State of the Big Three: Presentation to the United Auto Workers Stephen J. Girsky December 3, 2008 sgirsky@yahoo. com 1
Overview 1. Girsky Background • • • Wall Street Analyst covering Global Auto Industry for 20 years Special Advisor to the CEO/CFO of GM in 2005/2006 Centerbridge Partners - $7 bn investment fund – Evaluated a number of significant auto-related investments – Lead Dana Corp. ’s exit from bankruptcy in partnership with UAW/USW 2. UAW Assignment • Help evaluate possible GM/Chrysler tie up 3. Findings • • GM/Chrysler merger difficult to accomplish GM, Chrysler situation precarious 4. Where We Go From Here 2
GM/Chrysler Potential Merger Observations • Logic of the merger based on significant cost saving opportunities including: – Purchasing – Product portfolio – White collar staffing • Questions around potential tie-up included: – Aggressive assumptions – Execution risk – GM has a lot on its plate • Would Chrysler be better off with a foreign partner? 3
Diligence on a potential GM/Chrysler tie up exposed a different more significant issue GM was running out of money 4
Auto Sales Were Relatively Steady For Many Years… Source: Autodata, Company data 5
…But Have Experienced Rapid Deterioration In 2008 Source: Autodata, Company data 6
External Events Contributing to the Crisis • Gasoline prices soared leading to a significant demand shift away from high profit trucks/SUV’s towards lower margin cars • Commodity prices soared, pressuring material costs • Credit crisis on Wall Street spread to “Main Street” – Dealers can’t borrow to fund inventory – Consumers can’t borrow to buy cars • OEMs and Suppliers can’t borrow money to fund losses Playing field has shifted dramatically toward companies with cash or access to it and companies with well-balanced product portfolios 7
Not Just a US Problem; Western European Sales Are Starting To Weaken As Well Source: Autodata, Company data 8
GM: Cash Crisis (1) (2) Source: Company data Debt ($) 12. 2 15. 8 16. 2 17. 2 32. 4 32. 5 32. 6 34. 2 34. 3 38. 7 39. 3 39. 4 40. 1 40. 5 43. 3 Notes: 1. Excluding GMAC-related debt 2. Including readily available VEBA assets 9
GM Stock Price Has Fallen In Response Source: Capital IQ 10
GM: Not Just a North American Problem • The North American market has deteriorated significantly since 3 Q 2007 • However, European and Asian markets have also shown significant weakening 11
GM: Significant Current Obligations GM Obligations as of 9/30/08 $ Millions Accounts payable (principally suppliers) UAW VEBA contribution due 2010 Approximate debt maturities through 2010 (1) Total Obligations Note: 1. Excludes debt issued by subsidiaries and consolidated affiliates Amount $27, 839 8, 900 1, 921 $38, 660 12
Ford Situation Less Severe, Although Recently Burning Cash At A Rapid Rate (1) (2) Source: Company data Debt ($) 13. 8 14. 0 14. 2 14. 5 20. 8 18. 9 18. 4 18. 1 17. 9 17. 7 30. 0 26. 7 27. 1 26. 5 26. 1 Notes: 1. Excluding Ford Credit debt 2. Including short-term VEBA assets 13
Ford Stock Price Has Fallen In Response Source: Capital IQ 14
Ford: Not Just A North American Problem • The North American market has deteriorated significantly since 3 Q 2007 • However, European and Asian markets have also shown significant weakening 15
Ford: Current Obligations Not As Significant Ford Obligations as of 9/30/08 $ Millions Trade payables UAW VEBA contribution due 2010 Approximate debt maturities in 2009 and 2010 (1) Total Obligations Note: 1. Excludes Ford Credit debt Amount $15, 154 3, 020 1, 456 $19, 630 16
Chrysler Issues • Cerberus LP purchased Chrysler from Daimler for approximately $7. 2 Bn in August 2007 • Most of Cerberus’ investment is in the Finance Company, which was legally separated from the auto company at the time of purchase • Auto Company currently has $9 bn in debt, backed up assets of the Company. VEBA obligations due in 2010 of roughly $3 bn technically rank below the $9 bn. 17
Chrysler Liability Structure $ Millions 1 st Lien Term Loan 2 nd Lien Term Loan UAW VEBA due 1/1/2010 Total Amount $7, 000 2, 000 3, 100 $12, 100 18
Where Do We Go From Here? • All constituents faced with painful choices • Need a plan with enough credibility among stakeholders that will keep the company on the field in the near term and allow it to thrive longer term –Every stakeholder needs to contribute –Stakeholder concessions today are an investment in the future • Alternative is a disaster –S&P estimates recovery on GM unsecured debt in a bankruptcy at $0. 05 –All contracts can be rejected in a bankruptcy • UAW needs to be part of the solution but can’t be the only part • UAW can play a significant role in the process 19
sgirsky@yahoo. com 20
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