Stern Stewart Company came up with the concept of EVA ...

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GROUP 3

Finance 4360

MWF 1:00 pm

Chris Casey

Mark Childs

Ian Coy

Courtney Criswell

Jarrod Maddox

Brant Taylor

TABLE OF CONTENTS

Executive Summary 3

Introduction 4

Recommendation 1: EVA Management Bonus 4

Recommendation 2: Investment in Heavy Truck Line 6

Recommendation 3: Global Asset Expansion 10

Recommendation 4: License Technology to Other Manufactures 11

Conclusion 12

Appendix A: Overview of the Company 13

Appendix B: Dana Corporation Form 10k 16

Appendix C: Inventory and Liquidity Ratios 21

Appendix D: Works Cited 22

Executive Summary

Dana Corporation is an international auto parts dealer. The company manufactures and sells extensively in North America, South America, Europe, and Asia. It produces original equipment and after market equipment for lightweight and heavy vehicles. Since 1998, the company has lost 87 percent of its stock value. Following the trend of some of its competitors in the industry, Dana Corporation filed for bankruptcy early in 2006. The company realizes that it is in distress and filed at restructuring plan in October of 2005.

Our team has gone over Dana’s Form 10k and other data that talk about their restructuring plans. We recognize that they are trying to sell off non-core assets such as their Engine Hard Parts, Fluid-Handling systems, and Pumps. Although these divisions may bring a billion dollars of cash to the company, more must be done (Berman).

We are recommending an overall change of how the company interacts with its shareholders and management. We are recommending that Dana Corporation install an EVA management bonus plan. We believe that this will set the stage for turning the company around. Align the interests of management with that of the shareholders and then the company will start making improvements in its positioning. The EVA bonus does this by making the manager want to increase the wealth creation of what he or she is in charge of. Create more wealth for the company, and the managers will create more wealth for themselves.

Once an EVA incentive plan has been established, management will be in a position to turn the company around. The first area in which the company can improve upon is the Heavy Truck line. This industry is actually booming unlike the rest of the automotive industry (Truck and Bus Bodies). We have picked out a clear strategy that any manager facing an EVA incentive would want to pick. Invest in Supply Chain Management software. This will decrease cost and increase profit. This will alleviate inventory congestion and save on storage costs as well. Second, the company can improve in the area of global asset expansion. Forty Four percent of the corporation’s sales are to GM, Ford, and Chrysler (Appendix B). An EVA based manager would want to build plants and other physical assets over seas to help reduce costs, and to help garner further market share with foreign customers.

We have also recommended that Dana sell some of its internally developed technologies and processes. This can be a great place to receive extra cash for operating expenses and development of other positive EVA projects.

In Summary, we believe that Dana Corporation is not a lost cause. We believe that much of its financial troubles can be fixed with the right mix of incentives and division improvements. However, not every part of Dana can be saved. With 44 percent of their sales in 3 failing customers (hopefully that number will become much less after global asset expansion practices), the company cannot help but take a loss in that area. Our proposals are to lift Dana up from its current situation and help hedge against any future losses resulting from sales to the auto makers in Detroit.

Introduction

Dana Corporation is in financial trouble. Stock prices are falling and Chapter 11 bankruptcy protection has already occurred. Our team is evaluating the current situation of Dana. As a finance team, we have done research and found 4 actions that the upper management and board of Dana could possibly pursue. If they were to follow our direction, we believe that Dana Corp. could turn its self around and return to normal operating status over the next few years.

Recommendation 1: EVA Management Bonus

One problem with Dana Corporation is its ability to keep upper management. Either management is not happy with current conditions such as pay and atmosphere, or the company is not happy with management’s performance. When either of these two situations occurs it means that the firm and the shareholders are not realizing as much value as they could. In order to solve this problem, Dana Corporation would be best off setting up an incentive program with managers based on EVA.

Stern Stewart Company came up with the concept of EVA, which means Economic Value Added. It’s a mathematical way to determine if a project will produce long term capital above its cost. It also determines if a division or whole company is adding economic value from year to year (The EVA Revolution). EVA measures a firm’s performance by taking into account the Time Value of Money, economic cash-flows, and risk. When looking at implementing a new project or the effectiveness of a certain division, EVA will tell the firm whether or not the actions it is taking are worth while. If EVA is calculated and the results are negative, then the company should stop that action.

An EVA bonus plan is a way for the board to induce management to work for long run objectives or, in other words, to work for positive EVA (The EVA Revolution). The higher a certain project or a division’s EVA is, the higher the bonus will be for the lead manager. The higher a manager’s EVA bonus is, the more money he will earn. “It also gives managers a reason to work long hours to minimize the carnage in a business downturn (The EVA Revolution).” This means that when management is happy the shareholders are happy as well.

EVA bonus can help focus a company’s efforts in various fields depending on where the EVA bonus is applied. Assume there are two managers in charge of managing a new plant, for either Firm A or Firm B. The manager of firm A is on an annual bonus program that is based on percentage of sales. The manager of firm B is part of an EVA incentive bonus program. Manager A will manage the new plant, but due to his bonus system, he will only be considering the short run benefits, which means he might overlook certain cost saving measures. But because he is on an annual incentive program, the firm will still give him his annual bonus as usual. Manager B, under the EVA bonus incentive program, will not overlook these cost saving measures. This is because his bonus program occurs at the end of the accounting period and will take into account the plants actual performance. If the performance creates positive EVA for the firm his bonus will be higher than usual, however if the EVA of the firm falls, then it will result in his receiving a smaller bonus if any at all. By using these cost saving measures, his plant will perform better and he will realize a bigger bonus. This ties his personal management performance to the amount of money he receives.

This example shows why a firm would want to use an EVA bonus program. This incentive ties management’s goals for more cash to the firm’s goals of higher EVA and performance. This aligns the interests of the two parties and allows both groups to realize a gain.

Dana would benefit from the implementing an EVA bonus system. At this moment, Dana is in bankruptcy and they are struggling. They may not know what resources to allocate to different divisions and projects. Because of this lack of information and planning, they may be needlessly spending money where it could be better used elsewhere. An EVA analysis of their division’s performance would allow for the clarification necessary to start making the right decisions at the corporate level. Once these decisions are implemented throughout the company, the firm can help enforce the decisions by offering an EVA incentive bonus to all managers. By tying the bonus size of the managers to Dana’s goals, Dana will realize a gain as managers trim down unnecessary expenditures and increase positive EVA projects.

Obviously it may not be practical to implement the EVA bonus program to all divisions if those divisions are the ones that are incurring a loss at the moment (such as product departments to GM and Ford). However, by allotting resources to divisions that have untapped potential and focusing those managers into making economically profitable and viable decisions, Dana has the potential to realize substantial gains where they may be currently overlooked. A few areas in which Dana should implement the EVA management bonus strategy are in the Heavy Truck Line and Global Asset Expansion.

Recommendation 2: Investment in Heavy Truck Line

Dana’s core competency is designing and manufacturing axle, driveshaft, engine, chassis, and transmission and frame technologies for light vehicles and commercial trucks (Appendix A). The commercial truck industry has shown strong growth as opposed to the declining sales of Dana’s major customers in the light vehicle industry, Ford and General. Though the commercial truck industry has been thriving, Dana has not obtained full benefit from increased heavy vehicle sales. This has made the company more dependent on struggling U.S. light vehicle manufacturers. We believe that a manager who is concerned with his EVA bonus should concentrate on investing in improvements in the commercial truck division which is discussed below. This will result in lower costs and greater efficiency thus increasing EVA for the company.

Recent trends in the U.S. automotive industry have proved to be a major cause of Dana’s decline (Laughlin). The company obtains 36% of its annual sales from General Motors (11%) and Ford (25%), both of whom are experiencing a decline in both market share and sales. Sales of cars and light trucks fell 2.6% for GM and 4.2% for Ford in the month of February alone. In addition, in between February 2005 and February 2006, market share dropped for both GM (24.4% to 23.6%) and Ford (20.2% to 19.2%) (Chon). Declining vehicle sales for GM and Ford has decreased the demand for parts and ultimately led to a decrease in Dana’s revenue from the light vehicle group. On the other hand, sales of medium and heavy trucks (for which Dana supplies axles, drive shafts, suspensions and trailer systems) increased 25% in the first two months of 2005. One type of heavy truck, the Class 8, has had a 52% year to date increase. The growth in this industry is expected to continue throughout 2006 (Truck and Bus Bodies).

Recently, however; Dana has failed to take advantage of increases in demand for commercial vehicles. The main cause has been attributed to troubles in Dana’s supply chain because of a switch from making smaller components in house, to implementing a supply chain in which they are a final assembler of larger components. As a result, Dana has had difficulty managing its suppliers efficiently. In reference to problems in the commercial truck sector, a Dana spokesperson admitted the need to “better optimize our supply chain (Kosdrosky).”

We propose that Dana invest in IBM supply chain management software to help improve the flow of information and materials between Dana, its customers, and its suppliers. Supply chain management systems allow businesses to improve delivery of products, increase productivity at lower costs and reduce inventory throughout the chain of suppliers (Supply Chain Management DOD). Dana would also see improvements in liquidity through reductions in inventory, the least liquid of all current assets. One analyst wrote, “Although Dana’s liquidity appears adequate over the next term, we could see liquidity becoming an issue by year end 2006” (Kosdrosky). Dana has the opportunity to reduce costs by maximizing the effectiveness of their supply chain.

By investing in IBM supply chain management software, Dana can implement systems that will alleviate these problems with their suppliers, increase their liquidity, and increase the overall efficiency of the company. IBM offers software packages such as Ariba, Aspen Technologies, i2 Technologies, and QAD. These software packages can specifically help Dana improve the flow of information to and from suppliers, which communicates and aligns the goals of all organizations involved in the supply chain. This creates efficiency by reducing inventory and production costs, improving implementation time and reducing risk (Supply Chain Management SCM).

Inventory is held by a company in order to manage differences in supply and demand and is necessary in virtually all businesses. However; inventory represents a great deal of cost for companies because of the expenses required to transport and store finished or in-process goods. There are two different ways in which to manage inventory, effectively and efficiently. Effective inventory management requires for holding large amounts of inventory in numerous storage locations in order to have the capacity to meet demand at all times. On the other hand, efficient inventory management calls for maintaining low levels of inventory in a small number of strategic locations, which reduces transportation and warehousing costs (Haag). A ratio that displays Dana’s need for more efficient inventory management is the inventory turnover ratio (Cost of Goods Sold/Inventory). This shows efficiency by displaying how many times a firm turns over, or sells its inventory. In 2004, Dana’s inventory turnover ratio of 10.3 was well below the 11.8 industry average (Appendix C). This shows that currently Dana is not managing its inventory as efficiently as the average industry competitor. If Dana is able to develop relationships with their suppliers that promote an efficient supply chain, there will be an increase in profitability through a lower cost structure. The main problem associated with low inventory is “stock-outs”. Stock-outs occur when there is insufficient inventory on hand to meet to the demands of customers. If managed correctly, this problem can be kept to a minimum.

In addition to lowering costs for Dana, reduced inventory levels will improve the firm’s liquidity. Liquidity indicates a firm’s ability to pay current debt with current assets, and reducing inventory will improve Dana’s quick ratio. In 2004, Dana’s quick ratio [(Current Assets-Inventory)/ (Current Liabilities)] was 0.5, which is almost half that of the industry average of 0.9 (Appendix C). Dana’s quick ratio is well below that of the industry average, which could represent a liquidity problem for Dana. Reducing inventory is a way to combat this problem. Improving the quick ratio shows an increasing ability to meet upcoming debt obligations, which is vital for Dana while it is in Chapter 11 bankruptcy. Because of the rising energy, steel and raw material costs in the automotive parts industry (Kosdrosky); we believe that Dana would benefit greatly from reduced inventory through efficient inventory management.

The costs associated with supply chain management for some businesses can be up to 75% of their operating budget (Supply Chain Management DOD). Because Dana already has an established supply chain, we are only recommending improvements on the current system; therefore costs will be significantly less than implementing an entirely new supply chain. The main costs associated with our proposal include consulting and software fees from IBM as well as implementation fees throughout the supply chain. By implementing these improvements in the supply chain of the commercial truck division, Dana will have continued cost savings. This will allow them to perform one of their core competencies at a lower cost, resulting in increasing EVA and profitability.

Recommendation 3: Increase global asset expansion

Another way for Dana Corporation to increase their EVA is to increase global assets. Managers in charge of Global assets should be given an EVA incentive plan to help align their interests to the company’s interest. If this plan is put in place, then managers would make key decisions which are discussed next.

Global expansion of production facilities and sales will be one of the best ways for Dana to create wealth. With 60% of Dana’s sales invested in the light-duty parts, the company considers this to be their strong point (Appendix B). Dana’s 2004 10K shows sales in the Asia/Pacific region and South America region are growing tremendously, while the US sales are only growing slightly. There was a 40% increase in sales with in South America and also a 17% increase in Asia/Pacific over 2004 (Appendix B). These increases illustrate the need for Dana to expand their operations more globally, specifically the Asia/Pacific region and the South America region. Dana’s 10-K also mentions how 44% of their sales come from GM, Ford and Chrysler. Well while GM’s North American division is struggling, their international productions are actually profitable (Appendix B). For example Daewoo, a Korean carmaker that is a part of GM, is doing quite well (Global Operations). Dana should attempt to set up a deal with GM and Daewoo to become their parts supplier. This deal would allow Dana to expand on a more global basis, and it would be less risky since GM and Daewoo are already setup and established in Korea. If Dana would invest some of their profit from selling off some of their non-core assets, all they would need to spend money on is building production facilities. Dana could increase their sales and decrease some of their risk and both of these factors affect EVA. Both of these would help to increase Dana’s EVA which in turn will help them become a more profitable company that people will be willing to invest in. South America is also a region that Dana needs to be looking to expand into. South American business is not booming as much as the Asia/Pacific region has been in the last several years, but it is heading in that direction (Appendix B). Parts of Dana’s troubles are that they have not invested in projects at the right time. They have missed several opportunities when it comes to the heavy duty industry, and once the market becomes developed, entry becomes exponentially more expensive and difficult. If Dana would invest money into building and supplying the South American divisions, they could be trendsetters instead of lagging behind the competition. One of Dana’s strategic goals is to have 50% of sales be global by 2009. It is 2006 and global sales are only 35% of their total sales (Appendix B). If they are looking to meet this goal they must start investing and building plants and relationships with companies so they can increase global assets and sales.

Recommendation 4: License Technology to Other Manufacturers

Dana Corporation has key assets and processes that it could use to help stabilize the company. Even with all of the troubling issues that have been plaguing Dana, they still have been developing different types of technology to help them in the future. A way that Dana could use this new development to its advantage is to sell some of their ideas and techniques to other manufacturers.

Manufacturing plants today are constantly looking for ways to produce their products faster and still have great quality. Dana has developed several technologies that could be of some interest to manufacturing companies. For instance, they have created Atmoplas which is a thermal processing technique that is fast and efficient, and it is cost-effective (Dana Atmoplas). This technique’s use is not limited to the auto industry. Dana should license this technique to other manufacturing companies to create new wealth.

This is a safe project which is sure to increase EVA for Dana. The Atmoplas technique already exists so they will not be divesting money away from other divisions for research. They would not need to invest in manufacturing products that aren’t automotive related. They would just have to sell the license to another company who would buy the process from Dana. They would be increasing their assets and keep shareholders happy.

Conclusion

Dana Corporation is a company facing many problems. However, by implementing an EVA bonus system, expanding into global markets, investing in improvements in the heavy truck line, and licensing new technology to other businesses, we feel they have a chance to once again become profitable.

Appendix A: Overview of Company and Industry

In 1946 Dana Corporation was born out of Spicer manufacturing Company. Since that time Dana has become a leading producer in the vehicle and industrial products manufacturing area. Dana Corporation also became a leading distributor to the auto industry (Dana Corporation Company History).

Dana is a very large, “behind-the-scenes” supplier for the auto industry. “They have 430 manufacturing and distribution facilities in 27 countries around the world (Dana Corporation Company History).” Dana Corporation is broken down into 4 different geographic operations centers: North America, South America, Europe, and Asia (Dana Corporation Company History). Throughout these centers, they employ close to 46,000 individuals. Before 2004 when the company started falling into financial distress, Dana Corporation had 63 global, principle subsidiaries (Dana Corporation Company Profile).

Dana uses its skills manufacturing parts for lightweight vehicles, industrial vehicles, and off-highway vehicles. Some of its products for lightweight vehicles include axles, driveshafts, transmissions, thermal management systems, chassis modules, steering and suspension parts, and other various engine products. Dana also produces additional structural products such as engine cradles, side rails, full-perimeter frames, and space frames. For their commercial vehicle line, they offer the same parts as listed above, as well as brakes and superior axel and drive shafts technology (Dana Corporation Commercial Vehicles).

Dana Corporations off-highway products are known by the name Spicer. Their off-highway product line is one of the most renowned in the world. Spicer manufactures the following parts: “single-reduction drive and non-drive axles, steering and rigid planetary axles, transaxles, driveshafts, transfer cases and gearboxes, powershift transmissions, torque converters, brakes, and electronic controls (Dana corporation Off-Highway Vehicles).”

Michael J Burns is the current Chief Executive Officer, President, and Chairman of the Board of Dana Corporation. As of December 31, 2004 (As of now, the company has not put out their 2005 form 10-k), Dana had sales revenue of 8.9 billion dollars (Dana Corporation Company Profile). This put them as the 7th largest auto parts manufacturer in the nation just behind Delphi Corp, Visteon Corp, and Magna International Inc (Troy pg 472). However, since 2004, the auto industry has been experiencing a declining market with an atmosphere of bankruptcy.

Dana and its competitors are straining to stay alive. Dana has become the fifth auto parts manufacturer and supplier to go bankrupt in the last year (McCracken pg1). This is due for several reasons. The U.S. auto parts industry relies heavily on 3 main customers. These customers; GM, Ford, DaimlerChrysler, are now in trouble. From 2001-2003, the auto makers were offering very cheap automobiles in order to keep sales going. But, “by 2004 U.S. auto production had fallen to 16.9 million units, and automakers–also working with very narrow margins and looking to keep production prices as low as possible–continued to demand price concessions from their suppliers (Motor Vehicle Parts and Accessories).” At the same time, the industry has been experiencing higher raw product costs and increasing labor prices (McCracken pg1). The decrease in demand, the increase in variable cost, and the dependency of US auto part manufacturers on Ford, GM, and Daimler Chrysler, have put so much financial stress on the industry that companies are starting to break.

There are many key players in the North American auto part supplier industry. Delphi Corporation, Visteon Corporation, Magna International Incorporated, Johnson Controls Incorporated, Lear Corporation, Robert Bosch Corporation and Dana corporation are just a few of the companies that currently compete in the auto parts manufacturing supplying industry. (Troy pg 472) Most of Dana’s competitors are facing the same industry down-turns as they are currently experiencing. In fact, Delphi Corporation, Tower Automotive, Collins & Aikman, Meridian Automotive Systems, and Eagle Picher Incorporated have already filed for chapter 11 bankruptcy protection.

Appendix B: Dana Corporation Form 10k

Item 2 – Properties

     As shown in the following table, at December 31, 2004, our continuing operations had 254 manufacturing, distribution, sales branches and office facilities worldwide. We own the majority of our manufacturing and larger distribution facilities. We lease certain manufacturing facilities and most of our smaller distribution outlets, sales branches and offices.

Dana Facilities by Geographic Region

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     North American light-duty production levels have been relatively stable over the past few years. A significant development in this market since 2001 has been the increased use of incentives by our customers to stimulate and maintain demand levels, although recent trends have suggested that incentives may be having less of an impact on consumer demand. Dealer inventories of light vehicles at the end of 2004 were somewhat higher than normal for December. As such, overall market indicators point to a relatively flat 2005 in both North America and Europe.

     A challenge that we and others in the light vehicle market face is the continued price reduction pressure from our customers. Our largest customers in this market – the U.S.-based original equipment manufacturers – have experienced market share loss to other international light vehicle manufacturers over the past few years, thereby adding pressure on their profitability. To the extent that this trend continues, we expect the price reduction demands on us to continue. Our restructuring, divestitures and outsourcing initiatives have helped position us for this increasingly competitive landscape. Ongoing cost reduction programs, like our lean manufacturing and Six Sigma Black Belt programs, will continue to be important to sustaining and improving our margins.

     The commercial vehicle market hit the bottom of its business cycle in 2001 and has rebounded during the past three years. Orders in both the medium- and heavy-duty North American markets have been strong, outpacing production and pushing the unfilled order backlog higher. The fundamentals in this market point to a strong 2005.

     In our other markets – off-highway, European commercial vehicles and light vehicles in the Asia Pacific and South American regions – we expect either stable or improving production demand in 2005.

Results of Operations (2004 versus 2003)

     We are organized into two market-focused business units — Automotive Systems Group (ASG) and the Heavy Vehicle Technologies and Systems Group (HVTSG). In 2004, we combined the operations of the Engine and Fluid Management Group (EFMG) with the existing ASG unit. Our segment reporting for all periods has been restated to reflect this change. As a result, our segments are ASG, HVTSG and Dana Credit Corporation (DCC).

     Sales of our continuing operations by region for 2004 and 2003 were as follows:

Geographical Sales Analysis

  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |Amount of Change Due To |  | |  |  |  |  |  |  |  |  |  |  |Change |  |  |Currency |  |  |Acquisitions/ |  |  |Organic |  | |  |  |2004 |  |  |2003 |  |  |Amount |  |  |Percent |  |  |Effects |  |  |Divestitures |  |  |Change |  | |North America |  |$ |6,010 |  |  |$ |5,473 |  |  |$ |537 |  |  |  |10 |% |  |$ |53 |  |  |$ |— |  |  |$ |484 |  | | |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | |Europe |  |  |1,775 |  |  |  |1,455 |  |  |  |320 |  |  |  |22 |% |  |  |160 |  |  |  |(6 |) |  |  |166 |  | | |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | |South America |  |  |626 |  |  |  |441 |  |  |  |185 |  |  |  |42 |% |  |  |27 |  |  |  |— |  |  |  |158 |  | | |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | |Asia Pacific |  |  |645 |  |  |  |549 |  |  |  |96 |  |  |  |17 |% |  |  |56 |  |  |  |(8 |) |  |  |48 |  | |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | |  |  |$ |9,056 |  |  |$ |7,918 |  |  |$ |1,138 |  |  |  |14 |% |  |$ |296 |  |  |$ |(14 |) |  |$ |856 |  | |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | |     The strengthening of certain international currencies against the U.S. dollar played a significant role in increasing our sales in 2004. In North America, the stronger Canadian dollar was the primary factor. In Europe, the euro and the British pound strengthened, while in Asia Pacific the increase was led by the Australian dollar.

     Overall light vehicle production in North America was flat compared to 2003. In commercial vehicles and off-highway, however, the North American markets were up significantly — 46% in Class 8 trucks, 18% in medium duty class 5-7 trucks and 16% in off-highway vehicles. The higher production levels in these markets along with new business coming on stream in ASG produced the 9% organic sales increase in North America.

     In Europe, the organic sales increase of 11% resulted primarily from new off-highway business in HVTSG and new ASG business. Slightly stronger light vehicle production also contributed to the increase. In South America, the organic increase was due to stronger light vehicle production results and new ASG business. The organic sales growth in Asia Pacific was primarily due to overall higher production levels in the region.

     Sales by segment for 2004 and 2003 are presented in the following table. DCC did not record sales in either year. The “Other” category in the table represents facilities that have been closed or sold and operations not assigned to the other business units, but excludes discontinued operations.

Results of Operations (2003 versus 2002)

     Sales of our continuing operations by region for 2003 and 2002 were as follows:

Geographical Sales Analysis

  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |Amount of Change Due To |  | |  |  |  |  |  |  |  |  |  |  |Change |  |  |Currency |  |  |Acquisitions/ |  |  |Organic |  | | |  |2003 |  |  |2002 |  |  |Amount |  |  |Percent |  |  |Effects |  |  |Divestitures |  |  |Change |  | |North America |  |$ |5,473 |  |  |$ |5,516 |  |  |$ |(43 |) |  |  |(1 |)% |  |$ |69 |  |  |$ |— |  |  |$ |(112 |) | | |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | |Europe |  |  |1,455 |  |  |  |1,233 |  |  |  |222 |  |  |  |18 |% |  |  |222 |  |  |  |2 |  |  |  |(2 |) | | |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | |South America |  |  |441 |  |  |  |361 |  |  |  |80 |  |  |  |22 |% |  |  |(5 |) |  |  |— |  |  |  |85 |  | | |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | |Asia Pacific |  |  |549 |  |  |  |391 |  |  |  |158 |  |  |  |40 |% |  |  |66 |  |  |  |(15 |) |  |  |107 |  | |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | |  |  |$ |7,918 |  |  |$ |7,501 |  |  |$ |417 |  |  |  |6 |% |  |$ |352 |  |  |$ |(13 |) |  |$ |78 |  | |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | |     The strengthening of certain international currencies against the U.S. dollar played a significant role in increasing our sales in 2003. In North America, the stronger Canadian dollar was the primary factor. In Europe, the euro and the British pound strengthened, while in Asia Pacific the increase was primarily attributable to the Australian dollar.

     Overall light vehicle production in North America declined from 16.4 million vehicles in 2002 to 15.9 million vehicles in 2003. This 3% reduction in light duty production was the primary factor in the year-over-year organic decline in our North American sales (organic change being the residual change after excluding the effects of acquisitions, divestitures and currency movements). The Class 8 commercial vehicle market in North America also experienced a slight drop in production – 176,000 units in 2003 versus 181,000 units in 2002. Lower sales due to these declines in production levels were partially offset by higher sales from net new business gains in each of our manufacturing SBUs.

     Elsewhere in the world, overall light vehicle production demands in Europe and South America were comparable in 2002 and 2003, while 2003 production in the Asia Pacific region was higher. The organic sales growth in South America and Asia Pacific relates primarily to net new business gains in the light vehicle market by ASG.

(Dana Corporation 2004 10-K)

Appendix C: Inventory and Liquidity Ratios

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Works Cited

Berman, Dennis K., and Karen Lundegaard. "Dana Begins Working with a Restructuring

Advisor." Wall Street Journal 24 Feb. 2006. 20 Mar. 2006 .

Chon, Gina. "GM and Ford Miss Out on Gain in U.S. Car Sales; Detroit Duo Lose Share to Asian, European Rivals and Plan to Cut Production." Wall Street Journal 2 Mar. 2006, Eastern ed., sec. A.3. Proquest. 4 Apr. 2006.

Dana Atmoplas Microwave Technology. 02 Apr. 2006 .

Dana Corporation 2004 10-K. Securities and Exchanges Commission. 2005. 2 Apr. 2006

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