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Global Autos: A Wall Street View Automotive News World Congress
Detroit: January 15th, 2013
Adam Jonas, CFA
Managing Director
Global Head of Auto Research 212-761-1726
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2012 Global Light Vehicle Demand Growth
75,420 1,086
877
276 334
137 804 (1,127) 1,722
71,311
69,000
70,000
71,000
72,000
73,000
74,000
75,000
76,000
2011
Global
Sales
US W.
Europe
Japan Brazil Russia India China Other 2012
Global
Sales
Global Sales (k units)
Sources: IHS AutoInsight, Morgan Stanley Research
prototype template (5428278)\screen library_new_final.ppt 1/17/2013
2013 Global Light Vehicle Demand Outlook
Sources: IHS AutoInsight, Morgan Stanley Research
Global Sales (k units)
73,000
74,000
75,000
76,000
77,000
78,000
79,000
2012e Global Sales
US W. Europe
Japan Brazil Russia India China Other 2013e Global Sales
80,000
79,046 880
1,549
390 263
71 (536)
(500) 1,509
75,420
prototype template (5428278)\screen library_new_final.ppt 1/17/2013
2001 Ford Explorer (True Market Value - $3,389, Fuel Efficiency - 20 MPG HWY)
Sources: Edmunds, Morgan Stanley Research
prototype template (5428278)\screen library_new_final.ppt 1/17/2013
2001 Honda Accord (True Market Value - $3,848, Fuel Efficiency - 29 MPG HWY)
Sources: Edmunds, Morgan Stanley Research
prototype template (5428278)\screen library_new_final.ppt 1/17/2013
2001 Ford Taurus (True Market Value - $2,683, Fuel Efficiency - 25 MPG HWY)
Sources: Edmunds, Morgan Stanley Research
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Credit: #1 Driver of Auto Demand
prototype template (5428278)\screen library_new_final.ppt 1/17/2013 Improvement in Auto Credit Quality Drives Auto Lending
Sources: Moody’s, Capital One, Edmunds AutoObserver, Morgan Stanley Research
Oct-97 Oct-00 Oct-03 Oct-06 Oct-09 Oct-12
70
85
100
115
(30)
(20)
(10)
0
10
20
30
Y/Y % Change
12 per. Mov. Avg. (ACQ Index)
%
ACQ Index
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US Housing Starts: Strong Correlation With Auto Credit & Key End Market Segments
prototype template (5428278)\screen library_new_final.ppt 1/17/2013 US Housing Starts vs. US Light Vehicle Sales: 89% Correlation Since 1980
Sources: Census, Autodata Morgan Stanley Research
500
900
1,300
1,700
2,100
1980 1984 1988 1992 1996 2000 2004 2008 2012e 10
12
14
16
18
US Housing Starts
US Light Vehicle Sales
Millions
prototype template (5428278)\screen library_new_final.ppt 1/17/2013 US Housing Starts vs. US Pickup Sales: 95% Correlation Since 1990
Sources: Census, Autodata Morgan Stanley Research
Thousands
500
900
1,300
1,700
2,100
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012e
1,300
1,800
2,300
2,800
3,300
US Housing Starts
US Industry Pickup Sales Thousands
prototype template (5428278)\screen library_new_final.ppt 1/17/2013 US Industry Pickup Sales as % of Total US Light Vehicle Sales
Sources: Autodata, Morgan Stanley Research
13
14
15
16
17
18
19
20
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Pickups Market Share
Long Term Average
%
prototype template (5428278)\screen library_new_final.ppt 1/17/2013 US Pickups: Trailing 12M Market Share and Estimated Sales Channels
Sources: Autodata, Morgan Stanley Research
Pickups
13.6%
CUVs
20.7% SUVs
9.2%
Cars
50.6%
Vans
5.8%
Agriculture
10%
Other
35%
Housing
25% Construction
20%
Energy/
Mining
10%
prototype template (5428278)\screen library_new_final.ppt 1/17/2013 US Subprime Auto Approvals vs. Housing Starts: 96% Correlation Since 2002
Sources: Census, CNW, Morgan Stanley Research
0
10
20
30
40
50
60
70
Jan-02 Jul-03 Jan-05 Jul-06 Jan-08 Jul-09 Jan-11 Jul-12
25
75
125
175 US Subprime Auto Approval Rate
US Housing Starts (Unadjusted, Trailing 12M Avg)
% Thousands
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US Auto Loan-to-Value Recovered to >90%
Sources: Edmunds, Morgan Stanley Research
Loan-to-Value (%) Y/Y % Change
75
80
85
90
95
100
Nov-04 Nov-06 Nov-08 Nov-10 Nov-12
(8)
(6)
(4)
(2)
0
2
4
6
8
10
Y/Y % Change
Auto Loan-To-Value
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Annual Value of SAAR (incl. Incentives) vs. SAAR
Sources: Autodata, Edmunds, Morgan Stanley Research
Millions $ Billions
8
10
12
14
16
18
2002 2004 2006 2008 2010 2012
200
250
300
350
400
450
Value of SAAR
SAAR
prototype template (5428278)\screen library_new_final.ppt 1/17/2013 Europe’s ‘Car-Less’ Recovery: Why Own a Car….
Light vehicles per 1000 driving age population
0
200
400
600
800
1,000
1,200
1,400
1978 1982 1986 1990 1994 1998 2002 2006 2010
United States
Japan
W.Europe
New EU Members
Russia
Brazil
China
India
Korea
prototype template (5428278)\screen library_new_final.ppt 1/17/2013 …That you don’t use? Miles Driven Has Stopped Rising Since 2004
Note: Reunification
Million Km Driven, Passenger Vehicles
0
2,00,000
4,00,000
6,00,000
8,00,000
10,00,000
Miles driven peaked in 2004
1970 1978 1986 1994 2002 2010
France
UK
Italy
Germany
Spain
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• Our base case assumes average age stabilises at c.8.7 years, modestly above the 8.4 years of today. We
note that cars are being scrapped later, and exports of used vehicles outside Europe are declining
• We believe consensus estimates implicitly assume a rejuvenation of the fleet towards c.8 years.
• Our bear case models a US style, continued ageing of the fleet, and implies a further 10-15% downside to
volumes.
Europe’s Cars Are Not in Urgent Need of Replacement
Sources: HIS, BEA, US Census, Morgan Stanley Research
Source: Global Insight – IHS, Morgan Stanley Research estimates
EU Average Vehicle Age Assumptions
7.0
7.5
8.0
8.5
9.0
9.5
2000 2004 2008 2012 2016 2020
Implied by IHS Forecast
MS Base Case
MS Bear Case
MS Bull Case
EU Light Vehicle Forecasts (m units)
10.0
12.0
14.0
16.0
18.0
2000 2004 2008 2012 2016 2020
IHS Forecast
MS Base Case
MS Bull Case
MS Bear Case
prototype template (5428278)\screen library_new_final.ppt 1/17/2013 This is About More than 2013: Europe Loss Making Until 2016e?
Sources: Euromonitor, Global Insight – IHS, Morgan Stanley Research estimates (e).
EU Sales -4% in ’12e; Muted Recovery Thereafter
9,000
10,000
11,000
12,000
13,000
14,000
15,000
16,000
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
W.Europe SAAR (3mm avg.)
MS Forecast
SAAR ex scrappage
Monthly SAAR
Without scrappage schemes SAAR would
have troughed on Mar-09 at 9.6m (-26%
yoy)
We are forecasting a trough at ~11-11.5m
units in mid-13e
subdued 2014-15e recovery due to: i) bank de-leveraging of up to €2.5trn ii) household de-leveraging iii) young avg. fleet age iv) weak demographic support
Sep-12
Jul-12
Aug-12 Oct-12
prototype template (5428278)\screen library_new_final.ppt 1/17/2013 Value of Opel vs. disposal cost of Opel (per share)
Sources: Thomson Reuters, Morgan Stanley Research
29
(10)
(3)
(15)
(10)
(5)
0
5
10
15
20
25
30
35
Total GM Value Opel Value Opel Disposal Cost
($)
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Daimler price reaction to Chrysler divestiture
Sources: Thomson Reuters, Morgan Stanley Research
45
50
55
60
65
70
Feb-07 Mar-07 Apr-07 May-07 Jun-07
Daimler Stock Price
Daimler doesn’t rule out sale of Chrysler
Cerberus Capital and Blackstone Group
submit bids. Magna joins the race too
Cerberus acuires 80.1% stake in Chrysler and
related financial services business
Investor Kirk Kerkorian re-enters the race 10 years after his first failed attempt
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BMW price reaction to Rover divestiture
Sources: Thomson Reuters, Morgan Stanley Research
22
28
34
40
Feb-00 Mar-00 Apr-00 May-00 May-00 Jun-00 Jul-00
BMW Stock Price
Reports emerge of Rover sale to
Alchemy Partners (Rover Cars) and
Ford (Land Rovers)
Phoenix a rival bid for Rover
Consurtium puts in a rival bid for Rover
Phoenix completes
acquisition of Rover Cars
Alchemy ends negotiations with BMW
Phoenix begines talks
with BMW
Ford completes acquisition of Land Rover
prototype template (5428278)\screen library_new_final.ppt 1/17/2013 Ford’s Europe Pre-tax Profits, 2001 – 2016e ($bn)
Sources: Company data, Morgan Stanley Research
(0.3)
(0.5)
(1.1)
0.2 0.1
0.5
1.0 1.1
(0.1)
0.2
(0.0)
(1.6) (1.5)
(0.9)
(0.1)
0.2
(2.0)
(1.5)
(1.0)
(0.5)
0.0
0.5
1.0
1.5
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$
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US Model Renewal Monitor (by Volume): D3/Nissan/BMW See Highest Refresh Rates
Source: Ward’s, Autodata, Morgan Stanley Research
% Volume to be Replaced in Next 3 Years
0
30
60
90
D3 J3 Korea Europe
3
25 12
47 31
14 9
31
9
38 8 37
12 28
23
11
28
14 17
22 33
30 4 19
16
31
8
26 27
62 66
79
63
77
53 51
68
50 44
2012
2013
2014
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Appendix: Valuation Methodology
Ford Motor (F, $13)
Price target of $17 is composed of 3 items: (1) We can pay roughly $15.40 per Ford share under our proprietary hypothetical LBO valuation model while achieving an IRR approaching 25% - a level we have measured to be a typical hurdle rate for Auto companies under this methodology. This is BEFORE tax NOLs and based on group exit EBIT margins of 5.5% and an exit EV/EBITDA multiple of 5.0x (2016e) including legacy liabilities. (2) Includes NPV of Ford deferred tax NOLs beyond 2011 = $2 per Ford share. (3) A negative $1.00 dilution adjustment.
General Motors (GM, $29)
Price target of $47 is composed of 5 items: (1) $30 per GM share for the core business under our proprietary hypothetical LBO valuation model with an IRR of nearly 25% – a level we have measured to be a typical hurdle rate for Auto companies under this methodology. This is BEFORE tax NOLs and based on group exit OP margins of 4.5% and an exit EV/EBITDA multiple of 4x (2017e) including legacy liabilities. (2) $9 per share of NPV from GM’s deferred tax NOLs beyond 2012, calculated using a 14% discount rate. (3) $5 per share from GM’s Chinese JVs, which was calculated using the Dividend Discount Model assuming 2.8% growth and a 13% discount rate. (4) $0.4 per share for GM’s non-core equity stakes. (5) $3 per share for GM Financial (at 1x Price/Book). Our base case assumes a protracted ownership of Opel with losses well in excess of $1bn annually.
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Auto OEM risks:
• Weaker than expected demand resulting from macro-economic uncertainty, especially in Europe
• Price pressure resulting from competition
• Deterioration of consumer credit
• Spike in gas prices
• Stricter than expected government emissions standards
Auto supplier risks:
• Weaker than expected demand resulting from macro-economic uncertainty, especially in Europe
• Price pressure resulting from competition
• Raw material inflation
• Oil price volatility
Rental risks:
• Weaker than expected demand resulting from macro-economic uncertainty, especially in Europe
• Price pressure resulting from competition
• Fall in used car prices
• HTZ and DTG transaction overhang
• Leisure travel trends
• Business travel trends
Valuation Risks
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Morgan Stanley is acting as financial advisor to Scania AB ("Scania") in relation to the possible combination of MAN SE and Scania as announced on 15 November 2010. Scania has agreed to pay fees to Morgan Stanley for its financial services. Please refer to the notes at the end of the report. In accordance with its general policy, Morgan Stanley currently expresses no rating or price target on the above names. This report and the information herein are not intended to serve as an endorsement of the proposed transaction.
This report was prepared solely upon information generally available to the public. No representation is made that it is accurate and complete. This report is not a recommendation or an offer to buy or sell the securities mentioned. Please refer to the notes at the end of this report.
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The information and opinions in Morgan Stanley Research were prepared by Morgan Stanley & Co. LLC, and/or Morgan Stanley C.T.V.M. S.A., and/or
Morgan Stanley Mexico, Casa de Bolsa, S.A. de C.V. As used in this disclosure section, "Morgan Stanley" includes Morgan Stanley & Co. LLC,
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Analyst Certification
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that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this
report: Adam Jonas, Ravi Shanker.
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As of December 31, 2012, Morgan Stanley beneficially owned 1% or more of a class of common equity securities of the following companies covered
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Within the last 12 months, Morgan Stanley managed or co-managed a public offering (or 144A offering) of securities of Baoxin Auto Group, FIAT, Ford
Motor Company, General Motors Company, Hyundai Motor, PSA Peugeot-Citroen, Sinotruk (Hong Kong) Limited, Toyota Industries, Toyota Motor,
Volkswagen.
Disclosures
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Disclosures (cont.)
Within the last 12 months, Morgan Stanley has received compensation for investment banking services from Autoliv, Avis Budget Group Inc, BMW,
BorgWarner Inc., Continental, Daimler, EXEDY, FIAT, Ford Motor Company, General Motors Company, Goodyear Tire & Rubber Company, Hyundai
Motor, Meritor Inc, Porsche, PSA Peugeot-Citroen, Renault, Sinotruk (Hong Kong) Limited, Stanley Electric, Tenneco Inc., Tesla Motors Inc., Toyota
Industries, Toyota Motor, TRW Automotive Holdings Corp., Volkswagen, Zipcar Inc.
In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from Aisin Seiki, Autoliv,
Avis Budget Group Inc, BMW, BorgWarner Inc., Bridgestone, Brilliance China Automotive, Calsonic Kansei, Cheng Shin Rubber, China Zenix Auto
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Company, Great Wall Motor Company Limited, Hankook Tire Worldwide, Hino Motors, Honda Motor, Hyundai MOBIS, Hyundai Motor, Isuzu Motors,
Johnson Controls, Inc., Keihin, Kia Motors, Koito Mfg., Mazda Motor, Michelin, Mitsubishi Motors, NHK Spring, Nissan Motor, NOK, Pirelli & C. SpA,
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WeiChai Power, Yamaha Motor, Zhongsheng Group Holdings, Zipcar Inc.
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General Motors Company, Goodyear Tire & Rubber Company, Hertz Global Holdings Inc, Hyundai Motor, Lear Corporation, Meritor Inc, Michelin,
Mitsubishi Motors, Nissan Motor, Porsche, Renault, Sumitomo Rubber, Takata, Tenneco Inc., Toyota Motor, TRW Automotive Holdings Corp.,
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Within the last 12 months, Morgan Stanley has provided or is providing investment banking services to, or has an investment banking client relationship
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Motors Company, Goodyear Tire & Rubber Company, Great Wall Motor Company Limited, Hankook Tire Worldwide, Honda Motor, Hyundai MOBIS,
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Disclosures (cont.)
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Citroen, Renault, Sumitomo Rubber, Suzuki Motor, Takata, Tenneco Inc., Toyota Motor, TRW Automotive Holdings Corp., Valeo S.A., Volkswagen,
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STOCK RATINGS
Morgan Stanley uses a relative rating system using terms such as Overweight, Equal-weight, Not-Rated or Underweight (see definitions below).
Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not the
equivalent of buy, hold and sell. Investors should carefully read the definitions of all ratings used in Morgan Stanley Research. In addition, since
Morgan Stanley Research contains more complete information concerning the analyst's views, investors should carefully read Morgan Stanley
Research, in its entirety, and not infer the contents from the rating alone. In any case, ratings (or research) should not be used or relied upon as
investment advice. An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings)
and other considerations.
Global Stock Ratings Distribution
(as of December 31, 2012)
For disclosure purposes only (in accordance with NASD and NYSE requirements), we include the category headings of Buy, Hold, and Sell alongside
our ratings of Overweight, Equal-weight, Not-Rated and Underweight. Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we
cover. Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent of buy, hold, and sell but represent recommended relative
weightings (see definitions below). To satisfy regulatory requirements, we correspond Overweight, our most positive stock rating, with a buy
recommendation; we correspond Equal-weight and Not-Rated to hold and Underweight to sell recommendations, respectively.
Coverage Universe Investment Banking Clients (IBC)
Stock Rating Category Count
% of
Total Count
% of
Total IBC
% of Rating
Category
Overweight/Buy 1103 37% 436 41% 40%
Equal-weight/Hold 1301 44% 497 46% 38%
Not-Rated/Hold 108 4% 27 3% 25%
Underweight/Sell 478 16% 111 10% 23%
Total 2,990 1071
Disclosures (cont.)
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Data include common stock and ADRs currently assigned ratings. An investor's decision to buy or sell a stock should depend on individual
circumstances (such as the investor's existing holdings) and other considerations. Investment Banking Clients are companies from whom Morgan
Stanley received investment banking compensation in the last 12 months.
Analyst Stock Ratings
Overweight (O). The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe,
on a risk-adjusted basis, over the next 12-18 months.
Equal-weight (E). The stock's total return is expected to be in line with the average total return of the analyst's industry (or industry team's) coverage
universe, on a risk-adjusted basis, over the next 12-18 months.
Not-Rated (NR). Currently the analyst does not have adequate conviction about the stock's total return relative to the average total return of the
analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.
Underweight (U). The stock's total return is expected to be below the average total return of the analyst's industry (or industry team's) coverage
universe, on a risk-adjusted basis, over the next 12-18 months.
Unless otherwise specified, the time frame for price targets included in Morgan Stanley Research is 12 to 18 months.
Analyst Industry Views
Attractive (A): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be attractive vs. the
relevant broad market benchmark, as indicated below.
In-Line (I): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be in line with the relevant
broad market benchmark, as indicated below.
Cautious (C): The analyst views the performance of his or her industry coverage universe over the next 12-18 months with caution vs. the relevant
broad market benchmark, as indicated below.
Benchmarks for each region are as follows: North America - S&P 500; Latin America - relevant MSCI country index or MSCI Latin America Index;
Europe - MSCI Europe; Japan - TOPIX; Asia - relevant MSCI country index.
Disclosures (cont.)
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Disclosures (cont.)
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Disclosures (cont.)
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Disclosures (cont.)
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