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Tenneco Inc 2006 company profile edition 3

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Tenneco Inc 2006 company profile edition 3

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Table of contents

Single-user licence edition..................................................................................................................ii

Copyright statement ....................................................................................................................... ii

Incredible ROI for your budget – single and multi-user licences .................................................... ii

just-auto.com membership ............................................................................................................ iii

Table of contents.................................................................................................................................iv

List of figures........................................................................................................................................v

List of tables ........................................................................................................................................vi

Chapter 1 Company Dossier ...............................................................................................................1

Company Name .............................................................................................................................1

Business Activity ............................................................................................................................1

Stock Symbol .................................................................................................................................1

Key Executives...............................................................................................................................1

Summary Financials.......................................................................................................................2

Key Competitors.............................................................................................................................2

Key Customers...............................................................................................................................2

Outlook ...........................................................................................................................................2

Chapter 2 Worldwide Locations..........................................................................................................4

Chapter 3 Financial Analysis...............................................................................................................6

Chapter 4 Competitor Analysis ...........................................................................................................8

Chapter 5 Key Events.........................................................................................................................10

Chapter 6 SWOT Analysis .................................................................................................................13

Strengths ......................................................................................................................................13

Weaknesses.................................................................................................................................13

Opportunities ................................................................................................................................14

Threats .........................................................................................................................................14

Chapter 7 Customers .........................................................................................................................16

Chapter 8 Products ............................................................................................................................22

Chapter 9 Product Development.......................................................................................................25

Chapter 10 Prospects.........................................................................................................................27


Page v

List of figures

Figure 1: Top OE customers of Tenneco, 2004-2005 (as a % of net sales) ................................17

Figure 2: Top AM customers of Tenneco, 2004-2005 (as a % of net sales) ................................18

Figure 3: Breakdown of sales across regions, 2004-2005 (as a % of net sales) .........................19

Figure 4: Breakdown of sales across markets, 2004-2005 (as a % of net sales) ........................20

Figure 5: Tenneco’s sales across products, 2004-2005 (as a % of net sales).............................24


Page vi

List of tables

Table 1: Facilities of Tenneco across the world, 2005 ...................................................................4

Table 2: Tenneco’s key financial performance, 2001-2005............................................................7

Table 3: Tenneco’s key competitors in the OE market worldwide..................................................8

Table 4: Tenneco’s key competitors in the worldwide aftermarket.................................................8

Table 5: Customers of Tenneco across regions...........................................................................16

Table 6: Top five OE customers of Tenneco across product divisions, 2005 ..............................19

Table 7: Top five AM customers of Tenneco across product divisions, 2005 ..............................19

Table 8: Products offered by Tenneco in the OE market .............................................................22

Table 9: Products offered by Tenneco to AM customers .............................................................23


Chapter 1 Company Dossier

Company Name

Tenneco Inc

Business Activity

Tenneco Inc, based at Lake Forest, Illinois (US), is one of the largest producers

of emission control and ride control products, as well as elastomer systems

worldwide. The company previously known as Tenneco Automotive renamed

itself as Tenneco Inc, in October 2005. The company is involved in the designing,

engineering, manufacturing, marketing and selling of individual components,

modules and systems and serves the global automotive original equipment (OE)

market and aftermarket (AM) customers. Brand portfolio of the company includes

Monroe (shocks and struts), Rancho (truck shocks), Walker (emission systems

and components) and Gillet (exhaust systems). Its elastomer products are sold

under the Clevite brand name. Tenneco has operations in 24 countries across six

continents. In the fiscal 2005 (ended 31 December 2005), Tenneco posted net

sales of US$4,441m, up 5.4% increase over fiscal 2004.

Stock Symbol

Tenneco’s common stock is listed and traded on the New York Stock Exchange

(NYSE) under the ticker symbol TEN. The company’s stocks are also listed on

the London, Pacific and Chicago stock exchanges.

Key Executives

Timothy R Donovan, executive vice-president (EVP), strategy and business

development, general counsel

Hari N Nair, EVP and managing director (MD), (Europe, South America and

India)

Kenneth R Trammell, EVP and chief financial officer

Brent J Bauer, Sr. VP (senior vice-president) and general manager (GM), North

American original equipment emission control

Neal Yanos, Sr. VP and GM, North American original equipment ride control and

North American aftermarket

Timothy E Jackson, Sr. VP, technology and GM, Asia Pacific

Richard P Schneider, Sr. VP, global administration


Paul Schultz, Sr. VP, manufacturing and global supply chain management

Paul D Novas, VP and controller

H William Haser, VP and chief information officer

Due to the resignation of Mark P Ficcosa (former chairman, chief executive

officer and president) from Tenneco in July 2006, board of the company

established an office comprising Timothy R Donovan, Hari N Nair, Kenneth R

Trammell, and Neal Yanos for assuming the responsibilities of CEO, until a new

person is selected for the position. Also, Paul T Stecko has been appointed the

non-executive chairman on an interim basis.

Summary Financials

In millions of $ 2003 2004 2005 Net sales 3,766 4,213 4,441 Net income/(loss) 26 15 58 Capital expenditure 130 130 144 Working capital (as a % of sales) 2.4 1.2 2.2

Fiscal years ended 31 December Source: Tenneco

Key Competitors

Major competitors of Tenneco in the OE emission control market include

ArvinMeritor based in the US; Eberspacher based in Germany; Belgium-based

Bosal; and France-based Faurecia. In the OE ride control market, the company

competes primarily against the US-based Delphi and ArvinMeritor; the German

company ZF, and Japan’s KYB Corporation. Tenneco’s competitors in the

aftermarket business include ArvinMeritor and Bosal.

Key Customers

Tenneco’s primary OE customers include DaimlerChrysler, Ford, GM, PSA

Peugeot/Citroën, Nissan, Honda, Mazda, PACCAR, Scania, BMW, Mitsubishi,

Tata Motors, Toyota and Volkswagen. In the aftermarket business, its key

customers include Temot and Auto Distribution International in Europe, and

O’Reilly Automotive, Advance Auto Parts in North America and National Auto

Parts Association (NAPA).

Outlook

Tenneco has increased its annual sales by nearly $1bn after the company was

established as Tenneco Automotive in 1999. The company foresees a strong

market for its DPF (diesel particulate filters) components and projects the latter’s


demand to be about 3m units in 2007 and more than 8m units in 2012. The

company also aims to triple its share for ride control products like shock

absorbers, struts, suspension modules and systems by 2007. It plans to

capitalise on the high-growth markets by expanding its business in regions like

Eastern Europe and China. The legislative regulation on safety and emissions

proves to be a vital prospect for the company. In a favourable development,

Tenneco announced in May 2005 that it was awarded new contracts from leading

OEMs to supply advanced ride control and emission products. The five new

contracts that the company signed were estimated at over $400m annually and

are set to be launched in the latter half of 2006 and the full year of 2007.

Tenneco expects to register OEM sales of $3.5bn in 2006 and $4.5bn in 2007.

However, key factors such as rising steel prices and OEMs’ inventory levels,

make Tenneco take a cautious stance. The price rise, especially in steel, is to

such an extent that the company is unable to justify the hike to its customers.

The company plans to face these challenges mainly through diversification of its

product portfolio and customer base.


Chapter 2 Worldwide Locations

Tenneco Inc is headquartered at Lake Forest, Illinois, US. As of 31 December,

2005, the company employed nearly 19,000 personnel on its global operations

and operated 13 engineering facilities and 79 manufacturing facilities, in 135

countries across the globe. It also has sales offices in Argentina, Australia,

Croatia, China, Egypt, Hungary, Greece, Japan, Italy, Singapore, Lithuania,

Turkey and Ukraine.

Table 1: Facilities of Tenneco across the world, 2005

Manufacturing centres Region Engineering centres Emission control Ride control

North America

Grass Lake, Michigan Jackson, Michigan Monroe, Michigan Milan, Ohio

Elkhart, Indiana Ewansville, Indiana Ligonier, Indiana Kansas City, Kansas* Litchfield, Michigan Marshall, Michigan Lincoln, Nebraska Seward, Nebraska Emigsville, Pennsylvania Smithville, Tennessee San Antonio, Texas Harrisonburg, Virginia Virginia Beach, Virginia* Milwaukee, Wisconsin Cambridge, Ontario, Canada Puebla, Mexico (2)*

Paragould, Arkansas Long Beach, California Hartwell, Georgia Angola, Indiana Sterling Heights, Michigan* St. Louis, Missouri* Cozad, Nebraska Milan, Ohio Napoleon, Ohio Owen Sound, Ontario, Canada Windsor, Ontario, Canada* Celaya, Mexico Reynosa, Mexico

South America

Mogi Mirim, Brazil Rosario, Argentina

Buenos Aires, Argentina Mogi Mirim, Brazil

Rosario, Argentina Cotia, Brazil Mogi Mirim, Brazil

Europe

St Truiden, Belgium Edenkoben, Germany Gliwice, Poland Rybnik, Poland

Gent, Belgium* Hodkovice, Czech Republic Etain, France Iwuy, France* Laval, France Rennes, France* Wissembourg,

St. Truiden, Belgium Hodkovice, Czech Republic Poissy, France* Hannover, Germany* Gliwice, Poland


France Edenkoben, Germany Ingolstadt, Germany* Saarlouis, Germany* Zwickau, Germany Poznan, Poland* Rybnik, Poland Palmela, Portugal* Togliatti, Russia Valencia, Spain Arendal, Sweden* Vittaryd, Sweden Burnley, UK Tredegar, UK Port Elizabeth, South Africa

Ermua, Spain Gijon, Spain Martorell, Spain* Port Elizabeth, South Africa

Asia Yokohama, Japan

Changchun, China (2) Chongqing, China Dalian, China (2) Shanghai, China Pune, India Bangkok, Thailand

Beijing, China Gurgaon, India Hosur, India Pondicherry, India

Australia / New Zealand

Clovelly Park, Australia Dunsborough, Australia O'Sullivan Beach, Australia Sydney, Australia

O'Sullivan Beach, Australia

Clovelly Park, Australia Sydney, Australia Morea, New Zealand

Source: Tenneco

Note: * Denotes ‘just-in-time’ (JIT) Plants


Chapter 3 Financial Analysis

In fiscal 2005 (ended 31 December 2005), Tenneco posted net sales of $4,441m,

a growth of 5.4% over fiscal 2004. This increase was primarily attributed to the

high selling OE platforms and to higher sales in the European and North

American aftermarket. Gross margin declined to 19.3% in fiscal 2005, from

20.1% in 2004, due to the increased steel, fuel and transportation costs as well

as higher restructuring charges. EBIT (earnings before interest and tax) rose by

23.6% over 2004 to $215m during fiscal 2005. The net income of the company in

2005 stood at $58m, increasing by 286.7% over 2004. The growth in earnings

and income were attributed to the reduced costs, controlled selling, general and

administrative expenses and to the higher global sales volume.

Sales generated from the North American region during fiscal 2005 stood at

$2,034m, increasing by 3.5% over fiscal 2004. Sales generated from Europe,

South America and India during fiscal 2005 stood at $2,110m, increasing by

8.8% over fiscal 2004. During fiscal 2005, sales from the Asia-Pacific region

decreased 2.4% to $371m.

In the second quarter of fiscal 2006 (ended 30 June 2006), Tenneco posted net

sales of $1,222m, an increase of 3.6% over the second quarter of fiscal 2005.

This increase in sales was attributed to the higher North American and European

AM sales and higher OE sales in Asia, South America and Europe. Gross margin

for the second quarter of the fiscal was 20.5%, increase from 20.3% in the

second quarter of fiscal 2005. EBIT recorded by the company during the quarter

was $73m, a decline of 12.1% from the second quarter of 2005. During the

second quarter of 2006, the company recorded a net income of $24m, a year-on-

year decline of 27.3%.


Table 2: Tenneco’s key financial performance, 2001-2005

(Figures are in millions of $, unless otherwise indicated) 2001 2002 2003 2004 2005Net sales 3,364 3,459 3,766 4,213 4,441Cost of sales NA NA 2,996 3,368 3,583EBIT 90 169 174 174 215Net income/(loss) (131) (187) 26 15 58Engineering and R&D expense 67 67 67 76 83Capital expenditures 127 138 130 130 144Working capital (as a % of sales) 6.4 4.0 2.4 1.2 2.2Cash and cash equivalents 53 54 145 214 141Total assets 2,706 2,565 2,852 3,119 2,940Shareholders’ equity/(deficit) 82 (86) 65 159 129Number of employees 20,145 20,000 19,100 18,400 19,000

Fiscal years ended 31 December Source: Tenneco


Chapter 4 Competitor Analysis

Tenneco experiences a highly competitive environment in North and South

America, Europe and the Asia Pacific. Customer loyalty is one of the key factors

for business in the auto industry. The other differentiating factors that favour the

choice of component suppliers by OEMs, for long-standing relationships, include

customer service, value added products, timely delivery and quality. Support

services and product pricing are the other determining factors. Tenneco is one of

the global leaders in the supply of ride control and emission control products and

systems. In the aftermarket segment, the company is considered as the market

leader across its product segments.

Table 3: Tenneco’s key competitors in the OE market worldwide

Product division Key competitors Emission control ArvinMeritor, Faurecia, Eberspächer, Bosal, Delphi,

Nelson Fleetguard Ride control ZF Sachs, Delphi, ArvinMeritor, KYB Corporation,

Magneti Marelli, Hitachi Source: Tenneco

Table 4: Tenneco’s key competitors in the worldwide aftermarket

Product division Key competitors Emission control ArvinMeritor, OE Service, Bosal, Goerlich’s Exhaust

Systems, International Muffler Company Ride control ArvinMeritor, KYB Corporation, OE Service, ZF Sachs

Source: Tenneco

Over the years, the consolidation among component manufacturers and OE

customers, has re-defined the operating characteristics prevailing in the

competitive landscape. This consolidation trend is resulting in fewer but larger

suppliers, who derive benefits like economies of scale. These trends affect the

independent manufacturers like Tenneco, who are exposed to intensified

competition. The OEM customers require the component manufactures to reduce

costs, and this forces these suppliers to undertake activities like cost reduction

and operational improvements.


In order to meet challenges in a highly competitive automotive environment,

ArvinMeritor has adopted the 3R strategy (Rationalize, Refocus and

Regenerate): to rationalise its operations by strengthening its manufacturing

base and reducing over capacity; to refocus resources on its core strengths and

divest its loss making business; and to regenerate profits and improve its market

share by expanding its product line and by offering advanced technological

solutions. Furthermore, the company intends to become one of the leading

automotive suppliers in the world by 2010. To this end, ArvinMeritor has resolved

to focus on refining its product portfolio and develop its presence in the emerging

markets, like India and China.

KYB Corporation implemented the ‘Change & Speed’ plan during the period FY

2002/03-FY 2004/05, and claims to have met all its targets, except its profit

margin target. Presently, the company is implementing the ‘Change &

Accomplishment V10’ (C&A V10) plans till FY 2007/08. Key strategies of this

plan include shifting its production to low-cost bases, creating an optimal and

favourable global supply network, and reducing its cost and interest bearing debt.

In August 2005, KYB Corporation announced that it intends to boost its

investments by 42% over the following three years (that is, an expenditure of

JPY44bn, in comparison with the expenditure of JPY31bn incurred over the three

year period that preceded August 2005). The bulk of the investments (JPY33bn)

were earmarked for the company’s core business of shock absorbers. Other

activities focused by the company include capacity expansions in China and the

US, and enhancement of its distribution systems in Mexico. These steps are

expected to favour the business of the company, as OEM customers of the

company, such as, Toyota, Honda and Nissan are proactively expanding their

sales and market presence in the US, at the cost of large western players, such

as, GM.


Chapter 5 Key Events

Tenneco Automotive came into existence in 1999, following the split of the earlier

Tenneco Inc into Tenneco Automotive and Pactiv Corporation, the packaging unit

of Tenneco Inc. Tenneco began trading independently on the NYSE in the same

year.

Tenneco Inc’s history dates back to 1943, when it was established as the

Tennessee Gas and Transmission Company (TGTC), in order to build a pipeline

between West Virginia and Texas. After the Second World War, TGTC became a

public company. In 1954, TGTC merged its oil and gas exploration business into

Tennessee Production Company. Later, Tennessee Production Company, along

with Bay Petroleum (acquired in 1955), became Tenneco Oil in 1961. Tenneco

Oil adopted the name of Tenneco Inc in 1966, after it had grown into a

conglomerate, holding various interests. Tenneco entered the exhaust system

market in 1967, following the acquisition of the Walker Manufacturing Company.

A decade later, the company enhanced its automotive portfolio by entering the

ride control product market with the acquisition of Monroe Auto Equipment

Company.

Tenneco sold its agricultural operations and oil exploration and manufacture

business, in 1987 and 1988, respectively. The company also entered into an

intensified round of restructuring in the early 1990s. For instance, the company

sold its natural gas liquids business to Enron (Texas, US), and its US-based

soda ash manufacturing facility to Solvay of Belgium. During the 1990s, Tenneco

expanded its converter and emission system design, development, testing and

manufacturing capabilities. Through the acquisition of Heinrich Gillet GmbH

(Rheinland-Pfalz, Germany) in 1994, Tenneco became one of Europe’s leading

OE emission control system suppliers. The company acquired Autocan, a

Mexican catalytic converter and exhaust pipe assembly manufacturer, in 1997.

Two years later, in 1999, Tenneco was officially carved out of Tenneco Inc and

began trading independently on the NYSE. In the same year, Tenneco entered

into a cooperation alliance with Siemens (Germany) and Ohlins Racing

(Sweden), covering advanced ride control and suspension systems. The alliance


also included development and commercialisation agreements. The turn of the

century heralded a wave of international expansion by Tenneco, amidst various

job-cutting measures. In early 2001, it enhanced its presence in Eastern Europe,

with the acquisition of a $20m manufacturing facility in Gliwice, Poland, to

produce shock absorbers for Europe-based vehicle manufacturers.

In 2002, Tenneco intensified its job-cutting measures by announcing over 900 job

cuts and the closure of around eight plants spread across Europe and North

America. These measures were adopted by the company chiefly to cut its costs

and to bring down its debt levels that shot up due to the spin-off of Pactiv.

Tenneco further continued to boost its expansion in Central and Eastern Europe

and opened a new plant in Togliatti in Russia. In April 2004, Tenneco announced

plans to set up an engineering centre in China. The project required a $7m

investment, and is expected to boost Tenneco’s engineering resources and

enhanced service to its growing Chinese customer base.

In September 2004, Tenneco announced that it was launching its DNX range of

suspension, performance exhaust and filter products in Europe. The DNX range

leverages its expertise in developing sophisticated automotive components in

Europe’s tuning market segment. Moreover, during the same month, the

company announced the launch of its elastomer business in the European

region, in order to build upon the success of its Clevite Elastomers brand in North

and South America.

Tenneco announced in October 2004, that it planned to reduce up to 250

salaried positions, especially at the senior and middle management levels, as

part of its restructuring efforts, worldwide. The company also announced the

consolidation of its Australia/New Zealand operations with its Asian operations, to

form an Asia-Pacific business unit, thus reducing the number of its SBUs

(strategic business units) to six. In February 2005, Tenneco announced that it

acquired almost the entire assets of Gabilan Manufacturing Inc (California, US) a

private company that has been supplying exhaust systems to Harley-Davidson

motorcycles exclusively since 1978.

In October 2005, Tenneco announced that its name was changed to Tenneco Inc

from Tenneco Automotive. The company stated that the new name better

represented its growth across a number of new markets driven by its business of


commercial and specialty vehicles. The company expects the new branding to

display its dedication to customers from adjacent markets, apart from its

traditional automotive customers. However, the company’s stock continues to

retain its old ticker symbol ‘TEN’ on NYSE.

The US-based International Truck and Engine Corporation (ITEC) awarded a

supply contract to Tenneco during January 2006. As per this contract, Tenneco

would supply its exhaust after-treatment systems for ITEC’s medium-duty diesel

vehicles, which are to be launched in 2007. During February 2006, Tenneco

announced its expansion plans in China through additional investments in its

engineering and manufacturing facilities. The expansion plans include the

establishing of Tenneco Suzhou Vibration Control Company Ltd, for the

manufacture of elastomer components at Suzhou, China; establishing an

engineering centre at Shanghai, through a joint venture with Shanghai Tractor

and Engine Company (STEC); and increasing its stake in Beijing Monroe Shock

Co to 65% from the present 51%. During April 2006, Tenneco was honoured with

the “2006 Automotive News PACE Award” in recognition of its innovative light-

weight and low-cost mufflers, developed at its Engineering Centre in Edenkoben,

Germany. The Premier Automotive Suppliers’ Contribution to Excellence (PACE)

award is presented to suppliers for achieving higher business performance,

technological advancements and superior innovation.

In May 2006, Tenneco announced expansion of its emission control engineering

facility in Grass Lake, Michigan. In June 2006, the company announced that it

has secured business worth $8m annually, from around 13 players in the North

American aftermarket.


Chapter 6 SWOT Analysis

Strengths

Tenneco is one of the world’s largest producers of automotive ride control and

emission control products and systems. In the aftermarket, Tenneco claims to be

the leader in both product areas in the markets that it serves worldwide. Some of

its popular brands include Monroe, Rancho, Fric-Rot and Clevite Elastomers, in

the area of ride control products; and Walker, Fonos and Gillet in the area of

emission control products. The company’s products were featured on nine out of

the top ten passenger car models manufactured in Western Europe, as well as

on all the top ten light truck models that were produced in North America in 2005.

In a favourable development, Tenneco announced in May 2005 that it was

awarded new contracts from leading OEMs to supply advanced ride control and

emission products. The five new contracts that the company acquired were

estimated at over $400m (annualised), and are set to be launched in the latter

half of 2006 and the full year of 2007. These contracts underline the company’s

strength as a leading global provider of diesel after treatment systems. Also, it

has increased its electronic ride control business with the leading European

luxury vehicle manufacturers.

Weaknesses

Tenneco appears to depend on a limited number of customers for a major portion

of its sales. For instance, in fiscal 2005, GM, Ford, Volkswagen and

DaimlerChrysler together accounted for 46.4% of the company’s sales, of which

Ford and GM together contributed 28.3%. Furthermore, Tenneco is highly

dependent (nearly half of the company's total sales) on North American

customers, which again reflects the imbalanced geographic distribution of the

company’s sales. With GM and Ford cutting production levels and steadily losing

its market share in the US, dependence on these players for a significant

percentage of its sales entails huge operational risks for Tenneco. For example,

GM and Ford had announced a reduction in production volume for the third

quarter of 2006 by around 8.4% and 2.5%, respectively, from the third quarter of

2005.


Opportunities

The company is spending heavily on engineering and research and development

(R&D) in order to produce technologically advanced components, with the aim of

improving its safety and emission standards. Tenneco was the pioneer in

developing and commercialising DPF, which could completely eliminate

hydrocarbon and carbon emissions, without hurting the engine performance.

Also, the company recently acquired Gabilan Manufacturing, an exhaust systems

producer for Harley-Davidson Motorcycles. This move is expected to reduce

costs for Tenneco significantly and improve its technical capabilities and quality.

Tenneco received contracts from the European OEMs for its DPF and

computerised electronic suspension (CES) technologies. The company

developed DPF technology in association with the French auto major PSA

Peugeot-Citroën in 2005. Moreover, the company expects the demand for DPF

to grow from 40,000 units in 2004, to 3m units by 2007, and about 8m units by

2012. Peugeot 407 coupe was the latest addition to Tenneco’s growing list of

DPF users. The company plans to equip vans, medium-duty commercial trucks

and pick-up trucks with diesel exhaust systems in North America. Furthermore,

growth in the sales of diesel cars in Europe, coupled with the growing concerns

on emission norms, is providing ample opportunities for players like Tenneco, in

the exhaust systems market.

China will continue to be one of the promising markets for Tenneco’s future

growth. The demand for automotive components is likely to increase as the

Chinese automotive industry is on the rise. Tenneco has projected sales of

$400m from this market by fiscal 2006.

Threats

On an average, the useful product life of automotive components is increasing

steadily. This requires the vehicle owners to replace the parts less often, thereby

affecting the aftermarket sales. Hence, in order to drive demand in the

aftermarket, the companies have to launch innovative and technologically

advanced aftermarket products, which upgrade performance of the original

components in the vehicle.

The company has experienced significant increases in raw material prices and

any further price rise would affect the company adversely. The price rises,


especially in steels and metals are to such an extent that the company, like

several of its competitors, is unable to pass on this hike to the customers in time.

In addition, component manufacturers like Tenneco are facing pricing pressure

from the OEMs, which is pulling down their operating margin.


Chapter 7 Customers

Tenneco served over 30 different OEMs globally, as of 31 December 2005. The

company works in coherence with its customers in all stages, from production to

delivery, in order to instil long-term relationships. Tenneco’s aftermarket

customers include specialty and full-line warehouse distributors, jobbers,

retailers, car dealers and installer chains. Its key aftermarket customers are

National Auto Parts Association (NAPA), TEMOT Autoteile GmbH, Advance Auto

Parts and Automotive Distribution International. The company’s products and

systems were featured on nine out of the top ten passenger car models,

manufactured in Western Europe, as well as on the entire top ten light truck

models, manufactured in North America during 2005.

The following table illustrates Tenneco’s customers across key geographical

regions.

Table 5: Customers of Tenneco across regions

Regions Customers North America AM General, Caterpillar, Club Car, DaimlerChrysler, E-Z Go

Golf Car, Ford, Freightliner, GM, Harley-Davidson, Honda, Isuzu, Motor Coach Industries, Navistar, Nissan, PACCAR, Toyota, Volkswagen and Volvo Trucks

Europe BMW, DaimlerChrysler, Fiat, Ford, GM, Nissan, PACCAR, Porsche, PSA Peugeot Citroën, Renault, Scania, Toyota, Volkswagen and Volvo Truck

Asia BMW, Club Car, E-Z Go Golf Car, Fiat, First Auto Works, Ford, GM, Isuzu, Jinbei Automobile, Nissan, PSA Peugeot Citroën, Tata Motors, Toyota, TVS Motor and Volkswagen

South America DaimlerChrysler, Fiat, Ford, GM, Mitsubishi, PSA Peugeot Citroën, Renault, Scania and Volkswagen

Australia Club Car, Ford, GM, Mazda, Mitsubishi, Navistar and Toyota Source: Tenneco

The following table lists Tenneco’s top OE and AM customers in 2004 and 2005.


Figure 1: Top OE customers of Tenneco, 2004-2005 (as a % of net sales)

2004

PSA Peugeot Citroën7.4%

Ford Motor Co12.0%

Volkswagen10.5%

DaimlerChrysler8.0%

Toyota Motor Co3.9%

Nissan Motor Co2.2%

Others38.1%

General Motors17.9%

2005

PSA Peugeot Citroën6.1%

Ford Motor Co11.6%

Volkswagen9.1%

DaimlerChrysler9.0%

Toyota Motor Co3.6%

Nissan Motor Co3.3%

Others40.6%

General Motors16.7%

OE Customer 2004 2005 General Motors 17.9 16.7 Ford Motor Co 12.0 11.6 Volkswagen 10.5 9.1 DaimlerChrysler 8.0 9.0 PSA Peugeot Citroën 7.4 6.1 Toyota Motor Co 3.9 3.6 Nissan Motor Co 2.2 3.3 Others 38.1 40.6 Total 100.0 100.0

Source: Tenneco


Figure 2: Top AM customers of Tenneco, 2004-2005 (as a % of net sales)

2004

Uni-Select0.4% Advance Auto

Parts1.1%

Automotive Distribution International

1.1%

TEMOT Autoteile GmbH

1.3%

O’Reilly Automotive

0.6%

NAPA2.0%

Others93.1%

Kwik-Fit Europe0.4%

2005

Uni-Select0.7% Advance Auto

Parts1.2%

Automotive Distribution International

1.1%

TEMOT Autoteile GmbH

1.5%

O’Reilly Automotive

0.7%

NAPA1.9%

Others92.5%

Kwik-Fit Europe0.4%

AM Customer 2004 2005 NAPA 2.0 1.9 TEMOT Autoteile GmbH 1.3 1.5 Advance Auto Parts 1.1 1.2 Automotive Distribution International 1.1 1.1 Uni-Select 0.4 0.7 O’Reilly Automotive 0.6 0.7 Kwik-Fit Europe 0.4 0.4 Others 93.1 92.5 Total 100.0 100.0

Source: Tenneco


The following tables list the top five customers of Tenneco’s product divisions in

2005, with respect to the OE and AM categories.

Table 6: Top five OE customers of Tenneco across product divisions, 2005

Emission control Ride control GM Ford Ford Volkswagen Volkswagen GM PSA Peugeot/Citroën DaimlerChrysler DaimlerChrysler Nissan

Source: Tenneco

Table 7: Top five AM customers of Tenneco across product divisions, 2005

Emission control Ride control NAPA NAPA TEMOT Autoteile Advance Auto Parts Automotive Distribution International O’Reilly Auto Parts Advance Auto Parts TEMOT Autoteile Independent Motor Trade Factors Association Pep Boys

Source: Tenneco

Figure 3: Breakdown of sales across regions, 2004-2005 (as a % of net sales)

2004Asia Pacific

8.87%

Europe, South America and

India45.26%

North America45.87%


2005Asia Pacific

8.22%

Europe, South America and

India46.73%

North America45.05%

Region 2004 2005 North America 45.87 45.05 Europe, South America and India 45.26 46.73 Asia Pacific 8.87 8.22 Total 100.00 100.00

Source: Tenneco

Figure 4: Breakdown of sales across markets, 2004-2005 (as a % of net sales)

2004

Aftermarket23.62%

Original equipment

market76.38%


2005Aftermarket

22.99%

Original equipment

market77.01%

Products 2004 2005 Original equipment market 76.38 77.01 Aftermarket 23.62 22.99 Total 100.00 100.00

Source: Tenneco

During 2005, Toyota went into business with Tenneco for the latter’s exhaust

components, to be used on its next generation pick-up truck, Tundra. Tenneco

plans to supply Toyota from its two just-in-time (JIT) plants in Indiana and Texas.

Tenneco currently supplies its products to Toyota’s Sienna, tC Sport, Avalon,

Lexus RX 330 SUV and Sequoia.

Tenneco announced in May 2005 that it had been awarded new contracts from

leading OEMs, for the supply of its advanced ride control and emission products.

The five new contracts that the company bagged were estimated at over $400m

(annualised), and are set to be launched in the latter half of 2006 and 2007.

Additionally, in May 2005, the company secured a contract for $12m for the ride

control system using CES technology for a European vehicle platform. Also

during the month, the company announced that it is supplying rear shock and

front strut module for Suzuki Swift Sport, launched in Japan. In addition, the

company announced that it has secured business from Toyota Motor Europe to

supply its retrofit DPF for Toyota’s complete range of diesel cars.


Chapter 8 Products

Tenneco is one of the leading manufacturers of automotive ride control and

emission control systems. The company offers products serving both the OE and

the aftermarket segments.

Table 8: Products offered by Tenneco in the OE market

Product Operations Products Markets served Brands

Emission control

Complete exhaust systems Fabricated manifolds Manifold-converter modules Catalytic converters Mufflers and resonators DPF systems NOx abatement systems Exhaust heat exchangers Exhaust isolators and hanging systems

Passenger cars Light trucks Commercial vehicles Industrial applications Motorbikes Buses

Gillet Wimetal Walker

Ride control

Shocks and struts Suspension bushings Coil, air and leaf springs Torque rods Engine/body mounts Suspension modules/systems Control arms/bars/links Cabin dampers Computerised electronic suspension Anti-roll system

Passenger cars Light trucks Commercial vehicles Golf carts Off-road recreational Rail cars Buses

Monroe Axios Clevite Elastomers Kinetic Fric-Rot

Source: Tenneco


Table 9: Products offered by Tenneco to AM customers

Product Operations

Products Markets Served

Brands

Emission control

Manifolds Mufflers Pipes Tubing Mounting components Catalytic converters Performance mufflers Headers

Passenger cars Light trucks Commercial vehicles Performance vehicles

Walker Exhaust Systems DNX Fonos Lukey Performance Exhaust DynoMAx Performance Exhaust Thrush Turbo

Ride control

Shocks Struts Cartridges Mounting kits Performance shocks, struts, filters and brakes Torque rods Suspension bushings Engine mounts Coil springs Car-appearance products

Passenger cars Light trucks Commercial vehicles Performance vehicles Trailers

Monroe Rancho Axios Kinetic Suspension Systems DNX Armstrong

Source: Tenneco

In May 2006, the company launched retrofit DPF in the European AM under the

brand Tenneco Walker.


Figure 5: Tenneco’s sales across products, 2004-2005 (as a % of net sales)

2004

Ride control37.1%

Emission control62.9%

2005

Ride control37.9%

Emission control62.1%

Products 2004 2005 Emission control 62.9 62.1 Ride control 37.1 37.9 Total 100.0 100.0

Source: Tenneco


Chapter 9 Product Development

Tenneco, being an automotive component supplier, sees through an increasing

demand from its customers, to deliver products that are technologically advanced

and comply stringently with the emission norms. In this effort, Tenneco invested

$83m (1.9% of the net sales) on engineering and R&D in 2005, an increase of

9.2% compared to previous fiscal. Tenneco has developed an innovative valve

for mono-tube shock absorbers called the Monotube Blow Off (MTBO) valve,

which has better durability, tuneability and damping consistency. These mono-

tube shock absorbers are single tube high-pressure gas shocks, which offer

enhanced vehicle stability and handling with design features that provide more

mounting options and higher damping levels, when compared to similar twin tube

shocks. With the MTBO valve, low damping forces can be independently tuned in

rebound and compression modes. The system also independently adjusts

damping blow-off levels and damping progression rates, in mid- to high-speed

ranges. The MTBO valve differs from standard mono-tube valve designs, where

damping force levels and progression rates are mutually dependent.

One of the novel developments in the ride control segment is the CES. This semi

active suspension system delivers an optimal balance in ride, control and

handling. The system continuously monitors the vehicle ride, including road

condition and a vehicle dynamics like speed, turning and likewise. It adjusts the

damping level of the shock absorbers accordingly. This system was jointly

developed by Tenneco and Sweden-based Öhlins Racing.

The company is one of the few suppliers to develop an additive and catalyst

coated DPF. This filter effectively prevents particulate matter to escape from the

exhaust system. The gases carrying the particulate matter flows through the

filters’ substrate wall and the particulate matter is arrested and collected in the

filter. This requires the filter to be replaced once in an interval of 150,000 to

225,000 km.

In order to differentiate vehicles, the company involves itself in acoustical

engineering to generate the desired engine sound. The company’s sound

engineers identify the “sound character” using a series of tools, and determine its


harmonics and sub harmonics. Using sophisticated predictive tools and virtual

designs, the company develops solutions to meet with customers’ expectations.


Chapter 10 Prospects

After the company’s spin-off in 1999, Tenneco has increased its annual sales by

nearly $1bn. The company's growth is propelled by its sound engineering

capabilities in suspension components, systems and advanced diesel

technologies. The ratio of diesel passenger vehicles for new cars in Europe is

expected to rise to 59% by 2009. Thus the company foresees a strong market for

its DPF components and estimates the product’s demand to touch approximately

3m units in 2007 and more than 8m units in 2012. The company also aims to

triple its share for ride control products like shock absorbers, struts, suspension

modules and systems by 2007.

Tenneco is pursuing its path towards market expansions and debt reductions.

Thus, it plans to capitalise on the high-growth markets by expanding its business

in regions like Eastern Europe and China. The legislative regulation on safety

and emissions proves to be a vital prospect for the company. The new and

existing customers, especially the Korean and Japanese automakers, with a high

growth rate, promise to take Tenneco to greater heights. The company is

focusing to spread out its revenue streams by entering into specialty and

commercial vehicle markets. The company is also on the look out for

opportunities to add value to its business through acquisitions. This can be

illustrated by its recent acquisition of Gabilan Manufacturing, an exhaust systems

producer for Harley-Davidson Motorcycles, valued at $10m. This not only

generated sales of about $38m, but also strengthened Tenneco’s technological

front.

In a favourable development, Tenneco announced in May 2005 that it was

awarded new contracts from leading OEMs to supply its advanced ride control

and emission products. The five new contracts that the company signed were

estimated at over $400m (annualised), and are set to be launched in the latter

half of 2006 and 2007. Combining the new contracts with recently signed ones

(that is, before the announcement of new contracts in May 2005), the company’s

estimated annualised revenue amounts to $800m. These contracts underline the

company’s strength as a leading global provider of diesel after treatment

systems. Also, it has increased its electronic ride control business with the


leading European luxury vehicle manufacturers. In addition, the company is

pursuing other business activities like the introduction of its braking products in

both European and the North American AM and air filters in European AM.

Tenneco expects to register OEM sales of $3.5bn in 2006 and $4.5bn in 2007.

Tenneco continues to grow by expanding into new markets, with its rapidly

growing customer base and increasing usage of advanced technologies.

However, the North American automotive industry has been uncertain with light

vehicle production down by 1% during the second quarter of 2006 and expected

to remain flat in 2006. Certain key factors such as rising oil and steel prices,

interest rates and OEMs’ inventory levels, make Tenneco take a cautious stance.

The price rise, especially in steel, is to such an extent that the company is unable

to justify the hike to its customers. The company plans to face these challenges

mainly through diversification of its product portfolio and customer base.


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