|03-19-2008, 10:16 AM||#1|
Join Date: Jan 2007
Location: et ament meminisse peritiVehicle:
L Bo Hope you meet
the spirit in the sky
Notes from the Morgan Stanley Auto Conf. TRW and Ford.
Guidance for 2008 is a higher year than 2008 helped by a stronger Asia, LatAm and European market (strength in that order).
As of right now, Europe looks to be very steady. 2H08 might show weakness. However, any weakness resulting from a weak dollar that lowers US imports, will be more than offset by the exploding markets in Asia and Russia.
IN terms of commodity costs vs. 2007, management hopes that 2008 will be an easier year, but they are not banking on it. Stainless steel and other ferrous metals seems to have bounced back. Nickel and Copper have shown weakness.
I asked the CEO about the depreciating dollar and his views on how it impacts Autos. He gave me a very impressive global macroeconomic answer.
A declining dollar will have a short term benefit to US manufacturers. This maybe evidenced by increasing quoting activity for US manufactured parts. However, in the long run, given the US dollar role as a reserve currency commodity costs will continue to rise upwards and force margin compression. This is an issue facing TRW in Europe at the current moment. People will continue to invest heavily in low cost countries, as they feel the US will continue to remain a high cost country despite the devaluation. In the long run a weaker dollar will be extremely negative for the global economy, and we strongly believe that the dollar needs to strengthen in order to return balance to the global economy.
SAAR through Feb show 15.3mm. Ford has estimates for 1H08 of 15.2-15.7mm.
Ford market share is 14.2% vs. a targeted range of 14-15%.
Derek Cusack who led the product renaissance over at Ford Europe is now in charge of global design and has already begun to make significant changes.
By 2010, they expect to have over 70% of global Ford volume to be across 8 platforms.
Currently 60% of Ford vehicles are recommended by various surveys, and 93% are above average reliability. An improving trend since 2005.
Various global ford management continue to realize synergies at Ford.
The UAW relationship is improving and various agreements that have been put in place are helping to make Ford US operations competitive with the ROW.
Ford continues to remove complexities from its product offerings. 2 years ago the console on an Expedition had 128 various configurations. Today that has been reduced by 80%. This has helped the cost structure tremendously.
Ford has been known to be the worst OEM when it comes to dealing with suppliers. Alan Mulally had the unfortunate pleasure of having to address his suppliers at a conference (Nov 2007) right after being given the award for “worst OEM to deal with”. He acknowledged this fact, and apologized. He did however, let them realize that the current Ford supplier base was sized for Ford when its market share was approximately 25%. As a result they need to share the pain with Ford in downsizing their operations.
To correct this Ford has begun to select key suppliers, has consolidated amongst them, and is improving relationships through aligning business plans, sharing various data and having constant two feedback, which was previously ignored.
Admit that Ford fell well behind on the MPG race and is now playing catch up.
However, he does feel that despite the new CAFÉ regulations being extremely aggressive, they are very achievable. Feels that the major differentiation going forward (now that quality seems to be minor difference amongst vehicles) will be Powertrain. Current ford has a Powertrain application called “Ecoboost” which applies turbo charging and Direct Fuel Injection (DFI) together to result in a 15-25% boost in MPG. In addition torque and HP are also improved across the power band.
When speaking to him individually, he winced on the devaluing Euro question. He spoke at length of their global operations and how they are holding up well as a result of the conversion rate, but he did acknowledge that $1.60 Euro is not good at all in the long run, and that we will need to see dollar appreciation, or there will be some major upsets on the commodity front globally.
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|03-19-2008, 03:03 PM||#2|
Join Date: Jan 2007
Location: et ament meminisse peritiVehicle:
L Bo Hope you meet
the spirit in the sky
Notes from the GM talk at the MS Auto Conference.
My opinion is that GM is being foolishly optimistic.
GM Lunch talk with the new GM CFO. Ray Young
Ray Young was the general manager at GM Brazil.
GM continues to be very focused on Chevy and Cadillac. Will augment their brand with Buick, Pontiac and Saturn. Continue to focus on NA but also work on excess capacity in Western Europe. Emerging markets have decoupled from NA. Jan and Feb have been record months for GM in EM.
GM is focusing on advanced propulsion and expects to be caught up to the market by 2008. Expect to be ahead of market by 2010 due to their technology push.
GM views of US and economy. Disappointing factors and encouraging factors exist. They are starting to see some bottoming out of housing markets. For example a specific housing market in California seems to be coming back in terms of days outstanding before a house sells. Has reduced from 70days to 30 days since Feb 07 to Feb 08. However at the same time prices have dropped from $350k to $250k. Basically the market mechanisms seems to have started to work once more. Prices are lower and buyers are coming back at these lower prices.
Frozen credit markets not an issue for GM. However, the NA Job loss isn't a good sign.
Energy and commodity prices are concerning. GM feels that long term oil will at $90. Constantly re-assessing this situation.
Positive sign, Weak dollar to result in stronger US exports.
The recent fed moves are far more aggressive than expected. Applaud the feds preventive actions. Think the Fed is doing a great job providing stability. Despite the recent weakness in the financial sector other sectors of the economy look to be good. Mfg sector slightly down but still strong. Companies on average look to have strong balance sheets.
Still hold at 15.7mm SAAR. 2H08 will improve as a result of the fed actions providing a positive stimulus to the economy. Don't expect to push fleet sales above 600K. No incentives either, use them strategically.
Mix and net price are closely monitored. Will be aggressive if need be. GM raised prices throughout 2007 by 1.5 percent to offset commodity prices.
1Q to end at 15.5mm SAAR (not sure if this include trucks as Ford mentioned SAAR of 15.2-15.3mm). GM will set production schedule appropriately after 1Q ends.
Regarding mix, body on frame down 2 %. CUVs are up 3.3%
Large utilities have held their own being down only 0.3%. Large pickups are very sensitive to construction demand are down 1.6%.
GM got rid of the Saturn ION that wasn't profitable. Mid size cars have done well.
The average transaction price has risen in the past few years despite seasonal fluctuations. Avg is above $26k now. GM has done better than market with their average above $27k.
GM has not yet been impacted by the credit situation BUT is carefully monitoring the situation. Auto lending has tightened up a lot.
Delinquency rates for GMAC are up but this increase IS NOT inconsistent with prior downturns. Average increase is 30bps increase which has remained static over past few month which is a good sign.
Ray assumes a downturn is 15.1mm SAAR,
GM has tons of liquidity approximating $27bn cash and $7bn in credit facilities. Ray estimates that GM need $25bn of liquidity to survive a downturn and is therefore confident of liquidity cushion to see out 2008. Current mgt actions that defer capex will help by $0.5bn. ( Tech center expansion.).
Done analysis on below this level, believe they are more than liquid to survive that even. 1mm unit downside will have a 2-3bn liquidity impact. (earnings and working capital impact combined). Management is working on reduce various operating expenses.
Priorities for GM
Is performance sustainable at the Emerging Markets? 2002 - 2007 total growth of 102 percent. Outlook for EM is a 41%. Go from 26’920 units in 2007 to 38’000 units by 2012.
EM governments are very very pro growth. For example take Brazil. Good fiscal discipline yet very pro growth. Ray loves this government and their policy
Russia is also very strong. China to become GM’s largest market in the future.
Structural cost to reduce $2bn to 53 in 2008.
US labor cost down to 10.1bn and 5-6bn by 2012.
Cash flow and liquidity is their #1 priority. Turn around GM NA. Sustain earnings in the EM.
Address Delphi and American Axle
Improve financial reporting.
Recently raised prices on SAAB and reduced lease rates. Raise CUVS to create a natural hedge b/w NA and Europe.
Leverage GM-Daewoo to increase penetration in India and are currently setting up a new plant in India.
The American Axle Strike was fortuitous in reducing inventory as GM grew inventory in anticipation of a UAW strike (that never happened). The strike has decreased liquidity. GM has modeled a short and long term strike and have sufficient liquidity to ride this out. Any drop in liquidity will be offset by a bounce back once the strike is settled. As of right not, not concerned about delivery issues to dealers.
Regarding the Euro, Ray feels that the Euro will not rise above $1.60. In stark contrast to TRW and Ford, he feels that current levels are positive and the US will become competitive again, and that there is evidence of this already. However, the ROW will continue to grow and remain the future for GM.
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