Title: Global Automotive
1Global Automotive
2Presenter
- Industry----Frank
- GM----Raymond
- Toyota----Angela
- Volvo---Lillian
3Global Auto Sales
4The growing importance of Emerging Market
5Surprise! Surprise!
- QUICK EXPANSION
- The production for the next 20 years will be more
than whats been made for the entire 110 years of
auto industry history - BRIC, especially China has been, and will be the
major driving force of global Auto industry - Expected to replace Japan as the second largest
market
6Continuous Growth in Global Automobile Industry
- Global Vehicle Ownership Estimation Over 1
billion units in 2010
7Major Countries
Click here
8Major Manufactures
9Major Manufacturer operating Margin
10Excess production capacity-NA
11Industry Characteristics---Major Cost
- Labour Pension plans
- N.A companies face a large amount of pension
cost----approx. 1500 per vehicle - Jap companies have none pension cost
- Material
- Hundreds of pieces purchased from suppliers
- Automakers absorb only part of the increase in
material cost - Advertising
12Cost Breakdown---Typical American
13Cost Breakdown---Typical American
14Industry Characteristics---Sales cycle
- Highly sensitive to aggregate economic
performance - U.S economy will slow down from 3.2 GDP growth
to about 2 - The effect of democratic victory in congress??
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16Industry characteristics---M/A, Alliance
- Technology, R/D
- Market penetration
- Global cooperation
17Industry characteristics---M/A, Alliance
- GM---200 Garage Car makers in early
days - ---SAAB, Daewoo
- ---Isuzu, Subaru, Suzuki
- Ford---Jaguar, Land Rover, Volvo,
- ----Mazda
- Benz---Chrysler
- Renault---Nissan
18Porters Five Forces
19Threat of New entrants
- Emergence of foreign competitors with Capital,
technology and management skills - Chinese India brands within their own countries
20Suppliers
- Had little power before
- Been hit hard in Major Automaker cost cutting
- Globalization
- merger and acquisition
- Increased tension b/w suppliers and Automakers
21Supply Chain (traditional)
Tier 3 Raw Material
Tier 2 Small parts
Tier 1 components
OEM Design assemble
22Supply Chain (emerging)
Raw Material Supplier
Global StandardizedSystems Manufacturer
Component specialist
Systems Integrator
23Merger of suppliers
24Outsourcing production---to more suppliers
Percent of Car Value outsourced
25--Cost cutting requirement of Automakers
Suppliers
26Suppler (cont)
- A major suppler Collins Aikman halted delivery
to Ford on Oct 19th - Caused temporary shut down of one of the biggest
assembly line of Ford - Foreseeable---
27One of the largest supplier Dana has been added
to the list (April 2006)
28Substitutes
- Public transportation on the rise
29Rivalry
- Fierce competition
- High competition cost
- Low return
- Historically avoid price competition
- More and More price competition
30Buyers
- Historically, the automaker power went
unchallenged - As the market saturate, more options made
available, buyers have significant amount of
power
31Increasing Models and Decreasing Scale, US Market
32Regulation
- Regulations
- Emission standard
- Safety standard
33- European Union ACEA agreement seeks 25
reduction in vehicle CO2 emissions levels by 2008
(from 1995 levels). Agreement may be extended an
additional 10 by 2012. - Japan requires 23 reduction in vehicle CO2
emissions by 2010 (from 1995 levels). - Australia voluntary commitment to improve fuel
economy by 18 by 2010. - Canada has proposed a 25 improvement in fuel
economy by 2010. - China Introduced new fuel economy standards in
2004 weight-based standards to be introduced in
2 phases (2005 and 2008). - California CARB approved GHG emissions
reductions for automobiles, currently under
legislative review. - New York Clean Cars Bill proposing to follow
California standards is currently in committee.
Several other NE states have indicated they will
follow CAs lead.
34Comparison of Fuel Economy and GHG Emission
Standards
An and Sauer, 2004 for the Pew Center on Global
Climate Change
35Aggregate Value ExposureEstimated cost per
vehicle to meet most likely carbon constraint
scenarios in US, EU and Japan
8
25x difference in Value Exposure across the
industry
36Management Capacity for Low-Carbon Technologies
Measure of OEMs capacity to develop and
commercialize main low-carbon technologies
hybrids, diesels fuel cells
9
37In addition
- Political issues
- Trade barrier
- tariff
- Energy crisis
- OPEC
- Political Natural reasons
- Technology development
- Hybrid, Fuel cells, Hydrogen, Electronic,
ethanol. Etc - System feature design
38Key success factors
- Pension fund management
- How well the company digest whats been eaten
- Supplier relationship management
- Risk management (i.e. exchange exposure risk,
commodity price risk) - design, marketing of new models
- New technology development
39General Motors
- Symbol GM
- Exchange(s) NYSE
- Industry Consumer Products (Automotive)
40As of Nov 7, 2006
- Dividends Per Share 1.00
- Number of Shares 565,610,000
411 Year Chart
4230 increase within 1 year
435 Year Chart
4420 decrease within 5 years
45Company Profile
- The world's largest automaker
- has been the global industry sales leader for 75
years - employs about 327,000 people around the world
- manufactures its cars and trucks in 33 countries
- Engaged in automotive production and marketing
and financing and insurance operations - largest operating presence in North America
46EXECUTIVE PROFILES
- G. Richard Wagoner, Jr.GM Chairman Chief
Executive Officer - Since June 2000
- BA in economics from Duke University
- MBA from Harvard Business School
- Frederick (Fritz) A. HendersonGM Vice Chairman
and Chief Financial Officer - BBA from the University of Michigan
- MBA from Harvard Business School
- Robert A. LutzGM Vice Chairman, Global Product
Development - BA in production management from the University
of California-Berkeley - MBA from the University of California-Berkeley
- degree of doctor of management from Kettering
University
47Brands
- Buick
- Cadillac
- Chevrolet
- Fleet Commercial Operations
- Holden
- Vauxhall
- GMC
- GM Daewoo
- HUMMER
- Pontiac
- Saturn
- Saab
- Opel
48GMAC Financial Services
- A finance company
- offers automotive, residential and commercial
financing and insurance
49GM's OnStar subsidiary
- a provider of vehicle safety, security and
information services - use (GPS) satellite and cellular technology to
link the vehicle and driver to the OnStar Center - advisors offer real-time, personalized help 24
hours a day, 365 days a year
50Global Partnerships
- majority shareholder in GM Daewoo Auto
Technology Co. of South Korea - Product, powertrain and purchasing collaborations
with Suzuki Motor Corp. and Isuzu Motors Ltd. of
Japan - Advanced technology collaborations with
- DaimlerChrysler AG
- BMW AG of Germany
- Toyota Motor Corp. of Japan
- Vehicle manufacturing ventures with
- Toyota
- Suzuki
- Shanghai Automotive Industry Corp. of China
- AVTOVAZ of Russia
- Renault SA of France
51Market
- GM's largest national market is the United
States, followed by China, Canada, the United
Kingdom and Germany
52GM in 2005
- One of the most difficult years
- Reported loss of 10.6 B
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54- The size of GMs 2005 loss, most of which related
to its North American operations
55Global Sales
- GM had its second highest sales volume globally
last year, with nearly 9.2 million vehicles sold - More than half of GMs sales globally came
OUTSIDE the United States - In the Asia Pacific region, GM sold more than 1
million vehicles - GM became the No. 1 car manufacturer in China
along with their joint venture partner - Significant growth in Latin America, Africa and
the Middle East region, with sales up 20 percent - Eighth consecutive year of sales leadership in
region such as Chile, Ecuador, Venezuela, South
Africa and the Middle East - GM Europe cut its losses significantly
56GM Production Schedule
57GM Car Deliveries
58Challenges and Weakness
- Due to
- huge legacy cost burden
- inability to adjust structural costs in line with
falling revenue - global overcapacity
- falling prices
- rising health-care costs
- higher fuel prices
- reducing demand for some of the highest-profit
product - global competition
- international exchange rates tend to help
Japanese and Korean imports
59- Rising retiree health care costs and Other Post
Employment Benefit (OPEB) fund deficit prompted
the company to enact a broad restructuring plan - For every active GM employee in the United States
last year, GM supported 3.2 retirees and
surviving spouses - GMs health-care bill in 2005 5.3B
60Financial Burden - Health care and pensions.
-
- Number of U.S. retirees and surviving spouses
who received pension plan benefits - Est. number of U.S. employees, dependents,
retirees and surviving spouses covered by health
benefits
61Delphi Chapter 11 proceedings
- Delphi is an automotive parts company spun-off
from GM - GM recorded a charge of 5.5 billion (3.6
billion after tax) as an estimate of contingent
exposures relating to the Chapter 11 filing of
Delphi Corporation - GM receiving only a portion of amounts owed by
Delphi to GM - obligations in excess of amounts recognized by GM
in 2005 in connection with benefit guarantees
62Consolidated Results
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64GM North America
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66GM North America
- The loss due to
- declines in sales of higher margin large cars
- Unfavorable material costs
- Increased health-care expenses
- Advertising and sales promotion cost increases
- restructuring charge
67GM Europe
68GM Europe
- In February 2005, GM successfully bought itself
out of a put option with Fiat for 2 billion USD - Restructuring charges
- negative pricing
- unfavorable exchange rates
- Pricing declines
69GM LATIN AMERICA/AFRICA/MID-EAST
70GM LATIN AMERICA/AFRICA/MID-EAST
- significant industry growth in 2005
- 19 increase in vehicle unit sales
- net sales and revenues improved by approximately
34 - Lost due to
- quarter impairment charges of 99 million for
assets - A full valuation allowance charge
71GM Asia Pacific
72GM Asia Pacific
- General Motors is the top-selling foreign auto
maker in China - unit sales in the Asia Pacific region increased
approximately 6.3 - the fastest growing automotive region
- Unit sales increase by 20
- Lost due to
- Write-down of GMs investment in FHI (Fuji Heavy
Industries ) - asset impairment charges
- restructuring activities
- Continue to take advantage of the strong position
and growth in China, leverage its capabilities at
GM Daewoo, and execute the turnaround at GMs
Holden unit
73GMAC
74GMAC
- goodwill impairment charges
- lower net interest margins
75North America Turnaround Plan
- Four-point turnaround plan
- Keep raising the bar in the execution of great
cars and trucks - Revitalize sales and marketing strategy.
- Significantly improve cost competitiveness
- Address health-care and pension legacy cost
burden.
76Turnaround Plan Plant and labor reduction
- cease production at 12 U.S. plants by 2008
- reduce manufacturing workforce by 30,000
positions (cumulative reduction to 38 percent ) - reduce our retiree health-care obligations by
about 15 billion - cap the companys contribution to salaried
retiree health-care costs - modify pension benefits for salaried and
executive employees - reduced salaries of our top executives
- reduced our dividend by 50 percent
- Expected to result in annual cost reductions
totaling 7 billion
77Consolidated Balance Sheets - Assets
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78Consolidated Balance Sheets Liabilities and
Stockholders Equity
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81Available Liquidity
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82Cash flows from continuing operating activities
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83Cash flow from continuing financing activities
84Q3 financial Highlights
852006 Q3 Highlights
- Record Q3 revenue of 48.8B
- Adjusted EPS 0.93
- 529 million Adjusted Net Income r
- 1,643 million improvement vs. Q3 05 Adjusted
results - Significant improvements continue in GME and
GMLAAM - Lower results at GMAC
- Cash balance of 20.4B at quarter-end,
- Favorable results in Corporate Other largely
driven by reduced
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95Goals
- Automotive operations improved by 1.5B on an
adjusted basis, on strength of cost actions in
GMNA and continued momentum in other regions - On track to achieve 9B structural cost target on
a running rate basis by the end of 2006 and
continuing to work on goal to reduce to 25 of
revenues by 2010 - Key priority is to finalize negotiations with
Delphi - Continue to be on track to close the GMAC
transaction in Q4 - Automotive liquidity remains strong at 20.4B,
but - continued focus on improving operating cash flow
96Key Success Factors
- Continued demand for GMs most profitable
products and the maintenance of a strong product
mix - The introduction of innovative new products on a
timely cadence, through the integration of global
architectures, engineering, and procurement
efforts - The implementation of measures for reducing
structural costs, offsetting legacy and
health-care burdens - Maintenance of sufficient balance sheet strength
and liquidity - Other factors affecting GMs Financing and
Insurance Operations (FIO) reportable operating
segment results, including interest rates, credit
ratings, and demand for mortgage financing.
97Issues to consider
- GM is the healthiest of the Big Three !!!
- ability to compete with Asian automakers ???
- Jerry York !!!
- GM's accounting subject of inquiry
- market share in China ???
- GM vs. Toyota??
- cash flow problems??
- High structure cost?
- Sustainable?
98Recommendation
99Toyota Motor Corporation
100Company Snapshot
Data as of 08-Nov-06
- Industry Consumer Products (Automotive)
- Ticker Symbol TM
- Listed on NYSE
Stock Price US 123.460
Net Change US 2.250 Change 1.86
52-Week High US 124.000 EPS 7.90
52-Week Low US 89.800 P/E 15.60
- Dividend Payout 17.25
- ROA 8.19
- ROE 13.5
- of shares outstanding 3,609,997,492 shares
101Chart - 1 year (daily)
102Chart 5 years (monthly)
103Financial Highlights
104Company Overview
- Established in 1937
- Producing vehicles in 26 countries
- Marketing vehicles in more than 170 countries and
regions - Toyotas Brands Toyota, Lexus, Daihatsu, and
Hino - Sold 8millions vehicles in 2006
- More than 280,000 employees
105Management Team
- Chairman of the Board/Director (since 2006)
- Fujio Cho (69 years old )
- Joined Toyota in 1960
- Director of Aioi Insurance Co., Ltd
- Director of Central Japan Railway Company
- Director of Toyota since September 1988
- President
- Katsuaki Watanabe (63 years old)
- Joined Toyota directly from college in 1964
- Director of Mitsubishi Securities Co., Ltd.
- Director of Toyota since September 1992
- Executive VP/Director (since 2005)
- Mitsuo Kinoshita (60 years old)
- Joined Toyota in 1968
- Director of Toyota since June 1997
- Vice Chairman of the Board of Gamagori Marine
Development Co. Ltd.
106Current Business
- Automotive Operations
- Japan
- North America
- Europe
- Asia and other regions
- Financial Services Operations
- Auto sales financing
- Retail sales of corporate bonds
- Investment trusts
- Asset development services for individuals
- Housing loans
- Insurance
- Other Business Operations
- Manufactured housing
- Advertising e-Commerce services
- Industrial aerospace equipment
- Marine equipment
107Consolidated Segment Information
- Revenues segmented by business operations
108Revenues by Business Operations
Yen in millions
2006
By Business Operations
Revenues
Automotive 19,338,144
Financial Services 996,909
All Others 1,190,291
Operating Income
Automotive 1,694,045
Financial Services 155,817
All Others 39,748
109Automotive Operations
- Revenues
- 19,338.1 billion (13.0)
- Operating income
- 1,694.0 billion (16.6)
- Causes
- Currency exchange rate fluctuations
- Increases in vehicle production and sales
- Cost reduction activities
- Minus the higher expenses resulting from business
expansion
110Vehicle Production and Sales
111Sales and Production Distribution
112Products Distribution
113Manufacturing Companies Distribution
114Vehicle Production and Sales
115Market Shares
116Vehicle Sales Projection by Region
117Financial Services Operations
118Financial Services Operations (contd)
- Revenues
- 996.9 billion (27.6)
- Causes
- Higher financing volume from increasing vehicle
sales - Toyota has the highest credit rating in SPs and
Moodys - Operating income
- 155.8 billion ( 22.4)
- Causes
- Valuation losses on interest rate swaps
- Accounting adjustment in 2005 for loan
origination costs by a sales finance subsidiary
in the US
119Other Business Operations
- Revenues
- 1,190.3 billion (15.5)
- Operating income
- 39.7 billion (17.8)
- Causes
- Favorable production and sales in the housing
business
120Consolidated Segment Information
- Revenues segmented by region
121Revenues by Region
Yen in millions
2006
By Region
Revenues
Japan 7,735,109
North America 7,455,818
Europe 2,574,014
Asia 1,836,855
Other Regions 1,435,113
Operating Income
Japan 1,075,890
North America 495,638
Europe 93,947
Asia 145,546
Other Regions 67,190
122Threats
- Hikes in crude oil price
- Hikes in raw materials price
- Fluctuations in currency exchange rates and
interest rates - Structural changes in demand for automobiles
- Change governmental regulations in automotive
industry - Political instabilities
- Fuel shortages or interruptions in transportation
systems - Natural calamities, wars, terrorism
- Labor strikes
123Competitive Strengths
- Superior Quality
- Brand Image safe, environmental friendly
- Cost competitive
- RD - Technology leader
- Fuel-efficient vehicles
- Solid financial base
- Personnel development
124Cost Reduction Strategies
125Solution to Hike in Oil Price
- Hybrid Vehicles
- Prius has become the top selling hybrid car in
America. - Toyota now has three hybrid vehicles in its
lineup - Prius
- Highlander
- Camry
- The popular minivan Toyota Sienna is supposed to
join the hybrid lineup by 2010.
126Financial Statements
- Annual Balance Sheet
- Annual Income Statement
- Annual Cash Flows Statement
- Semiannual Balance Sheet
- Semiannual Income Statement
- Semiannual Cash Flows Statement
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133Selected Financial Summary (Contd)
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135Semiannual Report Released on Nov. 7, 2006
136Semiannual Report Released on Nov. 7, 2006
137Semiannual Report Released on Nov. 7, 2006
138Semiannual Report Released on Nov. 7, 2006
139Semiannual Report Released on Nov. 7, 2006
140Future Strategies
- Enhancing technology development capabilities
centered on environmental technology - Increasing production through the advancement of
localization
141Expand Production Capacity
142Future Strategies by Region
143Recommendation
BUY
144Volvo Group
145Company Snapshot Data as of Nov-02-06
Last US 62.420 Net Change US -0.240 Change -0.38 Last US 62.420 Net Change US -0.240 Change -0.38 Last US 62.420 Net Change US -0.240 Change -0.38 Last US 62.420 Net Change US -0.240 Change -0.38
Open 62.240 Bid 0.010
High 62.690 Ask 2,000,000
Low 61.930 EPS 4.64
Volume 19,506 P/E 13.5
52 Week High 63.290 Yield 0.00
52 Week Low 40.800 Div. 0.00
Shares 404.8M
146Company Snapshot
147Stock Analysis (Volvo VS Market)
148Competitor
Volvo Paccar
Market Cap 26.60B 14.90B
Employees 81,860 21,900
Qtrly Rev Growth 10.20 18.80
Revenue 35.93B 15.86B
Gross Margin 22.83 15.43
EBITDA 4.58B 2.42B
Oper Margins 8.13 12.61
Net Income 1.93B 1.43B
EPS 4.761 (404.8M) 5.651 (248.30M )
P/E 13.80 10.62
P/S 0.73 0.93
149Management Team
- Leif Johonsson
- 43,538 Series B shares and 50,000 employee stock
options - President and CEO
- Master of Engineering
- With Volvo since 1997
- Jorma Halonen
- 2,000 Series B shares and 25,000 employee stock
options - Executive Vice President
- Bachelor of Science in Economics
- With Volvo since 2001
150Company Overview
- Establish 1927
- Employees more than 80,000
- Product Service
-
151Company Overview
- A global group
- Conducts sales in about 185 countries
- Has production facilities in 18 countries
- Most of the Volvo Groups sales are to markets
in Western Europe and North America - Brands
-
-
152Production Facilities
153Sales by Business Area
- Volvo Trucks (67)
- Volvo Buses(7.2)
- Construction Equipment(15)
- Volvo Penta (4.2)
- Volvo Aero (3.3)
154Sales by Business Area (Cont)
155Sales by Market Area
156Business Strategy
- Customer oriented
- Develop the dealer networks improve service to
customers - Strong product portfolio
- Invest in future technologies such as
alternative drivelines and supplementary fuels
offer various applications - Capitalize on economies of scale
- Volvo Powertrain provides engines and other
driveline components - Volvo Parts optimizes inventory management and
distribution of parts - Volvo Logistics handles optimal logistics
solutions for materials flow
157Key Drivers
- Cyclical industry
- Intense competition
- Unstable prices for commercial vehicles
- Operations exposed to currency fluctuations
- Profitability depends on successful new products
- Relies on suppliers
- Government regulation
158Quarterly Income Statement3/2005 3/2006
(1 SEK0.1398 USD)
159Key Operating Ratios
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161 Nine Month Ended Report
Sep 30 2006(1 SEK0.1398
USD)
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1652005 Financial Highlights
- Net sales increased by 14
- Income for the year increased by 32
- Earnings per share increased by 37
- Proposed dividend SEK 16.75 per share
1662005 Financial Highlights (Key Ratio)
167Consolidated Income Statement
(1 SEK0.1398 USD)
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169Sales Margin
170Operating Income / RD Cost
171Consolidated Cash Flow Statement
(1 SEK0.1398 USD)
172Cash Flow Statement 2005
173Capital Expenditures
174 Consolidated Balance Sheet
(1 SEK0.1398 USD)
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176Change in Net Financial Position
177Dividend Payout
178Recent News
- Strategic decision on closure of Volvo Aeros
operations in Bromma - Volvo initiates a Traffic Accident Research
Centre in China - Volvo Aero Norway to be supplier to the General
Electric Engine for the Joint Strike Fighter - Volvo Trucks laying off 600 at Powertrain Plant
in Hagerstown - Volvo Aero expands in US
179Recent News (cont)
- Volvo Construction Equipment invests in China
- Plans bus body cooperation in India
- AB Volvo increases its holding in Nissan Diesel
180Hold !