practices ● Explore strategies to enhance diversity and inclusion within member companies ● Raise awareness of these efforts throughout the greater automotive industry The 2021 Meeting Dates for the all-new DE&I Council are: ● March 5 – (featuring a MEMA-wide DE&I Event) ● May 25 ● August 24 ● November 30 When it is safe to do so, we will offer in-person and hybrid (in-person and virtual) meetings. The DE&I Council membership fee is $1000 per year. If you currently participate on another OESA council, there is a 50% dual membership discount for an annual cost of $500. If you interested in joining the OESA DE&I Council, click here to complete the join form. To learn more about the council and to access the OESA DE&I Resources Page Click Here. If you have any questions, please contact Keiyania Mann, Senior Manager, Council Communications and Planning at kmann@oesa.org.

Register for the Driving DEI in the Mobility Landscape Event The divisions of MEMA are pleased to launch Driving DEI in the Mobility Landscape on Friday, March 5, 2021 at 1 p.m. EST. This virtual event will help industry professionals understand the importance of DEI, discuss ways to get started and feature supplier leaders that are driving DE&I in their organization. Click here for more information and to register.

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OESA EVENTS

Automotive Supplier Legal Hot Topics February 3 | 8:30 - 10:15 a.m.

Automotive supplier executives are invited to attend the virtual OESA 2021 Automotive Supplier Legal Hot Topics event on February 3, 2021. The session offers legal insight into trends that supplier executives need to understand and prepare for as the industry continues to transform into 2021, presented by seasoned automotive attorneys from Warner Norcross + Judd. Topics include: Supply Chain Challenges presented by Laura You, Partner This segment will address ongoing supply chain strains pressing automotive suppliers including exiting contracts and agreements, price increase demands, raw material cost increases and ongoing force majeure concerns. Distressed Suppliers and Customers presented by Dennis Loughlin, Partner Many industries are seeing an increase in supply base financial distress due to the pandemic. Is there light at the end of the tunnel or is this calm before the storm? This segment will discuss the current landscape of uncertainty and address the most important issues regarding distressed suppliers, bankruptcies, and workouts. Workforce Pandemic Recovery presented by Kiffi Ford, Senior Counsel Labor and employment issues have concerned suppliers throughout the pandemic. HR challenges surrounding workplace safety, compliance and getting employees back to work continue be a major focus. This segment will address these concerns as well as legal and practical implications of the COVID-19 vaccine. 2021 M&A Trends prestented by Linda Paullin-Hebden, Executive Partner With the new Biden Administration and economic uncertainty of the pandemic, there are many unique challenges and opportunities when looking to strike a deal. This segment will feature M&A trends for 2021 and potential supply chain impact, bargain hunting for troubled companies, and the art of acquiring technology through deals. IP Contracting Best Practices presented by Vito Ciaravino, Partner The IP domain has adapted to the unique environment now considered â&#x20AC;&#x153;normal.â&#x20AC;? This segment will address best practices for a variety of IP issues that automotive suppliers should be implementing in 2021 such as: joint development agreements, intellectual property licensing agreements and nondisclosure agreements.