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Global Auto Industry
Franklin Guo
Dat HongRex LiuReya Lu
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Auto Manufacturing Industry Agenda
Auto Manufacturing History & Regulation
Business Strategy & Characteristics
Global Auto Supply Chain
Global Auto Sales & Production Analysis
Industry Future Forecast
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Auto Manufacturing History
Eras of Invention (late 17th century 1890s):
A small steam car was demonstrated in 1678
The early automobiles manufacturing companies: Panhardet Levassor, Oldsmobile, Cadillac, Winton, Ford, etc.
After 1930, the number of auto manufacturers declinedsharply as the industry consolidated and matured.
By 1960s, foreign competition arose as Japaneseappeared as a serious auto manufacturing nation.
Captive imports and badge engineering swept throughthe U.S. and UK, resulting in major acquisitions andmerges by the end of 1960s.
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Auto Manufacturing History
As the 1973 oil crisis, automobile emissions controlrules, Japanese and European imports, and stagnantinnovation changed American industry.
Small imported cars outperformed large American ones,and the domestic auto industry began to fail. Smallperformance cars from BMW, Toyota, and Nissan tookthe place of big-engined cars from America and Italy.
Major M & A, alliance:
GM---SAAB, Daewoo; Isuzu, Subaru, SuzukiFord---Jaguar, Land Rover, Volvo; MazdaBenz---ChryslerRenault---Nissan
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Regulation History
Emission Regulation Act
Since 1970, emissions from motor vehicles were regulated byTransport 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), automotiveemissions regulations have become the responsibility ofEnvironment Canada.
In 2001, Canadian government published the Canada GazettePart Ito develop and implement services and measures over thenext decade to further protect the health of Canadians and theenvironment by reducing emissions from vehicles, engines andfuels.
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Industry Overview
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The Automobile Design and Development Process
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Auto Industry Business Strategy
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Global Auto Ownership
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Porters 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
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Supply Chain
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Auto Suppliers
Facing a number of challenges including:A lack of pricing power, high labor costs,
decreasing volume and increasing rawmaterial costs;
NAFTA-only suppliers are losing marketshares to global suppliers.
Suppliers are trying to increase value-addedcontent, supply systems instead ofcomponents, technology innovations, etc.
Acquisitions, joint ventures, etc.
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M & A of Auto Suppliers
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Gasoline Prices Impact on Auto
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Changes in Gas Price vs. SUV & Hybrid AutoSales
Gasoline price has a positive correlation with the sales of hybrid
auto and a negative correlation with the sales of SUV.
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Global Auto Sales
http://www.scotiacapital.com/English/bns_econ/bns_auto.pdf
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Global Auto Production
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Current Auto Manufacturing
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Manufacturers Unit Price Comparison
On average, vehicles from US car makerswere sold for $21,597 in 2005, which was
13% below the comparable sales price forthe Japanese car makers. It was mainly
due to:
Missed design opportunitiesHeavy employee-level discounting
Higher labor costs
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Manufacturers Operating Margins
Comparison
US automakers operating margins are lower than their
major competitors.
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Manufacturers Profits Per Unit Comparison
Profit/Unit in $, 2005
-$1,500.00
-$1,000.00
-$500.00
$0.00
$500.00
$1,000.00
$1,500.00
$2,000.00
$2,500.00
Honda Toyota Nissan Chrysler
Group
Ford GM
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Cost Structure - CAPEX
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Cost Structure R&D
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Cost Structure Health & Pension
The U.S. Big Three reported that pension and health
cost them $1,500 per vehicle produced currently.
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Interoperability Costs
Imperfect interoperability impose costs due to highercosts of design and production and slowerimplementation of design changes.
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Vehicle Ownership Forecast
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U.S. Market Forecast
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Auto Market Forecast
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Global Auto Sales Forecast
Asia Pacific will lead in
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Other
2%
NA
26%
EU
33%
Asia
Pacific
35%
SA
4%
2004 2011
Global Production59.8 million
Global Production74.6 million
Asia Pacific will lead inproduction volumes by 2011 European production
levels will grow at 2%and most of it in CentralEurope, Turkey andRussia.
North American growthwill be coming fromtransplant operations of
Korean, Japanese andGerman OEMs.
China will expand itsproduction base at anaverage annual rate of12%. Exports of
Chinese cars to Europeand US will commenceby 2008- 2009.
South America will seerecovery and growth
specifically in Brazil.
Source: CSM Auto Production Forecast
Regional CAGR 2004-11
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%
Asia Pacific
EU
NA
SA
Other
Global
Other2%
SA
5%
Asia
Pacific
40%
EU
31%
NA
22%
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Emission Standards Comparison
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Emission Standards Comparison
ACEA agreement is a voluntary agreement between Europeanautomobiles manufacturers association and the EuropeanCommissions. Its goal is to reduce 25% of 1995s level of vehicleCO2 emissions by 2008. Automakers are questioned for failing todeliver the emissions cut.- Japan automakers joined the agreement later and aimed to reduce23% 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 by2010.
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 forautomobiles, currently under legislative review.
New York: Clean Cars Bill proposing to follow California standardsis currently in committee. Several other NE states have indicatedthey will follow CAs lead.
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Emission Standards Comparison
However, automakers are questioned for failing todeliver the emissions cut.
Nissan, Suzuki, Mazda, Audi, Volvo, BMW and
Volkswagen are the worst performers among agroup of 20 manufacturers surveyed by theInstitute for European Environmental Policy(IEEP) for T&E, the European Federation forTransport and the Environment.
There will be additional manufacturing associatedwith CO2 emission constraints.
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BMW Group
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BMW GroupSymbol : Common [BMW] Preferred [BMW3]Primary Exchange: FrankfurtCurrency: Euro ($1 EUR = $1.27 USD)
Key Share Information:
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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/AHigh: 44.36 Ask: N/ALow: 43.86 EPS: 4.23Volume: 21,311 P/E: 10.43
52 Week 52 WeekHigh: 45.97 Low: 35.68Yield: 1.45% Beta: 0.80Dividend per share: 0.64
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BMW Common Stock 5 Year Performance
Source: Deutsche Brse AG / Interactive Data Managed Solutions
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BMW Common Stock 1 Year Performance
Source: Deutsche Brse AG / Interactive Data Managed Solutions
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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/AHigh: 44.04 Ask: N/ALow: 43.28 EPS: 4.23Volume: 3,367 P/E: 10.71
52 Week 52 WeekHigh: 45.01 Low: 31.95Yield: 1.50% Beta: N/ADividend per share: 0.66
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BMW Preferred Stock 5 Year Performance
Source: Deutsche Brse AG / Interactive Data Managed Solutions
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BMW Preferred Stock 1 Year Stock Performance
Source: Deutsche Brse AG / Interactive Data Managed Solutions
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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 asfinancing/leasing and asset management
Conducts sales in approximately 40 international markets
Has 15 production facilities spanning 7 countries
Employs over 100,000 people globally
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Important Company Milestones
1972 - BMW ventures into South Africa and sets up first production plantoutside Germany
1992 BMW ventures into North American and sets up first productionplant in South Carolina
1994 BMW acquires the British based Rover Group, landing the brandsRover, 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 MINIbrand
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 inShenyang, China
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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 (SouthCarolina)- 2000 - 2006 Member of the Board of Management; Production
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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
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BMW Group Shareholder Structure Overview
17.4
16.7
12.5
53.4
Stefan Quandt
Johanna Quandt
Susanne Klatten
Free Floating
STEFAN QUANT JOHANNA QUANDT SUSANNE KLATTEN
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BMW Group Shareholder Structure OverviewInvestor Type
46.6
44.6
8.8
strategic investors institutional investors other investors
Institutional Investors by Region
10.8
6.6
12.8
9.8
4.7
Germ any Europe UK & Ireland N. Am erica Res t of World
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BMW Share Buyback Program Approved by shareholders on May 12, 2005
BMW to buyback common shares up to a maximum of 10% of the companyshare capital
By the end 2005, 13,488,400 common shares have been bought back(equivalent to 2% of the companys 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 foremployee stock plan
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BMW Group Production Figures
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BMW G V hi l M d l A l i
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BMW Group Vehicle Model Analysis
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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
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0.4
0.46
0.52 0.52
0.58
0.620.64
0.42
0.48
0.55 0.55
0.6
0.640.66
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
1999 2000 2001 2002 2003 2004 2005
Date
Euro Common shares
Preferred shares
Dividend Payout 1999-2005
Factors Affecting Profitability
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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
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BMW Group Capital Expenditure andCash Flow Data
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Financial Statements
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BMW Group IncomeStatement for the periodof January 1 to September30, 2006
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BMW Group IncomeStatement for 3rd Quarter
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BMW GroupCash FlowStatementfor the periodJanuary 1 toSeptember30, 2006
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BMW Group BalanceSheet
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BMW Group BalanceSheet
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BMW Group Growth Strategies Objective: increase volume of automobiles sold
Producing more fuel efficient vehicles
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BMW Group Growth Strategies
Increasing consumer demand with by producing safer and morereliable vehicles
BMW NightVision
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BMW Group Growth Strategies Introduction of the first luxury hydrogen hybrid car 745hL
September 2005, BMW joins hybrid technology sharing partnership withGM and Mercedes to build gas-electric engines
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BMW Group Growth Strategies
Continued sales network expansion to meet the needs and demands oflocal 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
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BMW Group Growth Strategies
Continued roll out of new updated versions of existing vehiclemodels
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
http://www.topspeed.com/cars/bmw/bmw-x5-ar11970/IMG/jpg/6/BMW_X5_4.8i_2007_001w.jpghttp://www.topspeed.com/cars/mini/mini-cooper-and-cooper-s-ar11301/image89041-0.html7/29/2019 417globalauto063dppt3851
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Fishers Analysis
1) Financial Skill- Great financial performance with increasing profits- Industry product leadership
2) People Factor- Great management team; relatively good employee relationship3) Investment Characteristics- Limited growth space due to intense competition- Low industry profit margin
4) Investment Price- P/E ratio is relatively low
R d ti
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HOLD
Recommendation
H d M C d
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Honda Motor Co., Ltd.
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Agenda
Current Financial Position
Company Analysis
Financial AnalysisSemi-annual Financial Statements
Annual Financial Statements
Fishers Analysis Recommendation
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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
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Chart: 1 Year (Daily)
Source: Globeinvestor.com
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Chart: 10 Years (Weekly)
Source: http://money.cnn.com/
Ch t 3 Y St k P f
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Chart: 3 Year Stock PerformanceCompared to DJTA
Source: Globeinvestor.com
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Credit Ratings
As of March 31, 2006
Agencies
Credit Ratings
Short-termunsecured
debt securities
Long-termunsecured
debt securities
Moody's Investors
Service P-1 A1Standard & Poor'sRating Services
A-1 A+
http://www.moodys.com/http://www.moodys.com/http://www2.standardandpoors.com/http://www2.standardandpoors.com/http://www2.standardandpoors.com/http://www2.standardandpoors.com/http://www.moodys.com/http://www.moodys.com/7/29/2019 417globalauto063dppt3851
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Company Analysis
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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
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History
1948 Honda Motor Co., Ltd. incorporated (capital: 1 million yen)
1949 First motorcycle manufactured
1953 H-type engine, Hondas 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 Hondas first sports car (S500) and light truck (T360)released
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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 marketthe independently developed HF118 jet engine
2006 Implementation of two-for-one stock split for common shares
Corporate Governance
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Corporate Governance
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Corporate Governance
Takeo Fukui
President, CEO, and Rep DirectorAn engineer
Joined Honda since 1969
President since 1998CEO since 2003
Satoshi Aoki
Executive VP and Rep DirectorJoined Honda since 1969
Promoted to Executive VP in summer 2005
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Lines of Business
Motorcycles
Automobiles
Power products and Others Financial services
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Fields of Business
Research & DevelopmentASIMO
HondaJet
Next generation powertrains
Manufacturing & Distribution Local production plants to meet local demand
Sales & Services Emphasis on customer satisfaction
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R&D Efforts
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Key Regions of Operation Japan
Centers for R&D, manufacturing, and customerservice
North America Hondas overall largest market
Europe Increasing brand popularity
Asia China increasing production facilities
Others Honda has over 80% market share in Brazilian
motorcycle industry
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Unit Sales Breakdown
~53% from motorcycles, ~17% from automobiles, and ~30%from power products
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Revenue and Operating Margin
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Business Segment Information
Revenue Breakdown by
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Revenue Breakdown byBusiness Segments (%)
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%60.00%
70.00%
80.00%
90.00%
2002 2003 2004 2005 2006
Motorcycle Business
Automobile Business
Financial Services
Power Products and
Others
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Geographic Segment Information
Revenue Breakdown by
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Revenue Breakdown byGeographic Segments (%)
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
2002 2003 2004 2005 2006
JapanNorth America
Europe
Asia
Others
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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
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Growth Strategies
Motorcycles Equipping scooters with automatic transmission
Equipping more models with PGM-FI and other
features that provide superior environmentalperformance
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
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Growth Strategies
AutomobilesLaunching new model of SUV and refine
existing models
Expanding light truck models
Expanding sales and services centers in Asiato meet increasing demand
Expanding production capacity to meetdemand in Brazil
2007 Sales forecast: 3,720,000 units
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Growth Strategies
Power products
Supplying cost-competitive general-purpose
engines from AsiaExtending sales of compact, home-use
cogeneration system from Japan to the US
2007 Sales forecast: 5,880,000 units
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News
Nov. 21, 2006
2007 Honda CR-V and Pilot Earn InsuranceInstitute for Highway Safety TOP SAFETY PICKAward
2007 Acura RDX Earns an Insurance Institute forHighway Safety TOP SAFETY PICK Award
Nov. 7, 2006
HondaJet Named Winner of Popular Science's2006
Sept. 27, 2006 HondaJet Goes on Sale at National Business
Aviation Association Convention
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Financial Analysis
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Financial Highlights
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2006 Capital Expenditure Breakdown
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2006 Capital Expenditure Breakdownby Business Segments
Forecasted 2007 Cap Ex Breakdown
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Forecasted 2007 Cap. Ex. Breakdownby Business Segments
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Semi-annualFinancialStatements
S i l Fi i l Hi hli ht
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Semi-annual Financial Highlights
Fi i l R lt
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Financial Results
I t t F t
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Important Factors
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Annual Financial
Statements
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Fishers Analysis
Superiority in Financial skills,
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Production, Marketing, Research
Clear, easy to read annual reports and financialstatement
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
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People Factor
Experienced management team
Promote from within
CEO is customer-oriented Executives and managers make up the
board of directors, this may decrease theeffectiveness of corporate governance and
increase risk for stakeholders
Investment Characteristics of Some
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Business
Strong market position
Diversified into related businesses where
there are strategic fits and benefited fromeconomies of scope
P/E Ratio
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P/E Ratio
P/E ratio: 12.00
Competitor P/E ratios:
General Motors: 40.00BMW: 10.43
Ford Motors: 0.00 (negative EPS)
Toyota: 14.70Nissan: 0.00 (0 EPS)
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Recommendation
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BUY
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General Motors
Table of Contents
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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
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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
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5 Year Stock Price
(from bigcharts.com)
1-Year Stock Price
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1 Year Stock Price
(from bigcharts.com)
GM vs. S&P/TSX Composite Index
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GM vs. S&P/TSX Composite Index
Globeinvestor.com
Definitions
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Definitions
GMAGM Auto GMNA - GM NorthAmerica
GME - GM Europe
GMLAAM - GM Latin America /Africa / Mid-East
GMAP - GMAsiaPacific
GMACGeneral Motors Acceptance Corporation
Background
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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 33countries
GMs Products
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In 2005, 9.17 million GM cars and trucks were sold globally under thefollowing brands:
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.
GMDaewooHoldenHUMMER
Opel
PontiacSaab
SaturnVauxhall
BuickCadillac
ChevroletGMC
GMA & GMAC Revenue Share- Nine months ended September 30, 2006
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GMAC17% 1%
nanc
ing
0%
GMA82%GMA GMAC
Other Auto Other Financing
Global Partnerships Majority shareholder of GM Daewoo Auto & Technology
C f S
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Co. of South Korea
Has product, powertrain and purchasing collaborationswith 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
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Management
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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:
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1. the United States2. China3. Canada4. the United Kingdom and Germany.
Global market share for vehicles sales:
14.2%(2005) from 14.4%(2004)
Declining Revenue
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ec g e e ue
High oil price
GM produce high horse power vehicles Used to be American consumers favorite
People switch to low oil consumptionvehicles
Japanese cars Korean cars
Competitive Position
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p
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Financial Statement Analysis
The 2006 3rd
Quarter ReportEnded at September 30, 2006
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2006 Quarter Revenue BreakdownAuto & Financing and Insurance Operations
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- Auto & Financing and Insurance Operations
2006 Quarter GMA Net Income by Region
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2006 Quarter GMAC Net Income byDivision
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06~07 EPS Estimates
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(Earning estimates from Zacks.com)
Segment Reporting
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GMA Revenue Share by Region
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9%GM LAAM
8%
GME
19%
GMNA
64%
GMNA GME GM LAAM GMAP
- Nine months ended September 30, 2006
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Financial Statement Analysis
2005 Annual Report
General Idea about thePerformance of GM in 2005
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GM is losing big money in North America
GMAs global sales revenue is good (growth)
GMAC is making money
We can see that the auto division is dragging thecompany performance
Breakdown of GMAs Loss by region in 2005
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Breakdown of GMACs profit in 2005
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Financial Highlights(In USD as of 12/31/2005)
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Total Revenue 192,604,000,000EBITDA 31,516,000,000
Net Loss (10,567,000,000)
Total Assets 476,078,000,000Current 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
GMs Main Challenges
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Huge legacy cost burden
Inability to adjust structural costs in linewith falling revenue
GMs Legacy Challenge
Huge retiree population Huge cost for health care & pensions
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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
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Consolidated Balance Sheet- Asset
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Consolidated Balance Sheet- Liabilities and Stockholders Equity
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Breakdown for Balance Sheet- Asset
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Breakdown for Balance Sheet- Liabilities and Stockholders Equity
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Consolidated Income Statement
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Breakdown for Consolidated Income Statement
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Loss from Continuing Operations
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2005 to 2004 Comparison
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Net sales fell to $192.6 billion from 193.5 billion
Net loss of $10.6 billion from Net income of $2.8billions
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
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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)
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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
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Keep raising the bar in the execution of great cars andtrucks
Revitalize sales and marketing strategy
Significantly improve cost competitiveness
Address health-care and pension legacy cost burden
GMNA Turnaround Plan Highlight
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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%
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Consolidated Cash Flow Statement (cont.)
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Supplementary Information for Cash Flow Statement (cont.)
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GM Profitability Plan
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Keep working on cost reduction
Growing revenue around the world
Invest in technology, better fuel efficiency
Revitalizing sales and marketing strategy
Significant Events
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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-Fishers Analysis1) Fi i l Skill
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1) Financial Skill Bad financial performance in GMA Depending on profits from GMAC
2) People Factor Great management team
Relatively bad employee relationship (cutting pensionexpense)
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
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Recommended