The document discusses the auto industry's addiction to capital and proposes consolidation as a solution. It notes that capital requirements for auto companies have grown significantly due to regulations and new technologies. This has led to low and volatile returns that are below most other industries. While some companies are trying to reduce platforms and increase common components, this has not significantly lifted returns. The document argues that industry consolidation could enable fast execution of common strategies across companies and potential savings of billions of dollars by reducing duplication of vehicle and powertrain development costs.
A Project Feasibility Study for the Establishment of E&J FarmsJandel Gimeno
This is a feasibility study made and conducted by our group entitled "A Project Feasibility Study for the Establishment of E&J FARM in ALFONSO, CAVITE". The group was composed of Mr. Alvin Hermoso, Efren Paul Vicedo, Jandel Gimeno, Mary Grace Orpia, Diana Ruado, Kristine Mendoza and Analyn Odal. The said Project Study was submitted to the Faculty of Business Administration & Accountancy Department of the Rogationist College.
(It was so CHALLENGING FOR US, yet so Successful! : )
SCREEN THE PROPOSED SOLUTIONS BASED ON VIABILITY,PROFITABILITY, AND CUSTOMERS...Joace Gayrama
THINGS TO CONSIDER DURING A PRODUCT VIABILITY ANALYSIS:
1. Consider product size and weight
2. Consider product fragility
3. Consider skus
4. Consider product lifespan
A Project Feasibility Study for the Establishment of E&J FarmsJandel Gimeno
This is a feasibility study made and conducted by our group entitled "A Project Feasibility Study for the Establishment of E&J FARM in ALFONSO, CAVITE". The group was composed of Mr. Alvin Hermoso, Efren Paul Vicedo, Jandel Gimeno, Mary Grace Orpia, Diana Ruado, Kristine Mendoza and Analyn Odal. The said Project Study was submitted to the Faculty of Business Administration & Accountancy Department of the Rogationist College.
(It was so CHALLENGING FOR US, yet so Successful! : )
SCREEN THE PROPOSED SOLUTIONS BASED ON VIABILITY,PROFITABILITY, AND CUSTOMERS...Joace Gayrama
THINGS TO CONSIDER DURING A PRODUCT VIABILITY ANALYSIS:
1. Consider product size and weight
2. Consider product fragility
3. Consider skus
4. Consider product lifespan
The learners...
1. Discuss the relevance of the
course;
2. Explain the key concepts of
common competencies;
3. Explain the core
competencies in
Entrepreneurship; and
4. Explore job opportunities
for Entrepreneurship as a
career.
** Disclaimer:
All of the pictures and pieces of information on this site are the property of the respective owners. I do not hold any copyright in regards to these pictures and information. These pictures have been collected from different public sources including various websites, considered to be in the public domain. If anyone has any objection to display of any picture, image or information, it may be brought to my notice by sending an email (contact me) & the disputed media will be removed immediately, after verification of the claim.
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This is a proposal prepared by Naja Faysal for Softline Cafe. The objectives of the proposal was to open up a branch of Softline Cafe in Alyamamah university. The results were superb. Today, Softline Cafe are in successful operation as coffee shop on the campus of Al yamamah university, Riyadh Saudi Arabia.
The learners...
1. Discuss the relevance of the
course;
2. Explain the key concepts of
common competencies;
3. Explain the core
competencies in
Entrepreneurship; and
4. Explore job opportunities
for Entrepreneurship as a
career.
** Disclaimer:
All of the pictures and pieces of information on this site are the property of the respective owners. I do not hold any copyright in regards to these pictures and information. These pictures have been collected from different public sources including various websites, considered to be in the public domain. If anyone has any objection to display of any picture, image or information, it may be brought to my notice by sending an email (contact me) & the disputed media will be removed immediately, after verification of the claim.
Business Proposal for Soft Line Cafe to operate at Al Yamamah UniversityNaja Faysal
This is a proposal prepared by Naja Faysal for Softline Cafe. The objectives of the proposal was to open up a branch of Softline Cafe in Alyamamah university. The results were superb. Today, Softline Cafe are in successful operation as coffee shop on the campus of Al yamamah university, Riyadh Saudi Arabia.
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Understanding the impact of coronavirus over various sectors and industry is a crucial part of developing a mitigation strategy for multiple risks. Initially this presentation highlights the overview of the impact of COVID 19 over the entire automobile industry, as it displays key stats such as 15 percent decline in sales of automobile, decrease in global GDP in 1 percent etc. it also highlights the key challenges faced by automobile sector and the optimistic, realistic and pessimistic approach for the recovery of the automobile sector. Once the overview is analyzed the key risks that may affect the automobile sector are carefully studied these risk can be effects on sale and manufacturing due to social distancing, the lower employee productivity due to COVID, the stress in the supply chain sector due to factory closures in China, the impact of recession, unemployment and investment pullback on the economy. Based on carefully analysis of the risks, mitigation strategies to minimize the impact of COVID these strategies can be developed such as risk assessment matrix, developing a business contingency plan, mitigation strategy for OEMs etc. In the end various policies for minimizing risk within the origination and a survey for developing maturity model is taken and implementation plan is developed. https://bit.ly/30wOrGb
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Human drivers have always been an essential requirement in the operation of a motor vehicle. At the same
time, research has repeatedly demonstrated that driver error plays a role in more than 90% of road crashes
(NHTSA 2008; Blanco et al. 2016). As such, in the past two decades, vehicle manufacturers have designed new
and increasingly sophisticated features that provide more assistance to drivers to help mitigate such errors. Such
features are an important precursor to the development of automated vehicles and, currently, expectations are
high that the advent of semi- or fully- automated vehicles will dramatically reduce road crashes
The race is on
Clearly, Canadian executives are feeling that the race is on; but it remains to be seen whether they act quickly enough and with the right focus to effectively transform and evolve. Among our findings:
75 percent of CEOs agree that the next three years will be more critical to their industry than the previous 50 years;
74 percent of CEOs believe their company will remain largely the same in the next 3 years;
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𝘼𝙣𝙩𝙞𝙦𝙪𝙚 𝙋𝙡𝙖𝙨𝙩𝙞𝙘 𝙏𝙧𝙖𝙙𝙚𝙧𝙨 𝙞𝙨 𝙫𝙚𝙧𝙮 𝙛𝙖𝙢𝙤𝙪𝙨 𝙛𝙤𝙧 𝙢𝙖𝙣𝙪𝙛𝙖𝙘𝙩𝙪𝙧𝙞𝙣𝙜 𝙩𝙝𝙚𝙞𝙧 𝙥𝙧𝙤𝙙𝙪𝙘𝙩𝙨. 𝙒𝙚 𝙝𝙖𝙫𝙚 𝙖𝙡𝙡 𝙩𝙝𝙚 𝙥𝙡𝙖𝙨𝙩𝙞𝙘 𝙜𝙧𝙖𝙣𝙪𝙡𝙚𝙨 𝙪𝙨𝙚𝙙 𝙞𝙣 𝙖𝙪𝙩𝙤𝙢𝙤𝙩𝙞𝙫𝙚 𝙖𝙣𝙙 𝙖𝙪𝙩𝙤 𝙥𝙖𝙧𝙩𝙨 𝙖𝙣𝙙 𝙖𝙡𝙡 𝙩𝙝𝙚 𝙛𝙖𝙢𝙤𝙪𝙨 𝙘𝙤𝙢𝙥𝙖𝙣𝙞𝙚𝙨 𝙗𝙪𝙮 𝙩𝙝𝙚 𝙜𝙧𝙖𝙣𝙪𝙡𝙚𝙨 𝙛𝙧𝙤𝙢 𝙪𝙨.
Over the 10 years, we have gained a strong foothold in the market due to our range's high quality, competitive prices, and time-lined delivery schedules.
Comprehensive program for Agricultural Finance, the Automotive Sector, and Empowerment . We will define the full scope and provide a detailed two-week plan for identifying strategic partners in each area within Limpopo, including target areas.:
1. Agricultural : Supporting Primary and Secondary Agriculture
• Scope: Provide support solutions to enhance agricultural productivity and sustainability.
• Target Areas: Polokwane, Tzaneen, Thohoyandou, Makhado, and Giyani.
2. Automotive Sector: Partnerships with Mechanics and Panel Beater Shops
• Scope: Develop collaborations with automotive service providers to improve service quality and business operations.
• Target Areas: Polokwane, Lephalale, Mokopane, Phalaborwa, and Bela-Bela.
3. Empowerment : Focusing on Women Empowerment
• Scope: Provide business support support and training to women-owned businesses, promoting economic inclusion.
• Target Areas: Polokwane, Thohoyandou, Musina, Burgersfort, and Louis Trichardt.
We will also prioritize Industrial Economic Zone areas and their priorities.
Sign up on https://profilesmes.online/welcome/
To be eligible:
1. You must have a registered business and operate in Limpopo
2. Generate revenue
3. Sectors : Agriculture ( primary and secondary) and Automative
Women and Youth are encouraged to apply even if you don't fall in those sectors.
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1. Confessions of a Capital Junkie
April 29, 2015
An insider perspective on the cure for the industry's
value-destroying addiction to capital
2. Safe Harbor Statement
2April 29, 2015Confessions of a Capital Junkie
This document contains forward-looking statements. These
statements may include terms such as “may”, “will”, “expect”,
“could”, “should”, “intend”, “estimate”, “anticipate”, “believe”,
“remain”, “on track”, “design”, “target”, “objective”, “goal”,
“forecast”, “projection”, “outlook”, “prospects”, “plan”,
“intend”, or similar terms. Forward-looking statements are
not guarantees of future performance. Rather, they are
based on the Group’s current expectations and projections
about future events and, by their nature, are subject to
inherent risks and uncertainties. They relate to events and
depend on circumstances that may or may not occur or exist
in the future and, as such, undue reliance should not be
placed on them. Actual results may differ materially from
those expressed in such statements as a result of a variety
of factors, including: the future capital expenditures and
research and development expenses of the Group and the
industry, potential benefits from industry consolidation;
developments in global financial markets and general
economic and other conditions; changes in demand for
automotive products, which is highly cyclical; the high level of
competition in the automotive industry; the Group’s ability to
realize anticipated benefits from any business combinations,
joint venture arrangements and other strategic alliances; the
Group’s ability to integrate its operations; the Group’s ability
to access funding to execute the Group’s business plan and
improve the Group’s business, financial condition and results
of operations; operating expenditures including in relation
to vehicle and powertrain development and compliance
with regulations; exchange rate fluctuations, interest rate
changes, credit risk and other market risks; our ability to
achieve the benefits expected from any capital optimzation
plans; and other risks and uncertainties.
Any forward-looking statements contained in this
document speak only as of the date of this document and
the Company does not undertake any obligation to update
or revise publicly forward-looking statements. Further
information concerning the Group and its businesses,
including factors that could materially affect the
Company’s financial results, is included in the Company’s
reports and filings with the U.S. Securities and Exchange
Commission, the AFM and CONSOB.
3. Purpose of the pitch
April 29, 2015Confessions of a Capital Junkie 3
Goal is to provide clarity on two issues that have been raised
publicly by FCA
● Industry has not earned its cost of capital over a cycle
● Consolidation is the key to remedying the problem
What this is not about
● An excuse for FCA’s current ranking in the automotive food chain
● Putting FCA up for sale
● A revision to our 5 year plan (which remains a firm commitment)
● A matter of life or death for FCA
● SM’s final big deal
What this is about
● Dispassionate look at the industry from the outside using
insider knowledge
● It is about choosing between mediocrity or fundamentally changing
the paradigm for the industry
4. Before we get into this, we should be reminded that …
April 29, 2015Confessions of a Capital Junkie
“Everyone is entitled to his
own opinion, but not to his
own facts.”
Daniel Patrick Moynihan
(Former US Senator and Ambassador to the UN)
4
5. Auto industry’s capex and R&D requirements have
grown significantly over the past years …
April 29, 2015 5Confessions of a Capital Junkie
Top OEMs1—Total capex + R&D spending over last 5 years (€bn)2
CAGR:
Mainstream OEMs: ~12%
Premium OEMs: ~10%
Mainstream OEMs Premium OEMs
Source: Company annual reports
1 Includes mainstream OEMs: FCA, Ford, General Motors, Honda, Hyundai, Kia, Nissan, PSA, Renault, Toyota, Volkswagen. Premium OEMs: BMW, Daimler Cars
2 Translated at constant 2010 exchange rates (average January to December 2010)
64
78
91
99
104
12
14
17
19
18
76
91
107
117
122
2010 2011 2012 2013 2014
6. ... and going forward, new technological challenges
will continue to raise the bar on capital requirements
6April 29, 2015Confessions of a Capital Junkie
Forces at work increasing capital requirements—Selected examples
Auto OEMs
Emissions
regulations
Safety regulations
Car connectivity
and autonomy
Tighter emissions
regulations
Costly new powertrains
Weight-saving
technologies
Stricter regulations
and customer focus
on safety
Adoption of state-of-the-
art safety technologies
across markets
New infotainment
services
Customer expectations
on connected cars
Autonomous drive push
Regulatory-driven Customer-driven
7. Product development costs are consuming value at
a much faster rate than in other industries …
April 29, 2015Confessions of a Capital Junkie 7
Time to reinvest enterprise value1 in product development (capital and R&D)2
1 Industrial activities only. Including pension liabilities
2 Calculated as 3-year average of the annual ratio between enterprise value (for the period 2012–2014) and capital expenditures plus R&D expenses
3 Based on the reference sample
Source: Company annual reports
~
~
1.3
2.6 3.1 3.2 3.4 3.4 3.6 3.8 4.0
5.0
7.8 8.5
OEM3
FCA
OEM1
OEM9
OEM10
OEM5
PremiumOEM
OEM7
OEM2
OEM8
OEM6
OEM4
7
13
18
19
20
23
28
36
Oil&Gas
Telecommunication
Pharma
Aerospace&
Defence
Chemicals
Packaging
materials
Buildingmaterials
Consumer&Retail
Average
across
industries3:
~20 years
~
~
~
~
~
Auto
industry
average:
~4.1 years
~
Average number of yearsAverage number of years
8. ... and high operational leverage amplifies profitability
swings across the cycle ...
April 29, 2015Confessions of a Capital Junkie 8
1 EBIT defined as Industrial reported EBIT plus income from equity accounted investments and excludes goodwill impairment. EBIT as per accounting principles adopted by
each company
2 Mainstream OEMs include: FCA, Ford, General Motors, Honda, Hyundai, Kia, Nissan, PSA, Renault, Toyota, Volkswagen
Source: Company annual reports
EBIT Margin1 of Auto OEMs vs other sectors (%)
2
(3%)
8%
19%
30%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Aerospace & Defence Building materials Chemicals Consumer products Packaging
Pharmaceuticals Telecommunications Premium OEM Mainstream OEMs
9. … resulting in structurally low and volatile returns
April 29, 2015Confessions of a Capital Junkie 9
1 ROIC calculated as [Industrial reported EBIT x (1-taxes) + income from equity accounted investments] / Industrial Net Invested capital. Assumed a normalized tax rate equal
to 30%. EBIT excludes goodwill impairment. Industrial Net Invested capital is defined as industrial Trade Working Capital + Industrial PP&E + Industrial Intangibles
(excl. Goodwill) + Book Value of equity accounted investments + operating cash for OEMs (assumed at 12.5% of industrial sales). EBIT as per accounting principles
adopted by each company
2 Mainstream OEMs include: FCA, Ford, General Motors, Honda, Hyundai, Kia, Nissan, PSA, Renault, Toyota, Volkswagen
ROIC1 of Auto OEMs vs other sectors (%)
2
(10%)
0
10%
20%
30%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Aerospace & defence Building materials Chemicals Consumer Packaging materials
Pharma Telecommunications Premium OEM Mainstream OEMs
Consensus
WACC: ~9%
10. April 29, 2015Confessions of a Capital Junkie
Typical vehicle development costs
1 Chart scale based on mid-point of range shown
New vehicle program—development
costs split1
10
Why did this happen? OEMs spend vast amounts of capital to develop
proprietary components, many not really discernible to customers
45–50%
50–55%
Differentiating
products/
technologies
Products/technologies
“undiscernible to
customer”, potentially
overlapping with competitors
Vehicle R&D
~40%
Vehicle Tooling
~35%
Powetrain/
R&D
~15%
Powetrain
Tooling
~5%
Other
~5%
11. One industry solution focuses on reducing the
number of active platforms and increasing scale …
Confessions of a Capital Junkie
SOURCE: IHS
1 Adjusted to include only platforms with at least 2,000 cars manufactured in a given year
2 Including FCA, Ford, GM, Honda, Hyundai, PSA, Renault/Nissan, Suzuki, Toyota, Volkswagen
Active platforms by OEM1
Average across top 10 global OEMs
2004
-20%
20142009
Number of top hats by platform2
Average across top 10 global OEMs
2004
2.5
3.3
+30%
20142009
2.6
11
"More of our components will be common, and more of our vehicles will be on global architectures"
Dan Akerson, GM (2011)
"I'm really proud to say that we've reduced that number down to 12 global platforms. In 2016 we'll reduce that down to a
further nine global platforms, and our team is working towards a further consolidation of that to get down to a long-term target
now of eight global platforms […] that obviously yields tremendous benefits for us as an enterprise”
Raj Nair, Ford Group Vice President-Global Product Development (2015)
22
21
18
April 29, 2015
12. April 29, 2015Confessions of a Capital Junkie
Source: IHS—Global 2018 Sales database as of April 2015, Toyota global newsroom
12
C-CUV
(2016)
Polo
(2016)
Golf
SportVan
Passat
Touran Jetta
(2016)
Tiguan
(2016)
CC
(2017)
B-CUV
(2016)
C-MPV
(2017)
C-CUV
(2016)
Q1
(2016)
A3
Q3
(2018)
Superb
Yeti
(2017)
LeonLamando Scirocco
(2018)
B-CUV
(2018)
MQB
ARCHITECTURE
Golf Spacefox
(2018)
Fox
(2017)
Voyage
(2018)
A1
(2018)
Octavia Ibiza
(2016)
TT
Crossblue Crossblue
coupe (2018)
Sagitar
(2017)
Golf
SportWagen
MC-M
ARCHITECTURE
MebiusWish
Voxy
Venza
Sienna
SAI
RAV4
Prius
Alpha
(Prius V)
Prius
Mirai
Highlander
Harrier
Estima
Camry
Avensis
Avalon
Alphard ES
HS
NX
RX
Lavida
(2018)
… and some OEMs are trying larger scale
commonization across diverse brands …
“By the middle of 2020, we plan to expand TNGA (Toyota New Generation Architecture) to approximately half of the line-up […] —Traditionally we
have tended to focus on developing individual models and lacked the total alignment and consistency, which will change with a company-wide effort.”
Mitsuhisa Kato, Toyota Executive VP (2015)
13. April 29, 2015Confessions of a Capital Junkie
Successful Failed
13
… while others through one-off co-operations,
JVs and other equity tie-ups
One-off industrial
co-operations
Cross-shareholdings—
enabled co-operations Full integration
Expectedimpactatthetimeofthedeal
Low High
Low/negativeHigh
Level of integration
Long-term industrial
co-operations (JVs)
14. But all this has produced poor results so far,
as OEMs' returns and valuations are still depressed
April 29, 2015Confessions of a Capital Junkie 14
2014 ROIC 2014 EV/EBITDA2
1 Mainstream OEMs include: FCA, Ford, General Motors, Hyundai, Honda, Kia, Nissan, PSA, Renault, Toyota, Volkswagen
2 Based on 2014 average enterprise value for the companies in the reference sample. EV including pension liabilities. EBITDA as per accounting principles adopted by
each company
4.0x
6.2x
6.8x
9.0x 9.1x
10.7x 11.0x 11.1x
13.0x
MainstreamOEMs
Oil&Gas
Telecommunications
AerospaceandDefence
Packagingmaterials
Chemicals
Buildingmaterials
Consumer&Retail
Pharma
7.8%
10%
11%
12%
13%
14%
16%
19%
22%
MainstreamOEMs
Oil&Gas
Telecommunications
Buildingmaterials
Chemicals
Packagingmaterials
AerospaceandDefence
Pharma
Consumer&Retail
1
1
15. Why haven’t these approaches provided
a significant lift to returns?
April 29, 2015Confessions of a Capital Junkie
Large scale organic reduction in platforms
● Reluctance to replace old, less costly architectures
● Option available only to those OEMs with existing scale across platforms,
top hats and regions
● Requires strict discipline to avoid upward standardization/over engineering
● Lower risk in the short-term, BUT significantly slower execution,
entailing lower returns over an extended period
OEM co-operations
● Most effective on single ventures, but with limited scope
● Usually involve non-core elements of portfolio
● Not a pervasive, substantive solution for any OEM
15
16. Why does industry consolidation matter?
16April 29, 2015Confessions of a Capital Junkie
High mortality rate caused by partial if non-existent integration
● Cultural divide (corporate and otherwise)
● Inequality of integrating parties
● Operating models radically different and never merged
● Insufficient sensitivity for brand differences
● Lack of respect/trust for one another
Complexity proved to be too much of a stretch for leadership teams
BUT
It enables
● Fast execution, enabling rapid scale gain
● Fostering step-change/best-of-best approach to modularity/ commonality
AND
The potential savings are too large to ignore
17. The facts: Breaking down product development costs
April 29, 2015Confessions of a Capital Junkie
1 Includes mounts, fuel system, cooling and other minor components/systems
2 Average weighted on contribution to product development cost
E-MPV segment mainstream “all new” vehicle example
17
OEM B
OEM A
Potential
commonality
while
preserving
differentiation
17%
14%
38%
11%
2%
Steering
1%
Suspen-
sions/
wheels
4%
Brakes
1%
Power-
train
installation
systems1
7%
Upper-
body
exterior
Under-
body
Total
100%
Common
general
Assy/
Paint
InteriorsElectri-
cal/
Electronics/
Connectivity
5%
HVAC
~70% ~10% ~75% ~90% ~80% ~80% ~80% ~70%
Potential
commonality
up to
~45-50% of
total
development
cost2
Frame/chassis
Typical development cost for vehicle and platform (excluding powertrain)
% of total development costs
~30% 100%
Potential benefits up to €2 billion on vehicle investments
18. Powertrain portfolios show even higher duplications
across OEMs, both for engines …
April 29, 2015Confessions of a Capital Junkie 18
Overlap with future FCA engine offering
1 High performance engines, limited productions, low volumes
Diesel
Engine lineup
Potential overlap with FCA
engine budget
Exotic engines1
GasHybrid
• Small (1.3-1.6L)
• Medium (2.0-2.3L)
• Large (3.0-6.0L)
• 3 Cylinder
• 4 Cylinder
• V6
• V8
• Mild (BSG)
• Full
Major global car OEMs benchmarked
Minor overlap
OEM 1 OEM 2
>90% ~50% >90%~90% >70%>60% >50%
OEM 4 OEM 7OEM 3 OEM 9OEM 6OEM 5
~90%
19. … and for transmissions
Confessions of a Capital Junkie 19April 29, 2015
Overlap with future FCA transmissions offering
Potential overlap with FCA
transmissions budget
~90% ~50% >90%~90% ~ 70%~ 80% ~ 50%
FWD
Transmissions lineup
RWD
• Manual 5 Speed
• Manual 6 Speed
• MTA
• DDCT
• Automatic 6 Speed
• Automatic 8/9 Speed
• CVT
• Manual 6 Speed
Major global car OEMs benchmarked
OEM 1 OEM 2 OEM 4 OEM 7OEM 3 OEM 9OEM 6
• Auto. LD, ≤7 Speeds
• Auto. LD, ≥8 Speeds
• Auto. HD, ≤7 Speeds (1000 Nm)
• Auto. HD, ≥8 Speeds (1000 Nm)
~60%
OEM 5
Potential elimination up to €1 billion in duplicated engines and transmissions spending per year
20. The facts: Sharing platform, vehicle and powertrain
development can yield significant savings
April 29, 2015Confessions of a Capital Junkie 20
Illustrative investment for developing 2 full new vehicles
Indexed to 100, example mainstream B/C segment built on same platform
Total consolidated
investment
~60-80
~100~50 ~20-401
Vehicle and
platform A
Savings on total
investment
Total stand-alone
investments for A
and B
~50
Vehicle and
platform B
1 Estimate based on 40-80% saving on the second vehicle leveraging commonalities in product development. Example for mainstream B/C segment
estimated with same methodology as of case for E-MPV segment (45-50%)
2 Assuming a powertrain average lifecycle of 10 years. Tooling synergies not considered
~70-75
Total stand-alone
investments for A
and B
~100
Engine B
~50
Savings on base
development,
vehicle installation
~25-30
~50
Total consolidated
investment
Engine A
Illustrative investment for developing 2 new engines2
Indexed to 100, example for two 4-cylinder gasoline engines to be based on the same architecture
21. We believe large scale integrations are required to
unleash full potential
21April 29, 2015Confessions of a Capital Junkie
Potential for capital rationalization across different types of co-operation
Share R&D
costs and tech
development
Optimize
tooling
investments
Maximize plant
utilization
Capture cross-
selling
opportunities
Capture other
opex
opportunities
Potential for
capital
rationalization
One-off technical co-
operation JVs
Cross-shareholding
enabled co-operations
Full
integration
Key
enabler:
Integrated
product
strategy
Key
enabler:
Integrated
industrial
footprint
strategy
Low High
Drivers for capital
rationalization
22. Potential synergies from consolidation of auto OEMs
would be ~70% driven by industrial rationale
22April 29, 2015Confessions of a Capital Junkie
Estimated benefits from consolidation of auto OEMs1
1 FCA analysis of potential consolidation opportunities among top 10 global automotive OEMs
Sharing platforms
development costs
Leveraging
commonalities in
top-hat
development
Avoiding budget
duplication for
powertrains
Optimization of
manufacturing
investments and
production
allocation
Combinations of FCA with another large OEM would yield benefits of €2.5-4.5bn per year
Technology and
product development
(e.g. sharing component
development costs)
Cross-selling
~70%
~15%
Other opex
opportunities
(e.g. purchasing, SG&A)
~15%
23. Aerospace and Defence
Building materials
Chemicals
Oil & Gas
Packaging materials
Telecommunications
Pharma
Consumer & Retail
OEM 1
OEM 2
OEM 3
OEM 4
OEM 5
OEM 6
OEM 7
OEM 8
OEM 9
Premium OEM
OEM 10
0%
5%
10%
15%
20%
25%
0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x
Consolidation can support significant ROIC and
valuation improvement
April 29, 2015Confessions of a Capital Junkie
1 Including pension liabilities. EBITDA as per accounting principles adopted by each company
ROIC FY 2014
EV/EBITDA1 2014
Auto industry WACC: ~9%
23
Status quo
Automotive
today
Consensus 2018
Consensus 2018
adjusted for
consolidation
24. Some conclusions
Confessions of a Capital Junkie
Top OEMs spent over €100bn for product development in 2014 only,
>€2bn/week in product development and tooling costs, and poised to invest at
similar rates in the futures
Historical returns have been broadly below cost of capital, even after the
restructuring of the US auto industry and NAFTA volumes at peak
Single purpose projects, JVs and the like are helpful, but they are not enough
Capital consumption rate by OEMs is unacceptable—it is duplicative, does not
deliver real value to consumers and is pure economic waste
Consolidation carries executional risks BUT benefits are too large to ignore
● Up to €4.5bn per annum, ~70% of which is a reduction in investments and R&D
● Optimized industrial allocations, with no impact on number employed
● Distribution (dealer networks not merged) and brands untouched by consolidation
● An exceptional value creation opportunity for shareholders
It is ultimately a matter of leadership style and capability…
24April 29, 2015
25. The Red Queen
Confessions of a Capital Junkie 25
“Well, in our country” said Alice,
still panting a little, “you’d
generally get to somewhere else
- if you ran very fast for a long
time as we’ve been doing.”
“A slow sort of country!” said the
Queen. “Now here you see it
takes all the running you can do
to keep in the same place. If
you want to get somewhere
else, you must run at least twice
as fast as that!”
L. Carroll
Through the Looking Glass
April 29, 2015