Presentation to Television Bureau of Advertising

1
Presentation to Television Bureau of Advertising

• Stephen J. GirskySeptember 2003

2
Disclosures

• Analyst Certification
• The following analysts hereby certify that their
  views about the companies and their securities
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  receive direct or indirect compensation in
  exchange for expressing specific recommendations
  or views in this report Stephen J. Girsky.
• Important US Regulartory Disclosures on Subject
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• (as of May 1, 2003)

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Disclosures

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• (Continued)

4
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5
Overview

• Auto Outlook Its not how many cars you sell,
  its how much money you make
• Global Dilemma Most participants spending for
  growth yet the industry does not grow.
• Economic Demographic factors suggest auto sales
  may bottom this year, but the recovery is likely
  to be modest.
• Profit recovery is likely to lag for a variety of
  reasons
• Price pressure remains brutal
• Market share pressures continue
• Excess capacity is large more is on the way
• Mix covering for price declines, but is hard to
  sustain
• Higher interest rates create risk of weaker
  demand, weaker mix and lower finance company
  earnings

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Global Light Vehicle Sales Slow Growth
CAGR 1.2
Source LMCJ.D. Power Morgan Stanley Research
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Excess Capacity at 25-30 or 20mm units
Source Autofacts Morgan Stanley Research
8
Global Capital Expenditures to DA
Assets Being Put in Place Much Faster than They
are Being Used Up
Source Company data Morgan Stanley
Research Adjusted to fit scale
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Conclusion Zero Sum Game

• Slow growth and excess capacity suggest
  deflation/revenue pressures likely to continue.
• Everybody cant be a winner.
• Winners will be low cost producers who deliver a
  good product that consumers are willing to pay
  for.

Source Morgan Stanley Research
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State of the NA Industry

• Demand Economic and demographic factors suggest
  auto sales are likely to bottom this year, but
  recovery is likely to be modest.
• Pricing Pricing environment unusually weak
  despite strong demand. Elasticity of demand is
  fading.
• Used car pricing also weak.
• Competition intensifying Industry plagued with
  excess capacity, and more is on the way.

Source Morgan Stanley Research
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North American Sales
Sales should bottom this year
16.2mm Units FY03E
Source Autodata Morgan Stanley Research
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Economic Conditions
Better than they were, but still not robust
Source CPI Morgan Stanley Research
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Weighted Median Age of a Vehicle vs. Sales
1 Year Lead Correlation 77.6
Source Polk Morgan Stanley Research
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Off Lease Vehicles Begin to Decline
Fewer Consumers Being Forced Back to the
Dealerships
Source Manheim Morgan Stanley Research
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Taking Longer to Establish Consumer Equity
Source FRB Morgan Stanley Research
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Affordability Near 20 Year Best
Number of Weeks of Income to Purchase a Vehicle
Source FRB Morgan Stanley Research
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Revenue Pressures Worst Since 1970s
New Car CPI vs. Domestic Light Vehicle Sales
Source CPI Morgan Stanley Research
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Y/Y Change in Monthly New Car CPI
Source CPI Morgan Stanley Research
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Price Reductions Pressure Manufacturers

• Every 1 Decline in Prices is Worth
• 1.0bn at GM
• 850mm at Ford
• 550mm at DCX

Source Morgan Stanley Research
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Big Three Market Share Continues to Slide
Every 1 Point of Share is Worth Roughly 1bn in
Profit
76.0
61.7
60.5
Source Autodata Morgan Stanley Research
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Market Share Winners / Losers 2003YTD
Source Autodata Morgan Stanley Research
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Big Three Share of Sales by Segment 2003YTD vs.
2002 FY
Source Autodata Morgan Stanley Research
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NA Capacity Additions, Despite Flat Outlook
Net Increase Of 1.2mm Units or Roughly 6.0 of NA
sales
2003


2005
Ford Nissan Mitsubishi
(170) 250 60 140
2006
(292) 235 (57)
Ford Hyundai
GM Ford DCX Honda Nissan Toyota
125 100 80 180 200 240 925
Toyota
150
Source Company data Morgan Stanley Research
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Excess Capacity More Is On The Way
Every 1 Pt. of Market Share Translates into
1.0bn in Profits 1.2mm Units of Added Capacity
is 6.0 of NA Capacity, or 6bn in Pretax Profits
NA Pretax Profit Big Three
FY03E (in MM) 3,710
Source Morgan Stanley Research Estimates
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The Big Three

• Each Company Faces Unique Challenges
• GM has operational momentum, but faces pension
  and health care issues.
• Ford share is under attack and Revitalization
  Plan is just getting out of the gate.
• DCX continues to struggle.

Source Morgan Stanley Research
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General Motors

• Significant operational momentum.
• Balance sheet risks may be out of companys
  control.
• Strategy GM appears to have a variable cost
  advantage versus Ford and DCX, which it is using
  to cut price and drive volume.
• Strategy has enabled GM to gain share and has put
  severe pressure on Ford and DCX.
• This strategy may benefit them in the near term,
  but poses longer term risks.

Source Morgan Stanley Research
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GM Car / Light Truck / Total Market Share
Source Autodata Morgan Stanley Research
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Big Three NAO Profit per Unit FY02 vs. FY01
2002 2001 Change
352 775 1,180

401 (143) (849) 545 1,250
753 632 331 121 422
GM Ford DCX GM b/(w) Ford GM b/(w) DCX
Source Company data Morgan Stanley
Research b/(w)Better or Worse Operating
profit/unit incl pension/OPEB expense
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Big Three NAO Profit per Unit FY02 vs. FY01
Excluding U.S. Pension Healthcare Costs
Adjusted 2001
Adjusted 2002
1,158 246 (470) 913
1,628
1,705 1,091 670 614 1,035
GM Ford DCX GM b/(w) Ford GM b/(w) DCX
Source Company data Morgan Stanley
Research b/(w)Better or Worse Operating
profit/unit incl pension/OPEB expense
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U.S. Pension Fund Healthcare Liabilities
Source Company data Morgan Stanley Research
(In MM)
31
U.S. Pension OPEB Expenses 2003E
Source Company data Morgan Stanley Research
(In MM)
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U.S. Healthcare Pension Cost/Unit FY03
Source Company data Morgan Stanley Research
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Ford Motor Company Riders On The Storm

• Fords fall from grace is well documented.
• Costs
• Quality
• Market share
• Profitability
• Revitalization Plan is starting to help, but is
  it enough?
• Ford is spending a lot of money Will they get
  bang for their buck?

Source Morgan Stanley Research
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Ford Car / Light Truck / Total Market Share
Source Autodata Morgan Stanley Research
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DaimlerChrysler Struggling to Its Feet

• Chrysler profitability unstable.
• Cost performance is fair but revenue performance
  is lagging.
• DCX still very exposed to light truck segment.
  Focus on cars important.
• New product is critical.

Source Morgan Stanley Research
36
DCX Car Lt. Truck Sales As A of Parent
Light Trucks
1,134
Cars
Source Autodata Morgan Stanley Research
37
DCX Car / Light Truck / Total Market Share
Source Autodata Morgan Stanley Research
38
Global Operating Margins FY02
16.4 10.6 8.9 8.4 8.1 6.1 5.0
4.7 4.0 2.0 1.7 3.1 0.2 -6.2
Porsche Nissan BMW Honda Toyota Hyundai Peugeot Ki
a VW GM Renault DCX Ford Fiat
Source Company data Morgan Stanley
Research Morgan Stanley Estimates
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Global Operating Margins FY02
Excluding Pension OPEB Expense for the Big Three
16.4 10.6 8.9 8.4 8.1 6.1 5.7
5.0 4.7 4.0 3.8 1.7 1.8 -6.2
Porsche Nissan BMW Honda Toyota Hyundai GM Peugeot
Kia VW DCX Renault Ford Fiat
Source Company data Morgan Stanley
Research Morgan Stanley Estimates
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Implications

• GM will continue to pursue its grow our way out
  strategy.
• DCX improved cost structure is keeping it in the
  game. New product is critical to alleviating
  revenue pressure.
• Foreign OEMs are likely to continue to add
  capacity in NA. Imports are likely to rise.
• Ford remains the odd man out in a zero sum game.
  If the company does not execute, another crisis
  may be on the horizon. Q1 results may be a
  start.
• On the bright side, the Big Three product is the
  best its ever been.

Source Morgan Stanley Research
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Stephen.Girsky_at_MorganStanley.com