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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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Presenter l.jpg
Presenter:

  • Industry----Frank

  • GM----Raymond

  • Toyota----Angela

  • Volvo---Lillian




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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


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Continuous Growth in Global Automobile Industry

  • Global Vehicle Ownership Estimation: Over 1 billion units in 2010


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Major Countries

Click here





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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


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Cost Breakdown---Typical American


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Cost Breakdown---Typical American


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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---Sales cycle


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Industry characteristics---M/A, Alliance

  • Technology, R/D

  • Market penetration

  • Global cooperation


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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


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Porter’s Five Forces


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Threat of New entrants

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

  • Chinese & India brands within their own countries


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Suppliers

  • Had little power before

  • Been hit hard in Major Automaker cost cutting

  • Globalization

    • merger and acquisition

  • Increased tension b/w suppliers and Automakers


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Supply Chain (traditional)

Tier 3

Raw Material

Tier 2

Small parts

Tier 1

components

OEM

Design& assemble


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Supply Chain (emerging)

Raw Material Supplier

Global Standardized–Systems Manufacturer

Component specialist

Systems Integrator



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Outsourcing production---to more suppliers

Percent of Car Value outsourced


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Suppliers

--Cost cutting requirement of Automakers


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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---



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Substitutes (April 2006)

  • Public transportation on the rise


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Rivalry (April 2006)

  • Fierce competition

    • High competition cost

    • Low return

  • Historically avoid price competition

  • More and More price competition


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Buyers (April 2006)

  • Historically, the automaker power went unchallenged

  • As the market saturate, more options made available, buyers have significant amount of power



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Regulation (April 2006)

  • Regulations

    • Emission standard***

    • Safety standard


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  • European Union (April 2006): “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.


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Comparison of Fuel Economy and GHG Emission Standards (April 2006)

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


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Aggregate Value Exposure (April 2006)Estimated cost per vehicle to meet “most likely” carbon constraint scenarios in US, EU and Japan

8

25x difference in Value Exposure across the industry


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Management Capacity for Low-Carbon Technologies (April 2006)Measure of OEMs’ capacity to develop and commercialize main low-carbon technologies: hybrids, diesels & fuel cells

9


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In addition (April 2006)

  • Political issues

    • Trade barrier

    • tariff

  • Energy crisis

    • OPEC

    • Political & Natural reasons

  • Technology development

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

    • System feature & design


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Key success factors (April 2006)

  • 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


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General Motors (April 2006)

Symbol: GM

Exchange(s): NYSE

Industry: Consumer Products (Automotive)


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As of Nov 7, 2006 (April 2006)

Dividends Per Share: 1.00

Number of Shares: 565,610,000


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1 Year Chart (April 2006)



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5 Year Chart (April 2006)



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Company Profile (April 2006)

  • 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


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EXECUTIVE (April 2006) 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


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Buick (April 2006)

Cadillac

Chevrolet

Fleet & Commercial Operations

Holden

Vauxhall

GMC

GM Daewoo

HUMMER

Pontiac

Saturn

Saab

Opel

Brands


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GMAC Financial Services (April 2006)

  • A finance company

  • offers automotive, residential and commercial financing and insurance


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GM's OnStar subsidiary (April 2006)

  • 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


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Global Partnerships (April 2006)

  • 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


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Market (April 2006)

  • GM's largest national market is the United States, followed by China, Canada, the United Kingdom and Germany


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GM in 2005 (April 2006)

One of the most difficult years

Reported loss of $10.6 B



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Global Sales North American operations

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


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GM Production Schedule North American operations


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GM Car Deliveries North American operations


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Challenges and Weakness North American operations

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


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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


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Financial Burden Benefit (OPEB) fund deficit- 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


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Delphi Chapter 11 proceedings Benefit (OPEB) fund deficit

  • 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


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Consolidated Results Benefit (OPEB) fund deficit


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GM North America Benefit (OPEB) fund deficit


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GM North America Benefit (OPEB) fund deficit

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


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GM Europe Benefit (OPEB) fund deficit


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GM Europe Benefit (OPEB) fund deficit

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


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GM LATIN AMERICA/AFRICA/MID-EAST Benefit (OPEB) fund deficit


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GM LATIN AMERICA/AFRICA/MID-EAST Benefit (OPEB) fund deficit

  • 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 Benefit (OPEB) fund deficit


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GM Asia Pacific Benefit (OPEB) fund deficit

  • 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


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GMAC Benefit (OPEB) fund deficit


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GMAC Benefit (OPEB) fund deficit

  • goodwill impairment charges

  • lower net interest margins


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North America Turnaround Plan Benefit (OPEB) fund deficit

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.


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Turnaround Plan – Plant and labor reduction Benefit (OPEB) fund deficit

  • 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


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Consolidated Balance Sheets - Assets Benefit (OPEB) fund deficit

  • < Previous Page

  • Next Page >


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Consolidated Balance Sheets – Benefit (OPEB) fund deficitLiabilities and Stockholders’ Equity

  • < Previous Page

  • Next Page >


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Available Liquidity Benefit (OPEB) fund deficit

  • < Previous Page

  • Next Page >


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Cash flows from Benefit (OPEB) fund deficitcontinuing operating activities

  • < Previous Page

  • Next Page >


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Cash flow from Benefit (OPEB) fund deficitcontinuing financing activities


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Q3 financial Highlights Benefit (OPEB) fund deficit


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2006 Q3 Highlights Benefit (OPEB) fund deficit

  • 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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Goals Benefit (OPEB) fund deficit

  • 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


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Key Success Factors Benefit (OPEB) fund deficit

  • 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.


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Issues to consider Benefit (OPEB) fund deficit

  • 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?


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Recommendation Benefit (OPEB) fund deficit

HOLD


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Toyota Motor Corporation Benefit (OPEB) fund deficit


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Industry: Consumer Products (Automotive) Benefit (OPEB) fund deficit

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


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Chart - 1 year (daily) Benefit (OPEB) fund deficit


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Chart – 5 years (monthly) Benefit (OPEB) fund deficit


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Financial Highlights Benefit (OPEB) fund deficit


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Company Overview Benefit (OPEB) fund deficit

  • 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


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Management Team Benefit (OPEB) fund deficit

  • 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


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Current Business Benefit (OPEB) fund deficit

  • 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


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Consolidated Segment Information Benefit (OPEB) fund deficit

  • Revenues segmented by business operations:


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Revenues by Business Operations Benefit (OPEB) fund deficit


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Automotive Operations Benefit (OPEB) fund deficit

  • 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


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Vehicle Production and Sales Benefit (OPEB) fund deficit


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Sales and Production Distribution Benefit (OPEB) fund deficit


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Products Distribution Benefit (OPEB) fund deficit


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Manufacturing Companies Distribution Benefit (OPEB) fund deficit


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Vehicle Production and Sales Benefit (OPEB) fund deficit


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Market Shares Benefit (OPEB) fund deficit


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Vehicle Sales Projection by Region Benefit (OPEB) fund deficit


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Financial Services Operations Benefit (OPEB) fund deficit


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Financial Services Operations (cont’d) Benefit (OPEB) fund deficit

  • 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


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Other Business Operations Benefit (OPEB) fund deficit

  • Revenues:

    • ¥1,190.3 billion (+15.5%)

  • Operating income:

    • ¥39.7 billion (+17.8%)

  • Causes:

    • Favorable production and sales in the housing business


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Consolidated Segment Information Benefit (OPEB) fund deficit

  • Revenues segmented by region:


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Revenues by Region Benefit (OPEB) fund deficit


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Hikes in crude oil price Benefit (OPEB) fund deficit

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


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Competitive Strengths Benefit (OPEB) fund deficit

  • Superior Quality

    • Brand Image: safe, environmental friendly

  • Cost competitive

  • R&D - Technology leader

    • Fuel-efficient vehicles

  • Solid financial base

  • Personnel development


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Cost Reduction Strategies Benefit (OPEB) fund deficit


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Solution to Hike in Oil Price Benefit (OPEB) fund deficit

  • 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.


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Financial Statements Benefit (OPEB) fund deficit

  • Annual Balance Sheet

  • Annual Income Statement

  • Annual Cash Flows Statement

  • Semiannual Balance Sheet

  • Semiannual Income Statement

  • Semiannual Cash Flows Statement


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Selected Financial Summary (Cont’d) Benefit (OPEB) fund deficit


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Semiannual Report Benefit (OPEB) fund deficit

Released on

Nov. 7, 2006


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Semiannual Report Benefit (OPEB) fund deficit

Released on

Nov. 7, 2006


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Semiannual Report Benefit (OPEB) fund deficit

Released on

Nov. 7, 2006


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Semiannual Report Benefit (OPEB) fund deficit

Released on

Nov. 7, 2006


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Semiannual Report Benefit (OPEB) fund deficit

Released on

Nov. 7, 2006


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Future Strategies Benefit (OPEB) fund deficit

  • Enhancing technology development capabilities centered on environmental technology

  • Increasing production through the advancement of localization


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Expand Production Capacity Benefit (OPEB) fund deficit


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Future Strategies by Region Benefit (OPEB) fund deficit


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Recommendation Benefit (OPEB) fund deficit

BUY


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Volvo Group Benefit (OPEB) fund deficit


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Company Snapshot Benefit (OPEB) fund deficitData as of Nov-02-06


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3 year weekly chart Benefit (OPEB) fund deficit

5 year weekly chart

Company Snapshot


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2 Year Benefit (OPEB) fund deficit

1 Year

Stock Analysis (Volvo VS Market)


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Competitor Benefit (OPEB) fund deficit


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Management Team Benefit (OPEB) fund deficit

  • 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


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Company Overview Benefit (OPEB) fund deficit

  • Establish: 1927

  • Employees: more than 80,000

  • Product & Service:


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Company Overview Benefit (OPEB) fund deficit

  • 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:


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Production Facilities Benefit (OPEB) fund deficit


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Sales by Business Area Benefit (OPEB) fund deficit

  • Volvo Trucks (67%)

  • Volvo Buses(7.2%)

  • Construction & Equipment(15%)

  • Volvo Penta(4.2%)

  • Volvo Aero(3.3%)


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Sales by Business Area (Cont) Benefit (OPEB) fund deficit


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Sales by Market Area Benefit (OPEB) fund deficit


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Business Strategy Benefit (OPEB) fund deficit

  • 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


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Key Drivers Benefit (OPEB) fund deficit

  • 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


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Quarterly Income Statement Benefit (OPEB) fund deficit3/2005 – 3/2006

(1 SEK=0.1398 USD)


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Key Operating Ratios Benefit (OPEB) fund deficit


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Nine Month Ended Report Benefit (OPEB) fund deficit Sep 30 2006(1 SEK=0.1398 USD)


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2005 Financial Highlights Benefit (OPEB) fund deficit

  • 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


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2005 Financial Highlights (Key Ratio) Benefit (OPEB) fund deficit


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Consolidated Income Statement Benefit (OPEB) fund deficit

(1 SEK=0.1398 USD)


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Sales & Margin Benefit (OPEB) fund deficit


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Operating Income / R&D Cost Benefit (OPEB) fund deficit


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Consolidated Cash Flow Statement Benefit (OPEB) fund deficit

(1 SEK=0.1398 USD)


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Cash Flow Statement 2005 Benefit (OPEB) fund deficit


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Current & past Benefit (OPEB) fund deficit

Future

Capital Expenditures


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Consolidated Balance Sheet Benefit (OPEB) fund deficit

(1 SEK=0.1398 USD)


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Change in Net Financial Position Benefit (OPEB) fund deficit


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Dividend Payout Benefit (OPEB) fund deficit


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Recent News Benefit (OPEB) fund deficit

  • 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


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Recent News (cont) Benefit (OPEB) fund deficit

  • Volvo Construction Equipment invests in China

  • Plans bus body cooperation in India

  • AB Volvo increases its holding in Nissan Diesel


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Hold ! Benefit (OPEB) fund deficit


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