chrysler after bankruptcy

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Chrysler Group LLC Driving to a New Future 1

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Presentation placed third at National Black MBA Association.

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Page 2: Chrysler After Bankruptcy

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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Page 4: Chrysler After Bankruptcy

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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Page 5: Chrysler After Bankruptcy

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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Page 8: Chrysler After Bankruptcy

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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Page 9: Chrysler After Bankruptcy

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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Page 10: Chrysler After Bankruptcy

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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Page 11: Chrysler After Bankruptcy

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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Page 12: Chrysler After Bankruptcy

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

Page 13: Chrysler After Bankruptcy

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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Page 16: Chrysler After Bankruptcy

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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Page 18: Chrysler After Bankruptcy

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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Page 24: Chrysler After Bankruptcy

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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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Page 25: Chrysler After Bankruptcy

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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Page 28: Chrysler After Bankruptcy

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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Page 30: Chrysler After Bankruptcy

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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Page 32: Chrysler After Bankruptcy

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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Page 33: Chrysler After Bankruptcy

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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Page 37: Chrysler After Bankruptcy

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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Page 38: Chrysler After Bankruptcy

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

Page 40: Chrysler After Bankruptcy

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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Page 41: Chrysler After Bankruptcy

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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Page 42: Chrysler After Bankruptcy

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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

Page 43: Chrysler After Bankruptcy

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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Page 44: Chrysler After Bankruptcy

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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Page 46: Chrysler After Bankruptcy

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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