Global Automotive. Presenter: Industry----Frank GM----Raymond Toyota----Angela Volvo---Lillian.

Global Automotive

Presenter:

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

Global Auto Sales

The growing importance of Emerging Market

Surprise! Surprise!

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

Major Countries

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Major Manufactures

Major Manufacturer operating Margin

Excess production capacity-NA

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

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---Sales cycle

Industry characteristics---M/A, Alliance

Technology, R/D

Market penetration

Global cooperation

GM:---200 Garage Car makers in early days

---SAAB, Daewoo ---Isuzu, Subaru, Suzuki Ford---Jaguar, Land Rover, Volvo,

----Mazda Benz---Chrysler Renault---Nissan

Industry characteristics---M/A, Alliance

Porter’s Five Forces

Threat of New entrants

Emergence of foreign competitors with Capital, technology and management skills

Chinese & India brands within their own countries

Suppliers

Had little power before Been hit hard in Major Automaker

cost cutting Globalization

merger and acquisition Increased tension b/w suppliers

and Automakers

Supply Chain (traditional)

Tier 3

Raw Material

Tier 2

Small parts

Tier 1

components

OEM

Design& assemble

Supply Chain (emerging)

Raw Material Supplier

Component specialist

Global Standardized–Systems Manufacturer

Systems Integrator

Merger of suppliers

Outsourcing production---to more suppliers

Percent of Car Value outsourced

--Cost cutting requirement of Automakers

Suppliers

Suppler (cont)

A major suppler Collins & Aikman halted delivery to Ford on Oct 19th

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)

Substitutes

Public transportation on the rise

Rivalry

Fierce competition High competition cost Low return

Historically avoid price competition

More and More price competition

Buyers

Historically, the automaker power went unchallenged

As the market saturate, more options made available, buyers have significant amount of power

Increasing Models and Decreasing Scale, US Market

Regulation

Regulations Emission standard*** Safety standard

European Union: “ACEA agreement” seeks 25% reduction in vehicle CO2 emissions levels by 2008 (from 1995 levels). Agreement may be extended an additional 10% by 2012.

Japan: requires 23% reduction in vehicle CO2 emissions by 2010 (from 1995 levels).

Australia: voluntary commitment to improve fuel economy by 18% by 2010.

Canada: has proposed a 25% improvement in fuel economy 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

EU

Canada

US

Japan

Australia

China California

20

25

30

35

40

45

50

55

2002 2004 2006 2008 2010 2012 2014 2016

MP

G -

Co

nve

rte

d t

o C

AF

E T

est

Cyc

le

An and Sauer, 2004 for the Pew Center on Global Climate Change

Aggregate Value ExposureEstimated cost per vehicle to meet “most likely” carbon constraint scenarios in US, EU and Japan

$0

$100

$200

$300

$400

$500

$600

$700

Co

st p

er v

ehic

le

BMW DC Ford GM VW Nissan Toyota PSA Renault Honda

25x difference in Value Exposure across the industry

8

Management Capacity for Low-Carbon Technologies Measure of OEMs’ capacity to develop and commercialize main low-carbon technologies: hybrids, diesels & fuel cells

40

50

60

70

80

90

100

Man

agem

ent

Qu

alit

y In

dex

Toyota DC Renault-Nissan

Honda Ford GM VW BMW* PSA

9

In addition Political issues

Trade barrier tariff

Energy crisis OPEC Political & Natural reasons

Technology development Hybrid, Fuel cells, Hydrogen, Electronic, ethanol.

Etc System feature & design

Key success factors

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

General Motors

Symbol: GMExchange(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. HendersonGM Vice Chairman and Chief Financial Officer BBA from the University of Michigan MBA from Harvard Business School

Robert A. LutzGM 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

GM in 2005

One of the most difficult yearsReported 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. inability to adjust structural costs in line with

falling revenue3. global overcapacity 4. falling prices5. rising health-care costs 6. higher fuel prices

a) reducing demand for some of the highest-profit product

7. global competition8. 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

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Consolidated Balance Sheets – Liabilities and Stockholders’ Equity

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Available Liquidity

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Cash flows from continuing operating activities

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Cash flow from continuing financing activities

Q3 financial Highlights

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) Continued demand for GM’s most profitable products and the maintenance of a strong product mix

2) The introduction of innovative new products on a timely cadence, through the integration of global architectures, engineering, and procurement efforts

3) The implementation of measures for reducing structural costs, offsetting legacy and health-care burdens

4) Maintenance of sufficient balance sheet strength and liquidity

5) 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

Toyota Motor Corporation

Company Snapshot Industry: Consumer Products (Automotive) Ticker Symbol: TM Listed on: NYSE

Data as of 08-Nov-06

Stock Price: US$ 123.460

Net Change: US$ 2.250 % Change: 1.86%

52-Week High: US$ 124.000 EPS: 7.90

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

Chart - 1 year (daily)

Chart – 5 years (monthly)

Financial Highlights

Company Overview

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

Management Team

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.

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

PresidentKatsuaki Watanabe (63 years old) Joined Toyota directly from college in 1964 Director of Mitsubishi Securities Co., Ltd. Director of Toyota since September 1992

Current Business 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 19,338,144

Financial Services 996,909

All Others 1,190,291

Operating Income: 　

Automotive 1,694,045

Financial Services 155,817

All Others 39,748

Automotive Operations

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

Vehicle Production and Sales

Sales and Production Distribution

Products Distribution

Manufacturing Companies Distribution

Vehicle Production and Sales

Market Shares

Vehicle Sales Projection by Region

Financial Services Operations

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

Other Business Operations

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:

Revenues by Region　 Yen in millions

　 2006

By Region: 　

Revenues: 　

Japan ¥7,735,109

North America 7,455,818

Europe 2,574,014

Asia 1,836,855

Other Regions 1,435,113

Operating Income: 　

Japan ¥1,075,890

North America 495,638

Europe 93,947

Asia 145,546

Other Regions 67,190

Threats 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 Labor strikes

Competitive Strengths

Superior QualityBrand Image: safe, environmental friendly

Cost competitive R&D - Technology leader

Fuel-efficient vehicles Solid financial base Personnel development

Cost Reduction Strategies

Solution to Hike in Oil Price

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.

Financial Statements

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

Future Strategies

Enhancing technology development capabilities centered on environmental technology

Increasing production through the advancement of localization

Expand Production Capacity

Future Strategies by Region

Recommendation

Volvo Group

Company Snapshot 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 Ask 2,000,000

Low 61.930 EPS 4.64

Volume 19,506 P/E 13.5

52 Week High

63.290 Yield 0.00

52 Week Low

40.800 Div. 0.00

# Shares 404.8M

Company Snapshot

3 year weekly chart 5 year weekly chart

Stock Analysis (Volvo VS Market)

2 Year 1 Year

CompetitorVolvo Paccar

Market Cap 26.60B 14.90B

Employ ees 81,860 21,900

Qtrly Rev Growth 10.20% 18.80%

Revenue 35.93B 15.86B

Gross Margin 22.83% 15.43%

EBITDA 4.58B 2.42B

Oper Margins 8.13% 12.61%

Net Income 1.93B 1.43B

EPS 4.761 (404.8M) 5.651 (248.30M )

P/E 13.80 10.62

P/S 0.73 0.93

Management Team

Leif Johonsson 43,538 Series B shares and 50,000 employee stock options

President and CEOMaster of EngineeringWith Volvo since 1997

Jorma Halonen 2,000 Series B shares and 25,000 employee stock optionsExecutive Vice PresidentBachelor of Science in Economics With Volvo since 2001

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

Company Overview

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:

Production Facilities

Sales by Business Area Volvo Trucks (67%)

Volvo Buses(7.2%)

Construction & Equipment(15%)

Volvo Penta (4.2%)

Volvo Aero (3.3%)

Sales by Business Area (Cont)

Sales by Market Area

Business Strategy 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

Key Drivers

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

Quarterly Income Statement

3/2005 – 3/2006

(1 SEK=0.1398 USD)

Key Operating Ratios

Nine Month Ended Report

Sep 30 2006

(1 SEK=0.1398 USD)

2005 Financial Highlights

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)

Consolidated Income Statement

(1 SEK=0.1398 USD)

Sales & Margin

Operating Income / R&D Cost

Consolidated Cash Flow Statement

(1 SEK=0.1398 USD)

Cash Flow Statement 2005

Capital Expenditures Current & past Future

Consolidated Balance Sheet

(1 SEK=0.1398 USD)

Change in Net Financial Position

Dividend Payout

Recent News 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

Recent News (cont)

Volvo Construction Equipment invests in China Plans bus body cooperation in India

AB Volvo increases its holding in Nissan Diesel