General Motors Competitive Exposure
Contents
Contents 2
1. INTRODUCTION 2
Types of Risks Faced by GM 3
Transaction Risk 3
Translation Risk 3
Why do Companies Hedge? 3
2. COMPETITIVE CURRENCY EXPOSURE AT GM (2001: Using Case Info) 3
2.1 Performance 6
2.2 Automobile Market in USA 7
2. 3 Competitive Exposure Mechanism 8
2.4 Yen Exposure Quantified 9
3. APPROACHES TO MANAGE GM’s COMPETITIVE EXPOSURE 10
4. GM’s COMPETITIVE YEN EXPOSURE (993-2005) 13
4.1 GM’S US Car Sales Exposure 14
4.2 GM’S Market Share Exposure 15
4.3 GM’S Net Income Exposure 16
4.4Implication of result on hedging strategy 17
5. NEW GM’s COMPETITIVE EXPOSURE 18
5.1 Issue in measuring quantifying exposure using regression 19
5.2 GM’s Unit Sales Exposure (Worldwide) 19
5.3 GM’s Auto Revenue Exposure (Worldwide) 21
5.4 Moving to a net income like exposure 22
5.5 Hedging the resulting exposure 23
6. CONCLUSION 24
7. SOURCES USED for INFORMATION 24
1. INTRODUCTION
General Motors is a large multinational enterprise with operations in more than 200 different countries. It is an American multinational automotive corporation headquartered in Detroit, Michigan and the world 's largest automaker (2001). It employs 365,000 people in every major region of the world. It produces cars and trucks in 30 countries, and sells and services these vehicles through the following divisions/brands: Buick, Cadillac, Chevrolet, GMC, Opel, Vauxhall, and Holden, as well as two joint ventures in China.
Types of Risks Faced by GM
Transaction Risk
The exchange rate risk associated with the time delay between entering into a contract and settling it. The greater the time differential between the entrance and settlement of the contract, the greater the transaction risk, because there is more time for the two exchange rates to fluctuate
Transaction risk creates difficulties for GM as it was dealing in different currencies; due to exchange rates fluctuate significantly over a short period of time. This volatility is usually reduced,
Contents 2
1. INTRODUCTION 2
Types of Risks Faced by GM 3
Transaction Risk 3
Translation Risk 3
Why do Companies Hedge? 3
2. COMPETITIVE CURRENCY EXPOSURE AT GM (2001: Using Case Info) 3
2.1 Performance 6
2.2 Automobile Market in USA 7
2. 3 Competitive Exposure Mechanism 8
2.4 Yen Exposure Quantified 9
3. APPROACHES TO MANAGE GM’s COMPETITIVE EXPOSURE 10
4. GM’s COMPETITIVE YEN EXPOSURE (993-2005) 13
4.1 GM’S US Car Sales Exposure 14
4.2 GM’S Market Share Exposure 15
4.3 GM’S Net Income Exposure 16
4.4Implication of result on hedging strategy 17
5. NEW GM’s COMPETITIVE EXPOSURE 18
5.1 Issue in measuring quantifying exposure using regression 19
5.2 GM’s Unit Sales Exposure (Worldwide) 19
5.3 GM’s Auto Revenue Exposure (Worldwide) 21
5.4 Moving to a net income like exposure 22
5.5 Hedging the resulting exposure 23
6. CONCLUSION 24
7. SOURCES USED for INFORMATION 24
1. INTRODUCTION
General Motors is a large multinational enterprise with operations in more than 200 different countries. It is an American multinational automotive corporation headquartered in Detroit, Michigan and the world 's largest automaker (2001). It employs 365,000 people in every major region of the world. It produces cars and trucks in 30 countries, and sells and services these vehicles through the following divisions/brands: Buick, Cadillac, Chevrolet, GMC, Opel, Vauxhall, and Holden, as well as two joint ventures in China.
Types of Risks Faced by GM
Transaction Risk
The exchange rate risk associated with the time delay between entering into a contract and settling it. The greater the time differential between the entrance and settlement of the contract, the greater the transaction risk, because there is more time for the two exchange rates to fluctuate
Transaction risk creates difficulties for GM as it was dealing in different currencies; due to exchange rates fluctuate significantly over a short period of time. This volatility is usually reduced,