Gm Competitive Exposure
1.0 Introduction
GM was the world’s largest automaker and, since 1931, the worlds sales leader. In 2001, GM had unit sales of 8.5 million vehicles and a 15.1% worldwide market share. Founded in 1908, GM had manufacturing operations in more than 30 countries, and its vehicles were sold in approximately 200 countries. In 2000, it generated earnings of $4.4 billion on sales of $184.6 billion. Table 1:GM Consolidated Income Statement
GM’s global operations gave rise to significant currency risk and the treasury office at GM managed these risks. Among the key objectives of GM’s foreign exchange was to reduce cash flow and earnings volatility and align FX management in a manner consistent with how GM operated its automotive business. These objectives were supported by the company’s formal hedging policy.
The company however did not have a substantial competitive exposure hedging policy in place. Over the last year (2001 in case study) GM was trying to properly evaluate the risk to the substantial yen denominated assets it held. The value of the yen relative to the dollar was decreasing and GM had considerable exposure to this. In conjunction with this depreciation affecting the unit sales, GM has a significant stake in Suzuki, Isuzu and Fiji as well as a $500 million bond issue. All this accounts to considerable exposure which should be properly evaluated.
GM’s competitive exposure and how it is hedged/not hedged are discussed in this report as well as a sensitivity analysis reviewing the effect on GM’s sales and market value should the yen depreciate any further. 2.0 Competitive Exposure
GM’s exposure to the Japanese yen arose because of competing against Japanese automakers who had large parts of their cost structure denominated in yen. As these direct competitors derived roughly 43% of their revenue form the US market, a depreciation of the Yen could allow for greater incentives and savings to be passed onto US customers.
This means that any
GM was the world’s largest automaker and, since 1931, the worlds sales leader. In 2001, GM had unit sales of 8.5 million vehicles and a 15.1% worldwide market share. Founded in 1908, GM had manufacturing operations in more than 30 countries, and its vehicles were sold in approximately 200 countries. In 2000, it generated earnings of $4.4 billion on sales of $184.6 billion. Table 1:GM Consolidated Income Statement
GM’s global operations gave rise to significant currency risk and the treasury office at GM managed these risks. Among the key objectives of GM’s foreign exchange was to reduce cash flow and earnings volatility and align FX management in a manner consistent with how GM operated its automotive business. These objectives were supported by the company’s formal hedging policy.
The company however did not have a substantial competitive exposure hedging policy in place. Over the last year (2001 in case study) GM was trying to properly evaluate the risk to the substantial yen denominated assets it held. The value of the yen relative to the dollar was decreasing and GM had considerable exposure to this. In conjunction with this depreciation affecting the unit sales, GM has a significant stake in Suzuki, Isuzu and Fiji as well as a $500 million bond issue. All this accounts to considerable exposure which should be properly evaluated.
GM’s competitive exposure and how it is hedged/not hedged are discussed in this report as well as a sensitivity analysis reviewing the effect on GM’s sales and market value should the yen depreciate any further. 2.0 Competitive Exposure
GM’s exposure to the Japanese yen arose because of competing against Japanese automakers who had large parts of their cost structure denominated in yen. As these direct competitors derived roughly 43% of their revenue form the US market, a depreciation of the Yen could allow for greater incentives and savings to be passed onto US customers.
This means that any