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Global Automotive Presenter: Industry----Frank GM----Raymond Toyota----Angela Volvo---Lillian Global Auto Sales The growing importance of Emerging Market Surprise! Surprise! QUICK EXPANSION

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Global Automotive


Presenter:

  • Industry----Frank

  • GM----Raymond

  • Toyota----Angela

  • Volvo---Lillian


Global Auto Sales


The growing importance of Emerging Market


Surprise! Surprise!

  • QUICK EXPANSION

    • 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

  • 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

  • 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


Cost Breakdown---Typical American


Cost Breakdown---Typical American


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---Sales cycle


Industry characteristics---M/A, Alliance

  • Technology, R/D

  • Market penetration

  • Global cooperation


Industry 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


Porter’s Five Forces


Threat of New entrants

  • Emergence of foreign competitors with Capital, technology and management skills

  • Chinese & India brands within their own countries


Suppliers

  • Had little power before

  • Been hit hard in Major Automaker cost cutting

  • Globalization

    • merger and acquisition

  • Increased tension b/w suppliers and Automakers


Supply Chain (traditional)

Tier 3

Raw Material

Tier 2

Small parts

Tier 1

components

OEM

Design& assemble


Supply Chain (emerging)

Raw Material Supplier

Global Standardized–Systems Manufacturer

Component specialist

Systems Integrator


Merger of suppliers


Outsourcing production---to more suppliers

Percent of Car Value outsourced


Suppliers

--Cost cutting requirement of Automakers


Suppler (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---


One of the largest supplier Dana has been added to the list (April 2006)


Substitutes

  • Public transportation on the rise


Rivalry

  • Fierce competition

    • High competition cost

    • Low return

  • Historically avoid price competition

  • More and More price competition


Buyers

  • 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

  • Regulations

    • Emission standard***

    • Safety standard


  • 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

An and Sauer, 2004 for the Pew Center on Global Climate Change


Aggregate 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


Management Capacity for Low-Carbon TechnologiesMeasure of OEMs’ capacity to develop and commercialize main low-carbon technologies: hybrids, diesels & fuel cells

9


In addition

  • Political issues

    • Trade barrier

    • tariff

  • Energy crisis

    • OPEC

    • Political & Natural reasons

  • Technology development

    • Hybrid, Fuel cells, Hydrogen, Electronic, ethanol. Etc

    • System feature & design


Key success factors

  • 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

  • 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

  • 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


Buick

Cadillac

Chevrolet

Fleet & Commercial Operations

Holden

Vauxhall

GMC

GM Daewoo

HUMMER

Pontiac

Saturn

Saab

Opel

Brands


GMAC Financial Services

  • A finance company

  • offers automotive, residential and commercial financing and insurance


GM'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


Global 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


Market

  • 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 OUTSIDEthe 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:

  • 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


  • 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

  • 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

  • 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


GM Asia Pacific


GM 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 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

  • goodwill impairment charges

  • lower net interest margins


North 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.


Turnaround 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 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

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Consolidated Balance Sheets – Liabilities and Stockholders’ Equity

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Available Liquidity

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Cash flows from continuing operating activities

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Cash flow from continuing financing activities


Q3 financial Highlights


2006 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


Goals

  • 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

  • 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

  • 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


Industry: Consumer Products (Automotive)

Ticker Symbol: TM

Listed on: NYSE

Company Snapshot

Data as of 08-Nov-06

  • Dividend Payout: 17.25%

  • ROA: 8.19%

  • ROE: 13.5%

  • # of shares outstanding: 3,609,997,492 shares


Chart - 1 year (daily)


Chart – 5 years (monthly)


Financial Highlights


Company Overview

  • 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

  • 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

  • Executive VP/Director (since 2005)

    Mitsuo Kinoshita (60 years old)

    • Joined Toyota in 1968

    • Director of Toyota sinceJune 1997

    • Vice Chairman of the Board of Gamagori Marine Development Co. Ltd.

  • 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


Current 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

    • Telecommunications services

    • Sports teams and golf courses


Consolidated Segment Information

  • Revenues segmented by business operations:


Revenues by Business Operations


Automotive 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


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)

  • Revenues:

    • ¥996.9 billion (+27.6%)

  • Causes:

    • Higher financing volume from increasing vehicle sales

    • Toyota has the highest credit rating in S&P’s and Moody’s

  • 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


Other 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


Consolidated Segment Information

  • Revenues segmented by region:


Revenues by Region


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

Threats


Competitive Strengths

  • Superior Quality

    • Brand Image: safe, environmental friendly

  • Cost competitive

  • R&D - Technology leader

    • Fuel-efficient vehicles

  • Solid financial base

  • Personnel development


Cost Reduction Strategies


Solution 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.


Financial Statements

  • Annual Balance Sheet

  • Annual Income Statement

  • Annual Cash Flows Statement

  • Semiannual Balance Sheet

  • Semiannual Income Statement

  • Semiannual Cash Flows Statement


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

  • Enhancing technology development capabilities centered on environmental technology

  • Increasing production through the advancement of localization


Expand Production Capacity


Future Strategies by Region


Recommendation

BUY


Volvo Group


Company Snapshot Data as of Nov-02-06


3 year weekly chart

5 year weekly chart

Company Snapshot


2 Year

1 Year

Stock Analysis (Volvo VS Market)


Competitor


Management 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


Company Overview

  • Establish: 1927

  • Employees: more than 80,000

  • Product & Service:


Company Overview

  • 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

  • Brands:


Production Facilities


Sales by Business Area

  • Volvo Trucks (67%)

  • Volvo Buses(7.2%)

  • Construction & Equipment(15%)

  • Volvo Penta(4.2%)

  • Volvo Aero(3.3%)


Sales by Business Area (Cont)


Sales by Market Area


Business 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


Key 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


Quarterly Income Statement3/2005 – 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

  • 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


Current & past

Future

Capital Expenditures


Consolidated Balance Sheet

(1 SEK=0.1398 USD)


Change in Net Financial Position


Dividend Payout


Recent News

  • Strategic decision on closure of Volvo Aero’s 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


Recent News (cont)

  • Volvo Construction Equipment invests in China

  • Plans bus body cooperation in India

  • AB Volvo increases its holding in Nissan Diesel


Hold !


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