Motors Liquidation Company

Motors Liquidation Company - Strategic Analysis Review

Publication Date: 27-Oct-2010 Reference Code: GDAUT44606SA

Company Snapshot
Key Information
Motors Liquidation Company, Key Information Web Address www.motorsliquidation.com Financial year-end December Number of Employees 205,000 OTC MTLQQ
Source : GlobalData

Company Overview
Motors Liquidation Company (Motors Liquidation), formerly General Motors Corporation, is a US-based automotive company engaged in the manufacture of cars and trucks. The company along with certain subsidiaries filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Code for the Southern District of New York, on June 1, 2009. The same was filed again (Joint Chapter 11 Plan ) with the Federal Bankruptcy Court for the Southern District of New York, on August 31, 2010. The company is also engaged in the sale of its manufactured vehicles and related services in 140 countries.

Key Employees
Motors Liquidation Company, Key Employees Name Job Title Vice Chairman, Global Robert A. Lutz Product Development
Source : GlobalData

SWOT Analysis
Motors Liquidation Company, SWOT Analysis Strengths Weaknesses Worldwide Presence Diversified Product Portfolio High Debt Weak Performance Legal Proceedings Opportunities Launch of Small Cars Growing Demand for Hybrid Vehicles Restructuring Plans
Source : GlobalData

Threats Hike in Labor Costs Intense Competition Global Economic Slowdown

Motors Liquidation Company- Strategic Analysis Review

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Motors Liquidation Company

Key Facts
Motors Liquidation Company, Key Facts 300 Renaissance Center, Corporate Address Detroit, MI, 48265, United States +1 313 5565000 Telephone

Ticker, Exchange Symbol No. of Employees Fiscal Year End Revenue (in USD Million)

MTLQQ [Over The Counter]

205,000 December 148,979.0

Fax URL Industry Locations

+1 313 5565108 www.motorsliquidation.com

Automotive, Clean Technology, Energy and Utilities Argentina, Armenia, Australia, Austria, Bangladesh, Belarus, Belgium, Brazil, Cambodia, Canada, Chile, China, Colombia, Croatia, Cyprus, Czech Republic, Denmark, Ecuador, Egypt, Estonia, Finland, France, French Polynesia, Georgia, Germany, Greece, Hong Kong Special

Source : GlobalData

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Motors Liquidation Company Motors Liquidation Company - SWOT Analysis

SWOT Analysis - Overview Motors Liquidation Company (Motors Liquidation) is one of the leading automotive companies in the world. The company has a strong image across its various brands that include Buick, Cadillac, Chevrolet, GMC, GM Daewoo, Holden, Opel, Pontiac, Saab, Saturn, Vauxhall, and Wuling. The company has an extensive international presence. However, high debt and consistent bad performance could be a serious concern to the company. Nevertheless, there are tremendous growth opportunities to explore in the hybrid vehicles and small car segments, which could be capitalized by the company. However, the global economic crisis coupled with increasing competition could impact the company's future. Motors Liquidation Company - Strengths Strength - Worldwide Presence The company has an extensive international presence across various geographies, which helps the company mitigate the various risks associated with overdependence on a particular region. The company develops, manufactures and markets vehicles worldwide through four automotive regions namely, GM North America (GMNA), GM Europe (GME), GM Latin America/Africa/Mid-East (GMLAAM), and GM Asia Pacific (GMAP). GM manufactures its cars and trucks in about 35 different countries. In addition, it has collaborations with various other automakers. The company is a majority shareholder in GM Daewoo Auto & Technology Co. of South Korea. The companys major collaborations include product, powertrain and purchasing collaborations with Suzuki Motor Corporation and Isuzu Motors Ltd. of Japan; advanced technology collaborations with Toyota Corporation of Japan and BMW AG of Germany. It also has vehicle manufacturing ventures with several of the world's leading automakers including Toyota and Suzuki of Japan, Shanghai Automotive Industry Corp. of China, AvtoVAZ of Russia, Renault SA of France, and most recently, UzAvtosanoa of Uzbekistan. In addition, the company has collaborations with leading carmakers such as Fiat S.p.A and Ford Motor Company. The worldwide presence and various collaborations serve as major strengths for the company, assisting it in providing diverse sources of revenue. Strength - Diversified Product Portfolio Broad product portfolio helps the company cater to the needs of a diverse customer base. The company is a full-line manufacturer that produces a wide variety of cars, trucks, and sport utility vehicles (SUVs). The company offers a diversified range of vehicles including sedan, cross over, SUVs, pickup trucks, coupe, sport/convertible, hybrids, hatchback/wagon and vans, catering to the needs of every segment across the world. The company offers 20 vehicle models obtaining 30 miles per gallon or more when doing highway driving, which is the highest in comparison to any other manufacturer. Its offerings also include about nine hybrid models and 20 FlexFuel models capable of operating on gasoline. The company also introduced various new models such as GMC Acadia, Saturn Outlook, Buick Enclave, Cadillac CTS and the Chevrolet Malibu. In addition, the company has introduced new models like Pontiac G8 and Chevrolet Traverse. Thus, a diversified range of vehicles as well as new models could result in increasing the companys market share in the automotive industry. Motors Liquidation Company - Weaknesses Weakness - High Debt The company has huge debts, which could increase the operating expenses of the company besides limiting its new expansion plans. As of December 31, 2008, the companys total debt stood at USD 46,540 million. Its total liabilities stood at USD 177,201 million while its total equity slumped to negative USD 86,154 million. Also, its total assets witnessed a decline from USD 148,883 million in 2007 to USD 91,047 million in 2008. Furthermore, the company witnessed receding cash flows. While its cash and cash equivalents dropped from USD 24,817 million in 2007 to USD 14,053 million in 2008, its cash from operating activities displayed a significant decline to negative USD 12,065 million from positive USD 7,731 million in the previous fiscal year. Due to high debt obligations, the company filed for Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Code for the Southern District of New York in June 2009, and later sold its majority operations to a newly formed entity General Motors Company. Thus such high indebtedness puts the company at a disadvantage over its competitors while pursuing future growth plans as majority of its earnings are diverted towards servicing its debt obligations. Weakness - Weak Performance Motors Liquidation Company has witnessed another year of low revenues and declining margins, which could concern the investors. In 2008, the revenue generated by the company stood at USD 148,979 million, a decrease of 17.2% from 2007. Its gross profit saw a drop of 76%, totaling at USD 3,492 million. Also, its operating income further declined from a loss of USD 4,309 million in 2007 to a loss of USD 21,284 million in 2008. Furthermore, the company's operating margin was -14.29% for the fiscal year 2008. This was below the S&P 500 companies average* of 14.7%. A lower than sector average* operating margin may indicate inefficient cost management or a weak pricing strategy by the company. The operating margin has decreased 1190 bps over 2007 which may indicate the management's low focus on profitability.

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Motors Liquidation Company

Weakness - Legal Proceedings The company and its subsidiaries are facing various legal proceedings, claims and governmental investigations in the general course of business, which could affect its brand image. The major proceedings against the company include Canadian Export Antitrust Class Actions, Health Care Litigation, General Motors Securities Litigation, Shareholder Derivative Suits, GMAC Bondholder Class Actions, ERISA Class Actions, Asbestos Litigation and Patent and Trade Secrets Litigation. In addition, many more proceedings related to possible violation of law are pending against the company. Adverse decisions on any of such matters could have a negative impact on the companys operating results. It could also affect its brand image in the market. Motors Liquidation Company - Opportunities Opportunity - Launch of Small Cars The company recently announced plans to focus on small car segment for its US customers. These cars would be built using the UAW-GM facility. The announced small car would add to the companys growing portfolio of US-built, fuel efficient cars that include Chevrolet Cruze and Volt. Small cars represent one of the fastest growing markets across the US and the rest of the world. It is expected that US small cars segment would witness a growth of about 25% to reach over 3 million units by 2012. Thus, the companys strong focus on the small car market could help it in maintaining its strong foothold in the US automotive industry. Opportunity - Growing Demand for Hybrid Vehicles The company could benefit from the increasing demand for fuel-efficient vehicles. The global demand for light hybrid electric vehicles is expected to reach 4.5 million units and in the US, it is expected to reach two million units by 2013. With regard to environmental and energy issues, the company has its focus set on hybrid technology and is working to improve its hybrid models. The company offers eight hybrid models through four brands namely, Chevrolet, GMC, Saturn, and Cadillac. Thus, the company could capitalize on the growing global demand for hybrid vehicles and could thereby improve its revenue. Opportunity - Restructuring Plans The company could benefit from the various restructuring initiatives planned to cut costs and reduce its debt burden. This plan comprises a higher number of layoffs, closing down of plants, cutting down the number of dealers and products. Also, the revised viability plan consists of a debt-for-equity exchange for bondholders, the union retiree health-care fund, and the US taxpayers. Significant changes in this plan from the previous one include emphasis on only four core brands namely, Chevrolet, Cadillac, Buick, and GMC. After filing for its bankruptcy in June 2009, the company received USD 30 billion from the US government, in addition to the USD 20 billion it got earlier. Following this, the US government held 60.8% common stock in the new General Motor Company. As part of its restructuring plans, the company sold its Hummer brand to China-based Sichuan Tengzhong Heavy Industrial Machinery Company Ltd. It also intends to reduce its dealers, cutting down the number from 6,246 in 2008 to 3,605 by 2010. Furthermore, the company plans to close down some of its plants to enhance capacity utilization at its US factories. Presently, it intends to bring the number of plants from 47 in 2008 to 34 by 2010 and eventually to 31 by 2012. The company further intends to eliminate an additional 21,000 hourly jobs, bringing its hourly employment in the US to 40,000 by 2010 from 61,000 in 2008. These restructuring initiatives could help the company in bringing down costs and improving margins. Motors Liquidation Company - Threats Threat - Hike in Labor Costs The rise in labor costs across the world, principally in the US and the UK, could be a cause of deep concern for the company. According to the Fair Labor Standards Act (FLSA) by the United States Department of Labor, the workers are entitled to a minimum wage of not less than USD 7.25 per hour effective July 24th, 2009. Also, effective October 2009, the government of UK has raised the labor rates from GBP 5.73 to GBP 5.80 per hour for adults. With the companys employee base of more than 244,500 people, it is bound to come under pressure due to the pay hikes. If it fails to comply with future price hikes, it may face labor strike that might result in huge losses for the company. Threat - Intense Competition The automotive industry is highly competitive, which could impact the business operations of the company. The company faces stiff competition from many automobile giants in the world. It also faces competition from existing small players and new market entrants. Intense competition in the automobile markets could lead to price erosion and could inflate marketing costs. It could also lead to negative pricing practices by competitors, which the company might be obliged to match. Thus, the company should come up with innovative products and services for its customers so as to sustain itself in the highly competitive automobile markets. This highly competitive market could adversely affect the companys revenue and earnings if the company fails to retain and attract clients and customers.

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Motors Liquidation Company

Threat - Global Economic Slowdown The ongoing global economic slowdown could impact the business operations of the company. According to the World Bank, overall global GDP growth is projected to contract by 2.9% in 2009, with 1.2% growth rate in the developing economies well below the 5.9% growth rate in 2008. Economic growth slowed sharply in Europe, the US and Japan. GDP growth is expected to weaken in 2009 to -3% per annum in the US, and the Eurozone would contract more sharply in 2009 by 4%, from 0.6% in 2008. In addition, the government of Japan has forecast that the country's economy will have zero growth in the fiscal year ending March 2010. However, the global output is expected to expand by 3.2% in 2010, still below 5% generated in 2007. The richer countries are expected to expand by a mere 1.7% while the emerging countries are expected to grow by 5.2% in 2010. Thus, a weak global economy poses a major challenge for the company in sustaining its revenue growth.

NOTE: The above strategic analysis is based on in-house research and reflects the publishers opinion only

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