Automotive Division

Presented by Tryggve SthenPresident, Automotive Division

SKF Capital Markets Day 2008

• Automotive Division overview

• 2007 key achievements

• Continuous cost reduction

• Automotive Division strategy for profitable growth

• Summary

Presentation outline

Our core customer segments

Electrical appl.manufacturers

Vehicle Vehiclemanufacturers aftermarket

SKF Automotive Division sales 2007

Sales by segment Sales by region

Vehicle aftermarket

24%

Two wheelers 3%

Other 15%

Cars43%

Trucks14%

Europe62%

Asia12%

North America

20%

South America

6%

1. Growth in all regions of the world

2. Strong growth in Asia

3. Strong growth in vehicle aftermarket

4. Strong truck business growth in Europe

5. Improved profit

Key achievements

6. Restructuring in N America and France

7. Facility upgrade in Bulgaria initiated

8. Divestment of Lüchow forging business

9. New factories in Korea, China and Indonesia

Business environment assumptionsVehicle production 2004 - 2012

30 000

35 000

40 000

45 000

50 000

55 000

60 000

65 000

2005 2006 2007 2008 2009 2010 2011

Two-wheelers (000’s)

30 000

40 000

50 000

60 000

70 000

80 000

2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: Global Insight, March 2007

Light vehicles (000’s)

1 000 000

1 500 000

2 000 000

2 500 000

3 000 000

3 500 000

2004 2005 2006 2007 2008 2009 2010 2011 2012Source: National sources, Industry sources, J.D. Power-LMC, ACT Research

Euro 5*EPA '07Euro 4*

(* Heavy trucks)

EPA '10

Trucks

Eu 4Eu 5

Tier2 (US)

Eu 3

CAGR:• Light vehicles 2-3% p.a.• Trucks 2-3% p.a.• Two-wheelers 6-7% p.a.

Cost reduction

• Plant restructuring in W Europe/N America

• Shift of production to best cost countries

RestructuringPurchasing/outsourcing

Internal improvements

Lower cost

Plant restructuring over the last few years

North America- factory closures/ restructuring

• Aiken

• Springfield

• Franklin

• Glasgow

Europe- restructuring • France

– capacity reduction continued• Germany

– TRB restructuring, production relocation to BCC

• moved 4 channels to India and Brazil

• Bulgaria– facility upgrade to become a

competitive source for bearings, forgings and seals

Shift of production to best cost countries

Latin America•Mexico

– productionrelocation from US

•Brazil– increased capacity

East Europe•Ukraine

– increased capacity– SKF branded

products •Bulgaria

– Competitive sourcefor bearings, forgings and seals

– Increased capacity for DGBB and Seals

Asia expansion•China

– Aquired 100% of j/v plant in China for DGBB

– New HBU plant ATC•Korea

– 2 new plants inaugurated•Indonesia

– New plant for two-wheeler market

•India – New factory in

Uttarakhand initiated

Bulgaria

KarnareKalofer

Sopot

DGBB Bearings• Make into low cost

DGBB source for Europe

• Upgrading of facilities to SKF standard being implemented

• New business acquired in household segment

Seals• Low cost source for Europe

– Transferring labor intensive DGBB seals

– Adding stamping capability to also supply W Europe

Forgings & Rings• Ongoing upgrading Karnare facility• Low cost components supplier• Growing external business

• DGBB• Seals• F & R

Electrolux – SKF applications

Electric motor

Tachometer bearing

Washing machine drum

Garter seal

Bearing support units

Washing machine drumWater pump

Ukraine

• Important base for CIS truck business – KAMAZ manufacturer of medium and

heavy duty trucks and diesel engines• Double heavy truck production in four years• J/V with TATA Motors for truck assembly in

India

– GAZ is CIS main manufacturer of light trucks, buses and cars

• SKF supplies to GAZ

• Lutsk important production plant to serve this market

Cost reduction

• Components• Plant restructuring in W Europe/N America

• Shift of production to best cost countries

RestructuringPurchasing/outsourcing

Internal improvements

Lower cost

Sourcing

Significant increase in best cost country sourcing under way.

Invest towards systems/module supply• Value added solutions

• New markets

Components

Bearings

Units/modules

Systems

VALUE

Lüchow F&R divested

Cost reduction

• Components

Purchasing/outsourcing

• Six Sigma• Value engineering

• Plant restructuring in W Europe/N America

• Shift of production to best cost countries

Restructuring Internal improvements

Lower cost

Reduce energy consumption at SKF ElginSix Sigma projectSituation:

• Increased energy costs• Negative impact on sustainable goals

Solution:• Implementation of 62 separate activities, e.g updated

lighting fixtures, keyed switches, control panels for furnaces and timing systems to control the use of energy.

Results (2007 versus 2006):• Production equipment energy reduction • Heating/air conditioning reduction • Lighting upgrading energy reduction • Gas usage - 30%• Electricity usage - 5%• CO2 reduction - 8%• Project has been replicated twice

Automotive Division has more than

800 trained Black and Green belts.

AD profitable growth strategy

Growth

AD profitable growth strategy

• Innovative products & technologies

• Customer driven value added solutions

Increased value

Broaden offering

Aftermarket penetration

New markets

MAN

SKF status• Single source and main supplier

Why such a good partnership?• Good position within MAN • Competent and innovative partner• Excellent support • Extremely good delivery performance• Products exceed expectations• Excellent field results

1995

= In

dex

100

0

500

1000

1500

2000

95 96 97 98 99 00 01 02 03 04 05 06 071 million THU2's s

upplied to MAN by April 2007!

x

MAN

x

Transmission: Energy efficiency portfolio

Final drive & Power take off unitGearboxes

Lower friction (30% less)Lower running temperature

Functions integrationCompactnessImproved stiffness

Customerbenefits

Standard TRB

E2 TRB DrivelineACBB

Ball pinion unit

Hybrid pinion unit

Low frictionpinion unit

TRB – Tapered roller bearingACBB – Angular contact ball bearing

Transmission: Potential of CO2 reduction

6-speed MT Power take-off unit Final drive

0,5 - 1,2 g / km 2 - 3 g / km > 3 g / km

+

Automotive Division environmental care

Energy savings and CO2 emission reduction• Manufacturing excellence/Benchmark program• Factory audits

Green manufacturer award India• Energy efficiency launched products, in production • BeyondZero - global sustainability initiative• Research and development in processes and technologies• Sustainable impact

– society– suppliers – customers

AD profitable growth strategy

Growth

• Innovative products & technologies

• Customer driven value added solutions

Increased value

• Leverage platforms - growth in seals

• Increase SKF share of vehicle content

Aftermarket penetration

New markets

Broaden offering

Growth in seals

• Global presence to provide a solid platform

• Key product launches– Automotive heavy duty valve stem seals– Automotive bearing seals with longer life– Industrial seals with metric range

• Main shaft seals to Goldwind, China, for a new 1.5 MW gearless windturbine

– Integrated SKF Agri Hub seals for off-highway vehicles

• Global Centers of Excellence January 2007– Six centers by application and one for material

development– Resulting in reduced engineering lead times, cross-

fertilization of knowledge across regions to build business

Fiat 500 – SKF applications

Input shaft bearingsValve stem seals

Gasoline engine

Front and rear crankshaft seals

GearboxGearbox

Gasoline engine

Transmission seals

Front and rear wheel

Hub bearing units

AD profitable growth strategy

• Innovative products & technologies

• Customer driven value added solutions

Increased value

• Leverage platforms - growth in seals

• Increase SKF share of vehicle content

Broaden offering

• Growth in vehicle aftermarket

New markets

Aftermarket penetration

AD profitable growth strategy

Growth

Growth in aftermarket• Market penetration - Strong network

distributors– ADI, Europe– InterCars, East Europe– NAPA, North America– Poton, China

• New markets, e.g. China

• Marketing & logistics capabilities

• Kit concept

• New product launch– PreSet® hub assemblies

0

1000

2000

3000

4000

5000

6000

7000

2001 2002 2003 2004 2005 2006 2007

Strong growth

Best supplier of

the year 2007

- award from

AD International.

AD profitable growth strategy

• Innovative products & technologies

• Customer driven value added solutions

Increased value

• Leverage platforms - growth in seals

• Increase SKF share of vehicle content

Broaden offering

• Growth in vehicle aftermarket

Aftermarket penetration

• Growth in Asia with winning customers

New markets

AD profitable growth strategy

Growth

Growth in new markets

SealsBearingsTechnical center

TaeguTaeguBusanBusan

WuhuWuhu

Bangalore

PunePune

JakartaJakarta

ShanghaiShanghai

Global Customer RelationshipRenault-Nissan-Samsung

• SKF awarded 9 important projects the last couple of years

• Start of production: 2007 to 2010

• Applications:– Wheels– Suspension– Transmission

• Manufacturing locations: – Korea– China– Germany

Renault KoleosDesigned by Renault

Developed by Nissan

Built by Samsung

The way ahead

• Increase sales of value added solutions– Fuel efficiency– Weight reduction

• Growth of value-added solutions by intensifying product development within the different platforms

• Continue growth particularly in emerging markets, e.g. Asia

• Grow the aftermarket and seals business globally

• Manufacturing footprint – continue shift to best cost countries

• Increase efficiency in the organization

Racing ahead

Profitablegrowth

Growth

Increased value

Broaden offering

Aftermarket penetration

New markets

Restructuring Purchasing/outsourcing

Internal improvements

Cost reduction