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%