MERCEDES, DODGE,JEEP

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MERCEDES, DODGE,JEEP CHRYSLER

• Ninon Marapachi 02
• Advanced Corporate Finance 04/11/02

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THE AUTOMOBILE INDUSTRY
Mercedes-Benz, Chrysler, Jeep and Dodge

• VALUATION OF DAIMLERCHRYSLER

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THE OUTLINE

• DESCRIPTION
  
  
• BUSINESS PLAN / INVESTMENT THESIS
• FINANCIAL MODEL
• OUTLOOK
• VALUATION
• CONCLUSION/DISCUSSION

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DESCRIPTION

• Primarily engaged in the development,
  manufacture, distribution and sale of a wide
  range of automotive products, mainly passenger
  cars and commercial vehicles
• Provides financial and other services related to
  automotive value-added chain
• Has six business segments Mercedes-Benz
  Passenger Cars and Smart Chrysler Group
  Commercial Vehicles Services Aerospace and
  other

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BACKGROUND

• Formed after the merger between Chrysler Corp.
  and Daimler-Benz AG - Nov, 1998
• CEO Jurgen E. Schrempp
• CFO Manfred Gentz
• COOWolfgang Bernhard
• Headquarters - Stuttgart, Germany

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SNAPSHOT

• Exchange NYSE 19 others
• Sector Consumer Cyclical
• Industry Auto/Truck Manufacturers
• Employees 372,470 (12/31/2001)
• Market Cap (BN) 46.16
• More than 95 - automotive business

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GOEGRAPHIC COVERAGE

• North America U.S, Mexico and Canada
• Europe 9 countries in Europe
• Asia Japan and Indonesia
• South America Argentina and Brazil
• Africa S. Africa
• W. Hemisphere Australia

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RANKING

• World 3 largest carmaker in sales behind
  General Motors 1, and Ford 2
• World 5 carmaker in number of cars sold
• Leading Commercial vehicle manufacturer in South
  America
• Freightliner - USs 1 heavy truck maker

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REGIONS CONTRIBUTION TO DCX
10
SEGMENTS CONTRIBUTION TO DCX

•  

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COMPETITORS

• Major General Motors and Ford
• The three has 65 of the market
• Toyota and Honda
• Toyota and Honda have more that 17
• Nissan, BMW and Volkswagen etc.

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PERFOMANCE COMPARISON

• Growth of 10,000 since 1998
• DCX Versus F

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PERFOMANCE COMPARISON

• Growth of 10,000 since 1998
• DCX Versus GM

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PERFOMANCE COMPARISON

• Growth of 10,000 since 1998
• DCX Versus HMC

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PERFOMANCE COMPARISON

• Growth of 10,000 since 1998
• DCX Versus TM

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GRADE COMPARISON
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RATIO COMPARISON
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RISKS

• Interest and exchange rate risks
• Intense competition
• Overcapacity in the auto industry
• Loss of pricing power
• Instability Pending lawsuits

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COMMON SIZE INCOME STATEMENT
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ASSETS BREAKDOWN
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LIABILITIES RETAINED EARNINGS
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DCXS CASH FLOW
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GM F EQUITY/ LIABILTIES
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HMC TM EQUITY/LIABILITIES
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DCX EQUITY/ LIABILITIES

• CREAM LONG-TERM LIABILITIES
• ORANGE SHAREHOLDERS EQUITY
• RED - CURRENT LIABILITIES

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BUSINESS PLAN

• Innovation - new products
• Turnaround Initiative - regain competitiveness
• Product Quality and low prices - less rebates
• Cooperation with the Big Three
• Specialization of services Product Marketing
• Global presence/Market expansion
• Increase joint ventures
• Spin-off weak units

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TURNAROUND PLAN

• Six Team Lead The Effort
• Cost Reduction
• Revenue Enhancement

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COST REDUCTION

• TARGETING ACTUAL COSTS
• Material Management material cost
• Plant Management manufacturing cost
• Fixed Cost Management fixed cost
• Restructuring Operations reduce loss business

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REVENUE ENHANCEMENT

• Revenue Management stabilize revenue
• Maximize Net Contribution Create new profit
  potential

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EXPECTATIONS

• The economy will recover in 2002
• Their Turnaround Plans will definitely work
• No more shareholders revolt
• Less imitations from competitors

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WILL THE PLAN WORK?

• What if
• Imitation become intense?
• Competition from Honda
• Economy does not recover as expected?
• The company become even riskier?
• DCX is asked to pay its American shareholders?

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OUTLOOK / CREDIBILITY

• Turnaround Plans seem to work
• TOP domestic Auto company to reach their COST
  target in 2001
• Higher First Quarter sales this year
• The merger seem to work for the 1st time
• Economic Recovery
• Consumers confidence on DCX- Route 2002
• Announcement of expected profit delays

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WACC
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DCF VALUATION

• Assumptions
• Abnormal CF growth rate of 16 for 2 years and
  then constant rate of 9 until 2011
• Discount rate of 11.38 for the first two years
  then 12 for the rest of the years
• Euro 35.19 31.67 (1Euro .9)

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SENSITIVITY ANALYSIS ONE

• CF ASSUMPTIONS
• If CF grows at a constant rate of 15
• PV 39.94

• RISK ASSUMPTIONS
• Discount rate of 11.38 (2002 2003) then
  decreases to 11

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SENSITIVITY ANALYSIS TWO

• CF ASSUMPTIONS
• If CF grows at a constant rate of 7
• PV 25.58

• RISK ASSUMPTIONS
• Discount rate of 11.38 (2002 2003) then
  increases to 12

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SENSITIVITY ANALYSIS THREE

• CF ASSUMPTIONS
• If CF declines gradually at a constant rate of 1
• PV 16.90

• RISK ASSUMPTIONS
• Discount rate of 11.38 (2002 2003) then
  increases to 13

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DISCUSSION

• DCX is currently trading at 43.89 (NYSE)
• The company is overvalued
• DCXs fair value is 31.67
• Range of its value 16.90 to 39.94
• The highest fair value that DCX might have is
  39.94
• I recommend investors to HOLD the stock if one
  own it, and look for its performance in the next
  few months.

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THANKS

• Several websites for providing me with the
  information required to value DCX
• To Prof. Gabriel for your insightful comments
  that enable me to value this company.
• To all of you for being in the class today
• To my mom and dad for my very presence