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  1. 1. Global Auto Industry Franklin Guo Dat Hong Rex Liu Reya Lu
  2. 2. Auto Manufacturing Industry Agenda <ul><li>Auto Manufacturing History & Regulation </li></ul><ul><li>Business Strategy & Characteristics </li></ul><ul><li>Global Auto Supply Chain </li></ul><ul><li>Global Auto Sales & Production Analysis </li></ul><ul><li>Industry Future Forecast </li></ul>
  3. 3. Auto Manufacturing History <ul><li>Eras of Invention (late 17th century – 1890s): </li></ul><ul><li>A small steam car was demonstrated in 1678 </li></ul><ul><li>The early automobiles manufacturing companies: Panhard et Levassor, Oldsmobile, Cadillac, Winton, Ford, etc. </li></ul><ul><li>After 1930, the number of auto manufacturers declined sharply as the industry consolidated and matured . </li></ul><ul><li>By 1960s, foreign competition arose as Japanese appeared as a serious auto manufacturing nation. </li></ul><ul><li>Captive imports and badge engineering swept through the U.S. and UK , resulting in major acquisitions and merges by the end of 1960s. </li></ul>
  4. 4. Auto Manufacturing History <ul><li>A s the 1973 oil crisis, automobile emissions control rules, Japanese and European imports, and stagnant innovation changed American industry. </li></ul><ul><li>S mall 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. </li></ul><ul><li>Major M & A, alliance: </li></ul><ul><li>GM---SAAB, Daewoo; Isuzu, Subaru, Suzuki </li></ul><ul><li>Ford---Jaguar, Land Rover, Volvo; Mazda </li></ul><ul><li>Benz---Chrysler </li></ul><ul><li>Renault---Nissan </li></ul>
  5. 5. Regulation History <ul><li>Emission Regulation Act </li></ul><ul><ul><li>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. </li></ul></ul><ul><ul><li>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. </li></ul></ul><ul><ul><li>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. </li></ul></ul>
  6. 6. Industry Overview
  7. 7. The Automobile Design and Development Process
  8. 8. Auto Industry Business Strategy
  9. 9. Global Auto Ownership
  10. 10. Porter’s Model for Automakers <ul><li>Barriers to entry </li></ul><ul><li>Weak supplier power </li></ul><ul><li>The threats to substitute products is low </li></ul><ul><li>However, are offset by </li></ul><ul><li>Strong rivalry among competitors </li></ul><ul><li>Bargaining power of consumers </li></ul>
  11. 11. Supply Chain
  12. 13. Auto Suppliers <ul><li>Facing a number of challenges including: </li></ul><ul><ul><li>A lack of pricing power, high labor costs, decreasing volume and increasing raw material costs; </li></ul></ul><ul><ul><li>NAFTA-only suppliers are losing market shares to global suppliers. </li></ul></ul><ul><ul><li>Suppliers are trying to increase value-added content, supply systems instead of components, technology innovations, etc. </li></ul></ul><ul><ul><li>Acquisitions, joint ventures, etc. </li></ul></ul>
  13. 14. M & A of Auto Suppliers
  14. 17. Gasoline Prices’ Impact on Auto
  15. 18. Changes in Gas Price vs. SUV & Hybrid Auto Sales <ul><li>Gasoline price has a positive correlation with the sales of hybrid auto and a negative correlation with the sales of SUV . </li></ul>
  16. 19. Global Auto Sales http://www.scotiacapital.com/English/bns_econ/bns_auto.pdf
  17. 21. Global Auto Production
  18. 23. Current Auto Manufacturing
  19. 26. Manufacturers’ Unit Price Comparison <ul><li>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: </li></ul><ul><ul><li>Missed design opportunities </li></ul></ul><ul><ul><li>Heavy employee-level discounting </li></ul></ul><ul><ul><li>Higher labor costs </li></ul></ul>
  20. 27. Manufacturers’ Operating Margins Comparison <ul><li>US automakers’ operating margins are lower than their major competitors’. </li></ul>
  21. 28. Manufacturers’ Profits Per Unit Comparison
  22. 29. Cost Structure - CAPEX
  23. 30. Cost Structure – R&D
  24. 31. Cost Structure – Health & Pension <ul><li>The U.S. “Big Three” reported that pension and health cost them $1,500 per vehicle produced currently. </li></ul>
  25. 33. Interoperability Costs <ul><li>Imperfect interoperability impose costs due to higher costs of design and production and slower implementation of design changes. </li></ul>
  26. 34. Vehicle Ownership Forecast
  27. 35. U.S. Market Forecast
  28. 36. Auto Market Forecast
  29. 38. Global Auto Sales Forecast
  30. 39. 2004 2011 Asia Pacific will lead in production volumes by 2011 <ul><li>European production levels will grow at 2% and most of it in Central Europe, Turkey and Russia. </li></ul><ul><li>North American growth will be coming from transplant operations of Korean, Japanese and German OEM’s. </li></ul><ul><li>China will expand its production base at an average annual rate of 12%. Exports of Chinese cars to Europe and US will commence by 2008- 2009. </li></ul><ul><li>South America will see recovery and growth specifically in Brazil . </li></ul>Source: CSM Auto Production Forecast Global Production 59.8 million Global Production 74.6 million
  31. 40. Emission Standards Comparison
  32. 41. Emission Standards Comparison <ul><li>“ 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 CO 2 emissions by 2008. Automakers are questioned for failing to deliver the emissions cut. </li></ul><ul><li>- Japan automakers joined the agreement later and aimed to reduce 23% in vehicle CO 2 emissions by 2010 (from 1995 levels). </li></ul><ul><li>Australia : voluntary commitment to improve fuel economy by 18% by 2010. </li></ul><ul><li>Canada : has proposed a 25% improvement in fuel economy by 2010. </li></ul><ul><li>China : Introduced new fuel economy standards in 2004; weight-based standards to be introduced in 2 phases (2005 and 2008). </li></ul><ul><li>California : CARB approved GHG emissions reductions for automobiles, currently under legislative review. </li></ul><ul><li>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. </li></ul>
  33. 42. Emission Standards Comparison <ul><li>However, automakers are questioned for failing to deliver the emissions cut. </li></ul><ul><li>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. </li></ul><ul><li>There will be additional manufacturing associated with CO 2 emission constraints. </li></ul>
  34. 43. BMW Group
  35. 44. BMW Group Symbol : Common [ BMW ] Preferred [ BMW3 ] Primary Exchange: Frankfurt Currency: Euro ($1 EUR = $1.27 USD) Key Share Information:
  36. 45. Common Stock Price (BMW) [Price in Euros] <ul><li>Last: $43.92 Change: $ -0.16 %Change: -0.36 </li></ul><ul><li>Date: Nov. 23, 2006 </li></ul><ul><li>Open: 44.10 Bid: N/A </li></ul><ul><li>High: 44.36 Ask: N/A </li></ul><ul><li>Low: 43.86 EPS: 4.23 </li></ul><ul><li>Volume: 21,311 P/E: 10.43 </li></ul><ul><li>52 Week 52 Week </li></ul><ul><li>High: 45.97 Low: 35.68 </li></ul><ul><li>Yield: 1.45% Beta: 0.80 </li></ul><ul><li>Dividend per share: 0.64 </li></ul>
  37. 46. BMW Common Stock 5 Year Performance Source: Deutsche Börse AG / Interactive Data Managed Solutions
  38. 47. BMW Common Stock 1 Year Performance Source: Deutsche Börse AG / Interactive Data Managed Solutions
  39. 48. Preferred Stock Price (BMW3) [Price in Euros] <ul><li>Last: $43.64 Change: -$0.25 %Change: -0.56 </li></ul><ul><li>Date: Nov. 23, 2006 </li></ul><ul><li>Open: 44.00 Bid: N/A </li></ul><ul><li>High: 44.04 Ask: N/A </li></ul><ul><li>Low: 43.28 EPS: 4.23 </li></ul><ul><li>Volume: 3,367 P/E: 10.71 </li></ul><ul><li>52 Week 52 Week </li></ul><ul><li>High: 45.01 Low: 31.95 </li></ul><ul><li>Yield: 1.50% Beta: N/A </li></ul><ul><li>Dividend per share: 0.66 </li></ul>
  40. 49. BMW Preferred Stock 5 Year Performance Source: Deutsche Börse AG / Interactive Data Managed Solutions
  41. 50. BMW Preferred Stock 1 Year Stock Performance Source: Deutsche Börse AG / Interactive Data Managed Solutions
  42. 52. Company Overview <ul><li>Established in 1916, originally founded as an aircraft engine manufacturer </li></ul><ul><li>Head offices located in Munich, Germany </li></ul><ul><li>One of the top 10 largest vehicle manufacturers in the world </li></ul><ul><li>Produces automobiles and motorbikes under the following premium brands: </li></ul><ul><li>BMW also operates successfully in the areas of financial services such as financing/leasing and asset management </li></ul><ul><li>Conducts sales in approximately 40 international markets </li></ul><ul><li>Has 15 production facilities spanning 7 countries </li></ul><ul><li>Employs over 100,000 people globally </li></ul><ul><li> </li></ul>
  43. 53. Important Company Milestones <ul><li>1972 - BMW ventures into South Africa and sets up first production plant outside Germany </li></ul><ul><li>1992 – BMW ventures into North American and sets up first production plant in South Carolina </li></ul><ul><li>1994 – BMW acquires the British based Rover Group, landing the brands Rover, Land Rover, MINI, and MG </li></ul><ul><li>1998 – BMW acquires the Rolls-Royce brand from Volkswagen Group; however, vehicle production is prohibited until 2003 </li></ul><ul><li>2000 – BMW sells the Rover brands at a loss; however, holds onto the MINI brand </li></ul><ul><li>2001 – BMW successfully introduces the MINI brand into the market </li></ul><ul><li>2003 – BMW re-launches the Rolls-Royce brand with the introduction of the $330,000 USD Phantom </li></ul><ul><li>2004 – BMW ventures into Asia and builds production plant in Shenyang, China </li></ul>
  44. 54. Company Management <ul><li>Dr. Norbert Reithofer </li></ul><ul><ul><li>Current Chairman of the Board of Management as of September 1, 2006 </li></ul></ul><ul><ul><li>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 </li></ul></ul>
  45. 55. Company Management <ul><li>Dr. Helmut Panke </li></ul><ul><li> Current Chairman of the Board of Management 2002-2006 </li></ul><ul><ul><li>Born in 1946 </li></ul></ul><ul><ul><li>- 1976 – 1978 Researcher at the Swiss Institute of Nuclear Research </li></ul></ul><ul><ul><li>- 1978 – 1982 Consultant at McKinsey & Co </li></ul></ul><ul><ul><li>- 1982 – 1985 Head of planning & control at BMW </li></ul></ul><ul><ul><li>- 1993 – 1995 CEO and Chairman of BMW (USA) </li></ul></ul><ul><ul><li>- 2002 – 2006 Chairman of the Board of Management </li></ul></ul><ul><ul><li>- 2006 Current member of the Board of Directors at Microsoft </li></ul></ul><ul><ul><li>Education : University of Munich, B.Sc, 1968; MS, 1972; PhD, 1976 </li></ul></ul>
  46. 56. BMW Group Shareholder Structure Overview STEFAN QUANT JOHANNA QUANDT SUSANNE KLATTEN
  47. 57. BMW Group Shareholder Structure Overview
  48. 58. BMW Share Buyback Program <ul><li>Approved by shareholders on May 12, 2005 </li></ul><ul><li>BMW to buyback common shares up to a maximum of 10% of the company share capital </li></ul><ul><li>By the end 2005, 13,488,400 common shares have been bought back (equivalent to 2% of the company’s share capital) </li></ul><ul><li>Average price paid per share $37.49 </li></ul><ul><li>Approximate total cost for the share buyback program in 2005: $506 million </li></ul><ul><li>In 2006, up to 1.5 millions shares of preferred stock will be bought back for employee stock plan </li></ul>
  49. 59. BMW Group Production Figures
  50. 61. BMW Group Vehicle Model Analysis
  51. 62. BMW Group Key Motorcycle Markets 2005 <ul><li>Sales of motorcycles are down 2% from last year </li></ul><ul><li>Inconsistent market development throughout 2005 </li></ul><ul><li>Large increase in sales throughout most of Western Europe </li></ul><ul><ul><li>Sales up 48% in Spain, 22% U.K. and 12% Italy </li></ul></ul><ul><ul><li>Sales down 9% in Germany </li></ul></ul>
  52. 63. Dividend Payout 1999-2005
  53. 64. Factors Affecting Profitability <ul><li>Sharp rise in crude oil prices </li></ul><ul><li>Reduced consumer buying power and demand </li></ul><ul><li>Elevated price of raw materials such as steel and other metals </li></ul><ul><li>Intense competition from Asian competitors </li></ul><ul><li>Fluctuating currency exchange rate </li></ul><ul><li>Large capital expenditure costs </li></ul>
  54. 65. BMW Group Capital Expenditure and Cash Flow Data
  55. 66. Financial Statements
  56. 67. BMW Group Income Statement for the period of January 1 to September 30, 2006
  57. 68. BMW Group Income Statement for 3 rd Quarter
  58. 69. BMW Group Cash Flow Statement for the period January 1 to September 30, 2006
  59. 70. BMW Group Balance Sheet
  60. 71. BMW Group Balance Sheet
  61. 72. BMW Group Growth Strategies <ul><li>Objective: increase volume of automobiles sold </li></ul><ul><ul><li>Producing more fuel efficient vehicles </li></ul></ul>
  62. 73. BMW Group Growth Strategies <ul><ul><ul><li>Increasing consumer demand with by producing safer and more reliable vehicles </li></ul></ul></ul>BMW NightVision
  63. 74. BMW Group Growth Strategies <ul><ul><li>Introduction of the first luxury hydrogen hybrid car 745hL </li></ul></ul><ul><ul><li>September 2005, BMW joins hybrid technology sharing partnership with GM and Mercedes to build gas-electric engines </li></ul></ul>
  64. 75. BMW Group Growth Strategies <ul><li>Continued sales network expansion to meet the needs and demands of local consumer </li></ul><ul><li>Continue to penetrate the dynamic Asian markets </li></ul><ul><li>Beginning preparation to enter the Indian market </li></ul><ul><ul><li>Starting 2007, BMW will build a production plant in Chennai, India </li></ul></ul><ul><li>Move down market and target a younger demographic with less income with the 1 series </li></ul>1 Series arriving in N. America in late 2007
  65. 76. BMW Group Growth Strategies <ul><li>Continued roll out of new updated versions of existing vehicle models </li></ul><ul><ul><li>BMW </li></ul></ul><ul><ul><li>New redesigned 3 series launched late 2005 </li></ul></ul><ul><ul><li>New redesigned X5 launches late November 2006 </li></ul></ul><ul><ul><li>New redesigned 7 series launches 2008 </li></ul></ul><ul><ul><li>MINI </li></ul></ul><ul><ul><li>New redesigned MINI Cooper launches late November 2006 </li></ul></ul><ul><ul><li>Rolls Royce </li></ul></ul><ul><ul><li>New convertible and coupe version of Phantom available late 2007 </li></ul></ul>
  66. 77. Fisher’s Analysis <ul><li>1) Financial Skill </li></ul><ul><li>Great financial performance with increasing profits </li></ul><ul><li>Industry product leadership </li></ul><ul><li>2) People Factor </li></ul><ul><li>Great management team; relatively good employee relationship </li></ul><ul><li>3) Investment Characteristics </li></ul><ul><li>Limited growth space due to intense competition </li></ul><ul><li>Low industry profit margin </li></ul><ul><li>4) Investment Price </li></ul><ul><li>- P/E ratio is relatively low </li></ul>
  67. 78. HOLD Recommendation
  68. 79. Honda Motor Co., Ltd.
  69. 80. Agenda <ul><li>Current Financial Position </li></ul><ul><li>Company Analysis </li></ul><ul><li>Financial Analysis </li></ul><ul><ul><li>Semi-annual Financial Statements </li></ul></ul><ul><ul><li>Annual Financial Statements </li></ul></ul><ul><li>Fisher’s Analysis </li></ul><ul><li>Recommendation </li></ul>
  70. 81. Company Snap Shot <ul><li>Industry: Consumer Products (Automotive) </li></ul><ul><li>Listed: NYSE (HMC-N) </li></ul><ul><li>TSE (7267) </li></ul><ul><li>Share price: US $34.870 </li></ul><ul><li>P/E: 12.00 </li></ul><ul><li>EPS: US $2.90 </li></ul><ul><li>Dividend: US $0.51 </li></ul><ul><li>Yield: 1.50% </li></ul><ul><li># of shares outstanding: 1,834,828,000 </li></ul>
  71. 82. Chart: 1 Year (Daily) <ul><li>Source: Globeinvestor.com </li></ul>
  72. 83. Chart: 10 Years (Weekly) <ul><li>Source: http://money.cnn.com/ </li></ul>
  73. 84. Chart: 3 Year Stock Performance Compared to DJTA <ul><li>Source: Globeinvestor.com </li></ul>
  74. 87. Credit Ratings <ul><li>As of March 31, 2006 </li></ul>A+ A-1 Standard & Poor's Rating Services A1 P-1 Moody's Investors Service Long-term unsecured debt securities Short-term unsecured debt securities Credit Ratings Agencies
  75. 88. Company Analysis
  76. 89. Overview <ul><li>Established in 1948 </li></ul><ul><li>Four lines of business: </li></ul><ul><ul><li>Motorcycles </li></ul></ul><ul><ul><li>Automobiles </li></ul></ul><ul><ul><li>Power products and others </li></ul></ul><ul><ul><li>Financial services </li></ul></ul><ul><li>Over 61 principal subsidiaries </li></ul><ul><li>~32 manufacturing facilities in 19 countries </li></ul><ul><li>Total of about 144,785 full-time employees </li></ul>
  77. 90. History <ul><li>1948 Honda Motor Co., Ltd. incorporated (capital: 1 million yen) </li></ul><ul><li>1949 First motorcycle manufactured </li></ul><ul><li>1953 H-type engine, Honda’s first power product, produced </li></ul><ul><li>1957 Listed on the Tokyo Stock Exchange </li></ul><ul><li>1962 ADRs issued at market price. </li></ul><ul><li> Adopts consolidated accounting using U.S. SEC standards </li></ul><ul><li>1963 Honda’s first sports car (S500) and light truck (T360) released </li></ul>
  78. 91. History <ul><li>1977 ADRs listed on the New York Stock Exchange (NYSE) </li></ul><ul><li>Consolidated financial disclosure begins </li></ul><ul><li>1983 Cumulative automobile production reaches 10 million units </li></ul><ul><li>1995 Cumulative automobile production reaches 30 million units </li></ul><ul><li>2004 Honda enter cooperative agreement with GE to jointly market the independently developed HF118 jet engine </li></ul><ul><li>2006 Implementation of two-for-one stock split for common shares </li></ul>
  79. 92. Corporate Governance
  80. 93. Corporate Governance <ul><li>Takeo Fukui </li></ul><ul><li>President, CEO, and Rep Director </li></ul><ul><li>An engineer </li></ul><ul><li>Joined Honda since 1969 </li></ul><ul><li>President since 1998 </li></ul><ul><li>CEO since 2003 </li></ul><ul><li>Satoshi Aoki </li></ul><ul><li>Executive VP and Rep Director </li></ul><ul><li>Joined Honda since 1969 </li></ul><ul><li>Promoted to Executive VP in summer 2005 </li></ul>
  81. 94. Lines of Business <ul><li>Motorcycles </li></ul><ul><li>Automobiles </li></ul><ul><li>Power products and Others </li></ul><ul><li>Financial services </li></ul>
  82. 95. Fields of Business <ul><li>Research & Development </li></ul><ul><ul><li>ASIMO </li></ul></ul><ul><ul><li>HondaJet </li></ul></ul><ul><ul><li>Next generation powertrains </li></ul></ul><ul><li>Manufacturing & Distribution </li></ul><ul><ul><li>Local production plants to meet local demand </li></ul></ul><ul><li>Sales & Services </li></ul><ul><ul><li>Emphasis on customer satisfaction </li></ul></ul>
  83. 96. R&D Efforts
  84. 97. Key Regions of Operation <ul><li>Japan </li></ul><ul><ul><li>Centers for R&D, manufacturing, and customer service </li></ul></ul><ul><li>North America </li></ul><ul><ul><li>Honda’s overall largest market </li></ul></ul><ul><li>Europe </li></ul><ul><ul><li>Increasing brand popularity </li></ul></ul><ul><li>Asia </li></ul><ul><ul><li>China – increasing production facilities </li></ul></ul><ul><li>Others </li></ul><ul><ul><li>Honda has over 80% market share in Brazilian motorcycle industry </li></ul></ul>
  85. 98. Unit Sales Breakdown <ul><li>~53% from motorcycles, ~17% from automobiles, and ~30% from power products </li></ul>
  86. 99. Revenue and Operating Margin
  87. 100. Business Segment Information
  88. 101. Revenue Breakdown by Business Segments (%)
  89. 102. Geographic Segment Information
  90. 103. Revenue Breakdown by Geographic Segments (%)
  91. 104. Risk Factors <ul><li>Exchange and interest rate risks </li></ul><ul><li>Market condition/Intensity of competition </li></ul><ul><li>Political condition </li></ul><ul><li>Relationship with suppliers of raw materials </li></ul><ul><li>Legal and regulatory risks </li></ul><ul><ul><li>Environmental and governmental regulations </li></ul></ul><ul><ul><li>Patents and trademarks </li></ul></ul>
  92. 105. Growth Strategies <ul><li>Motorcycles </li></ul><ul><ul><li>Equipping scooters with automatic transmission </li></ul></ul><ul><ul><li>Equipping more models with PGM-FI and other features that provide superior environmental performance </li></ul></ul><ul><ul><li>Launching new models </li></ul></ul><ul><ul><li>Offering the first motorcycles with airbags </li></ul></ul><ul><ul><li>Increasing production capacity in Asia </li></ul></ul><ul><ul><li>Beginning production in Argentina </li></ul></ul><ul><li>2007 Sales forecast: 10,840,000 units </li></ul>
  93. 106. Growth Strategies <ul><li>Automobiles </li></ul><ul><ul><li>Launching new model of SUV and refine existing models </li></ul></ul><ul><ul><li>Expanding light truck models </li></ul></ul><ul><ul><li>Expanding sales and services centers in Asia to meet increasing demand </li></ul></ul><ul><ul><li>Expanding production capacity to meet demand in Brazil </li></ul></ul><ul><li>2007 Sales forecast: 3,720,000 units </li></ul>
  94. 107. Growth Strategies <ul><li>Power products </li></ul><ul><ul><li>Supplying cost-competitive general-purpose engines from Asia </li></ul></ul><ul><ul><li>Extending sales of compact, home-use cogeneration system from Japan to the US </li></ul></ul><ul><li>2007 Sales forecast: 5,880,000 units </li></ul>
  95. 108. News <ul><li>Nov. 21, 2006 </li></ul><ul><ul><li>2007 Honda CR-V and Pilot Earn Insurance Institute for Highway Safety TOP SAFETY PICK Award </li></ul></ul><ul><ul><li>2007 Acura RDX Earns an Insurance Institute for Highway Safety TOP SAFETY PICK Award </li></ul></ul><ul><li>Nov. 7, 2006 </li></ul><ul><ul><li>HondaJet Named Winner of Popular Science's 2006 </li></ul></ul><ul><li>Sept. 27, 2006 </li></ul><ul><ul><li>HondaJet Goes on Sale at National Business Aviation Association Convention </li></ul></ul>
  96. 109. Financial Analysis
  97. 110. Financial Highlights
  98. 113. 2006 Capital Expenditure Breakdown by Business Segments
  99. 114. Forecasted 2007 Cap. Ex. Breakdown by Business Segments
  100. 115. Semi-annual Financial Statements
  101. 116. Semi-annual Financial Highlights
  102. 117. Financial Results
  103. 118. Important Factors
  104. 131. Annual Financial Statements
  105. 138. Fisher’s Analysis
  106. 139. Superiority in Financial skills, Production, Marketing, Research <ul><li>Clear, easy to read annual reports and financial statement </li></ul><ul><li>Financial statements not prepared in accordance with the US GAAP </li></ul><ul><li>Steady increase of capital expenditure </li></ul><ul><li>Over 30 principal manufacturing facilities </li></ul><ul><li>About 145,000 full-time employees </li></ul><ul><li>~5% of total revenue used toward R&D </li></ul>
  107. 140. People Factor <ul><li>Experienced management team </li></ul><ul><li>Promote from within </li></ul><ul><li>CEO is customer-oriented </li></ul><ul><li>Executives and managers make up the board of directors, this may decrease the effectiveness of corporate governance and increase risk for stakeholders </li></ul>
  108. 141. Investment Characteristics of Some Business <ul><li>Strong market position </li></ul><ul><li>Diversified into related businesses where there are strategic fits and benefited from economies of scope </li></ul>
  109. 142. P/E Ratio <ul><li>P/E ratio: 12.00 </li></ul><ul><li>Competitor P/E ratios: </li></ul><ul><ul><li>General Motors: 40.00 </li></ul></ul><ul><ul><li>BMW: 10.43 </li></ul></ul><ul><ul><li>Ford Motors: 0.00 (negative EPS) </li></ul></ul><ul><ul><li>Toyota: 14.70 </li></ul></ul><ul><ul><li>Nissan: 0.00 (0 EPS) </li></ul></ul>
  110. 143. Recommendation
  111. 144. BUY
  112. 145. General Motors
  113. 146. Table of Contents <ul><li>Stock price </li></ul><ul><li>Company Background </li></ul><ul><li>Company Analysis </li></ul><ul><li>Financial Highlight </li></ul><ul><ul><ul><ul><ul><li>(06 3 rd Quarter report  05 Annual report) </li></ul></ul></ul></ul></ul><ul><ul><li>Income statement </li></ul></ul><ul><ul><li>Balance sheet </li></ul></ul><ul><ul><li>Cash flow statement </li></ul></ul><ul><li>Conclusion & Recommendation </li></ul>
  114. 147. Current Position on Nov. 24, 2006 <ul><li>Industry: Global Automobile </li></ul><ul><li>Ticker Symbol: GM-N (NYSE) </li></ul><ul><li>Share Price: $31.23 </li></ul><ul><li>52 week range: $ 18.33 - 36.56 </li></ul><ul><li>P/E: 40.00 </li></ul><ul><li>EPS: $0.78 </li></ul><ul><li>Dividend: $1 (3.2%) </li></ul><ul><li>Shares Outstanding: 565,611,157 </li></ul><ul><li>Market Capital: $ 20,096,164,408 </li></ul>Globeinvestor.com and merchantonline.com
  115. 148. 5-Year Stock Price (from bigcharts.com)
  116. 149. 1-Year Stock Price (from bigcharts.com)
  117. 150. GM vs. S&P/TSX Composite Index Globeinvestor.com
  118. 151. Definitions <ul><li>GMA – GM Auto </li></ul><ul><ul><ul><li>GMNA - GM North America </li></ul></ul></ul><ul><ul><ul><li>GME - GM Europe </li></ul></ul></ul><ul><ul><ul><li>GMLAAM - GM Latin America / Africa / Mid-East </li></ul></ul></ul><ul><ul><ul><li>GMAP - GM Asia Pacific </li></ul></ul></ul><ul><li>GMAC – General Motors Acceptance Corporation </li></ul>
  119. 152. Background <ul><li>The world's largest automaker </li></ul><ul><li>Founded in 1908 </li></ul><ul><li>Global industry sales leader for 75 years </li></ul><ul><li>GM today employs 327,000 people in the world </li></ul><ul><ul><ul><li>Huge labor pension cost </li></ul></ul></ul><ul><li>Global headquarters in Detroit, Michigan, USA </li></ul><ul><li>GM manufactures its cars and trucks in 33 countries </li></ul>
  120. 153. GM’s Products <ul><li>In 2005, 9.17 million GM cars and trucks were sold globally under the following brands: </li></ul><ul><li>GM operates one of the world's leading finance companies </li></ul><ul><ul><ul><li>GMAC Financial Services, which offers </li></ul></ul></ul><ul><ul><ul><li>automotive , residential and commercial financing and insurance . </li></ul></ul></ul><ul><li>GM's OnStar subsidiary is the industry leader in </li></ul><ul><ul><ul><li>vehicle safety , security and information services . </li></ul></ul></ul><ul><ul><li>GM </li></ul></ul><ul><ul><li>Daewoo </li></ul></ul><ul><ul><li>Holden </li></ul></ul><ul><ul><li>HUMMER </li></ul></ul><ul><ul><li>Opel </li></ul></ul><ul><ul><li>Pontiac </li></ul></ul><ul><ul><li>Saab </li></ul></ul><ul><ul><li>Saturn </li></ul></ul><ul><ul><li>Vauxhall </li></ul></ul><ul><ul><li>Buick </li></ul></ul><ul><ul><li>Cadillac </li></ul></ul><ul><ul><li>Chevrolet </li></ul></ul><ul><ul><li>GMC </li></ul></ul>
  121. 154. GMA & GMAC Revenue Share - Nine months ended September 30, 2006
  122. 155. Global Partnerships <ul><li>Majority shareholder of GM Daewoo Auto & Technology Co. of South Korea </li></ul><ul><li>Has product, powertrain and purchasing collaborations with Suzuki Motor Corp. and Isuzu Motors Ltd. of Japan. </li></ul><ul><li>Advanced technology collaborations with </li></ul><ul><ul><ul><li>DaimlerChrysler AG </li></ul></ul></ul><ul><ul><ul><li>BMW AG of Germany </li></ul></ul></ul><ul><ul><ul><li>Toyota Motor Corp. of Japan </li></ul></ul></ul><ul><li>Vehicle manufacturing ventures with </li></ul><ul><ul><ul><li>Toyota </li></ul></ul></ul><ul><ul><ul><li>Suzuki </li></ul></ul></ul><ul><ul><ul><li>Shanghai Automotive Industry Corp. of China </li></ul></ul></ul><ul><ul><ul><li>AVTOVAZ of Russia </li></ul></ul></ul><ul><ul><ul><li>Renault SA of France </li></ul></ul></ul>
  123. 156. Type of Vehicle and Market Share
  124. 157. Management <ul><li>Key people </li></ul><ul><ul><li>G. Richard Wagoner, Jr. </li></ul></ul><ul><ul><ul><li>Chairman & CEO since May 1, 2003 </li></ul></ul></ul><ul><ul><ul><ul><li>Joined GM since 1977 </li></ul></ul></ul></ul><ul><ul><ul><ul><li>BA in economics from Duke University </li></ul></ul></ul></ul><ul><ul><ul><ul><li>MBA from Harvard Business School </li></ul></ul></ul></ul><ul><ul><li>Frederick (Fritz) A. Henderson </li></ul></ul><ul><ul><ul><li>Vice Chairman and CFO since Jan. 1, 2006 </li></ul></ul></ul><ul><ul><ul><ul><li>Joined GM since 1984 </li></ul></ul></ul></ul><ul><ul><ul><ul><li>BBA from the University of Michigan </li></ul></ul></ul></ul><ul><ul><ul><ul><li>MBA from Harvard Business School </li></ul></ul></ul></ul><ul><ul><li>Robert A. Lutz </li></ul></ul><ul><ul><ul><li>Vice Chairman, Global Product Development since Sept. 1, 2001 </li></ul></ul></ul><ul><ul><ul><ul><li>Former CEO of Excide Technologies & Vice Chairman of Chrysler Corporation </li></ul></ul></ul></ul><ul><ul><ul><ul><li>BA in production management from the University of California-Berkeley </li></ul></ul></ul></ul><ul><ul><ul><ul><li>MBA from the University of California-Berkeley </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Degree of doctor of management from Kettering University </li></ul></ul></ul></ul>
  125. 158. The World's Largest Automaker <ul><li>GM's largest national market in order: </li></ul><ul><ul><ul><li>the United States </li></ul></ul></ul><ul><ul><ul><li>China </li></ul></ul></ul><ul><ul><ul><li>Canada </li></ul></ul></ul><ul><ul><ul><li>the United Kingdom and Germany. </li></ul></ul></ul><ul><li>Global market share for vehicles sales: </li></ul><ul><ul><ul><li>14.2%(2005) from 14.4%(2004) </li></ul></ul></ul>
  126. 159. Declining Revenue <ul><li>High oil price </li></ul><ul><li>GM produce high horse power vehicles </li></ul><ul><ul><ul><li>Used to be American consumers’ favorite </li></ul></ul></ul><ul><li>People switch to low oil consumption vehicles </li></ul><ul><ul><ul><li>Japanese cars </li></ul></ul></ul><ul><ul><ul><li>Korean cars </li></ul></ul></ul>
  127. 160. Competitive Position
  128. 161. Financial Statement Analysis <ul><li>The 2006 3 rd Quarter Report </li></ul><ul><li>Ended at September 30, 2006 </li></ul>
  129. 165. 2006 Quarter Revenue Breakdown - Auto & Financing and Insurance Operations
  130. 166. 2006 Quarter GMA Net Income by Region
  131. 167. 2006 Quarter GMAC Net Income by Division
  132. 169. 06~07 EPS Estimates (Earning estimates from Zacks.com)
  133. 170. Segment Reporting
  134. 171. GMA Revenue Share by Region - Nine months ended September 30, 2006
  135. 172. Financial Statement Analysis <ul><li>2005 Annual Report </li></ul>
  136. 173. General Idea about the Performance of GM in 2005 <ul><li>GM is losing big money in North America </li></ul><ul><li>GMA’s global sales revenue is good (growth) </li></ul><ul><li>GMAC is making money </li></ul><ul><li>We can see that the auto division is dragging the company performance </li></ul>
  137. 174. Breakdown of GMA’s Loss by region in 2005
  138. 175. Breakdown of GMAC’s profit in 2005
  139. 176. Financial Highlights (In USD as of 12/31/2005) <ul><li>Total Revenue 192,604,000,000 </li></ul><ul><li>EBITDA 31,516,000,000 </li></ul><ul><li>Net Loss (10,567,000,000) </li></ul><ul><li>Total Assets 476,078,000,000 </li></ul><ul><li>Current Assets 99,414,000,000 </li></ul><ul><li>Total Liabilities 461,481,000,000 </li></ul><ul><li>Current Liabilities 117,963,000,000 </li></ul><ul><li>Long Term Debt 202,177,000,000 </li></ul><ul><li>Stockholders' Equity 14,597,000,000 </li></ul>
  140. 177. GM’s Main Challenges <ul><li>Huge legacy cost burden </li></ul><ul><li>Inability to adjust structural costs in line with falling revenue </li></ul>
  141. 178. GM’s Legacy Challenge <ul><li>Huge retiree population  Huge cost for health care & pensions </li></ul><ul><li>11.5 active employees support 1 retiree in 1962 </li></ul><ul><li>1 active employee supports 3.2 retirees in 2005 </li></ul><ul><li>Health care bills totaled $5.3 billion in 2005 </li></ul><ul><li>No other company has this much health-care obligation </li></ul><ul><ul><li>(!!!Big competitive disadvantage) </li></ul></ul>
  142. 179. Estimated Future Employee Benefit Payments
  143. 180. Consolidated Balance Sheet - Asset
  144. 181. Consolidated Balance Sheet - Liabilities and Stockholders’ Equity
  145. 182. Breakdown for Balance Sheet - Asset
  146. 183. Breakdown for Balance Sheet - Liabilities and Stockholders’ Equity
  147. 185. Consolidated Income Statement
  148. 186. Breakdown for Consolidated Income Statement
  149. 187. Loss from Continuing Operations
  150. 188. 2005 to 2004 Comparison <ul><li>Net sales fell to $192.6 billion from 193.5 billion </li></ul><ul><li>Net loss of $10.6 billion from Net income of $2.8 billions </li></ul><ul><li>Unfavorable results primarily due to losses at GMNA </li></ul><ul><li>GMAC net income declined to $2.4 from $3.0 billion </li></ul>
  151. 189. Reasons for Unfavorable results in 2005 <ul><li>GMNA market share and product mix </li></ul><ul><ul><ul><li>Revenue declining </li></ul></ul></ul><ul><li>Delphi Chapter 11 Proceeding </li></ul><ul><ul><ul><li>GM recorded a charge of $5.5 billion </li></ul></ul></ul><ul><ul><ul><li>Including the benefit guarantees for certain former GM U.S. employees who transferred to Delphi </li></ul></ul></ul><ul><li>GMNA restructuring and global asset Impairments </li></ul><ul><li>Health-care cost escalation </li></ul>
  152. 190. Factors for Loss in GMNA <ul><li>Unfavorable product mix ($2.2 billion loss) </li></ul><ul><ul><ul><li>Reduced in demand for higher margin large utility vehicles (reaching the end of the life cycle) </li></ul></ul></ul><ul><li>Production volume decreases ($2.1 b. loss) </li></ul><ul><ul><ul><li>Market share decline </li></ul></ul></ul><ul><ul><ul><li>Reduction in dealer inventories </li></ul></ul></ul><ul><li>Unfavorable material costs ($700 mil. loss) </li></ul><ul><li>Increased health-care expenses ($600 mil. loss) </li></ul><ul><ul><ul><li>Escalating health care cost trends </li></ul></ul></ul><ul><li>Advertising and sales promotion cost increase ($500 mil. loss) </li></ul><ul><li>Restructuring charge ($1.7 b. loss) </li></ul><ul><li>After-tax impairment charge ($552 mil. loss) </li></ul>
  153. 191. North America Turnaround Plan <ul><li>Keep raising the bar in the execution of great cars and trucks </li></ul><ul><li>Revitalize sales and marketing strategy </li></ul><ul><li>Significantly improve cost competitiveness </li></ul><ul><li>Address health-care and pension legacy cost burden </li></ul>
  154. 192. GMNA Turnaround Plan Highlight <ul><li>Cease production at 12 U.S. plans by 2008 </li></ul><ul><li>Reduce 30,000 manufacturing positions </li></ul><ul><li>Work with United Auto Workers to reduce health-care obligations by $15 billion </li></ul><ul><li>Modify pension benefits </li></ul><ul><li>Reduce salaries of top executives </li></ul><ul><li>Reduce dividend by 50% </li></ul>
  155. 194. Consolidated Cash Flow Statement (cont.)
  156. 196. Supplementary Information for Cash Flow Statement (cont.)
  157. 197. GM Profitability Plan <ul><li>Keep working on cost reduction </li></ul><ul><li>Growing revenue around the world </li></ul><ul><li>Invest in technology, better fuel efficiency </li></ul><ul><li>Revitalizing sales and marketing strategy </li></ul>
  158. 198. Significant Events <ul><li>Delphi Bankruptcy </li></ul><ul><li>GMAC – Pending Sale of 51% controlling interest </li></ul><ul><li>Discussions with Renault and Nissan </li></ul><ul><li>Sale of investments in Isuzu and Suzuki </li></ul><ul><li>Sale of Regional Homebuilder </li></ul>
  159. 199. GM-Fisher’s Analysis <ul><li>1) Financial Skill </li></ul><ul><ul><ul><li>Bad financial performance in GMA </li></ul></ul></ul><ul><ul><ul><li>Depending on profits from GMAC </li></ul></ul></ul><ul><li>2) People Factor </li></ul><ul><ul><ul><li>Great management team </li></ul></ul></ul><ul><ul><ul><li>Relatively bad employee relationship (cutting pension expense) </li></ul></ul></ul><ul><li>3) Investment Characteristics </li></ul><ul><ul><ul><li>Limited growth space due to intense competition </li></ul></ul></ul><ul><ul><ul><li>Low industry profit margin (negative profit) </li></ul></ul></ul><ul><li>4) Investment Price </li></ul><ul><ul><ul><li>P/E ratio is High </li></ul></ul></ul><ul><ul><ul><li>Increasing stock price if turn the Net loss around </li></ul></ul></ul>
  160. 200. Recommendation HOLD