19 JULY 2008

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    Automotive Group

    Koç Group automotive companies, which account for almost half of Turkey's automotive production and exports, reinforced their leadership positions in the market in 2007.

    Market Overview

    Despite a 5% contraction in the Turkish automotive market in 2007, the continuing rapid growth in exports resulted in a total production increase of 10.4%.

    The growth in global automotive demand continued in 2007 and the total market expanded by 4.2%, reaching 71.6 million units; led mainly by the 9.1% growth in the Asia-Pacific region. The Chinese market expanded by 21.1%, while the Indian market rose by 11% and the South Korean market by 5.9%. On the other hand, the Japanese market shrunk by 3.3%. The European market grew by 3.7%, with the EU's 27 member states contributing only a 1.6% rise while the Eastern European countries surged by 23.3%. The saturated US market rose by a mere 0.5%.

    Intense price and cost pressure
    The most important development in the international automotive market was intense price and cost pressure on global automotive manufacturers. Market saturation is causing manufacturers to offer deep discounts and promotions to consumers in developed markets like Western Europe and the USA.

    Meanwhile, Western manufacturers are losing market share and volume to their Far Eastern competitors. On the other hand, developing markets with higher growth rates are more price sensitive due to low per capita income levels. The automotive sector is also under legislative pressures to improve environmental and safety standards, burdening investments and costs. Global automotive manufacturers are focusing on Eastern Europe, Russia, India and China, to increase efficiency and secure a share of these fast growing markets.

    Turkish automotive sector
    The Turkish automotive market shrunk by 5% in 2007, where a total of 676,000 vehicles were sold. The decrease in demand, which started in June 2006, changed its course after the general elections in July 2007 and switched to an upward trend.

    In 2007, the Turkish automotive industry produced 1.1 million vehicles with an increase of 10.4% compared to 2006.
    While 830,000 vehicles, representing 73% of the industry output were exported, total revenues from exports of vehicles and automotive supplies increased by 36% to reach USD20.3 billion.

    New brands and investments
    The variety of brands in the Turkish market is increasing steadily, especially with new entrants from India, Russia, and China.

    New investments for production in Turkey are also increasing steadily as the country's position as an automotive production hub gets stronger and its success in attracting new projects continues. Many of the existing manufacturers plan capacity increases.

    Koç Group automotive segment

    In 2007
    Koç Group companies generated 46% of Turkey's total automotive production and 45% of its automotive exports.

    Despite a shrinking domestic market, the Group's total automotive production grew by 13% and Koç Group automotive companies produced over 520,000 vehicles.

    In 2007, as in 2006, the driver of growth was exports. The Group's exports increased by 19% to 375,000 vehicles.

    Koç Group produced 86% of the total commercial vehicles manufactured in Turkey in 2007 with 400,000 units. The Group, which is the indisputable leader of the commercial vehicle segment, was responsible for 94% of Turkey's commercial vehicle exports.

    Large-scale export projects are important drivers behind Koç Group automotive companies' future growth and investments.

    FORD OTOSAN

    Turkey’s export champion accounting for 27% of all vehicle exports and 70% of commercial vehicle exports, Ford Otosan was also the domestic market leader for the 6th consecutive year with its 102,000 units of domestic sales.

    Market leader for the 6th consecutive year and Turkey's export champion
    Ford Otosan, Turkey's biggest commercial vehicle manufacturer and exporter, attained a 16.8% domestic market share with 102,000 unit sales, making the company the market leader for the sixth consecutive year.

    In 2007, Ford Otosan's domestic market shares by segment were 9.2% for passenger cars, 29.1% for light commercial vehicles and 16.3% for trucks.   

    Ford Otosan's exports in 2007 were up by 20% in unit terms. Despite the shrinking domestic market, the company's annual production volume increased by 11% to exceed 286,000 units. As in previous years, Ford Otosan produced more than one quarter of all motor vehicles manufactured in Turkey in 2007. The company ranks as Turkey's second largest industrial company in Istanbul Chamber of Commerce's ISO 500 list.

    Ford Otosan, which is less dependent on the domestic market compared to other automotive companies due to its high export volume, accounted for over 27% of Turkey's vehicle exports and more than 70% of commercial vehicle exports, with a total export volume of 222,000 vehicles in 2007. With export revenues of USD3.4 billion, Ford Otosan became Turkey's top exporter in 2007. International revenues accounted for 62% of the company's total revenues.

    2007 highlights
    Ford Otosan continued to boost capacity at its Kocaeli Plant in order to meet strong export demand. Annual capacity, which was 250,000 units/year at the end of 2006, was initially increased to 280,000 units and further to 300,000 units in October 2007. The Company targets to increase capacity to 320,000 units/year in 2008.

    The Transit, selected the International Commercial Vehicle of 2007, is the market leader in its segment, with 31.9% share. Starting from the beginning of 2007, EFI (Electronic Fuel Injection) engines were introduced in all Transit models. From September onwards, the 3.2 liter, 200 PS, five-cylinder engines, which are the most powerful in their class and produced in Ford Otosan's İnönü plant, were installed in the Extra Long Chassis type of Transit. Exports of the Transit model reached 135,000 units in 2007.

    The Transit Connect, Ford Otosan's other main export product, reached a domestic market share of 26.2% in its segment, reflecting its strong performance. Further to its proven success in Turkey and Europe, the Transit Connect is scheduled for export to North America starting from 2009, making Ford Otosan the first Turkish company to export vehicles to the USA, the homeland of the automotive industry.

    Ford Otosan's Gebze Engineering Center was opened in the TÜBİTAK MAM Technology Free Zone on September 26th, 2007.

    Ford Otosan exported 31% of its Cargo truck production in 2007, shipping over 2,000 vehicles to 21 countries. The Company makes continuous developments in the Cargo and aims to increase market share with the new Cargo H476 model and the 9 liter, 350 HP engine option that it started to produce towards the end of 2007.

    In addition to the new Mondeo, which gained 14% market share in its segment after its introduction to the market in 2007, Ford Otosan offers a wide selection of automobile models to its customers including Fiesta Cool, Fusion Urbanite, Focus Collection, Fiesta Color, Galaxy, the new Ranger, and the new C-MAX.

    Gebze Engineering Center opened
    Ford Otosan's Gebze Engineering Center was opened in the TÜBİTAK MAM Technology Free Zone on September 26th, 2007. With a staff of 200 design and engineering experts, this center provides engineering services to Ford Otosan and to Ford's European engineering centers in Dunton (UK) and Merkenich (Germany).

    Awards confirm success
    Ford Otosan has received many awards in Turkey and abroad for its diverse and successful projects.

    In 2007, the company received global Ford organization's prestigious “President Health and Safety Award” for the Ford of Europe region and, for the second time, won the “Şehabettin Bilgisu Environment Award”, given by Kocaeli Chamber of Industry.

    Within the framework of European Union Environmental Awards, Turkey Program, Ford Otosan's Hybrid Vehicle Project has ranked “First in the Category of Product” and its Environment Management System Project has become “Second in the Category of Management”.

    TOFAŞ

    In 2007, Fiat was the only brand in Turkey to increase its market share, in both the passenger car and light commercial vehicle segments.

    Strengthening domestic profile
    Tofaş increased its market share with its Fiat, Alfa Romeo and Lancia brands, despite the shrinking domestic market in 2007 from 8.8% to 10.2% in passenger cars and from 15.9% to 17.1% in light commercial vehicles. The company maintained its number three spot with its total market share of 12.1%.

    Tofaş's domestic sales increased by 6% during the year, to reach 78,000 units. In 2007, Fiat was the only brand in Turkey to increase its market share, in both the passenger car and light commercial vehicle segments.

    Record production level
    Tofaş's Bursa Plant produced a record 215,000 vehicles in 2007, the highest volume ever. The number of shifts was increased to three while production capacity rose from 250,000 units a year to 400,000. The company aims to increase its capacity utilization rate and produce 350,000 vehicles in 2008.

    Tofaş's highest ever export level
    In 2007, Tofaş reached the highest level of exports in its history, exporting 146,000 vehicles and increasing export revenues by 31% to USD1.6 billion.

    While Doblo exports continued to grow steadily, Albea semi-knocked down (SKD) exports to the Russian Severstal factory, an important part of Tofaş's cooperation with Fiat in international markets, increased in 2007 with the inclusion of the Doblo model. The company plans to start SKD exports of Linea to Russia in 2008. Tofaş's presence with three models in the highly growing Russian market indicates a significant export potential.
     
    A rare success in the sector
    Tofaş achieved a success in 2007 that is rarely seen in the international automotive industry by starting production of two separate models, a passenger car - Linea, and a light commercial vehicle - MiniCargo, in the same year.

    MiniCargo
    The MiniCargo, which created a completely new segment, was launched in Turkey and Italy in December. Tofaş holds the intellectual property rights of MiniCargo, which is a milestone in the history of the company.
    For the first time in the history of the Turkish automotive industry, a model will be produced for multiple brands.

    MiniCargo production is projected to rise to over 165,000 units a year, while lifetime production is estimated at over one million units. This vehicle represents an investment of EUR380 million, of which EUR190 million was for R&D.

    MiniCargo exports started in the last months of 2007; 79% of the 10,630 units produced were exported between October, when production started, and December.

    Linea
    Linea was launched in May 2007 and gained a market share of 2.7% in only seven months, enabling Tofaş to move up two spots to number two in the passenger car segment with a 10.4% market share.

    Lancia: Tofaş's fifth brand
    Lancia joined Tofaş as its fifth brand in 2007. After Italy, Turkey is the only market where the five Fiat Auto brands - Fiat, Alfa Romeo, Ferrari, Masserati and Lancia - are sold under one umbrella.

    Tofaş was named Fiat Group's most successful production center in 2007, reaching bronze level in the “World Class Manufacturing” project.

    With the new models launched in 2007, Tofaş attained an exhaustive brand and product range - one that covers all customer segments.

    “International Van of the Year 2008”: Fiat Scudo
    Fiat Scudo, launched in October 2007, was chosen by an international panel of automotive journalists as “International Van of the Year 2008”.
     
    In 2008 Tofaş will launch two models in the passenger car segment; Bravo and “500” which was selected the “Car of the Year 2008”.

    Koç Fiat Kredi
    Koç Fiat Kredi was established with the purpose of providing financial solutions to the five Fiat brands under the Tofaş umbrella. The company achieved successful results in 2007, even though it was a year of investment and growth.

    The company issued 13,708 loans, and during the second half of 2007, it financed almost 50% of Tofaş's loan-based sales.

    Bronze level in the “World Class Manufacturing” project
    Tofaş has been pioneering continuous efficiency improvements since 1984,
    and was chosen as Fiat Group's most successful production center in 2007, reaching bronze level in the “World Class Manufacturing” project.

    First automotive company in Turkey to receive IIP certificate
    In 2007, Tofaş received the “Investors in People” (IIP) certificate, which is the first and only human resources quality standard in the world, awarded to companies investing in human resources; and became the first automotive company in Turkey to receive IIP certification.

    Tofaş's achievement is a first for Koç Group, as well as for Fiat Group.

    2008 and beyond
    With exports that will reach USD3 billion and a production capacity that will be increased to 450,000 units in 2008, Tofaş' ultimate goal is to become one of Fiat's leading R&D centers by 2010.

    Tofaş celebrates its 40th anniversary in 2008, and with its workforce that will exceed 9,000 employees, it will continue to be Turkey's pioneering automotive company.

    Quoted from 2007 Annual Report

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