16 September 2019 Equity Research Americas United States GM General Motors Company Addressing the key Q’s on UAW’s GM strike Target price (12M, US$) 50.00 Outperform Automobile Manufacturers Comment ■ Yesterday the UAW called for a strike of GM’s US factories. From a bottom line standpoint, the impact could potentially be nominal if the strike is resolved quickly; yet, the longer it lasts, the more it will be felt in GM’s earnings profile. For the stock, while we remain positive on GM’s 2H and 2020 set-up given trucks/cost actions, the strike potentially could dampen the earnings, and at the very least is an optical negative and a reminder of the challenges of investing in automakers at this point in the cycle. Price (13 Sep 19, US$) 52-week price range Market cap (US$ m) Enterprise value (US$ m) ■ Gauging the financial impact: With no offsets, we estimate the impact of lost production at ~$50mn+ EBIT per day, assuming daily prod of ~7.5-8k units; for context, we estimate total GMNA 3Q / 2019 EBIT of $3.7bn / $12bn. Yet to the extent a strike lasts only a nominal period of time, the impact could be limited – GM could potentially offset lost production once the strike ends; it could also use the strike as an opportunity to keep inventory levels in-line. There may also be cost offsets with production offline. Dan Levy 212 325 4617 dan.levy@credit-suisse.com 38.86 40.88 - 30.56 55,481.56 44,647.00 Research Analysts Robert Moon 212 325 7112 robert.moon@credit-suisse.com ■ What are the sticking points? While there are a number of UAW sticking points (i.e. replacing work at impacted ‘unallocated’ factories), arguably the largest sticking point is on temp workers - ~7% of GM’s hourly workforce. The UAW wants to limit the number of temp workers, while temps are important to GM amid a weakening cycle backdrop. ■ Putting the negotiations in context: There are several key backdrops likely adding some tension to the negotiations: 1. In the face of an eroding cycle, the automakers are seeking added flexibility, yet the UAW may be resistant to make major negotiations, esp. for GM given its profitability; 2. GM’s capacity shutdown last Nov likely added tension, even though GM has sought to replace all the impacted jobs; 3. A federal probe among UAW leaders has likely eroded the confidence of rank-and-file members. ■ Risk of spreading to Ford and FCA: For now there is no impact to Ford and FCA as the UAW signed indefinite contract extensions with them. While it’s certainly possible that a strike could arise at either automaker, note that the GM strike in part arose due to GM’s capacity shutdown from last Nov (a move specific to GM). Note for Ford, they may seek added flexibility given they are still in the early stages of their transformation. Share price performance Financial and valuation metrics Year EPS (CS adj.) (US$) Prev. EPS (US$) P/E (x) Total co. revenue (US$ m) Total co. EBIT (US$ m) Total co. EBIT margin (%) Net debt (US$ m) Number of shares (m) Net debt (Next Qtr., US$ m) Net debt/tot eq (Next Qtr.,%) 12/18A 12/19E 6.54 6.94 5.9 5.6 147,049 145,239 11,783 12,459 8.0 8.6 -7,477 -10,835 1,427.73 IC (current, US$ m) -7,042.6 Dividend (current, US$) -19.8 Source: Company data, Refinitiv, Credit Suisse estimates 12/20E 7.02 5.5 136,420 12,672 9.3 -14,622 12/21E 6.36 6.1 133,383 11,093 8.3 -17,274 23,277.00 1.52 On 13-Sep-2019 the S&P 500 INDEX closed at 3007.39Daily Sep14, 2018 - Sep13, 2019, 09/14/18 = US$34.63 Quarterly EPS 2018A 2019E 2020E Q1 1.43 1.41 - Q2 1.81 1.64 - Q3 1.87 2.07 - Q4 1.43 1.83 - DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. 16 September 2019 General Motors Company Price (13 Sep 2019): US$38.86 Income Statement Automotive revenue (US$ m) EBITDA (US$ m) Depr. & amort. Automotive EBIT (US$) Net interest exp PBT (US$) Income taxes Net profit (US$) Other NPAT adjustments Cash Flow Net interest Change in working capital Cash flow from operations CAPEX Free cashflow to the firm Acquisitions Divestments Cash flow from investments Net share issue(/repurchase) Dividends paid Changes in Net Cash/Debt Balance Sheet (US$) Cash & cash equivalents Account receivables Other current assets Total fixed assets Total assets Total current liabilities Shareholder equity Total liabilities and equity Net debt Per share No. of shares (wtd avg) CS adj. EPS Prev. EPS (US$) Dividend (US$) Free cash flow per share Earnings Sales growth (%) EBIT growth (%) Net profit growth (%) EPS growth (%) EBITDA margin (%) EBIT margin (%) Pretax margin (%) Net margin (%) Valuation EV/EBITDA (x) P/E (x) Returns ROIC (%) Gearing Net debt/equity (%) Quarterly EPS 2018A 2019E 2020E 12/18A 133,036.0 16,028 (6,138) 9,890 (320) 11,495 (2,001) 9,364 (1,449) 12/18A (320) 1,627 11,132 (8,701) 2,431 (7,639) (100) (2,183) 1,862 12/18A 22,019 5,917 1,646 38,507 227,339 47,922 30,754 227,339 (7,477) 12/18A 1,431 6.54 1.52 1.70 12/18A (0.3) (15.1) (5.2) (1.2) 12.0 7.4 8.6 7.0 12/18A 3.2 5.9 12/18A 35.1 12/18A (24.3) Q1 1.43 1.41 - 12/19E 130,665.5 17,744 (7,160) 10,584 (350) 12,084 (1,989) 9,970 (522) 12/19E (350) (3,183) 11,506 (8,140) 3,366 (8,479) (100) (2,229) 3,358 12/19E 26,882 5,639 3,052 39,254 236,794 47,366 38,236 236,794 (10,835) 12/19E 1,436 6.94 1.52 2.34 12/19E (1.8) 7.0 6.5 6.1 13.6 8.1 9.2 7.6 12/19E 2.9 5.6 12/19E 32.3 12/19E (28.3) Q2 1.81 1.64 - (GM) Target Price: 50.00 12/20E 121,457.4 17,511 (6,712) 10,798 (356) 12,346 (2,222) 9,974 (164) 12/20E (356) (408) 13,978 (7,530) 6,447 (7,530) (500) (2,160) 3,788 12/20E 30,669 5,242 3,052 40,072 244,898 45,679 42,227 244,898 (14,622) 12/20E 1,421 7.02 1.52 4.54 12/20E (7.0) 2.0 0.0 1.1 14.4 8.9 10.2 8.2 12/20E 2.9 5.5 12/20E 32.1 12/20E (34.6) Q3 1.87 2.07 - 12/21E 117,780.9 16,072 (6,892) 9,179 (356) 10,766 (1,938) 8,679 0 12/21E (356) (35) 14,027 (7,302) 6,725 (7,302) (2,000) (2,073) 2,652 12/21E 33,321 5,083 3,052 40,482 248,956 45,297 44,439 248,956 (17,274) 12/21E 1,364 6.36 1.52 4.93 12/21E (3.0) (15.0) (13.0) (9.3) 13.6 7.8 9.1 7.4 12/21E 3.2 6.1 12/21E 27.7 12/21E (38.9) Q4 1.43 1.83 - Analyst: Dan Levy Rating: Outperform Company Background General Motors Company designs, builds and sells automobiles and automobile parts worldwide. GM also provides automotive financing services primarily through General Motors Financial Company, Inc. (GM Financial). Blue/Grey Sky Scenario Our Blue Sky Scenario (US$) 59.00 Our Blue Sky scenario of $59 is derived from a P/E multiple of 7.0X on FY’20 EPS of $7.02; however, our Blue Sky scenario includes an additional $13.3bn of equity value attributable to GM Cruise. Our Grey Sky Scenario (US$) 24.00 Our Grey Sky scenario of $24 is based on a 15% decline in North America vehicle unit sales, ultimately leading to a $2.27 hit to EPS; the resulting $4.75 of 2020 EPS at a 5.0x multiple results in our $24 Gray Sky scenario. Share price performance On 13-Sep-2019 the S&P 500 INDEX closed at 3007.39 Daily Sep14, 2018 - Sep13, 2019, 09/14/18 = US$34.63 Source: Company data, Refinitiv, Credit Suisse estimates General Motors Company 2 16 September 2019 ■ Gauging the financial impact: The primary financial impact of a strike to GM relates to lost production. With no offsets, we estimate the impact of lost production at ~$50mn+ EBIT per day; for context, we estimate total GMNA 3Q / 2019 EBIT of $3.7bn / $12bn, with total co. EBIT fairly similar in those periods. There are several considerations around this: o Our estimate of ~$50mn+ assumes ~7.5-8k units/day of lost production, at a variable profit contribution in the low $8k/unit range; for reference, IHS Automotive forecasts GM’s Sep’19 production in US plants at 169k units, and GM likely has some plants running at three shifts (albeit not the majority), vs. the typical two shifts. o Our estimate assumes no offset. Yet to the extent the strike lasts only a nominal period of time, the impact may be limited. GM could potentially offset lost production once the strike ends by implementing a third shift / overtime in certain plants. Moreover, GM could also use the strike as an opportunity to keep inventory levels in-line – i.e. GM inventory currently elevated for vehicles in the large pickup space (Sierra, Silverado – albeit they’d likely try to max production). o Our estimate only reflects the impact of the lost production. There could potentially be some cost offsets with production offline. o Also of question is how the strike impacts Canada/Mexico, which account for 35-40% of GMNA production. While production in Canadian and Mexican assembly plants won’t be offline due to the strike, there could be potential impact related to impacted engine/transmission plants in the US which service Canada/Mexico assembly plants. And as to the question of whether Canada/Mexico could offset lost US production, this is likely not the case, with the exception of models that have dual production in both the US and Canada/Mexico (i.e. Silverado, Sierra). Figure 1: GMNA production by assembly plant; 39% of GMNA’s est. 2019 production is expected to occur outside of the U.S. Plant Ingersoll #2 Oshawa #1 Oshawa #2 Total Ramos Arizpe #2 San Luis Potosi Silao Total Country Canada Canada Canada Canada Mexico Mexico Mexico Mexico Arlington United States Bowling Green Detroit-Hamtramck Fairfax Flint Truck Fort Wayne Lansing Delta Township Lansing Grand River Lordstown Orion Spring Hill #2 Springfield Wentzville Total United States United States United States United States United States United States United States United States United States United States United States United States United States Model Equinox Impala, XTS Sierra, Sierra HD, Silverado, Silverado HD represents 10% of GM's 2019E prod. Blazer, Cruze, Equinox Equinox, Prisma, Terrain, Trax Sierra, Silverado represents 29% of GM's 2019E prod. Escalade, Escalade ESV, Suburban, Tahoe, Yukon, Yukon XL Corvette CT6, Impala, LaCrosse, Volt Malibu, XT4 Sierra HD, Silverado HD Sierra, Silverado Enclave, Traverse ATS, Camaro, CT4, CT5, CTS Cruze Bolt EV, Sonic Acadia, XT5, XT6 Express, Savana Canyon, Colorado, Express, Savana represents 61% of GM's 2019E prod. Sep 2019 16,387 4,236 9,055 29,678 20,927 23,736 29,917 74,580 Q3 2019 45,711 11,849 24,576 82,136 68,382 65,904 96,869 231,155 CY 2019 184,868 42,463 90,655 317,986 241,398 282,859 356,369 880,626 28,882 94,185 317,824 1,577 2,555 16,299 21,417 28,483 17,784 4,861 0 5,016 18,088 1,458 23,027 169,447 4,731 7,529 45,016 57,407 87,925 57,394 12,530 0 13,295 37,084 3,734 74,315 495,145 15,842 35,196 171,311 202,951 337,166 224,227 54,017 18,636 50,276 184,443 16,534 276,313 1,904,736 Source: IHS Automotive General Motors Company 3 16 September 2019 Figure 2: The selection of models assembled outside the U.S. is slim, yet a few of the models are of key importance (i.e. Silverado, Sierra, Equinox, etc.) 000's units 600 GMNA unit prod. for key models with prod. in Canada or Mexico, 2019E 500 United States Canada / Mexico Figure 3: Even if models are assembled outside of the U.S., Canada / Mexico plant production may be disrupted if they are reliant on U.S. engine or transmission plants 000's units 1,800 1,600 400 GMNA production by plant type & location, 2018 1,880 2,000 1,608 1,454 1,439 1,400 1,200 300 1,000 200 800 100 600 400 0 200 0 Engine: US Engine: Non-US Transmission: US Transmission: Non-US Source: IHS Automotive Source: IHS Automotive Note: Models listed above are all models of significant volume that are produced in Canada or Mexico, add ’l the U.S. volumes are also displayed when they applicable Note: Non-U.S. represents Canada and Mexico; 2018 figures are estimated, as they were pulled from IHS in Nov’18 – prior to YE Note: Figure 4: Gross stock, inventory day sales, and unit production by model; gross stock was up y/y at the end of Aug’19 for a few of GM’s most profitable models, such as the Silverado, Sierra, Equinox Brand Subseries Chevrolet Silverado Chevrolet Equinox GMC Sierra Chevrolet Traverse Chevrolet Malibu Chevrolet Colorado Chevrolet Tahoe GMC Terrain Chevrolet Trax GMC Acadia Chevrolet Blazer Chevrolet Express Cargo Chevrolet Suburban Cadillac XT5 Buick Enclave GMC Yukon Chevrolet Impala Chevrolet Camaro Cadillac XT4 GMC Canyon GMC Yukon XL Cadillac XT6 Cadillac Escalade Cadillac Escalade ESV Chevrolet Corvette Buick Encore Buick Envision Other Total Expected Production Segment Pickup CUV Pickup CUV Sedan Pickup SUV CUV CUV CUV CUV Van SUV CUV CUV SUV Sedan Sedan CUV Pickup SUV CUV SUV SUV Sedan CUV CUV U.S. Inventory Gross Stock 8/2018 8/2019 Delta 160,902 196,394 35,492 64,355 68,225 3,870 59,246 77,787 18,541 25,638 32,370 6,732 37,794 20,686 (17,108) 35,537 32,089 (3,448) 26,653 22,928 (3,725) 30,201 26,817 (3,384) 26,954 37,494 10,540 27,474 23,437 (4,037) 0 28,899 28,899 12,931 18,710 5,779 14,510 11,678 (2,832) 15,194 12,071 (3,123) 19,550 12,706 (6,844) 17,328 14,519 (2,809) 4,196 8,857 4,661 15,981 14,073 (1,908) 509 10,624 10,115 12,995 9,436 (3,559) 12,087 9,606 (2,481) 0 5,231 5,231 6,505 7,388 883 4,126 5,108 982 6,514 6,303 (211) 34,280 38,751 4,471 13,953 10,754 (3,199) U.S. Inventory Days Sales 8/2018 8/2019 Delta 101 93 (8) 63 63 0 96 84 (12) 58 57 (1) 118 41 (77) 75 71 (4) 67 57 (11) 95 83 (11) 122 71 (51) 158 82 (75) 0 105 105 60 73 13 69 58 (10) 75 74 (1) 119 76 (43) 118 87 (31) 15 50 35 86 81 (5) 0 79 79 107 90 (18) 143 100 (43) 0 93 93 98 102 4 60 85 25 100 87 (14) 127 110 (18) 164 104 (60) NA Estimated Production Sep 2019 Q3 2019 CY 2019 61,818 184,383 679,070 31,031 91,313 370,424 27,054 82,394 308,071 13,516 43,620 171,381 13,365 36,711 133,390 10,822 34,926 128,734 11,410 37,206 125,939 10,681 31,208 118,879 10,444 28,168 118,760 9,044 18,698 104,744 8,894 29,308 93,332 7,684 24,128 91,003 5,921 19,307 64,273 3,979 8,393 53,030 4,268 13,774 52,846 4,767 15,544 51,090 5,769 15,299 50,358 4,374 11,995 41,156 2,934 8,305 37,921 3,224 10,405 37,205 3,033 9,891 34,180 5,065 9,993 26,669 2,308 7,526 25,932 1,443 4,711 16,410 1,577 4,731 15,842 Produced outside of NA Produced outside of NA 9,280 26,499 152,709 273,705 808,436 3,103,348 Source: Wards Infobank, IHS Automotive General Motors Company 4 16 September 2019 ■ What are the sticking points? Major sticking points for the UAW include: GM’s use of temp workers (with the UAW seeking a limit), giving new hires a quicker route to making senior-level wages of more than $30/hr, and securing work for some of the impacted plants in GM’s capacity announcement from last Nov1. In particular, we’d especially flag the issue of temp workers. While GM came out with an attractive offer (see details below), the issue of temp workers likely remains central. ~7% of GM’s hourly workforce are temps (a number which fluctuates given seasonality, and is likely a high watermark), and temps get paid as little as $15/hr – half the wage of senior factory workers2. Temps are important to GM in a weakening cycle backdrop (see below), while the UAW is trying to reduce the number of temps as a means to boost membership of full-time workers. Figure 5: Foreign companies utilize temp workers in the U.S. far more than the D3… 25% Figure 6: This likely contributes to the foreign companies paying lower avg. wages in the U.S. than the D3 Per-hour labor costs, by contract year % of temporary wokers 20% 20% FCA GM Ford 80 75 70 15% 65 10% 6% 60 7% 55 5% 50 45 0% Ford GM Transplants Source: Automotive News Research, Center for Automotive Research, Global Automakers 40 Est. avg. of foreign companies non-unionized U.S. workers = $50 2007 2011 2015 2019 Source: Center for Automotive Research; WSJ Note: Chrysler was a part of Daimler Chrysler in 2007 Note: Transplant automakers include Toyota, Honda, Nissan, Subaru, Hyundai, Kia, Mercedes, BMW ■ What has GM offered? GM came out with a significant offer, addressing jobs, wages, benefits, and investment. It’s unclear to us where the offer fell short for the UAW, though we note there is no mention in the offer re: temp workers: - Over $7bn in investments and more than 5,400 jobs, including: solutions for the Lordstown and Hamtramck plants; investments in eight facilities in four states; introduction of an all-new electric truck; the opportunity to become the first unionrepresented battery cell mfg site in the US. - Best-in-class wages and benefits: wage or lump sum increases in all four years; improved profit sharing formula; ratification payment of $8,000; retain nationally-leading health care benefits; new coverage of autism therapy care, chiropractic care and allergy testing. ■ How did we get here? It’s important to place the strike in the context of the underlying backdrop. Most notably, we’d cite several key points: 1 See: Welch, David, “GM strike risk rises as UAW contract deadline looms”, Bloomberg, 9/11/19 2 Ibid., Welch General Motors Company 5 16 September 2019 o Eroding cycle: The primary difference between the current negotiations vs. the prior negotiations in 2015 is that the current negotiations are being held with a backdrop of cycle that is long-in-the-tooth and is likely to see some erosion in the coming years; conversely, the 2015 negotiations were held under a stronger industry backdrop. To be clear, the current US auto industry is still quite healthy – SAAR has remained largely plateaued in the 17mn range in recent years, and mix has continued to improve. However, with likely continued modest erosion to the US auto industry at a minimum, and with potential for an even weaker industry if the US consumer softens, automakers are seeking to cap labor costs / greater flexibility in the event a downturn emerges, especially around temporary workers. Yet, the perspective of the UAW is that with profits still robust (especially at GM), they are resistant to make major concessions, with the union seeking more permanent workers and job security. And it’s worth flagging that nearly 42% of UAW workers have never experienced a downturn in the US auto industry3. Figure 7: GMNA has generated EBIT above $10.5bn for the last 4 years, and we expect them to achieve ~$12bn of profit in 2019, leading to a tough environment for negotiation; yet a mildly negative industry outlook is also in the mix U.S. SAAR (lhs) GMNA EBIT (rhs) $bn 10.4 12 10 12.8 14 11.6 13.2 13 16.1 17.0 16.7 17.3 17.2 17.5 17.4 16.5 14 15.7 16 15.6 14.5 16.2 17.0 16.6 16.9 16.6 17.1 Years with UAW labor negotiations 16.8 18 17.3 mn units 20 12 11 10 9 8 7 6 8 5 Source: Company data, Credit Suisse estimates o 3 GM capacity shutdown: Also central to the negotiations was GM’s move last November to ‘unallocate product’ to four US factories – assembly facilities in Lordstown, OH and Detroit-Hamtramck, MI, as well as the transmission plants in Warren, MI and Baltimore (also included in the announcement was the Oshawa plant in Ontario, Canada). The move to effectively idle/shutter these plants in the middle of a contract likely created See: Naughton, Nora, “A Wild Car in Detroit Labor Talks: Workers Who Haven’t Seen Hard Times,” Wall Street Journal, 7/16/19 General Motors Company 6 16 September 2019 a tension into the negotiations – with the UAW vowing to fight this at the bargaining table4. Though note, GM has planned to offer a job for all 2,800 of the impacted employees, noting on its 2Q call that 1,700 of the employees accepted transfer to plants supporting ‘growth segments.’ Moreover, as part of the negotiations, it offered ‘solutions’ for the facilities in Lordstown and Hamtramck, with a plan to eventually build an electric pickup in Hamtramck. o Federal probe: Lastly, also in the backdrop of negotiations is an ongoing federal corruption probe among UAW leaders, that is “eroding the confidence of many rank-and-file members.”5 ■ What are the risks a strike spreads to Ford or FCA? At the moment there is no impact to Ford and FCA, as the UAW signed indefinite contract extensions with them. It is certainly possible in the future that a strike ultimately hits Ford and FCA, and it is difficult to tell where negotiations currently stand. However, it’s important to note that the circumstances of the GM strike in part arose from GM’s decision last November to shutter capacity – a move that was unique to GM. We’d note, however, that Ford is not without risk. Given it is still amid transformation, one could argue that it has an added need for flexibility in the US, vs. GM, which is coming from a much stronger financial position. Meanwhile, for FCA, there is potentially less risk of strike, in particular amid its moves to upgrade / expand US capacity (i.e. its announcement from February this year to invest $1.6bn to convert the two plants comprising the Mack Ave. Engine Complex into the assembly site for the next-gen Jeep Grand Cherokee and a new 3-row full-size Jeep SUV). Figure 8: D3 NA production by country, 2019E; Ford produces considerably less vehicles in Can/Mex than its counterparts United States 3,500 Mexico Canada % of NA prod. outside of US (rhs) 000's units 45% 42% 3,000 2,500 2,000 1,500 456 255 256 39% 881 40% 35% 000's units GM FCA Ford 4,500 4,000 3,500 30% 572 3,000 2,161 1,000 500 318 Figure 9: D3 straight-time capacity; GM is expected to shed capacity going into 2020 1,411 1,905 25% 20% 19% 0 15% FCA Source: IHS Automotive Ford General Motors 2,500 2,000 2019E 2020E 2021E 2022E 2023E Source: IHS Automotive ■ What are the historical precedents? In prior negotiations (typically quadrennial), more often than not we did not see strikes materialize. However, there are two precedents we’d cite: 4 Ibid., Naughton 5 Ibid., Naughton; Naughton, Nora, “United Auto Workers Official Charged in Widening Federal Probe,” Wall Street Journal, 9/12/19 General Motors Company 7 16 September 2019 o UAW nationwide strike of 2007: The UAW had a nationwide strike against GM from Sep 24-26, 2007, announcing a strike at 11am on 9/24 and announcing a tentative agreement at 4am on 9/26. It was the first nationwide strike against GM since 1970, and key sticking points were wages, job security, and benefits6. We’d argue to the extent the current strike is limited to only ~2 days, the financial impact to GM will be limited. o Flint strike of 1998: While the last nationwide strike pre 2007 was in 1970, GM experienced a strike in two of its parts plants in Flint, MI in 1998 (one of which was a legacy Delphi plant, back when Delphi was owned by GM). This strike was far reaching, lasting 54 days and costing GM 576k vehicles in lost production, with a cost of ~$2bn7. We’d note, however, that this strike occurred at a time when OEM-labor relations were likely much weaker, and also reflected a much less operationally robust version of GM vs. today. ■ What to do with the stock? We have been positive on GM given its opportunity to post strong profit in 2H, with a strong set-up into 2020, driven by continued health in truck and cost actions. While these catalysts still can play out, the news of a strike potentially could drive a profit drag if the strike is in place for an extended period of time. And even if that doesn’t occur, at the very minimum it’s optically a negative – while also potentially reminding investors of the challenges of investing in OEMs at this point in the cycle. Figure 10: D3 NA straight-time capacity utilization FCA GM Figure 11: UAW membership (in thousands) Ford 800 90% 700 600 85% 500 80% 400 300 75% 200 70% 100 0 65% 2019E 2020E Source: IHS Automotive 2021E 2022E 2023E Source: U.S. Labor Department Bureau of Labor Statistics, Automotive News 6 See: “UAW Strikes GM: Pickets go up at automaker’s plants”, Detroit Free Press, 9/24/07 7 See: “In Aftermath of UAW Strikes, GM Seeks to Justify the Costs”, Wall Street Journal, 7/30/98 General Motors Company 8 16 September 2019 Companies Mentioned (Price as of 15-Sep-2019) Daimler (DAIGn.DE, €48.54) Fiat Chrysler Automobiles N.V. (FCHA.MI, €12.56) Ford Motor Company (F.N, $9.45) General Motors Company (GM.N, $38.86, OUTPERFORM, TP $50.0) Honda Motor (7267.T, ¥2,933) Hyundai Motor Company (005380.KS, W129,000) Kia Motors (000270.KS, W44,100) Nissan Motor (7201.T, ¥714) Subaru Corporation (7270.T, ¥3,075) Toyota Motor (7203.T, ¥7,396) Disclosure Appendix Analyst Certification I, Dan Levy, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. 3-Year Price and Rating History for General Motors Company (GM.N) GM.N Date 26-Jun-19 02-Aug-19 Closing Price (US$) 38.13 39.78 Target Price (US$) 48.00 50.00 Rating O* * Asterisk signifies initiation or assumption of coverage. O U T PERFO RM 3-Year Price and Rating History for Hyundai Motor Company (005380.KS) 005380.KS Date 05-Oct-16 25-Jan-17 23-Mar-17 10-Apr-17 26-Apr-17 07-Jul-17 27-Jul-17 06-Sep-17 27-Oct-17 04-Jan-18 26-Jan-18 27-Apr-18 04-Jul-18 26-Jul-18 10-Oct-18 26-Oct-18 24-Apr-19 Closing Price (W) 140,000 142,000 165,000 146,000 151,000 151,500 146,500 136,000 158,500 146,500 152,500 158,000 119,500 130,000 120,000 108,000 138,500 Target Price (W) 168,000 163,000 200,000 185,000 190,000 155,000 145,000 140,000 160,000 150,000 140,000 138,000 129,000 120,000 160,000 150,000 165,000 Rating O N O U T PERFO RM N EU T RA L O * Asterisk signifies initiation or assumption of coverage. General Motors Company 9 16 September 2019 3-Year Price and Rating History for Kia Motors (000270.KS) 000270.KS Date 05-Oct-16 24-Nov-16 07-Mar-17 10-Apr-17 31-Aug-17 30-Oct-17 29-Nov-17 26-Jan-18 27-Jun-18 26-Oct-18 16-Jan-19 09-Apr-19 25-Apr-19 10-Sep-19 Closing Price (W) 42,150 36,950 36,700 35,550 35,450 34,550 33,350 33,500 31,000 27,850 34,850 38,950 42,450 43,200 Target Price (W) 50,000 40,000 37,000 35,000 33,000 38,000 36,000 35,000 33,000 32,000 36,000 48,000 52,000 53,000 Rating O N O U T PERFO RM N EU T RA L O * Asterisk signifies initiation or assumption of coverage. As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total ret urn relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most att ractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the re levant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportuniti es. For Latin American and Asia stocks (excluding Japan and Australia), ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark (India - S&P BSE Sensex Index); prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian a nd New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst with in the relevant sector. An analyst may cover multiple sectors. Credit Suisse's distribution of stock ratings (and banking clients) is: Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 47% (33% banking clients) Neutral/Hold* 39% (27% banking clients) Underperform/Sell* 12% (23% banking clients) Restricted 2% *For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, a nd Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be bas ed on investment objectives, current holdings, and other individual factors. General Motors Company 10 16 September 2019 Important Global Disclosures Credit Suisse’s research reports are made available to clients through our proprietary research portal on CS PLUS. 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Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: https://www.creditsuisse.com/sites/disclaimers-ib/en/managing-conflicts.html . Any information relating to the tax status of financial instruments discussed herein is not intended to provide tax advice or to be used by anyone to provide tax advice. Investors are urged to seek tax advice based on their particular circumstances from an independent tax professional. Credit Suisse has decided not to enter into business relationships with companies that Credit Suisse has determined to be involved in the development, manufacture, or acquisition of anti-personnel mines and cluster munitions. For Credit Suisse's position on the issue, please see https://www.credit-suisse.com/media/assets/corporate/docs/about-us/responsibility/banking/policy-summaries-en.pdf . The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities Target Price and Rating Valuation Methodology and Risks: (12 months) for General Motors Company (GM.N) Method: Our $50 target price and OUTPERFORM rating are based on a 50/50 blend of sum-of-the-parts valuation ($50 price) and PE ($49 price). Our $50 SOTP price is derived from $16.440mn in 2020 automotive EBITDA ex equity income at a 2.1x multiple, and from $1.070mn of equity income at a 7.5x multiple. We believe these multiples are reasonable given our view that core auto is in secular decline and the JV income has superior growth prospects, as it is coming off easy comps. Moreover, our $49 P/E-FY’20 price is based on $7.02 of 2020 EPS at a 7.0x multiple, which we view as reasonable given GM's expected continued operational strength, the lack of value investors are currently placing on Cruise. Risk: Risks to our $50 target price and Outperform rating include weakness in GM’s core end markets (in particular North America, but China as well), elevated competitive pressure in GM’s core vehicle segments, and added margin pressures as GM funds its push to AV and EV. Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures/view/selectArchive for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names Credit Suisse currently has, or had within the past 12 months, the following as investment banking client(s): 7203.T, DAIGn.DE, F.N Credit Suisse provided investment banking services to the subject company (7203.T, DAIGn.DE, F.N) within the past 12 months. Within the last 12 months, Credit Suisse has received compensation for non-investment banking services or products from the following issuer(s): GM.N, DAIGn.DE, F.N, 005380.KS Credit Suisse has managed or co-managed a public offering of securities for the subject company (DAIGn.DE, F.N) within the past 12 months. Within the past 12 months, Credit Suisse has received compensation for investment banking services from the following issuer(s): DAIGn.DE, F.N Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (GM.N, DAIGn.DE, F.N, 005380.KS) within the next 3 months. Credit Suisse currently has, or had within the past 12 months, the following issuer(s) as client(s), and the services provided were noninvestment-banking, securities-related: GM.N, DAIGn.DE, F.N Credit Suisse currently has, or had within the past 12 months, the following issuer(s) as client(s), and the services provided were noninvestment-banking, non securities-related: GM.N, DAIGn.DE, F.N, 005380.KS Credit Suisse or a member of the Credit Suisse Group is a market maker or liquidity provider in the securities of the following subject issuer(s): DAIGn.DE, FCHA.MI, F.N, GM.N, 7267.T, 005380.KS, 000270.KS, 7201.T, 7270.T, 7203.T A member of the Credit Suisse Group is party to an agreement with, or may have provided services set out in sections A and B of Annex I of Directive 2014/65/EU of the European Parliament and Council ("MiFID Services") to, the subject issuer (7203.T, DAIGn.DE, F.N) within the past 12 months. As of the date of this report, Credit Suisse beneficially own 1% or more of a class of common equity securities of (DAIGn.DE). Credit Suisse beneficially holds >0.5% long position of the total issued share capital of the subject company (000270.KS, 005380.KS). General Motors Company 11 16 September 2019 For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to the link: https://rave.credit-suisse.com/disclosures/view/report?i=457875&v=49ou6q3l6s7v61qfvux280a9c . Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. Investors should note that income from such securities and other financial instruments, if any, may fluctuate and that price or value of such securities and instruments may rise or fall and, in some cases, investors may lose their entire principal investment. This research report is authored by: Credit Suisse Securities (USA) LLC ................................................................................................. Dan Levy ; Robert Moon Important disclosures regarding companies that are the subject of this report are available by calling +1 (877) 291-2683. 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