



Industry----Frank
GM----Raymond
Toyota----Angela
Volvo---Lillian

The growing importance of
Emerging Market


QUICK EXPANSION



The production for the next 20 years will be more than what ’ s been made for the entire 110 years of auto industry history
BRIC, especially China has been, and will be the major driving force of global Auto industry
Expected to replace Japan as the second largest market

Continuous Growth in Global
Automobile Industry

Global Vehicle Ownership Estimation: Over 1 billion units in 2010

Click here

Major Manufacturer operating
Margin

Industry Characteristics
---Major Cost



Labour & Pension plans****


N.A companies face a large amount of pension cost----approx. $1500 per vehicle
Jap companies have none pension cost
Material


Hundreds of pieces purchased from suppliers
Automakers absorb only part of the increase in material cost
Advertising

Cost Breakdown
---Typical American

Cost Breakdown
---Typical American

Industry Characteristics
---Sales cycle



Highly sensitive to aggregate economic performance
U.S economy will slow down from 3.2%
GDP growth to about 2%
The effect of democratic victory in congress??

Industry characteristics
---M/A, Alliance

Technology, R/D

Market penetration

Global cooperation

Industry characteristics
---M/A, Alliance




GM:---200 Garage Car makers in early days
---SAAB, Daewoo
---Isuzu, Subaru, Suzuki
Ford---Jaguar, Land Rover, Volvo,
----Mazda
Benz---Chrysler
Renault---Nissan


Emergence of foreign competitors with
Capital, skills technology and management

Chinese & India brands within their own countries





Had little power before
Been hit hard in Major Automaker cost cutting
Globalization
 merger and acquisition
Increased tension b/w suppliers and
Automakers

Tier 3
Raw
Material
Tier 2
Small parts
Tier 1 components
OEM
Design& assemble

Raw
Material
Supplier
Component specialist
Global
Standardized–
Systems
Manufacturer
Systems
Integrator

Outsourcing production
---to more suppliers
Percent of Car Value outsourced

Suppliers
--Cost cutting requirement of Automakers



A major suppler Collins & Aikman halted delivery to Ford on Oct 19 th
Caused temporary shut down of one of the biggest assembly line of Ford

Foreseeable---

One of the largest supplier
Dana has been added to the list (April 2006)


Public transportation on the rise



Fierce competition


High competition cost
Low return
Historically avoid price competition

More and More price competition


Historically, the automaker power went unchallenged

As the market saturate, more options made available, buyers have significant amount of power


Regulations


Emission standard***
Safety standard








European Union : “ACEA agreement” seeks 25% reduction in vehicle CO emissions levels by 2008
(from 1995 levels). Agreement may be extended an additional 10% by 2012.
Japan : requires 23% reduction in vehicle CO emissions by 2010 (from 1995 levels).
2
Australia : voluntary commitment to improve fuel economy by 18% by 2010.
Canada : has proposed a 25% improvement in fuel economy by 2010.
China : Introduced new fuel economy standards in
2004; weight-based standards to be introduced in 2 phases (2005 and 2008).
California : CARB approved GHG emissions reductions for automobiles, currently under legislative review.
New York : Clean Cars Bill proposing to follow
California standards is currently in committee. Several other NE states have indicated they will follow CA’s lead.

Comparison of Fuel Economy and
GHG Emission Standards
55
EU
50
Japan
45
40
35
30
China
25
US
20
2002 2004 2006 2008
An and Sauer, 2004 for the Pew Center on Global Climate Change
2010
Australia
Canada
2012 2014
California
2016

Estimated cost per vehicle to meet “most likely” carbon constraint scenarios in US, EU and Japan
8
$700
$600
$500
$400
$300
$200
$100
$0
BMW DC Ford
25x difference in Value Exposure across the industry
GM VW Nissan Toyota PSA Renault Honda

90
80
70
Measure of OEMs’ capacity to develop and commercialize main lowcarbon technologies: hybrids, diesels & fuel cells
100
9
60
50
40
Toyota DC Renault-
Nissan
Honda Ford GM VW BMW* PSA




Political issues


Trade barrier tariff
Energy crisis

OPEC

Political & Natural reasons
Technology development

Hybrid, Fuel cells, Hydrogen, Electronic, ethanol.
Etc

System feature & design







Pension fund management
How well the company digest what ’ s been eaten
Supplier relationship management
Risk management (i.e. exchange exposure risk, commodity price risk) design, marketing of new models
New technology development

Symbol: GM
Exchange(s): NYSE
Industry: Consumer Products (Automotive)

As of Nov 7, 2006
Dividends Per Share : 1.00
Number of Shares: 565,610,000

1 Year Chart

30% increase within 1 year

5 Year Chart

20% decrease within 5 years

Company Profile






The world's largest automaker has been the global industry sales leader for 75 years employs about 327,000 people around the world manufactures its cars and trucks in 33 countries
Engaged in automotive production and marketing and financing and insurance operations largest operating presence in North
America

EXECUTIVE
PROFILES
G. Richard Wagoner, Jr.
GM Chairman & Chief Executive Officer



Since June 2000
BA in economics from Duke University
MBA from Harvard Business School
Frederick (Fritz) A. Henderson
GM Vice Chairman and Chief Financial Officer


BBA from the University of Michigan
MBA from Harvard Business School
Robert A. Lutz
GM Vice Chairman, Global Product Development



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

Brands






Buick
Cadillac
Chevrolet
Fleet & Commercial
Operations
Holden
Vauxhall







GMC
GM Daewoo
HUMMER
Pontiac
Saturn
Saab
Opel

GMAC Financial Services


A finance company offers automotive, residential and commercial financing and insurance

GM's OnStar subsidiary


 a provider of vehicle safety, security and information services use (GPS) satellite and cellular technology to link the vehicle and driver to the OnStar Center advisors offer real-time, personalized help 24 hours a day,
365 days a year

Global Partnerships



 majority shareholder in GM Daewoo Auto &
Technology Co. of South Korea
Product, powertrain and purchasing collaborations with Suzuki Motor Corp. and Isuzu Motors Ltd. of
Japan
Advanced technology collaborations with



DaimlerChrysler AG
BMW AG of Germany
Toyota Motor Corp. of Japan
Vehicle manufacturing ventures with



Toyota
Suzuki
Shanghai Automotive Industry Corp. of China


AVTOVAZ of Russia
Renault SA of France

Market

GM's largest national market is the
United States, followed by China,
Canada, the United Kingdom and
Germany

One of the most difficult years
Reported loss of $10.6 B

The size of GM’s 2005 loss, most of which related to its North American operations

Global Sales
GM had its second highest sales volume globally last year, with nearly 9.2 million vehicles sold

More than half of GM’s sales globally came
OUTSIDE the United States


In the Asia Pacific region , GM sold more than 1 million vehicles
GM became the No. 1 car manufacturer in China along with their joint venture partner


Significant growth in Latin America, Africa and the Middle East region , with sales up 20 percent
Eighth consecutive year of sales leadership in region such as: Chile, Ecuador, Venezuela, South
Africa and the Middle East

GM Europe cut its losses significantly

GM Production Schedule

GM Car Deliveries

Challenges and Weakness
Due to:
1.
huge legacy cost burden
2.
3.
4.
inability to adjust structural costs in line with falling revenue global overcapacity falling prices
5.
6.
7.
8.
a) rising health-care costs higher fuel prices reducing demand for some of the highest-profit product global competition international exchange rates tend to help
Japanese and Korean imports




Rising retiree health care costs and Other
Post Employment Benefit (OPEB) fund deficit prompted the company to enact a broad restructuring plan
For every active GM employee in the
United States last year, GM supported 3.2
retirees and surviving spouses
GM’s health-care bill in 2005 = 5.3B

Financial Burden
Health care and pensions.
* Number of U.S. retirees and surviving spouses who received pension plan benefits
** Est. number of U.S. employees, dependents, retirees and surviving spouses covered by health benefits

Delphi Chapter 11 proceedings




Delphi is an automotive parts company spun-off from GM
GM recorded a charge of $5.5 billion
($3.6 billion after tax) as an estimate of contingent exposures relating to the
Chapter 11 filing of Delphi Corporation
GM receiving only a portion of amounts owed by Delphi to GM obligations in excess of amounts recognized by GM in 2005 in connection with benefit guarantees

Consolidated Results

GM North America

GM North America
The loss due to:

 declines in sales of higher margin large cars
Unfavorable material costs



Increased health-care expenses
Advertising and sales promotion cost increases restructuring charge

GM Europe

GM Europe
In February 2005, GM successfully bought itself out of a put option with Fiat for $2 billion USD




Restructuring charges negative pricing unfavorable exchange rates
Pricing declines

GM LATIN AMERICA/AFRICA/MID-EAST

GM LATIN AMERICA/AFRICA/MID-EAST


 significant industry growth in 2005
19% increase in vehicle unit sales net sales and revenues improved by approximately 34%
Lost due to:

 quarter impairment charges of $99 million for assets
A full valuation allowance charge

GM Asia Pacific

GM Asia Pacific






General Motors is the top-selling foreign auto maker in China unit sales in the Asia Pacific region increased approximately 6.3% the fastest growing automotive region
Unit sales increase by 20%
Lost due to:


Write-down of GM’s investment in FHI (Fuji Heavy
Industries ) asset impairment charges
 restructuring activities
Continue to take advantage of the strong position and growth in China, leverage its capabilities at
GM Daewoo, and execute the turnaround at GM’s
Holden unit

GMAC

GMAC

 goodwill impairment charges lower net interest margins

North America Turnaround Plan
Four-point turnaround plan

Keep raising the bar in the execution of great cars and trucks



Revitalize sales and marketing strategy.
Significantly improve cost competitiveness
Address health-care and pension legacy cost burden.

Turnaround Plan – Plant and labor reduction






 cease production at 12 U.S. plants by 2008 reduce manufacturing workforce by 30,000 positions (cumulative reduction to 38 percent ) reduce our retiree health-care obligations by about $15 billion cap the company’s contribution to salaried retiree health-care costs modify pension benefits for salaried and executive employees reduced salaries of our top executives reduced our dividend by 50 percent
Expected to result in annual cost reductions totaling
$7 billion

Consolidated Balance Sheets - Assets

Consolidated Balance Sheets –
Liabilities and Stockholders’ Equity

Available Liquidity

Cash flows from continuing operating activities

Cash flow from continuing financing activities

2006 Q3 Highlights








Record Q3 revenue of $48.8B
Adjusted EPS $0.93
$529 million Adjusted Net Income r
$1,643 million improvement vs. Q3 ’05
Adjusted results
Significant improvements continue in GME and GMLAAM
Lower results at GMAC
Cash balance of $20.4B at quarter-end,
Favorable results in Corporate Other largely driven by reduced

Goals






Automotive operations improved by $1.5B on an adjusted basis, on strength of cost actions in
GMNA and continued momentum in other regions
On track to achieve $9B structural cost target on a running rate basis by the end of 2006 – and continuing to work on goal to reduce to 25% of revenues by 2010
Key priority is to finalize negotiations with Delphi
Continue to be on track to close the GMAC transaction in Q4
Automotive liquidity remains strong at $20.4B, but continued focus on improving operating cash flow

Key Success Factors
1)
2)
3)
4)
5)
Continued demand for GM’s most profitable products and the maintenance of a strong product mix
The introduction of innovative new products on a timely cadence, through the integration of global architectures, engineering, and procurement efforts
The implementation of measures for reducing structural costs, offsetting legacy and health-care burdens
Maintenance of sufficient balance sheet strength and liquidity
Other factors affecting GM’s Financing and Insurance
Operations (FIO) reportable operating segment results, including interest rates, credit ratings, and demand for mortgage financing.

Issues to consider









GM is the healthiest of the Big Three !!!
ability to compete with Asian automakers ???
Jerry York !!!
GM's accounting subject of inquiry market share in China ???
GM vs. Toyota??
cash flow problems??
High structure cost?
Sustainable?

Recommendation
HOLD




Industry: Consumer Products (Automotive)
Ticker Symbol: TM
Listed on: NYSE
Stock Price: US$ 123.460
Net Change: US$ 2.250
52-Week High: US$ 124.000
% Change: 1.86%
EPS: 7.90
Data as of 08-Nov-06
52-Week Low: US$ 89.800
P/E: 15.60




Dividend Payout: 17.25%
ROA: 8.19%
ROE: 13.5%
# of shares outstanding: 3,609,997,492 shares







Established in 1937
Producing vehicles in 26 countries
Marketing vehicles in more than 170 countries and regions
Toyota
’ s Brands: Toyota, Lexus, Daihatsu, and
Hino
Sold ~ 8millions vehicles in 2006
More than 280,000 employees

 Chairman of the Board/Director (since 2006)
Fujio Cho (69 years old )
 Joined Toyota in 1960



Director of Aioi Insurance Co., Ltd
Director of Central Japan Railway Company
Director of Toyota since September 1988
 President
Katsuaki Watanabe (63 years old)
 Joined Toyota directly from college in 1964


Director of Mitsubishi Securities Co., Ltd.
Director of Toyota since September 1992
 Executive VP/Director (since 2005)
Mitsuo Kinoshita (60 years old)



Joined Toyota in 1968
Director of Toyota since June 1997
Vice Chairman of the Board of Gamagori Marine
Development Co. Ltd.

 Automotive Operations
 Japan


North America
Europe
 Asia and other regions
 Financial Services Operations
 Auto sales financing



Retail sales of corporate bonds
Investment trusts
Asset development services for individuals


Housing loans
Insurance
 Other Business Operations
 Manufactured housing


Advertising & e-Commerce services
Industrial & aerospace equipment



Marine equipment
Telecommunications services
Sports teams and golf courses

Consolidated Segment Information
 Revenues segmented by business operations:

Revenues by Business Operations
Yen in millions
2006
By Business Operations:
Revenues:
Automotive
Financial Services
All Others
Operating Income:
Automotive
Financial Services
All Others
19,338,144
996,909
1,190,291
1,694,045
155,817
39,748

 Revenues:

¥
19,338.1 billion (+13.0%)
 Operating income:

¥
1,694.0 billion (+16.6%)
 Causes:




Currency exchange rate fluctuations
Increases in vehicle production and sales
Cost reduction activities
Minus the higher expenses resulting from business expansion

Sales and Production Distribution

Manufacturing Companies Distribution

Vehicle Sales Projection by Region

Financial Services Operations
(cont’d)
 Revenues:

¥
996.9 billion (+27.6%)
 Causes:


Higher financing volume from increasing vehicle sales
Toyota has the highest credit rating in
S&P
’ s and Moody
’ s
 Operating income:

¥
155.8 billion (
–
22.4%)
 Causes:


Valuation losses on interest rate swaps
Accounting adjustment in 2005 for loan origination costs by a sales finance subsidiary in the US

 Revenues:

¥
1,190.3 billion (+15.5%)
 Operating income:

¥
39.7 billion (+17.8%)
 Causes:
 Favorable production and sales in the housing business

Consolidated Segment Information
 Revenues segmented by region:

Yen in millions
2006
By Region:
Revenues:
Japan
North America
Europe
Asia
Other Regions
Operating Income:
Japan
North America
Europe
Asia
Other Regions
¥ 7,735,109
7,455,818
2,574,014
1,836,855
1,435,113
¥ 1,075,890
495,638
93,947
145,546
67,190

 Hikes in crude oil price
 Hikes in raw materials price
 Fluctuations in currency exchange rates and interest rates
 Structural changes in demand for automobiles
 Change governmental regulations in automotive industry
 Political instabilities
 Fuel shortages or interruptions in transportation systems
 Natural calamities, wars, terrorism

 Superior Quality
 Brand Image: safe, environmental friendly
 Cost competitive
 R&D - Technology leader
 Fuel-efficient vehicles
 Solid financial base
 Personnel development

 Hybrid Vehicles



Prius has become the top selling hybrid car in America.
Toyota now has three hybrid vehicles in its lineup:


Prius
Highlander
 Camry
The popular minivan Toyota Sienna is supposed to join the hybrid lineup by 2010.

 Annual Balance Sheet
 Annual Income Statement
 Annual Cash Flows Statement
 Semiannual Balance Sheet
 Semiannual Income Statement
 Semiannual Cash Flows Statement

Selected Financial Summary (Cont’d)

Semiannual Report
Released on
Nov. 7, 2006

Semiannual Report
Released on
Nov. 7, 2006

Semiannual Report
Released on
Nov. 7, 2006

Semiannual Report
Released on
Nov. 7, 2006

Semiannual Report
Released on
Nov. 7, 2006

 Enhancing technology development capabilities centered on environmental technology
 Increasing production through the advancement of localization

Data as of Nov-02-06
Last : US$ 62.420
Net Change : US$ -0.240
% Change : -0.38%
Open 62.240
Bid 0.010
High 62.690
Low 61.930
Volume 19,506
52 Week
High
63.290
52 Week
Low
40.800
Ask 2,000,0
00
EPS 4.64
P/E 13.5
Yield 0.00
Div.
0.00
# Shares 404.8M

 3 year weekly chart  5 year weekly chart

Stock Analysis (Volvo VS Market)
 2 Year  1 Year

Market Cap
Employees
Qtrly Rev Growth
Revenue
Gross Margin
EBITDA
Oper Margins
Net Income
EPS
P/E
P/S
Volvo
26.60B
81,860
10.20%
35.93B
22.83%
4.58B
8.13%
1.93B
4.761
(404.8M)
13.80
0.73
Paccar
14.90B
21,900
18.80%
15.86B
15.43%
2.42B
12.61%
1.43B
5.651
(248.30M )
10.62
0.93

 Leif Johonsson
43,538 Series B shares and 50,000 employee stock options
President and CEO
Master of Engineering
With Volvo since 1997
 Jorma Halonen
2,000 Series B shares and 25,000 employee stock options
Executive Vice President
Bachelor of Science in Economics
With Volvo since 2001

 Establish: 1927
 Employees: more than 80,000
 Product & Service:

 A global group :
Conducts sales in about 185 countries
Has production facilities in 18 countries
Most of the Volvo Group’s sales are to markets in Western
Europe and North America
 Brands:

 Volvo Trucks (67%)
 Volvo Penta (4.2%)
 Volvo Buses(7.2%)
 Construction & Equipment(15%)
 Volvo Aero (3.3%)

 Customer oriented
Develop the dealer networks & improve service to customers
 Strong product portfolio
Invest in future technologies such as alternative drivelines and supplementary fuels & offer various applications
 Capitalize on economies of scale
Volvo Powertrain: provides engines and other driveline components
Volvo Parts: optimizes inventory management and distribution of parts
Volvo Logistics: handles optimal logistics solutions for materials flow

 Cyclical industry
 Intense competition
 Unstable prices for commercial vehicles
 Operations exposed to currency fluctuations
 Profitability depends on successful new products
 Relies on suppliers
 Government regulation

(1 SEK=0.1398 USD)

(1 SEK=0.1398 USD)

 Net sales increased by 14%
 Income for the year increased by 32%
 Earnings per share increased by 37%
 Proposed dividend SEK 16.75 per share

2005 Financial Highlights (Key Ratio)

(1 SEK=0.1398 USD)

Consolidated Cash Flow Statement
(1 SEK=0.1398 USD)

Cash Flow Statement 2005

 Current & past  Future

(1 SEK=0.1398 USD)






Strategic decision on closure of Volvo Aero’s operations in Bromma
Volvo initiates a Traffic Accident Research Centre in China
Volvo Aero Norway to be supplier to the
General Electric Engine for the Joint Strike
Fighter
Volvo Trucks laying off 600 at Powertrain Plant in Hagerstown
Volvo Aero expands in US

 Volvo Construction Equipment invests in China
 Plans bus body cooperation in India
 AB Volvo increases its holding in Nissan Diesel