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….
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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 automobile
6 • 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 GM
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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 century's mass manufacturing.
Perfected use of the assembly line which became the
basis for most of the 20th century's 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.
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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)
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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 - $46,000
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13. Segmentation
Segment totals, ranked by Oct 2010 unit sales
% Chg from % Chg from
Oct-10 Oct'09 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.com
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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 credit
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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)
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GM Largest IPO in history (Nov. 17, 2010)
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 44,880
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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 costs
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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 9.8
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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 725,000
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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% 70.45B
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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 deferred
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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 BRIC
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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
economy
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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.
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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
smaller
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44. The Future Is Now!
• Chevy Volt: 2011 Car of the Year
Motor Trend Magazine
Automobile Magazine
Green Car Journal
44
45. Global Expansion
• Rapid expansion into newer markets
• 27% surge in global manufacturing by 2012
45
46. Forecasts
• Annual Sales Could Reach 16 Million
Units by 2011 on Pent-Up Demand
• Suppliers Could Need Up To $33.5
Billion Through 2012
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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 2009
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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 Price
51 - P/E Ration is relatively low
52. SWOT ANALYSIS
Primary 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 trademarks
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53. SWOT ANALYSIS
Recommendations 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!
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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.html
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