Chrysler After Bankruptcy
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Transcript of Chrysler After Bankruptcy
Chrysler Group LLC
Driving to a New Future
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Our Consulting Team
Mr. J. Nathan Thompson Financial Reporting & Management
Ms. Miranda R. Dalton Management & Marketing Research
Mr. Willie Hunt III Financial & Economic Analysis Dr. Suresh Gopalan International Business Consultant
Jackson Consulting
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I. Key Assumptions
II. SWOT Analysis Opportunities and Threats–Global Automobile Industry Strengths and Weaknesses–Chrysler and Fiat
III. Projections
IV. Recommendations and Conclusions
V. Questions and Answers
Our Approach
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Increased worldwide governmental regulations mandating reduced carbon emissions and consumer concerns about global warming will shift the industry towards producing “fuel efficient” and “clean” cars
Innovation and technology will continue to redefine the business model for the automobile industry
Brazil, Russia, India and China are high growth markets that will drive increased demand for vehicles
Key Assumptions
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Key Assumptions
Strategic alliances between automobile companies and their suppliers must be forged to access new markets and customers
Geographic markets and product mix will be differentiated by levels of economic development across countries and consumer preferences
Due to production overcapacity, there will be increased consolidation in the global auto industry
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Opportunities and ThreatsGlobal Automobile Industry
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OpportunityBrazil, Russia, China and India
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
85 42
143 167
2030
2010
Latin America(Brazil) Russia South Asia(India) China
Passenger Car Ownership 2010 to 2030 (millions)
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OpportunityBrazil-Country Outlook
Brazil is among the top 10 automobilemanufacturers in the world
72% of car sales in Brazil are financed by loans
Automobile sales are based on availability of credit
Huge emerging middle-class demanding sales of roomier luxury vehicles
90 percent of all new cars are equipped with flex-fuel engines which run on either gasoline or cane-based ethanol
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OpportunityRussia-Country Outlook
Russia is Europe’s largest automobile manufacturer with St. Petersburg as the hub
Russia car market in Europe is growing faster than China or India
65 million new cars were registered in first half of 2008
Only 20% of Russians own cars –the market for new buyers is tremendous
Russia will have 30% of car market of BRIC countries; by 2012 Russia will be world’s 3rd largest market after China and USA
Renault-Nissan-Avtovaz alliance takes them to #3 global spot after General Motors and Toyota
Severstal, a Russian automaker, is partnering with Fiat
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The Indian automobile market is projected to increase from 1.5 million vehicles in 2009 to 2 million vehicles in 2014
India is Asia's fourth largest exporter of automobiles
Fiat India Automobiles Private Limited (FIAPL), is a joint venture of Fiat and Tata Motors with a production capacity of up to 250,000 units.
In India, diesel prices are 30% lower than gasoline. European carmakers like Fiat should hold a distinct advantage in this area
Industry competitors in India are Maruti-Suzuki (the largest market share), Hyundai (second largest market share), Ford, GM, Mahindra, Toyota-Kirloskar Tata, Fiat and Honda.
Indian operations are used as regional export hubs to supply other markets
OpportunityIndia-Country Outlook
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China is the largest automobile market in the world and will most likely hold that position for next 5 years
Moderate growth of 2% in 2010 to 7.54 million units, followed by 10.2% growth in 2011 to 8.31 million units.
According to China’s National Development and Reform Commission's Industry Coordination Department, “as environmental concerns grow… capacity will greatly exceed demand" in the coming years.
70% of customers in China are mostly young customers with increasing disposable income who need and can only afford smaller vehicles..
There are over 100 manufacturers in China; therefore consolidation is inevitable
Chinese auto makers Chery Automobile and Geely Automobile are strong competitors
OpportunityChina-Country Outlook
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OpportunityOECD Market
US UK Japan Italy Korea Germany
The ultimate purpose of the OECD is to support sustainable economic growth, boost employment, and contribute to growth in world trade
plus 22 other member nations
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An additional 110 million cars on the roads of Organization for Economic Cooperation and Development (OECD) Countries by 2030
Opportunity Increased demand for hybrids and electric cars
United States
• Energy Independence and Security Act
• increases fuel efficiency from 27.5 mpg to 35 mpg by 2016
United Kingdom
• National Standard III Emission Regulation
• reduces carbon emissions 25% by 2012
China•SEPA–State Environment Protection Agency•Creating stricter emissions standards
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OpportunityGovernment tax breaks and incentive programs
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Cash for Clunkers Program
United States of America
Germany
Japan
Subsidies on interest for Automobile loans
Russia
ThreatProspect of prolonged global recession will affect employment
opportunities and availability of credit
United States
• 90%
• Automobiles financed
Europe
• 66%
• Automobiles financed
Brazil
• 70%
• Automobiles financed
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ThreatLack of credit availability impacts dealers and suppliers
Original Equipment ManufacturersOEM
• 25% expect an increase in bankruptcies
Tier 1Supply directly to OEM
• 87% expect an increase in bankruptcies
Tier 2Supply directly to Tier 1
• 100% expect flat or increased bankruptcies
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China
• Chery Automobile, Geely Automobile, BYD
India
• Maruti-Suzuki, Tata and Mahindra
Threat Increased competition from Indian and Chinese firms
that manufacture automobiles
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North America and Western Europe have a combinedtotal excess capacity of approximately 14 million units
German government’s loans to Opel to keep German plants open reinforce overcapacity problem in Europe
ThreatDue to excess capacity in the automobile industry,
consolidation is a likely scenario
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ThreatGovernment mandates have the potential of raising
production costs and lowering profits
Emission Standards
Safety Standards
Fuel Efficienc
y
Corporate Profitability
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Threat Spike in Oil Prices is a distinct possibility
Perception of political instability in the Middle East region may cause fluctuations
in oil prices
2009 2010
Gasoline $2.34 $2.70
Diesel $2.47 $2.88
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Strengths and WeaknessesChrysler Group LLC & Fiat
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CEO Sergio Marchionne has proven expertise in revitalizing challenged firms
He has articulated a bold vision for the alliance
Strength Caliber of Top Management
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StrengthResearch and Development
Advanced Technology in fuel efficient
vehicles
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BMW
Mazda
Mitsub
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4.54.2
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3.2
2.5 2.42.0 1.9
1.4 1.41.1
Global Annual Unit Sales (2008 Figure)
Strength Marketing
6th largest automobile manufacturer in the world
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Brand name recognition
• Fiat is well known in Latin American, European, Russian and Asian markets
• Chrysler products and associated brand names like Jeep and Dodge are well recognized in North America
• Together, they are well represented in almost all major automobile markets in the world
StrengthMarketing
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StrengthProduct Portfolio
Combined product portfolio has a mixture of small, mid and full-sized vehicles
Small-Size Peapod
Mid-Size Sebring
Full Size Jeep Cherokee
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http://www.allpar.com/model/upcoming.html
Chrysler will use six Fiat models one of which is the Fiat Panda Cross which will be most likely sold as a Jeep
Fiat Grande Punto: a hatchback that will sold as a Dodge in 2011
Fiat Linea replacing Caliber Alfa Romeo 159 due in 2012 replacing the Sebring and
the Avenger Alfa Romeo Version of the Grand Cherokee A new compact SUV replacing the Fiat Compass
StrengthMarketing
Combined product mix
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Fiat will contribute to Chrysler its world class technology
• Platforms• Power trains • Engines for small and medium sized cars • Fiat’s world class manufacturing system modeled
on Toyota
Strength Productions & Operations
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Together the alliance has combined operations distribution network in North America, Europe, Russia India, and Latin America
Combined organization has established dealership network of 3700 plus dealers
Employees given more autonomy on assembly lines to fix problems (boosts motivation)
Labor classifications have been consolidated to allow more flexibility in the use of production teams (improves employee satisfaction)
Advanced ordering period for dealers has been extended from 30 to 60 days allowing dealers to specify the features they want
Strength Productions, Operations, Distribution
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StrengthFinance
ChryslerFiat
Industry Average
00.20.40.60.8
11.21.41.61.8
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Current Ratio
Quick Ratio
1.91 1.97000000000001
1.26
1.531.48
0.55
Current and Quick Ratios
Current Ratio
Quick Ratio
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WeaknessOrganizational Culture
The unsuccessful merger between Daimler and Chrysler failed to merge cultures and diverse strengths to create synergies
There is the potential that Chrysler and Fiat may not be able to merge cultures and strengths to create synergies
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WeaknessLack of job stability for Chrysler’s workforce
Decreased employee motivation due to repeated layoffs and retrenchments in several Chrysler plants
In December 2008, 5000 jobs were cut
Salaries, pensions plans, and other benefits have been adversely impacted
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Weakness Marketing
Chrysler is a relatively lesser known brand outside the U.S.A-most Chrysler products are sold in the U.S.A.
FIAT is not a well known brand in the U.S.A.
Currently, there is no competitive mid-sized car
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WeaknessProductions & Operations
Absence of full systems integration not achieved in the short run
Full systems integration takes approximately 18 to 24 months
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Weakness Finance
Chr
ysle
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Fia
t
Chr
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r/F
iat c
om...
Indu
stry
Ave
rage
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16 14.71
2.61
5.25
8.1
Inventory Turnover
Inventory Turnover
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Chrysler Fiat Industry Average-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
-15.56%
2.57%
6.00%
0.00%
15.17% 15.67%
-15.56%
2.57%
15.00%
Return on Assets, Return on Equity and Return on Investments
Return on Assets
Return on Equity
Return on Investment
Weakness Finance
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WeaknessFinance
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Due to the declining vehicle sales and tight capital markets, the decision was made to shift Chrysler Group LLC subvented retail business to GMAC
Declining vehicles sales and lack of credit availability led Chrysler to have an $8 Billion loss for 2008
In the first half of 2009, Fiat has incurred approximately an $867MM loss
North America Europe Brazil Russia India China
Internal Combustion Engine
Decreasing demand
Decreasing demand
Strong demand
Strong demand
Strong demand
Strong demand
Hybrid Vehicles
Increasing demand
Increasing demand
Increasing
demand
Small
demand
Small
demand
Small
demand
All ElectricVehicles
Increasing demand,
niche market
Increasing demand,
niche market
Negligible Negligible Negligible Negligible
Projected Demand and Product Mix in North America, Europe and Emerging Markets
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Financial Projections
actual 2008 2009 2010 2011 2012 2013 2014
Gross revenue $ 55.90 $ 44.72 $ 46.96 $ 52.12 $ 57.85 $ 61.33 $ 65.01
Net revenue $ 47.60 $ 38.25 $ 40.29 $ 44.72 $ 49.64 $ 52.62 $ 55.78
Variable Cost $ (39.40) $ (31.52) $ (32.47) $ (35.06) $ (38.92) $ (40.48) $ (42.10)
Fixed Cost $ (10.50) $ (10.50) $ (10.68) $ (10.68) $ (10.68) $ (10.68) $ (10.68)
Operating Profit $ (2.30) $ (3.77) $ (2.85) $ (1.02) $ 0.04 $ 1.47 $ 3.00
Net Income/Loss $ (8.00) $ (4.87) $ (4.25) $ (2.42) $ (1.36) $ 0.17 $ 1.70
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2009 2010 2011 2012 2013 2014
Assets
Total Current Assets 19.3 18.4 19.9 21.4 23.0 24.2
Total Non-current Assets 32.1 27.8 26.5 25.5 24.7 23.9
Total Assets 51.4 46.2 46.4 47.0 47.6 48.0
Liabilities
Total Current Liabilities 10.1 11.2 12.5 13.3 13.8 14.4Total Non-current Liabilities 20.5 16.1 15.0 14.8 14.4 14.2
Subtotal Debt 21.8 23.3 24.9 24.9 23.4 21.9
Net Debt 16.9 18.4 20.0 20.0 18.5 17.0
Member's Interest 0.0 -1.3 -2.4 -2.5 -0.4 1.1Total Liabilities & Member's Interest 51.4 46.2 46.4 47.0 47.6 48.0
Return On Investment -9.47% -9.21% -5.21% -2.89% 0.35% 3.55%
Working Capital 9.2 7.2 7.4 8.1 9.2 9.8
Balance Sheet Projections
Fiat should continue to work with Tata Motors and Servestal to increase its share of the Indian and Russian markets
Given that Tata Motors has a strong presence in the Indian automobile market, it would help to produce models that complement other product mix and avoid selling competing products
Gradually phase out Chrysler brand name with Alfa Romeo or other higher end Fiat name brands
Our Recommendations
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Our Recommendations
There are over 100 manufacturers in China, thereforeconsolidation is inevitable. Chrysler and Fiat shouldpurchase a Chinese firm or enter into a strategic alliance with a viable Chinese partner
Alliance with or acquisition of a lithium battery maker
As merger progresses, Chrysler Group LLC should seekglobal employment opportunities and lateral positions in international operations and upward mobility for theirU.S. employees
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Our Recommendations
Innovation
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Focus on all three strategies
Chrysler-Fiat A Strategic Alliance!!!
• World Class Technology• Platforms & Engines• Management Expertise• International
Distribution
• Culture of Innovation
• Distribution Network
• Dealerships
6th largest automobile company in the world
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Chrysler Group LLC
Driving to a New Future
J. Nathan Thompson, Miranda R. Dalton and Willie Hunt III
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