Transcript 417_Globalautos_063

Global Automotive
Presenter:
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Industry----Frank
GM----Raymond
Toyota----Angela
Volvo---Lillian
Global Auto Sales
The growing importance of
Emerging Market
Surprise! Surprise!
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QUICK EXPANSION
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The production for the next 20 years will
be more than what’s 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
Continuous Growth in Global
Automobile Industry
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Global Vehicle Ownership Estimation: Over 1
billion units in 2010
Major Countries
Click here
Major Manufactures
Major Manufacturer operating
Margin
Excess production capacity-NA
Industry Characteristics
---Major Cost
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Labour & Pension plans****
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Material
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N.A companies face a large amount of
pension cost----approx. $1500 per vehicle
Jap companies have none pension cost
Hundreds of pieces purchased from
suppliers
Automakers absorb only part of the
increase in material cost
Advertising
Cost Breakdown
---Typical American
Cost Breakdown
---Typical American
Industry Characteristics
---Sales cycle
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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??
Industry characteristics
---M/A, Alliance
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Technology, R/D
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Market penetration
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Global cooperation
Industry characteristics
---M/A, Alliance
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GM:---200 Garage Car makers in early
days
---SAAB, Daewoo
---Isuzu, Subaru, Suzuki
Ford---Jaguar, Land Rover, Volvo,
----Mazda
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Benz---Chrysler
Renault---Nissan
Porter’s Five Forces
Threat of New entrants
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Emergence of foreign competitors with
Capital, technology and management
skills
Chinese & India brands within their own
countries
Suppliers
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Had little power before
Been hit hard in Major Automaker cost
cutting
Globalization
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merger and acquisition
Increased tension b/w suppliers and
Automakers
Supply Chain (traditional)
Tier 3
Tier 2
Tier 1
OEM
Raw
Material
Small
parts
components
Design&
assemble
Supply Chain (emerging)
Raw
Material
Supplier
Component
specialist
Global
Standardized–
Systems
Manufacturer
Systems
Integrator
Merger of suppliers
Outsourcing production
---to more suppliers
Percent of Car Value outsourced
Suppliers
--Cost cutting requirement of Automakers
Suppler (cont)
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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---
One of the largest supplier
Dana has been added to the
list (April 2006)
Substitutes
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Public transportation on the rise
Rivalry
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Fierce competition
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High competition cost
Low return
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Historically avoid price competition
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More and More price competition
Buyers
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Historically, the automaker power went
unchallenged
As the market saturate, more options
made available, buyers have significant
amount of power
Increasing Models and
Decreasing Scale, US Market
Regulation
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Regulations
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Emission standard***
Safety standard
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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 CA’s
lead.
Comparison of Fuel Economy and
GHG Emission Standards
55
EU
MPG - Converted to CAFE Test Cycle
50
Japan
45
40
California
China
35
Australia
Canada
30
25
20
2002
US
2004
2006
2008
An and Sauer, 2004 for the Pew Center on Global Climate Change
2010
2012
2014
2016
Aggregate Value Exposure
Estimated cost per vehicle to meet “most likely” carbon
constraint
scenarios in US, EU and Japan
25x difference in Value Exposure across the industry
$700
Cost per vehicle
$600
$500
$400
$300
$200
$100
$0
BMW
DC
Ford
GM
VW
Nissan
Toyota
PSA
Renault
Honda
8
Management Capacity for
Low-Carbon Technologies
9
Measure of OEMs’ capacity to develop and commercialize main lowcarbon technologies: hybrids, diesels & fuel cells
Management Quality Index
100
90
80
70
60
50
40
Toyota
DC
RenaultNissan
Honda
Ford
GM
VW
BMW*
PSA
In addition
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Political issues
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Energy crisis
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Trade barrier
tariff
OPEC
Political & Natural reasons
Technology development
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Hybrid, Fuel cells, Hydrogen, Electronic, ethanol.
Etc
System feature & design
Key success factors
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Pension fund management
How well the company digest what’s
been eaten
Supplier relationship management
Risk management (i.e. exchange
exposure risk, commodity price risk)
design, marketing of new models
New technology development
General Motors
Symbol: GM
Exchange(s): NYSE
Industry: Consumer Products (Automotive)
As of Nov 7, 2006
Dividends Per Share : 1.00
Number of Shares: 565,610,000
1 Year Chart
30% increase within 1 year
5 Year Chart
20% decrease within 5 years
Company Profile
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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
EXECUTIVE
PROFILES
G. Richard Wagoner, Jr.
GM Chairman & Chief Executive Officer
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Since June 2000
BA in economics from Duke University
MBA from Harvard Business School
Frederick (Fritz) A. Henderson
GM Vice Chairman and Chief Financial Officer
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BBA from the University of Michigan
MBA from Harvard Business School
Robert A. Lutz
GM Vice Chairman, Global Product Development
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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
Brands
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Buick
Cadillac
Chevrolet
Fleet & Commercial
Operations
Holden
Vauxhall
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GMC
GM Daewoo
HUMMER
Pontiac
Saturn
Saab
Opel
GMAC Financial Services
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A finance company
offers automotive, residential and
commercial financing and insurance
GM's OnStar subsidiary
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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
Global Partnerships
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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
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DaimlerChrysler AG
BMW AG of Germany
Toyota Motor Corp. of Japan
Vehicle manufacturing ventures with
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Toyota
Suzuki
Shanghai Automotive Industry Corp. of China
AVTOVAZ of Russia
Renault SA of France
Market
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GM's largest national market is the
United States, followed by China,
Canada, the United Kingdom and
Germany
GM in 2005
One of the most difficult years
Reported loss of $10.6 B
The size of GM’s 2005 loss, most of
which related to its North American
operations
Global Sales
GM had its second highest sales volume globally last
year, with nearly 9.2 million vehicles sold
 More than half of GM’s 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
GM Production Schedule
GM Car Deliveries
Challenges and Weakness
Due to:
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huge legacy cost burden
2.
inability to adjust structural costs in line with
falling revenue
3.
global overcapacity
4.
falling prices
5.
rising health-care costs
6.
higher fuel prices
a)
7.
8.
reducing demand for some of the highest-profit
product
global competition
international exchange rates tend to help
Japanese and Korean imports
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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
GM’s health-care bill in 2005 = 5.3B
Financial 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
Delphi Chapter 11 proceedings
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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
Consolidated Results
GM North America
GM 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
GM Europe
GM Europe
In February 2005, GM successfully
bought itself out of a put option
with Fiat for $2 billion USD
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Restructuring charges
negative pricing
unfavorable exchange rates
Pricing declines
GM LATIN AMERICA/AFRICA/MID-EAST
GM 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
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GM Asia Pacific
GM Asia Pacific
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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:
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Write-down of GM’s 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 GM’s
Holden unit
GMAC
GMAC
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goodwill impairment charges
lower net interest margins
North America Turnaround Plan
Four-point turnaround plan
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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.
Turnaround Plan – Plant and labor
reduction
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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 company’s 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
Consolidated Balance Sheets - Assets
Consolidated Balance Sheets –
Liabilities and Stockholders’ Equity
Available Liquidity
Cash flows from
continuing operating activities
Cash flow from
continuing financing activities
Q3 financial Highlights
2006 Q3 Highlights
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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
Goals
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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 $20.4B,
but
continued focus on improving operating cash
flow
Key Success Factors
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4)
5)
Continued demand for GM’s most profitable products
and the maintenance of a strong product mix
The introduction of innovative new products on a
timely cadence, through the integration of global
architectures, engineering, and procurement efforts
The implementation of measures for reducing
structural costs, offsetting legacy and health-care
burdens
Maintenance of sufficient balance sheet strength and
liquidity
Other factors affecting GM’s Financing and Insurance
Operations (FIO) reportable operating segment results,
including interest rates, credit ratings, and demand for
mortgage financing.
Issues to consider
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GM is the healthiest of the Big Three !!!
ability to compete with Asian automakers ???
Jerry York !!!
GM's accounting subject of inquiry
market share in China ???
GM vs. Toyota??
cash flow problems??
High structure cost?
Sustainable?
Recommendation
HOLD
Toyota Motor Corporation
Company Snapshot
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Industry: Consumer Products (Automotive)
Ticker Symbol: TM
Listed on: NYSE
Stock Price: US$ 123.460
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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
Data as of 08-Nov-06
Chart - 1 year (daily)
Chart – 5 years (monthly)
Financial Highlights
Company Overview
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Established in 1937
Producing vehicles in 26 countries
Marketing vehicles in more than 170 countries
and regions
Toyota’s Brands: Toyota, Lexus, Daihatsu, and
Hino
Sold ~ 8millions vehicles in 2006
More than 280,000 employees
Management Team
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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
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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
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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.
Current Business
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Automotive Operations
 Japan
 North America
 Europe
 Asia and other regions
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Financial Services Operations
 Auto sales financing
 Retail sales of corporate bonds
 Investment trusts
 Asset development services for individuals
 Housing loans
 Insurance
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Other Business Operations
 Manufactured housing
 Advertising & e-Commerce services
 Industrial & aerospace equipment
 Marine equipment
 Telecommunications services
 Sports teams and golf courses
Consolidated Segment Information
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Revenues segmented by business
operations:
Revenues by Business Operations
Yen in millions
2006
By Business Operations:
Revenues:
Automotive
Financial Services
All Others
19,338,144
996,909
1,190,291
Operating Income:
Automotive
Financial Services
All Others
1,694,045
155,817
39,748
Automotive Operations
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Revenues:
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Operating income:
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¥19,338.1 billion (+13.0%)
¥1,694.0 billion (+16.6%)
Causes:
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Currency exchange rate fluctuations
Increases in vehicle production and
sales
Cost reduction activities
Minus the higher expenses resulting
from business expansion
Vehicle Production and Sales
Sales and Production Distribution
Products Distribution
Manufacturing Companies Distribution
Vehicle Production and Sales
Market Shares
Vehicle Sales Projection by Region
Financial Services Operations
Financial Services Operations
(cont’d)
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Revenues:
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¥996.9 billion (+27.6%)
Causes:
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Higher financing volume from increasing
vehicle sales
 Toyota has the highest credit rating in
S&P’s and Moody’s
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Operating income:
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¥155.8 billion ( – 22.4%)
Causes:
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Valuation losses on interest rate swaps
Accounting adjustment in 2005 for loan
origination costs by a sales finance
subsidiary in the US
Other Business Operations
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Revenues:
 ¥1,190.3
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Operating income:
 ¥39.7
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billion (+15.5%)
billion (+17.8%)
Causes:
 Favorable
production and sales
in the housing business
Consolidated Segment Information
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Revenues segmented by region:
Revenues 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
North America
Europe
Asia
Other Regions
¥1,075,890
495,638
93,947
145,546
67,190
Threats
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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
Competitive Strengths
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Superior Quality
 Brand
Image: safe, environmental friendly
Cost competitive
 R&D - Technology leader
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 Fuel-efficient
vehicles
Solid financial base
 Personnel development
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Cost Reduction Strategies
Solution to Hike in Oil Price
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Hybrid Vehicles
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Prius has become the top selling hybrid car in America.
Toyota now has three hybrid vehicles in its lineup:
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Prius
Highlander
Camry
The popular minivan Toyota Sienna is supposed to join the
hybrid lineup by 2010.
Financial Statements
Annual Balance Sheet
 Annual Income Statement
 Annual Cash Flows Statement
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Semiannual Balance Sheet
 Semiannual Income Statement
 Semiannual Cash Flows Statement
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Selected Financial Summary (Cont’d)
Semiannual Report
Released on
Nov. 7, 2006
Semiannual Report
Released on
Nov. 7, 2006
Semiannual Report
Released on
Nov. 7, 2006
Semiannual Report
Released on
Nov. 7, 2006
Semiannual Report
Released on
Nov. 7, 2006
Future Strategies
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Enhancing technology
development capabilities
centered on environmental
technology
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Increasing production
through the advancement of
localization
Expand Production Capacity
Future Strategies by Region
Recommendation
Volvo Group
Company Snapshot
Last:
US$ 62.420
Net Change: US$ -0.240
% Change: -0.38%
Open
62.240
Bid
0.010
High
62.690
Ask
2,000,0
00
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
Data as of Nov-02-06
Company Snapshot
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3 year weekly chart
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5 year weekly chart
Stock Analysis (Volvo VS Market)
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2 Year

1 Year
Competitor
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
Management Team
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Leif Johonsson
43,538 Series B shares and 50,000 employee stock options
President and CEO
Master of Engineering
With Volvo since 1997
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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
Company Overview
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Establish: 1927
Employees: more than 80,000
Product & Service:
Company Overview
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A global group:
Conducts sales in about 185 countries
Has production facilities in 18 countries
Most of the Volvo Group’s sales are to markets in Western
Europe and North America
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Brands:
Production Facilities
Sales by Business Area
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Volvo Trucks (67%)
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Volvo Buses(7.2%)
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Construction & Equipment(15%)
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Volvo Penta (4.2%)
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Volvo Aero (3.3%)
Sales by Business Area (Cont)
Sales by Market Area
Business Strategy
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Customer oriented
Develop the dealer networks & improve service to customers
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Strong product portfolio
Invest in future technologies such as alternative drivelines and
supplementary fuels & offer various applications
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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
Key Drivers
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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
Quarterly Income Statement
3/2005 – 3/2006
(1 SEK=0.1398 USD)
Key Operating Ratios
Nine Month Ended Report
Sep 30 2006
(1 SEK=0.1398 USD)
2005 Financial Highlights
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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
2005 Financial Highlights (Key Ratio)
Consolidated Income Statement
(1 SEK=0.1398 USD)
Sales & Margin
Operating Income / R&D Cost
Consolidated Cash Flow Statement
(1 SEK=0.1398 USD)
Cash Flow Statement 2005
Capital Expenditures
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Current & past
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Future
Consolidated Balance Sheet
(1 SEK=0.1398 USD)
Change in Net Financial Position
Dividend Payout
Recent News
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Strategic decision on closure of Volvo Aero’s
operations in Bromma
Volvo initiates a Traffic Accident Research Centre
in China
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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
Recent News (cont)
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Volvo Construction Equipment invests in China
Plans bus body cooperation in India
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AB Volvo increases its holding in Nissan Diesel
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