Global Auto Industry

Franklin Guo
Dat Hong
Rex Liu
Reya Lu
Auto Manufacturing Industry Agenda

 Auto Manufacturing History & Regulation

 Business Strategy & Characteristics
 Global Auto Supply Chain
 Global Auto Sales & Production Analysis
 Industry Future Forecast
Auto Manufacturing History
Eras of Invention (late 17th century – 1890s):
 A small steam car was demonstrated in 1678

The early automobiles manufacturing companies: Panhard et

Levassor, Oldsmobile, Cadillac, Winton, Ford, etc.
 After 1930, the number of auto manufacturers declined sharply as
the industry consolidated and matured.
 By 1960s, foreign competition arose as Japanese appeared as a
serious auto manufacturing nation.
 Captive imports and badge engineering swept through the U.S.
and UK, resulting in major acquisitions and merges by the end of
1960s.
Auto Manufacturing History
 As the 1973 oil crisis, automobile emissions control rules,
Japanese and European imports, and stagnant innovation
changed American industry.
 Small imported cars outperformed large American ones, and
the domestic auto industry began to fail. Small performance
cars from BMW, Toyota, and Nissan took the place of big-
engined cars from America and Italy.
 Major M & A, alliance:
GM---SAAB, Daewoo; Isuzu, Subaru, Suzuki
Ford---Jaguar, Land Rover, Volvo; Mazda
Benz---Chrysler
Renault---Nissan
Regulation History

 Emission Regulation Act

 Since 1970, emissions from motor vehicles were regulated by
Transport Canada under the authority of the Motor Vehicle Safety Act
(MVSA) and it was later amended in 1993.
 In 1999, with the passage of the proposed amendment to the
Canadian Environmental Protection Act (CEPA), automotive
emissions regulations have become the responsibility of Environment
Canada.
 In 2001, Canadian government published the Canada Gazette Part I
to develop and implement services and measures over the next
decade to further protect the health of Canadians and the environment
by reducing emissions from vehicles, engines and fuels.
Industry Overview
The Automobile Design and Development Process
Auto Industry Business Strategy
Global Auto Ownership
Porter’s Model for Automakers
 Barriers to entry
 Weak supplier power
 The threats to substitute products is low

However, are offset by

 Strong rivalry among competitors
 Bargaining power of consumers
Supply Chain
Auto Suppliers
 Facing a number of challenges including:
A lack of pricing power, high labor costs, decreasing
volume and increasing raw material costs;
 NAFTA-only suppliers are losing market shares to
global suppliers.
 Suppliers are trying to increase value-added
content, supply systems instead of components,
technology innovations, etc.
 Acquisitions, joint ventures, etc.
M & A of Auto Suppliers
Gasoline Prices’ Impact on Auto
Changes in Gas Price vs. SUV & Hybrid Auto
Sales

 Gasoline price has a positive correlation with the sales of hybrid

auto and a negative correlation with the sales of SUV.
Global Auto Sales

http://www.scotiacapital.com/English/bns_econ/bns_auto.pdf
Global Auto Production
Current Auto Manufacturing
Manufacturers’ Unit Price Comparison

 On average, vehicles from US car makers

were sold for $21,597 in 2005, which was
13% below the comparable sales price for
the Japanese car makers’. It was mainly due
to:
 Missed design opportunities
 Heavy employee-level discounting
 Higher labor costs
Manufacturers’ Operating Margins
Comparison
 US automakers’ operating margins are lower than their
major competitors’.
Manufacturers’ Profits Per Unit Comparison

Profit/Unit in $, 2005

$2,500.00

$2,000.00
$1,500.00
$1,000.00

$500.00
$0.00
Honda Toyota Nissan Chrysler Ford GM
-$500.00
Group
-$1,000.00
-$1,500.00
Cost Structure - CAPEX
Cost Structure – R&D
Cost Structure – Health & Pension

 The U.S. “Big Three” reported that pension and health

cost them $1,500 per vehicle produced currently.
Interoperability Costs

 Imperfect interoperability impose costs due to higher

costs of design and production and slower
implementation of design changes.
Vehicle Ownership Forecast
U.S. Market Forecast
Auto Market Forecast
Global Auto Sales Forecast
Asia Pacific will lead in
production volumes by 2011
 European production 2004 2011
levels will grow at 2% and
Other
most of it in Central Other 2%
Europe, Turkey and 2% SA
Russia. SA
5%
4% Asia
 North American growth Asia
Pacific
NA Pacific
will be coming from NA 35%
22%
26% 40%
transplant operations of
Korean, Japanese and
German OEM’s.
EU EU
 China will expand its
33% 31%
production base at an
average annual rate of
12%. Exports of Chinese Global Production Global Production
cars to Europe and US will 59.8 million 74.6 million
commence by 2008- 2009.
 South America will see Regional CAGR 2004-11
recovery and growth Global
Other
specifically in Brazil.
SA
NA
EU
Asia Pacific
Source: CSM Auto Production Forecast 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%
Emission Standards Comparison
Emission Standards Comparison
 “ACEA agreement” is a voluntary agreement between European
automobiles manufacturers association and the European
Commissions. Its goal is to reduce 25% of 1995’s level of vehicle
CO2 emissions by 2008. Automakers are questioned for failing to
deliver the emissions cut.
- Japan automakers joined the agreement later and aimed to reduce
23% 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.
Emission Standards Comparison

However, automakers are questioned for failing to

deliver the emissions cut.
Nissan, Suzuki, Mazda, Audi, Volvo, BMW and
Volkswagen are the worst performers among a
group of 20 manufacturers surveyed by the
Institute for European Environmental Policy
(IEEP) for T&E, the European Federation for
Transport and the Environment.
There will be additional manufacturing associated
with CO2 emission constraints.
BMW Group
 BMW Group
Symbol : Common [BMW] Preferred [BMW3]
Primary Exchange: Frankfurt
Currency: Euro ($1 EUR = $1.27 USD)
Key Share Information:
 Common Stock Price (BMW)
[Price in Euros]
Last: $43.92 Change: $ -0.16 %Change: -0.36

Date: Nov. 23, 2006

Open: 44.10 Bid: N/A

High: 44.36 Ask: N/A
Low: 43.86 EPS: 4.23
Volume: 21,311 P/E: 10.43
52 Week 52 Week
High: 45.97 Low: 35.68
Yield: 1.45% Beta: 0.80
Dividend per share: 0.64
BMW Common Stock 5 Year Performance

Source: Deutsche Börse AG / Interactive Data Managed Solutions

 BMW Common Stock 1 Year Performance

Source: Deutsche Börse AG / Interactive Data Managed Solutions

 Preferred Stock Price (BMW3)
[Price in Euros]
Last: $43.64 Change: -$0.25 %Change: -0.56

Date: Nov. 23, 2006

Open: 44.00 Bid: N/A

High: 44.04 Ask: N/A
Low: 43.28 EPS: 4.23
Volume: 3,367 P/E: 10.71
52 Week 52 Week
High: 45.01 Low: 31.95
Yield: 1.50% Beta: N/A
Dividend per share: 0.66
BMW Preferred Stock 5 Year Performance

Source: Deutsche Börse AG / Interactive Data Managed Solutions

BMW Preferred Stock 1 Year Stock Performance

Source: Deutsche Börse AG / Interactive Data Managed Solutions

Company Overview
 Established in 1916, originally founded as an aircraft engine manufacturer
 Head offices located in Munich, Germany
 One of the top 10 largest vehicle manufacturers in the world
 Produces automobiles and motorbikes under the following premium brands:

 BMW also operates successfully in the areas of financial services such as financing/leasing and
asset management
 Conducts sales in approximately 40 international markets
 Has 15 production facilities spanning 7 countries
 Employs over 100,000 people globally
Important Company Milestones
 1972 - BMW ventures into South Africa and sets up first production plant
outside Germany
 1992 – BMW ventures into North American and sets up first production plant
in South Carolina
 1994 – BMW acquires the British based Rover Group, landing the brands
Rover, Land Rover, MINI, and MG
 1998 – BMW acquires the Rolls-Royce brand from Volkswagen Group;
however, vehicle production is prohibited until 2003
 2000 – BMW sells the Rover brands at a loss; however, holds onto the MINI
brand
 2001 – BMW successfully introduces the MINI brand into the market
 2003 – BMW re-launches the Rolls-Royce brand with the introduction of the
$330,000 USD Phantom
 2004 – BMW ventures into Asia and builds production plant in Shenyang,
China
Company Management

 Dr. Norbert Reithofer

Current Chairman of the Board of Management as of September 1, 2006
 Born in 1956
- 1991 - 1994 Director of the Body-in-White Production Division
- 1994 - 1997 Technical Director BMW South Africa
- 1997 - 2000 President BMW Manufacturing Corporation, USA (South
Carolina)
- 2000 - 2006 Member of the Board of Management; Production
Company Management

 Dr. Helmut Panke

Current Chairman of the Board of Management 2002-2006
 Born in 1946
 - 1976 – 1978 Researcher at the Swiss Institute of Nuclear Research
 - 1978 – 1982 Consultant at McKinsey & Co
 - 1982 – 1985 Head of planning & control at BMW
 - 1993 – 1995 CEO and Chairman of BMW (USA)
 - 2002 – 2006 Chairman of the Board of Management
 - 2006 Current member of the Board of Directors at Microsoft
Education : University of Munich, B.Sc, 1968; MS, 1972; PhD, 1976
BMW Group Shareholder Structure Overview

17.4

Stefan Quandt
Johanna Quandt
53.4 16.7
Susanne Klatten
Free Floating

12.5

STEFAN QUANT JOHANNA QUANDT SUSANNE KLATTEN

BMW Group Shareholder Structure Overview
Investor Type

8.8

46.6

44.6

Institutional Investors by Region

Germany Europe UK & Ireland N. America Rest of World

strategic investors institutional investors other investors

4.7
10.8

9.8

6.6

12.8
BMW Share Buyback Program
 Approved by shareholders on May 12, 2005

 BMW to buyback common shares up to a maximum of 10% of the company

share capital

 By the end 2005, 13,488,400 common shares have been bought back
(equivalent to 2% of the company’s share capital)

 Average price paid per share $37.49

 Approximate total cost for the share buyback program in 2005: $506 million

 In 2006, up to 1.5 millions shares of preferred stock will be bought back for
employee stock plan
BMW Group Production Figures
BMW Group Vehicle Model Analysis
 BMW Group Key Motorcycle Markets 2005
• Sales of motorcycles are down 2% from last year
• Inconsistent market development throughout 2005
Large increase in sales throughout most of Western Europe
Sales up 48% in Spain, 22% U.K. and 12% Italy
Sales down 9% in Germany
 Dividend Payout 1999-2005

0.7
0.66
0.64 0.64
0.62
0.6
0.6 0.58
0.55 0.55
0.52 0.52
0.5 0.48
0.46
0.42
0.4
0.4
Common shares
Euro

Preferred shares
0.3

0.2

0.1

0
1999 2000 2001 2002 2003 2004 2005
Date
Factors Affecting Profitability
 Sharp rise in crude oil prices
 Reduced consumer buying power and demand
 Elevated price of raw materials such as steel and other metals

 Intense competition from Asian competitors

 Fluctuating currency exchange rate
 Large capital expenditure costs
BMW Group Capital Expenditure and
Cash Flow Data
Financial Statements
BMW Group Income
Statement for the period
of January 1 to September
30, 2006
BMW Group Income
Statement for 3rd Quarter
BMW Group
Cash Flow
Statement
for the period
January 1 to
September
30, 2006
BMW Group Balance
Sheet
BMW Group Balance
Sheet
BMW Group Growth Strategies
 Objective: increase volume of automobiles sold

 Producing more fuel efficient vehicles

BMW Group Growth Strategies
 Increasing consumer demand with by producing safer and more
reliable vehicles

BMW NightVision
BMW Group Growth Strategies
 Introduction of the first luxury hydrogen hybrid car 745hL

 September 2005, BMW joins hybrid technology sharing partnership with

GM and Mercedes to build gas-electric engines
BMW Group Growth Strategies

 Continued sales network expansion to meet the needs and demands of

local consumer
 Continue to penetrate the dynamic Asian markets
 Beginning preparation to enter the Indian market
 Starting 2007, BMW will build a production plant in Chennai, India
 Move down market and target a younger demographic with less
income with the 1 series

1 Series arriving in N. America in

late 2007
BMW Group Growth Strategies
 Continued roll out of new updated versions of existing vehicle
models
 BMW
 New redesigned 3 series launched late 2005
 New redesigned X5 launches late November 2006
 New redesigned 7 series launches 2008

 MINI
 New redesigned MINI Cooper launches late November 2006
 Rolls Royce
 New convertible and coupe version of Phantom available late 2007
Fisher’s Analysis
1) Financial Skill
- Great financial performance with increasing profits
- Industry product leadership
2) People Factor
- Great management team; relatively good employee relationship
3) Investment Characteristics
- Limited growth space due to intense competition
- Low industry profit margin
4) Investment Price
- P/E ratio is relatively low
Recommendation

HOLD
Honda Motor Co., Ltd.
Agenda
 Current Financial Position
 Company Analysis
 Financial Analysis
 Semi-annual Financial Statements
 Annual Financial Statements

 Fisher’s Analysis
 Recommendation
Company Snap Shot
 Industry: Consumer Products (Automotive)
 Listed: NYSE (HMC-N)
TSE (7267)
 Share price: US $34.870
 P/E: 12.00
 EPS: US $2.90
 Dividend: US $0.51
 Yield: 1.50%
 # of shares outstanding: 1,834,828,000
Chart: 1 Year (Daily)

Source: Globeinvestor.com
Chart: 10 Years (Weekly)

Source: http://money.cnn.com/
Chart: 3 Year Stock Performance
Compared to DJTA

Source: Globeinvestor.com
Credit Ratings
 As of March 31, 2006
Credit Ratings
Short-term Long-term
unsecured unsecured
Agencies debt securities debt securities
Moody's Investors
Service P-1 A1
Standard & Poor's
Rating Services A-1 A+
Company Analysis
Overview
 Established in 1948
 Four lines of business:
 Motorcycles
 Automobiles
 Power products and others
 Financial services
 Over 61 principal subsidiaries
 ~32 manufacturing facilities in 19 countries
 Total of about 144,785 full-time employees
History
1948 Honda Motor Co., Ltd. incorporated (capital: 1 million yen)

1949 First motorcycle manufactured

1953 H-type engine, Honda’s first power product, produced

1957 Listed on the Tokyo Stock Exchange

1962 ADRs issued at market price.

Adopts consolidated accounting using U.S. SEC standards

1963 Honda’s first sports car (S500) and light truck (T360) released
History
1977 ADRs listed on the New York Stock Exchange (NYSE)
Consolidated financial disclosure begins

1983 Cumulative automobile production reaches 10 million units

1995 Cumulative automobile production reaches 30 million units

2004 Honda enter cooperative agreement with GE to jointly market

the independently developed HF118 jet engine

2006 Implementation of two-for-one stock split for common shares

Corporate Governance
Corporate Governance
Takeo Fukui
President, CEO, and Rep Director
An engineer
Joined Honda since 1969
President since 1998
CEO since 2003

Satoshi Aoki
Executive VP and Rep Director
Joined Honda since 1969
Promoted to Executive VP in summer 2005
Lines of Business
 Motorcycles
 Automobiles
 Power products and Others
 Financial services
Fields of Business
 Research & Development
 ASIMO
 HondaJet
 Next generation powertrains

 Manufacturing & Distribution

 Local production plants to meet local demand

 Sales & Services

 Emphasis on customer satisfaction
R&D Efforts
Key Regions of Operation
 Japan
 Centers for R&D, manufacturing, and customer service
 North America
 Honda’s overall largest market
 Europe
 Increasing brand popularity
 Asia
 China – increasing production facilities
 Others
 Honda has over 80% market share in Brazilian
motorcycle industry
Unit Sales Breakdown

 ~53% from motorcycles, ~17% from automobiles, and ~30% from

power products
Revenue and Operating Margin
Business Segment Information
Revenue Breakdown by
Business Segments (%)
90.00%
80.00%
Motorcycle Business
70.00%
60.00% Automobile Business
50.00%
40.00% Financial Services
30.00%
20.00% Power Products and
Others
10.00%
0.00%
2002 2003 2004 2005 2006
Geographic Segment Information
Revenue Breakdown by
Geographic Segments (%)
70.00%
60.00%
50.00% Japan
North America
40.00%
Europe
30.00%
Asia
20.00%
Others
10.00%
0.00%
2002 2003 2004 2005 2006
Risk Factors
 Exchange and interest rate risks
 Market condition/Intensity of competition
 Political condition
 Relationship with suppliers of raw materials
 Legal and regulatory risks
 Environmental and governmental regulations
 Patents and trademarks
Growth Strategies
 Motorcycles
 Equipping scooters with automatic transmission
 Equipping more models with PGM-FI and other features
that provide superior environmental performance
 Launching new models
 Offering the first motorcycles with airbags
 Increasing production capacity in Asia
 Beginning production in Argentina
 2007 Sales forecast: 10,840,000 units
Growth Strategies
 Automobiles
 Launching new model of SUV and refine existing
models
 Expanding light truck models
 Expanding sales and services centers in Asia to
meet increasing demand
 Expanding production capacity to meet demand
in Brazil
 2007 Sales forecast: 3,720,000 units
Growth Strategies
 Power products
 Supplying cost-competitive general-purpose
engines from Asia
 Extending sales of compact, home-use
cogeneration system from Japan to the US
 2007 Sales forecast: 5,880,000 units
News
 Nov. 21, 2006
 2007 Honda CR-V and Pilot Earn Insurance
Institute for Highway Safety TOP SAFETY PICK
Award
 2007 Acura RDX Earns an Insurance Institute for
Highway Safety TOP SAFETY PICK Award
 Nov. 7, 2006
 HondaJet Named Winner of Popular Science's
2006
 Sept. 27, 2006
 HondaJet Goes on Sale at National Business
Aviation Association Convention
Financial Analysis
Financial Highlights
2006 Capital Expenditure Breakdown
by Business Segments
Forecasted 2007 Cap. Ex. Breakdown
by Business Segments
Semi-annual
Financial
Statements
Semi-annual Financial Highlights
Financial Results
Important Factors
Annual Financial
Statements
Fisher’s Analysis
Superiority in Financial skills,
Production, Marketing, Research
 Clear, easy to read annual reports and financial
statement
 Financial statements not prepared in accordance
with the US GAAP
 Steady increase of capital expenditure
 Over 30 principal manufacturing facilities
 About 145,000 full-time employees
 ~5% of total revenue used toward R&D
People Factor
 Experienced management team
 Promote from within
 CEO is customer-oriented
 Executives and managers make up the
board of directors, this may decrease the
effectiveness of corporate governance and
increase risk for stakeholders
Investment Characteristics of Some
Business
 Strong market position
 Diversified into related businesses where
there are strategic fits and benefited from
economies of scope
P/E Ratio
 P/E ratio: 12.00
 Competitor P/E ratios:
 General Motors: 40.00
 BMW: 10.43
 Ford Motors: 0.00 (negative EPS)
 Toyota: 14.70
 Nissan: 0.00 (0 EPS)
Recommendation
BUY
General Motors
Table of Contents
 Stock price
 Company Background
 Company Analysis
 Financial Highlight
 (06 3rd Quarter report  05 Annual report)
 Income statement
 Balance sheet
 Cash flow statement
 Conclusion & Recommendation
Current Position on
Nov. 24, 2006
 Industry: Global Automobile
 Ticker Symbol: GM-N (NYSE)
 Share Price: $31.23
 52 week range: $18.33 - 36.56
 P/E: 40.00
 EPS: $0.78
 Dividend: $1 (3.2%)
 Shares Outstanding: 565,611,157
 Market Capital: $20,096,164,408

Globeinvestor.com and merchantonline.com

5-Year Stock Price

(from bigcharts.com)
1-Year Stock Price

(from bigcharts.com)
GM vs. S&P/TSX Composite Index

Globeinvestor.com
Definitions
 GMA – GM Auto
 GMNA - GM North America
 GME - GM Europe

 GMLAAM - GM Latin America / Africa / Mid-East

 GMAP - GM Asia Pacific

 GMAC – General Motors Acceptance Corporation

Background
 The world's largest automaker
 Founded in 1908
 Global industry sales leader for 75 years
 GM today employs 327,000 people in the world
 Huge labor pension cost
 Global headquarters in Detroit, Michigan, USA
 GM manufactures its cars and trucks in 33
countries
GM’s Products

 In 2005, 9.17 million GM cars and trucks were sold globally under the
following brands:
•GM •Opel
•Buick
•Cadillac •Daewoo •Pontiac
•Chevrolet •Holden •Saab
•GMC •HUMMER •Saturn
•Vauxhall
 GM operates one of the world's leading finance companies
 GMAC Financial Services, which offers
 automotive, residential and commercial financing and insurance.

 GM's OnStar subsidiary is the industry leader in

 vehicle safety, security and information services.
GMA & GMAC Revenue Share
- Nine months ended September 30, 2006
Other Other
Auto Financ
GMAC
1% ing
17%
0%

GMA
GMA GMAC
82%
Other Auto Other Financing
Global Partnerships
 Majority shareholder of GM Daewoo Auto & Technology Co.
of South Korea

 Has 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
Type of Vehicle and Market Share
Management
 Key people
 G. Richard Wagoner, Jr.
 Chairman & CEO since May 1, 2003
 Joined GM since 1977
 BA in economics from Duke University
 MBA from Harvard Business School

 Frederick (Fritz) A. Henderson

 Vice Chairman and CFO since Jan. 1, 2006
 Joined GM since 1984
 BBA from the University of Michigan
 MBA from Harvard Business School

 Robert A. Lutz
 Vice Chairman, Global Product Development since Sept. 1, 2001
 Former CEO of Excide Technologies & Vice Chairman of Chrysler Corporation
 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
The World's Largest Automaker
 GM's largest national market in order:
1. the United States
2. China
3. Canada
4. the United Kingdom and Germany.

 Global market share for vehicles sales:

 14.2%(2005) from 14.4%(2004)
Declining Revenue

 High oil price

 GM produce high horse power vehicles
 Used to be American consumers’ favorite
 People switch to low oil consumption
vehicles
 Japanese cars
 Korean cars
Competitive Position
Financial Statement Analysis
The 2006 3rd Quarter Report
Ended at September 30, 2006
2006 Quarter Revenue Breakdown
- Auto & Financing and Insurance Operations
2006 Quarter GMA Net Income by Region
2006 Quarter GMAC Net Income by
Division
06~07 EPS Estimates

(Earning estimates from Zacks.com)

Segment Reporting
GMA Revenue Share by Region
- Nine months ended September 30, 2006
GMAP
GM LAAM 9%
8%

GME
19%
GMNA
64%

GMNA GME GM LAAM GMAP

Financial Statement Analysis
2005 Annual Report
General Idea about the
Performance of GM in 2005
 GM is losing big money in North America
 GMA’s global sales revenue is good (growth)
 GMAC is making money
 We can see that the auto division is dragging the
company performance
Breakdown of GMA’s Loss by region in 2005
Breakdown of GMAC’s profit in 2005
Financial Highlights
(In USD as of 12/31/2005)

Total Revenue 192,604,000,000

EBITDA 31,516,000,000
Net Loss (10,567,000,000)
Total Assets 476,078,000,000
Current Assets 99,414,000,000
Total Liabilities 461,481,000,000
Current Liabilities 117,963,000,000
Long Term Debt 202,177,000,000
Stockholders' Equity 14,597,000,000
GM’s Main Challenges
 Huge legacy cost burden

 Inability to adjust structural costs in line

with falling revenue
GM’s Legacy Challenge
 Huge retiree population  Huge cost for health care & pensions
 11.5 active employees support 1 retiree in 1962
 1 active employee supports 3.2 retirees in 2005
 Health care bills totaled $5.3 billion in 2005
 No other company has this much health-care obligation
 (!!!Big competitive disadvantage)
Estimated Future Employee Benefit Payments
Consolidated Balance Sheet
- Asset
Consolidated Balance Sheet
- Liabilities and Stockholders’ Equity
Breakdown for Balance Sheet
- Asset
Breakdown for Balance Sheet
- Liabilities and Stockholders’ Equity
Consolidated Income Statement
Breakdown for Consolidated Income Statement
Loss from Continuing Operations
2005 to 2004 Comparison
 Net sales fell to $192.6 billion from 193.5 billion
 Net loss of $10.6 billion from Net income of $2.8
billions
 Unfavorable results primarily due to losses at GMNA
 GMAC net income declined to $2.4 from $3.0 billion
Reasons for Unfavorable results in 2005

 GMNA market share and product mix

 Revenue declining
 Delphi Chapter 11 Proceeding
 GM recorded a charge of $5.5 billion
 Including the benefit guarantees for certain former GM U.S.
employees who transferred to Delphi
 GMNA restructuring and global asset Impairments
 Health-care cost escalation
Factors for Loss in GMNA
 Unfavorable product mix ($2.2 billion loss)
 Reduced in demand for higher margin large utility vehicles (reaching the end of
the life cycle)

 Production volume decreases ($2.1 b. loss)

 Market share decline
 Reduction in dealer inventories

 Unfavorable material costs ($700 mil. loss)

 Increased health-care expenses ($600 mil. loss)

 Escalating health care cost trends

 Advertising and sales promotion cost increase ($500 mil. loss)

 Restructuring charge ($1.7 b. loss)

 After-tax impairment charge ($552 mil. loss)

North America 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

GMNA Turnaround Plan Highlight

 Cease production at 12 U.S. plans by 2008

 Reduce 30,000 manufacturing positions
 Work with United Auto Workers to reduce health-care
obligations by $15 billion
 Modify pension benefits
 Reduce salaries of top executives
 Reduce dividend by 50%
Consolidated Cash Flow Statement (cont.)
Supplementary Information for Cash Flow Statement
(cont.)
GM Profitability Plan
 Keep working on cost reduction

 Growing revenue around the world

 Invest in technology, better fuel efficiency

 Revitalizing sales and marketing strategy

Significant Events
 Delphi Bankruptcy

 GMAC – Pending Sale of 51% controlling interest

 Discussions with Renault and Nissan

 Sale of investments in Isuzu and Suzuki

 Sale of Regional Homebuilder

GM-Fisher’s Analysis
 1) Financial Skill
 Bad financial performance in GMA
 Depending on profits from GMAC
 2) People Factor
 Great management team
 Relatively bad employee relationship (cutting pension
expense)
 3) Investment Characteristics
 Limited growth space due to intense competition
 Low industry profit margin (negative profit)
 4) Investment Price
 P/E ratio is High
 Increasing stock price if turn the Net loss around
Recommendation