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Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
Course 5170 Microeconomics presentation vfinal
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Course 5170 Microeconomics presentation vfinal

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  1. Microeconomic Analysis: Automotive Industry Yaw Ofosu Ayesha Tanveer Geneva Todd
  2. Agenda  History  Key factors  Market  Regulatory / Legal framework  Financial profile  Microeconomic characteristics  Outlook  Recommendation2
  3. Agenda  History  Key factors  Market  Regulatory / Legal framework  Financial profile  Microeconomic characteristics  Outlook  Recommendation3
  4. History of the Automotive Industry  The automobile as we know it was not invented in a single day by a single inventor.  The history of the automobile reflects an evolution that took place worldwide.  It is estimated that over 100,000 patents created the modern automobile.  Here are some of the firsts….4
  5. Beginnings of an Industry5
  6. Rapid Progression of New Technology • 1863: Horseless Carriage • 1867: Improved internal combustion engine • 1870: 1st gasoline internal combustion engine • 1877: 4-cycle internal combustion engine • 1879: 1st U.S. patent for an automobile • 1885: 1st gasoline pump • 1885: 3-wheel automobile…a motorbike. • 1886: 1st Ford automobile6 • 1887: 4-wheel vehicle, 1st modern automobile
  7. Significant Contributions  First Auto in the World – Credited to France  Panhard & Levassor in 1889, followed by Peugeot in 1891  First Auto Made to Specification – Credited to Benz  Benz built 134 Cars to Specification in 1895  First Automobile in America –  a horse buggy with a 4-hp, single-cylinder engine, assembled by Charles and Frank Duryea in 1892-93.  First Assembly Line Vehicle - Credited to GM7
  8. Putting America on Wheels – Henry  Ford Putting America on Wheels – Henry Ford • During the 1920’s, Henry Ford accomplished three things  that revolutionized the automobile industry in the 20th • During the 1920’s, Henry Ford accomplished three things  that revolutionized the automobile industry in the 20th century.  century.   Perfected use of the assembly line which became the  basis for most of the 20th centurys mass manufacturing.   Perfected use of the assembly line which became the  basis for most of the 20th centurys mass  manufacturing.   Placed value on his workers by paying them $1 a day  (which believe it or not, was far above the average wage  in the early part of the century).   Placed value on his workers by paying them $1 a day  (which believe it or not, was far above the average  wage in the early part of the century).   The Model T, introduced in 1908, was the first car for  the middle class.  The Model T, introduced in 1908, was the first car for  the middle class.8
  9. Mergers & Acquisitions9
  10. Major Mergers & Acquisitions  Studebaker & Packard (1954)  Daimler-Chrysler (1998)  GM & Chrysler – The Merger That Never Was (2008)  Tata Motors takes control of Jaguar and Land Rover (2006-2008)  Porsche & VW – Two German Makers Become One (2004-2008)  Chrysler and Fiat (2009)10
  11. Agenda  History  Key factors  Market  Regulatory / Legal framework  Financial profile  Microeconomic characteristics  Outlook  Recommendation11
  12. U.S. Market Definition  Oligopolistic Market  Largest passenger vehicle market  Large proportion of revenue from selling automobiles  Approx. 310 million people with Approx. 250 million registered passenger vehicles  GDP Per capita - $46,00012
  13. Segmentation Segment totals, ranked by Oct 2010 unit sales % Chg from % Chg from Oct-10 Oct09 YTD 2010 YTD 2009 Cars 448,127 3.9 4,840,525 5.3 Midsize 220,998 -0.2 2,407,457 9.9 Small 142,983 9.7 1,616,840 -1.5 Luxury 78,487 9.7 742,278 7.2 Large 5,659 -31.9 73,950 -0.8 Light-duty trucks 502,038 23.5 4,730,196 16.7 Pickup 147,207 16.9 1,334,133 13.9 Cross-over 195,274 20 1,928,191 16.8 Minivan 55,596 21 561,736 15.1 Midsize SUV 51,494 86.6 443,922 37.9 Large SUV 23,946 1.5 202,806 12.1 Small SUV 14,861 53.6 146,000 -3.8 Luxury SUV 13,660 22.1 113,408 26.2 Total SUV/Cross-over 299,235 27.4 2,834,327 18.3 Total SUV 103,961 44.3 906,136 21.7 Total Cross-over 195,274 20 1,928,191 16.8 Source: www.motorintelligence.com13
  14. Key Players – The Big Three14 14
  15. Market Share by Company Toyota  Motors, 14.20% Others, 35.40% General  Motors, 21.00% Ford Motor  Honda  Co., 16.40% Motors, 13.00%15
  16. Top Car Manufacturers Worldwide (2009) Mitsubishi, 1.9% Other, 18% GM, 13% BMW, 2.1% Toyota, 11.8% Daimler, 2.9% Chrysler, 3.5% Suzuki, 3.6% Volkswagon, 8.6 % Hyundai, 3.6% Renault, 3.6% Ford, 8.6% Fiat, 3.7% Honda, 5.4% Nissan, 4.8% Peugeot, 4.8%16
  17. Porter’s Five Forces of Competition17
  18. Agenda  History  Key factors  Market  Regulatory / Legal framework  Financial profile  Microeconomic characteristics  Outlook  Recommendation18
  19. Regulatory and Legal Framework  Key Regulatory Enactments  Tactics and Collusion  Government Bailout/Intervention19
  20. Regulatory Enactments • Corporate Average Fuel Economy Regulations (CAFÉ) • National Highway Traffic Safety Administration (NHTSA) • Environmental Protection Agency (EPA)20
  21. Tactics and Collusion  Crackdown on price-fixing and other collusion  February, 2010: U.S. Justice Dept. Investigation of Automotive Electronic Components Business  Aggressively pursuit and prosecution of international cartels by Antitrust Division  Significant fines and penalties levied  Hybrid tax credit21
  22. GM “Government Bailout” The Past ….  $74.4 billion in total debt  $88 billion in losses (2004-2009)  Bankruptcy June 1, 2009 Today……  $15.6 billion in debt and preferred stock  $9.4 billion in underfunded retiree obligations  $4.77 billion in profit (Q1-Q3, 2010)22  GM Largest IPO in history (Nov. 17, 2010)
  23. Agenda  History  Key factors  Market  Regulatory / Legal framework  Financial profile  Microeconomic characteristics  Outlook  Recommendation23
  24. Financial Profile  Cost Structure  2009 Industry Statistics  Factors affecting profitability  Sales volume  Production volume24
  25. Elements contributing to Cost Structure25
  26. Industry Statistics - 2009 Market Capitalization: 5,116B Price / Earnings: 8.7 Price / Book: 1.4 Net Profit Margin (mrq): 4.80% Price To Free Cash Flow (mrq): -42.4 Return on Equity: 15.40% Total Debt / Equity: 118.4 Dividend Yield: 0.10% (in $ million) Turnover Investments Public Revenue USA 561,140 40,149 84,861 Japan 575,005 8,514 87,706 Germany 300,519 15,708 58,494 France 147,709 5,539 44,88026
  27. Key Factors Affecting Profitability  Sharp rises 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 costs27
  28. Sales – Top 20 Vehicles % Chg from % Chg from Oct-10 Oct 09 YTD 2010 YTD 2009 Ford F - Series PU 49,041 24.2 434,920 29.9 Chevrolet Silverado PU 34,283 8 301,998 15.6 Toyota Camry / Solara 25,014 -17 275,844 -6.3 Honda Accord 21,451 -7.6 236,278 -3.4 Nissan Altima 18,978 28.5 187,875 10.9 Toyota Corolla / Matrix 18,636 -27.5 227,822 -5.4 Honda CR-V 18,040 15.1 162,326 2.4 Hyundai Sonata 17,505 124.7 166,628 64.4 Ford Fusion 17,362 29.1 178,943 20.9 Dodge Ram PU 17,316 41.2 158,205 1.8 Honda Civic 17,121 7.9 215,393 -3.7 Toyota RAV4 14,694 5.2 141,085 16.8 Ford Escape 14,578 16.9 157,398 13.4 GMC Sierra PU 12,983 9.2 103,218 13 Chevrolet Equinox 12,773 62.3 111,828 75.1 Jeep Grand Cherokee 12,721 290.7 60,898 41.1 Ford Focus 12,396 22.5 146,649 7.8 Chevrolet Impala 12,389 -2.6 145,974 4.6 Chevrolet Malibu 12,353 2.2 175,599 34 Volkswagen Jetta 11,958 31.8 99,065 9.828 Source: www.motorintelligence.com
  29. Car Production - 2009 Country Cars China 10,383,831 Japan 6,862,161 Germany 4,964,523 South Korea 3,158,417 Brazil 2,576,628 USA 2,246,470 India 2,166,238 Others 15,942,866 Employment (Auto Jobs) China 1,605,000 USA 954,210 Germany 773,217 Russia 755,000 Japan 725,00029
  30. Stock Comparison (Most recent annual) Valuation Company name Price Change Chg % Mkt Cap General Motors Company 33.61 -0.28 -0.83% 50.46B Ford Motor Company 16.56 0.14 0.85% 57.51B Daimler AG (USA) 71.09 -1.35 -1.86% 72.80B Toyota Motor Corp. (ADR) 78.12 0.08 0.10% 122.49B HONDA MOTOR CO., LTD. ... 37.78 -0.17 -0.45% 68.09B Nissan Motor Co., Ltd.... 19.34 0.02 0.10% 40.46B Volkswagen AG (ADR) 30.29 -0.71 -2.29% 70.45B30
  31. Agenda  History  Key factors  Market  Regulatory / Legal framework  Financial profile  Microeconomic characteristics  Outlook  Recommendation31
  32. Microeconomic Characteristics  Elasticity of Demand  Keys to industry growth  Supply and Demand32
  33. Elasticity of Demand Ed = ΔQd/ΣQd Δ Price/ ΣPrice  Long-term: Demand is inelastic  Cars are somewhat necessary  Long-term: Demand in suburban/rural areas is (generally) inelastic  Fewer alternative modes of transportation  Short-term: Demand is elastic  Purchases can generally be deferred33
  34. Key Factors affecting Supply and Demand SUPPLY DEMAND  Labor  Price  Material  Car Financing/Leasing  Production  Growing demand for Methodology fuel-efficient vehicles  Technology  Competition  Government  Globalization regulations  Globalization  Environmental issues  Increasing population  GDP growth in BRIC34
  35. Agenda  History  Key factors  Market  Regulatory / Legal framework  Financial profile  Microeconomic characteristics  Outlook  Recommendation35
  36. Outlook • Big 3 Decline/Recovery • Growth of market • Limits to growth • Sensitivity to changes in governmental programs/regulations • Demographics: Global Expansion • Demand Curve: Relationship to overall economy36
  37. 37
  38. 38
  39. Signs of Recovery39
  40. Changes in Gas Price vs. SUV & Hybrid Auto Sales40 40
  41. Market Disconnect The Future • NHTSA and EPA: Improved performance standards by 2016 • Smaller vehicles with high fuel economy • Will American consumers demand and pay for the smaller fuel efficient vehicles? 1. American consumers will buy smaller, fuel-efficient vehicles if gas prices are high; 2. Given a choice, Americans prefer larger, less fuel-efficient vehicles.41 41
  42. 42
  43. Raising the Bar • Smaller vehicles • New power sources • Electric/hybrid-centric collection of new vehicles • Higher-quality materials • Integration of improved connectivity • “Infotainment” and safety capabilities no longer reserved for larger, luxury vehicles • Over 35% of U.S. vehicle sales compact or smaller43
  44. The Future Is Now! • Chevy Volt: 2011 Car of the Year  Motor Trend Magazine  Automobile Magazine  Green Car Journal44
  45. Global Expansion • Rapid expansion into newer markets • 27% surge in global manufacturing by 201245
  46. Forecasts • Annual Sales Could Reach 16 Million Units by 2011 on Pent-Up Demand • Suppliers Could Need Up To $33.5 Billion Through 201246
  47. Demand Curve Changes
  48. Demand Curve Changes Based on Positive Forecasts*Initial Launch: Prices Increase Over Time: Prices Decrease48 *Assuming demand increases
  49. Agenda  History  Key factors  Market  Regulatory / Legal framework  Financial profile  Microeconomic characteristics  Outlook  Recommendation49
  50. Present Position  Controlled by a few domestic and foreign companies.  Ford, Chrysler, GM, Toyota and Honda  Electric powered vehicle returns in Hybrid Cars to gain fuel efficiency  With Government’s intervention, the U.S. industry has seemingly regained its momentum from a major slow down and record losses in 200950
  51. Overall Analysis of Industry 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 Price51 - P/E Ration is relatively low
  52. SWOT ANALYSISPrimary Factors Strengths Weaknesses • Brand recognition • 5 years to break-even on fuel- • Return to profitability efficient vehicle investment • Experience, knowledge of • Low consumer confidence on fear industry of rising unemployment • Closing pay gap with foreign • Credit crunch competition • Surplus inventory • Technological advancements • Majority of manufacturing outside • Improving quality, reputation U.S. • “Too Big to Fail” Threats Opportunities • Global Recession • Alternative fuel sources • Loss of alliances and partners • Promote development of • Price inflation/deflation electric vehicle manufacturing • Strong competition: New products, plants in BRIC countries innovation • Strategic alliances, partnerships • Political climate • Relationship with suppliers of raw • Product development materials • Innovation and technology • Legal and Regulatory risks development • Patents and trademarks52
  53. SWOT ANALYSISRecommendations Invest: Yes or No? • Bright investment perspective  GM and Chrysler beat expectations  Ford weathered economic downturn  Toyota maintains strong market share • Invest in the Automotive Industry!53
  54. 54
  55. References Bromley, R. (2006-7). Class notes. Retrieved December 13, 2010 from http://www.PCEcon.com_Economics_Notes_and_Study_Aids_to_RayBromley.com Economics and Business Group Center for Automotive Research. (2003). Economic contribution of the automotive industry to the U. S. economy—an update. Retrieved December 2, 2010 from http://www.cargroup.org/pdfs/Alliance-Final.pdf Environmed Research Inc. (1995). Cars, air pollution and health. Retrieved December 8, 2010 from http://www.nutramed.com/environment/cars.htm Environmental Defense. (2003). Automobile industry largest source of lead pollution today. Retrieved December 2, 2010 from http://www.environmentaldefense.org/pressrelease.cfm?ContentID=2889 Jones, R. (2006). American auto industry seen at a crossroads. Retrieved December 8, 2010 from http://www.msnbc.msn.com/id/10642724/ Leary, T. B. (2010). Allies in a common cause. Retrieved December 6, 2010 from http://www.ftc.gov/speeches/leary/fdli.pdf Mankiw, N. G. (2009). Principles of economics (4th Ed.). Chicago, IL: Thomson West Publishing U. S. Department of Commerce. (2010). U.S. Automotive industry employment trends. Retrieved December 6, 2010 from http://www.ita.doc.gov/td/auto/domestic/staffreports/Jobloss.pdf U. S. Department of Transportation. (2002). Fuel consumption in the United States: 1992 and 2000. Retrieved December 10, 2010 from http://www.bts.gov/publications/transportation_statistics_annual_report/2001/html/cha pter_08_table_01_230.html55

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