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Steven Rattner
March 12, 2013
Auto Bailout, Politics & the Economy
HBS Club of New York
1
Autos
2
US Auto Sales
• Auto sales approached levels last seen in 1981
Source: Bloomberg 3
Source: Glenn Mercer Presentation “The Automotive Crisis” dtd Sept-09
Detroit 3 Market Shares
• Detroit 3 share fell from 75% in 1985 to 50% in 2008
4
Excess Dealer Footprint
• Detroit 3 franchise throughput lagged transplants
5
Inventory Days
• Detroit companies were prone to over produce and build
excess inventory
6
Incentives
• Detroit 3 incentives per vehicle increased dramatically since
1996
US$ 1996 2000 2008
GM 1,156 2,470 4,542
Chrysler 966 2,438 5,490
Toyota 957 1,770 4,179
Nissan 1,222 1,698 2,889
D3 Average 1,122 2,390 4,964
Transplant Average 1,229 1,657 3,264
Difference -107 733 1,700
7
Source: Glenn Mercer Presentation “The Automotive Crisis” dtd Sept-09
Detroit 3 Profits
• Profitability declined as competition increased
8
Debt Problem
• GM (and Chrysler) had much higher debt levels than transplants
9
Labor Cost Restructuring
Tier 1 Labor Costs – GM vs Toyota
• GM pre-bankruptcy: $60-64/hour
• GM post-bankruptcy: $54-56/hour
• Toyota: $52-54/hour
10
Key Income Statement Items
$ in billions
YE 2008 YE 2010 Change
Revenues 149.0 135.6 -13.4
COGS 149.3 118.8
SG&A 14.3 11.4
Other 12.7 -2.1
EBIT -27.3 7.5 34.8
Margin -18.3% 5.5%
Net Income -30.9 4.7 35.6
11
Financial Restructuring
Financial Restructuring
Key Balance Sheet Items
$ in billions
YE 2008 YE 2010 Change
Cash 14.2 26.6
Debt 45.9 4.6
Preferreds - 6.9
Net Debt 31.7 -15.1 -46.8
Pensions/OPEB 55.7 32.8 -23.0
Net Debt + Pensions/OPEB 87.4 17.6 -69.8
12
Valuation Multiples
Note: Auto TEV excludes joint ventures, finance company stakes and present value of NOLs, but includes underfunded
pension and OPEB liabilities
P / E Auto TEV / EBITDAP
2013E 2014E 2013E 2014E
GM 7.9 x 6.3 x 2.4 x 2.1 x
Ford 9.3 x 7.8 x 3.8 x 3.4 x
S&P 13.7 x 12.3 x
13
Source: Deutsche Bank 2012 estimates
GM’s Performance
$ in billions
2010A 2012E Change
Operational
US SAAR (mm) 11.6 14.4 2.8
GM Market Share 19.1% 18.0% -1.1 pts
GM US Units (mm) 2.2 2.6 0.4
GMNA Price / Car ($) 29,583 28,458 -1,125
Financial
GMNA Revenues 83.1 92.1 9.0
GMNA Auto EBITDAP 8.9 9.8 0.9
Margin 10.7% 10.6%
14
Economy
15
Source: BLS
Slow Jobs Growth
16
Source: BLS
Job Growth By Sector(Since End of Recession)
In ‘000s
17
Source: Case-Shiller 20-City Home Price Index
Home Prices
146.26
202.31
18
Source: Bloomberg, BEA
Stock Market and Corporate Profits
16%
24%
19
Declining Real Median Incomes
Source: Census Bureau 20
Source: BEA
Personal Income vs. Corporate Profits(Share of National Income)
65.3%
61.7%
14.2%
8.5%
21
Rising Income Inequality
Source: Piketty and Saez 22
16.4%
19.8%
2.3%
4.5%
23
39% to
Top 0.01%
Share of Income Changes Going to the Top 1%
Source: Piketty and Saez
Note: Inflation adjusted weekly pay
Source: BLS
Widening Income Disparities1979 - 2011
24
Politics
25
Source: CBO Alternative Fiscal Scenario Feb-13
Rising Debt Ratios
% of GDP
87%
35%
26
Record Budget Deficits
In bn
-$1,550
-$1,307
$86
27Source: CBO Alternative Fiscal Scenario Feb-13
Source: CBO
21.0%
17.9%
15.8%
22.8%
Revenues vs. Spending
% of GDP
28
Average Tax Rates (1960-2010)
Source: White House Report on Buffett Rule, April 2012
14%16%
51%
26%29%
27%
29
Source: IRS
19.9%
29.4%
Taxes for the Richest Have been Going Down
30
Source: Joint Committee on Taxation, Congressional Research Service
Major Tax Expenditures
31
Note: Inflation adjusted
* Excludes one-time spending for financial programs (TARP, FDIC, Fannie/Freddie). Uses current policy for Obama’s
FY13 spending
Source: CRFB calculations, CBO, OMB, BLS
Spending Growth Under Recent Presidents
CAGR
32
Source: Jeffrey Frankel, Harvard Kennedy School
Non-Defense Discretionary Spending
In bn
33
Healthcare Costs
Source: CBO, Medicare Trustees 2012 Report
12.7%
6.3%6.2%
% of GDP
34
Source: BEA, National Patterns of R&D Resources
Infrastructure and R&D Spending
% of GDP
0.23%
0.89%
1.9%
35
Total Unfunded Obligations(Medicare, Social Security, Gov’t Debt)
In $tn$58tn
Source: 2012 Medicare Trustees Report
$15tn
GDP
36
Deficit Reduction Enacted So Far
Source: CRFB
In $tn
37
Paul Ryan Plan
Source: The Atlantic, House Budget Committee
In $bn
38
Debt Ratios
90%
72%
65%
79%
2012 Ratio: 72.5%
% of GDP
Source: CRFB, Steve Rattner estimates 39
57%