January 30, 2015 Consumer Goods

General Motors Company Ticker: GM

Recommendation: Outperform

Current Price: $33.70

Price Target: $41.98

Investment Thesis 

With the introduction of several new models in 2015, General Motors will continue to grow after being the most awarded automotive manufacturer of the year and recording market share increases among several of its brands

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General Motors continues to be successful in the Chinese market, and continues to expand its presence through new product roll-outs and joint ventures

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The company has positioned its Buick and Cadillac brands to capitalize on the Chinese luxury car market growth in the coming years

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General Motors’ strategic repositioning in South America and India will move the company to benefit off of these developing economies through the entry-level car market

Key Statistics 52 Week Price Range

$28.82 - $38.15

50-Day Moving Average

$33.66

Estimated Beta

1.24

Dividend Yield

3.60%

Market Capitalization

54.15M

3-Year Revenue CAGR

4.66%

Trading Statistics Diluted Shares Outstanding

1606M

Average Volume (3-Month)

13.19M

Institutional Ownership

71.20%

Insider Ownership

0.03%

EV/EBITDA (LTM)

4.4x

Stock Chart Since IPO $45.00

100,000,000

$40.00

90,000,000

$35.00

80,000,000

70,000,000

$30.00

60,000,000 $25.00 50,000,000

Margins and Ratios Gross Margin (LTM)

$20.00 40,000,000

18.36%

$15.00

30,000,000

$10.00

EBITDA Margin (LTM)

20,000,000

8.47% $5.00

Net Margin (LTM) Debt to Enterprise Value

3.43%

10,000,000

$0.00 Nov-10

0.51

0 May-11

Nov-11

Volume

May-12

Nov-12

Adjusted Close

May-13

Nov-13

50-Day Avg

May-14

Nov-14

200-Day Avg

Covering Analyst: Hayden Conrad Email: [email protected] 1

University of Oregon Investment Group

University of Oregon Investment Group Figure 1: The Evolution of the Corvette Stingray

January 30, 2015

Business Overview Originally founded in 1908 as General Motors Corporation, General Motors Company (GM) designs, manufactures and sells cars, trucks and automobile parts across the globe. GM owns and operates the brands Buick, Cadillac, Chevrolet, GMC, Holden, Open and Vauxhall, while maintaining direct equity stakes in entities that own the Alpheon, Wuling, Baojun, and Jiefang brands, serving primarily the Asian markets. Today, the company brings in more than $150 billion in revenue, delivers more than 9.7 million vehicles annually, and operates through the geographic segments General Motors North America (GMNA), General Motors Europe (GME), General Motors International Operations (GMIO) and General Motors South America (GMSA) as well as GM Financial.

Source: autoevolution.com

General Motors North America (GMNA)

Figure 2: Number of GM Vehicles Delivered Worldwide (in thousands)

Within this segment are the manufacturing, distribution and sales operations in Canada, the United States, Mexico, Central America and the Caribbean, representing 61.1% of total revenue, with more than 3.2 million vehicle deliveries. GM also has the largest market share in this segment of any of its competitors at 16.9%. The brands within this segment consist of Chevrolet, GMC, Cadillac and Buick, all of which grew in 2013 in comparison with 2012. The new Chevrolet Corvette Stingray and the Chevrolet Silverado 1500 won the 2014 North American Car of the Year and the North American Truck of the Year awards, respectively. GM also received in 2014, for the second consecutive year, more segment awards in JD Powers’ annual survey than any other manufacturer.

General Motors Europe (GME)

Source: UOIG Projections

Figure 3: General Motors Revenue Breakdown

Representing 12.9% of total revenue and more than 1.5 million vehicle deliveries, this segment contains the sales, distribution and manufacturing operations across Western, Central and Eastern Europe (with the wholesale vehicle volume including Russia and other members of the Commonwealth of Independent States). Market share for the region in 2013 was estimated as fourth largest at 8.3%. Chevrolet sales in Europe are represented in this figure, however, but Chevrolet sales in the region are done through the GMIO segment. Brands within the segment consist of Opel and Vauxhall, and are currently undergoing a branding image overhaul. In 2013, these brands recorded their first market share increase in 14 years. Previously viewed on par with BMW and Mercedes-Benz in Europe, GM is trying to change Opel and Vauxhall to be closer to the budget car market, especially as the European Market remains stagnant. This year, GM plans to expand these brands while discontinuing the Chevrolet brand.

General Motors International Operations (GMIO) Consisting of 13% of total revenue and more than 3.8 million vehicle deliveries, this segment contains the sales distribution and manufacturing operations in Asia/Pacific, Australia, the Middle East, Africa and Eastern Europe (with wholesale vehicle volume in Eastern Europe, Russia and some CIS countries counted in GME operations instead of GMIO). For 2013, market share was estimated as the second largest in Asia/Pacific, the Middle East and Africa at 9.5%. In China, the company estimated its market share at 15.2%. As noted above, Chevrolet sales in Europe are recorded within this segment. 810,000 Buicks were sold in China in 2013, making it GM’s strongest brand in the Region, with this number growing 16% from 2012. Source: SEC Filings

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University of Oregon Investment Group Figure 4: The Holden HSV GTS

January 30, 2015 Much to the disappointment of automotive enthusiasts across Australia and New Zealand, Holden, a brand exclusively operated in these countries by GM, will cease their design and manufacturing operations. Instead of being known for their performance sedans, station wagons and trucks, the brand will consist entirely of rebadged Chevrolets. Currently, the Brand has several of these models, including the Cruze and Volt. In addition to declining sales, the Australian dollar has appreciated significantly against the US dollar and is now 65% more expensive than ten years ago. As of December 2014, GM has halted the deliveries of vehicles to Russia as the economy faces increasing turmoil. This is not a large market for the company, as its sales in 2013 represented about a month’s worth of sales in either the US or China.

General Motors South America (GMSA) Source: topspeed.com

This segment represents GM’s sales, distribution and manufacturing operations for South America, which made up 10.6% of total revenue in 2013 and accounted for more than 1 million vehicle deliveries. Market share for South America in 2013 was estimated at 17.5%, better than any other automotive company. In Brazil, the largest market in the region, market share was estimated at 17.3%, the second highest in the country, and also accounts for more than half of the segment’s revenue. GM has strong brand recognition in the region and has recently found greater success selling small cars such as the Cruze, as well as pickup trucks such as its S-10 model.

Figure 5: GM Financial logo

GM Financial

Source: General Motors

Figure 6: GM Revenue ($ in millions)

Consisting of just 2.15% of GM’s revenue, GM Financial purchases financial contracts originating from both GM and non-GM dealers that involve the sale of new and used automobiles. This segment also offers a lease product for new vehicles and a commercial lending program for non-GM dealerships. Through credit analytics, GM Financial evaluates credit applications and tailors its leasing and pricing structure to fit the needs of the applicant. In 2012, GM Financial purchased the automotive finance and financial services businesses of Ally Financial in Europe and Latin America for $3.3 billion, as well as Ally Financial’s equity stake in GMAC-SAIC for $0.9 billion, which consists automotive finance and financial services businesses in China. With the acquisition of these businesses, GM is now able to offer financing to nearly 80% of its customer base. Since 2013 however, GM is phasing out its relations with Ally and relying more heavily on in-house financing with GM Financial. In December 2013, GM sold its remaining minority stake in Ally, while still maintaining its ownership of Ally’s international operations. Most recently, GM decided it would use GM Financial rather than Ally for its subsidized leases to both simplify its leasing process and collect more customer information. While this is a blow to Ally, it will result in increased earnings for the company’s inhouse financing division.

Post 2008 Financial Crisis Restructuring Due to the extreme impact on the company in the 2008 global financial crisis, bankruptcy was declared on June 1, 2009. Under its unique restructuring strategy under bankruptcy code 363 of chapter 11, the company was split into two entities, General Motors Company and Motors Liquidation, Inc. General Motors Company was established with a clean balance sheet and was given the best of the company’s operations, while Motors Liquidation, Inc. was given the assets to be liquidated and the liabilities to be paid within the bankruptcy. This prevented the entire company from having to work through a bankruptcy that could have lasted months. General Motors Company was able to purchase these Source: UOIG Projections

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University of Oregon Investment Group Figure 7: General Motors Brands

January 30, 2015 operations with the help of a $50 billion equity investment (61% of the company) from the U.S. Treasury, and could continue its selling, manufacturing and customer service operations while Motors Liquidation handled the bankruptcy filings. On July 15 2009, shares of General Motors, formerly listed as GM were converted to shares of Motors Liquidation under the ticker MTLQQ. These shares, then trading around $0.09 were then cancelled, with investors losing everything. As part of the restructuring process, GM decided to focus on its most prominent brands in the US going forward – Buick, Cadillac, Chevrolet and GMC. It ended the Saturn, Pontiac and Hummer brands, and sold Saab Automotive to Spyker Cars N.V.

Source: Silverado Media

After weathering the storm through 2009 with organizational and operational changes, General Motors re-emerged on the NYSE on November 18, 2010, raising more than $20 billion, which at the time was the largest U.S. IPO ever. During the IPO, the U.S. Treasury sold some of their stake, selling the remaining amount by December 2013.

2014 Ignition Switch Recall Figure 8: Monthly WTI Crude Oil Spot Prices

Source: U.S. Energy Information Administration

Figure 9: US Consumer Confidence Index

In 2014, GM initiated a massive recall beginning with faulty ignition switches that in some cases, could be turned to the neutral position while the driver was driving, thus turning off power to essential systems such as the brakes and airbags. This problem was occurring in vehicles going back to more than ten years old. An internal investigation was launched that determined that heavy key rings wore down the ignition lock cylinder and thus the key was able to move while the car was driving. Ultimately it was determined that the defect is linked to 45 deaths and numerous other injuries. 15 employees were let go and several others disciplined. The investigation resulted in a total of 24.6 million automobiles in the US and 28 million worldwide to be recalled. GM also agreed to pay a fine on $35 million to US regulators for their failure to act on the defect sooner. So far this year, the recall has cost the company $2.5 billion. It is expected that the recall will not have nearly as large of an impact on the company in 2015 as many of the supplies and kits to service the recalled vehicles have already been purchased by GM and delivered to dealers. Despite this, GM revenue continued to climb throughout the year, with its brands posting impressive growth rates. In November 2014, the state of Arizona filed a $3 billion lawsuit over the loss of value for owners of GM cars that had been recalled, saying owners lost significant resale value. However, GM filed a suit in bankruptcy court in April 2014 for protection against lawsuits over the faulty ignition switch that originated before 2009. The state of California has also filed a similar lawsuit for up to $10 billion, but strictly for vehicles sold after July 10, 2009 due to bankruptcy protection of GM. GM is arguing that it has protection against these lawsuits as General Motors Corporation (“Old GM”) was the company that sold the cars and no longer exists. The court has yet to determine if General Motors Company (“New GM”) will be held responsible. The lawsuits against the company have argued that because of a continued internal cover-up of the problems at New GM that the company be held liable. An independent study found that used GM vehicle value was not effected on a significant level due to the recall and these lawsuits could end up being settled for far less. As of the third quarter of 2014, the total costs associated with the recall totaled $2.7 billion. According to GM, costs associated with the recall and repair of faulty vehicles have been mostly paid for, with only the lawsuits remaining to be

Source: IBISWorld UOIG 4

University of Oregon Investment Group Figure 10: World Price of Steel

January 30, 2015 sorted out. It is estimated that the remaining cost associated with the recall will be $1.2 billion.

Industry Overview

Source: IBISWorld

Figure 11: Chevrolet Bolt

In the 2008 global financial crisis, the big three American automotive companies (Ford, GM and Chrysler) were hit by a perfect storm. Consumer spending and disposable income was slashed as many lost jobs and gas prices remained high. To save money, many people around the world held off on automotive purchases, and those that did shopped for smaller, more fuel-efficient and more reliable vehicles. American manufacturers, especially GM, were much more focused on larger cars, trucks, and SUVs, leading to the largest drop in sales among global manufacturers. From a reliability standpoint, American cars were some of the worst as well. According to a Consumer Reports study, of the “Worst of the Worst” 34 used vehicle models to avoid (model years 1999-2008), American cars occupied 21 places, with GM occupying 17 of those. The big three held on for as long as they could, but eventually came knocking on the US Government’s door for money to stay afloat asking for $50 billion. Chrysler and GM received bailout money while Ford, not in as bad of shape, simply asked for money so that it could compete with its subsidized competitors, but was not given any. With that, the restructuring and turnaround began for all three. Since then, the US automobile wholesaling industry has grown with a CAGR of 10.4% from 2009-2014. The big three have changed significantly to place a greater significance on smaller, higher quality, more efficient vehicles.

Macro Factors

Source: BBC

Figure 12: United States Disposable Income Per Capita

Per capital disposable income and consumer confidence are the two most important revenue drivers for the automotive industry. Since crashing in 2008, both of these metrics have been climbing ever since, driving industry revenue. Since the recession, wage growth has been relatively stagnant, but jobs have been added back to the economy. The recent fall in gas prices has put an average of $500 per year back in consumers’ pockets and has increased consumer confidence. This has led to increased automotive sales due to the lower cost of jjotwnownership and will continue to do so as consumers realize more of their savings at the pump. Analysts are unsure where gas prices will go in the next five years, but with the current supply of oil in the market, prices are estimated to stay far below they were just a year ago. This will also drive demand for larger cars and trucks, which will increase profit margins for the automotive manufacturers. In the third quarter, United States GDP grew at 5%, the fastest it has in ten years. However, Chinese GDP, the second largest market for GM, grew at its slowest rate in five years at 7.3%. While it is still growing rapidly, the Chinese economy is starting to show signs of slowing. EU GDP has remained stagnant as many countries continue to struggle to lift themselves out of recession. The strengthening of the US Dollar is another major factor for GM as much of its sales are overseas. Because GM has many plants in different regions around the world, it has lost revenue through currency depreciation but has maintained profitability in these regions. The largest foreign market however is China, where the Chinese Government controls the Renminbi to USD exchange rate. This has helped GM maintain its profits while it lost ground in other regions.

Source: Federal Reserve Bank of St. Louis

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University of Oregon Investment Group Figure 13: 2016 Cadillac CTS-V

January 30, 2015 Due to Venezuela’s recent devaluation of their currency, many firms have been closely monitoring their business in the country to prevent further losses in profitability. Even though it is only a small portion of GM’s revenue, the company is monitoring the currency fluctuations very closely. As mentioned above, due to the recent drop in value of the Russian Ruble, GM, as well as several other automotive manufacturers, has suspended its shipment of vehicles to the country. The Euro has also lost value recently against the dollar, increasing the difficulty of growing GM’s European revenue.

Fuel Efficiency Requirements

Source: Motor Trend

Different countries have adapted different fuel efficiency and emissions requirements, but all countries are increasing these requirements in the coming years, with the EU and the US leading the way. China and India have adapted some of these pre-determined standards and are implementing them as well. South America is a bit behind, but is catching up quickly. Because of these regulations, companies in the automotive manufacturing industry must invest a considerable amount in R&D in order to be able to sell their vehicles. Consumer sentiment has also shifted toward more “green” vehicles, with fuel economy being a major advertising point. With the recent drop in oil however, this will be less prevalent as less efficient vehicles will not make such a large hole in the consumer’s wallet, but the government regulations will remain in place.

Figure 14: Chinese GDP Growth

Hybrid Technology With the increasing vehicle fuel efficiency comes the further development of automotive technology. The Toyota Prius brought the hybrid vehicle to the masses and other manufacturers have been playing catch-up ever since. Currently every manufacturer offers some form of a hybrid vehicle in their lineup, with price being the main competition point. These hybrid vehicles are also the testing ground of technology to use eventually in fully-electric vehicles.

Source: The World Bank

At the 2015 Detroit Auto Show, GM unveiled its latest vehicle in this category. The Chevrolet Bolt is a $30,000 electric vehicle aimed at those who want a Tesla Model S but can’t afford the steep price tag. It is estimated to have a 200 mile range, and while it is only a concept car at this point, GM is very serious about bringing it to production.

Competition

Figure 15: United States GDP Growth

Globally, competition depends on the economic development of the region. In North America, companies compete on price, quality, consumer preferences and their ability to offer financing packages. Price is the most important competitive factor, with companies having to offer purchase incentives to drive demand. Quality is still stressed for the by the North American consumer, with many companies using awards such as JD Power and other such awards as advertising points. In the US, GM, Toyota, Honda and Chrysler made up 57.1% of total automotive sales in 2013. Barriers to entry are very high, with economies of scale necessary to compete with the large companies that dominate the industry. In Europe, price and quality are essential to compete, but consumers place a higher emphasis on fuel efficiency than those in North America do. Fuel prices are considerably higher and this is reflected in the types of vehicles that consumers purchase, with small cars being the most popular. The stagnant economy has forced manufactures to offer greater incentives as competition for the low demand increases.

Source: The World Bank

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University of Oregon Investment Group Figure 16: Passenger Vehicle Production in India (thousands of vehicles)

Source: India Brand Equity Foundation

Figure 17: Chinese Population Class Breakdown

January 30, 2015 In developing nations such as India and Brazil, inexpensive cars dominate the market. This can be seen in India with the majority of Tata Motors vehicles sold being stripped down, compact cars. By 2018, India is expected to be the world’s third largest passenger car market, with Brazil trailing at its heels. However, the market is proving difficult for Ford and GM to break into with each having about a 3% market share. About 75% of vehicles sold in India cost less than $10,000 and GM has only one entry-level model (the Spark) that it didn’t begin selling until 2007. Meanwhile, Suzuki’s $4,400 Alto sells more than three times the amount of all GM vehicles in the country. As the country develops, it is becoming more costly to establish a dealership presence, and American manufacturers have been looking to revamp their strategies. Many of the models offered in India are also offered in Brazil, with each country’s emerging middle classes having relatively the same consumer sentiments. For automotive manufacturers, China is a completely different market than anywhere else. Because it emerged as a global powerhouse along with the emergence of globalization, all types of goods, from luxury to inexpensive, arrived in the country at the same time. Thus, there were no attached stigmas to certain brands, and very little brand loyalty, with consumers often shopping based on price alone. However, there is an increasing number of elite in China who shop purely based on brand, eager to show off their wealth. They look to the wealthy who came before them for purchasing inspiration. Buick has been a cornerstone for that inspiration ever since Emperor Pu Yi purchased two in 1924. These vehicles were the first motorized vehicles allowed to pass through the gates of the Forbidden City. This was so significant that by 1930, one in every six cars on the road in China were Buicks. The Emperor had set the luxury standard for the country that has remained in place ever since. Buick is the only GM brand in China with significant brand equity. More affordable cars offered by the company must be priced very competitively in order to maintain sales. In the past ten years, the market has become heavily saturated, and many models are available to consumers that offer similar quality for the same price. GM however has a first-mover advantage in the market from its joint-ventures in the 1990’s, establishing itself before many other western automotive brands, giving its brands an advantage in recognition.

Source: McKinsey

Figure 18: European Car Market Sizes ($ in billions)

Source: Autobei Consulting Group

Strategic Positioning In Western Europe, GM has discontinued its Chevrolet brand but is working to reposition its Opel and Vauxhall brands. These brands were previously seen as more upscale but as the European never fully recovered, neither did these brands. GM has been shifting these brands to fit more of an entry-level market while still maintaining quality. The latest Opel model, the Karl, has been designed with a target price of €10,000 to fill the void of the Chevrolet models that were targeted at that price range. Some of the reasoning behind this is from the lack of consumer respect for Chevrolet models, and that shifting an already respected brand to a different market would have greater success. GM began selling Chevrolet branded vehicles in Europe in 2005 and had little success, with growth staying flat ever since its introduction. GM plans to maintain the brand however in Eastern Europe where the brand has had reasonable success. This also comes in combination with a global push of the Cadillac luxury brand, mostly targeted at Western Europe. In China, GM was one of the first major automotive companies to establish itself there when it established the Shanghai General Motors Company (Shanghai GM) in 1997 to sell the Buick, Cadillac, Chevrolet and Opel brands. Since then,

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University of Oregon Investment Group Figure 19: The Redesigned 2015 Buick Lacrosse

Source: carfaster.com

Figure 20: Projected Light Passenger Vehicle Sales 2030 (millions of vehicles)

January 30, 2015 the company has established 12 strategic joint ventures to sell automobiles under the Baojun, Buick, Cadillac, Chevrolet, Jiefang, Opel and Wuling brands. Certain Chevrolet and Buick models are also specifically branded for the Chinese market. While it may have a stigma in the US that the company is working to change for being a brand for the elderly, the Buick brand is seen as luxury in China, which has helped the brand record its best year ever with more than 1 million vehicles delivered in 2014. In North America, the company is highly diversified with models and types of vehicles covering just about every corner of the market. It has boosted the Cadillac brand to be the fastest growing full-line luxury brand, and has significantly increased its emphasis on car quality. As a result, the company won numerous awards. The Chevrolet Camaro Z/28 won Motor Trend’s Best Driver’s Car award, the first American car to do so in the award’s seven year history. The Chevrolet Corvette Stingray was named North American Car of the Year, and the Chevrolet Silverado was named North American Truck of the Year. These awards play a significant role among North American consumers who take quality into great account when purchasing a car. GM has also been working to revamp its Buick brand to be seen less as a car for those older than 65 and aimed more at the younger generations.

Business Growth Strategies Geographic Growth

Source: PwC

Figure 21: Cars per 1000 Inhabitants

Over the next five years, GM’s primary growth focus is the Chinese market. It established itself as a major brand early on in 1997 and in the past five years has grown rapidly. Buick is incredibly successful in the country and GM works to continually update its models as well as release new models to appeal to the growing upscale market. China is the largest automotive market in the world and GM also works through its joint ventures to produce vehicles for the middle and entry-level markets. The company has announced plans for significant investment in these joint ventures and to open five new manufacturing plants in the country. Likewise, GM is looking to position Cadillac to grow its market share in the country, with nine new models to be introduced in the next five years. China is expected to have the largest luxury car market in less than five years. Across the other GM brands, the company plans to launch 51 new or refreshed vehicles over the same time frame. In other emerging markets such as Brazil and India, GM looks to its ability to update and introduce vehicles in the entry-level market. The middle classes in these countries have yet to develop in the way that China’s has and thus there is not as much buying power. The introduction of vehicles in these markets is essential to GM’s success as consumer tastes change as the country develops. In Brazil, the company has had much greater success than in India and looks to reorganize its Indian operation over the coming years. In Europe, GM cancelled its Chevrolet brand and chose to focus on its Opel and Vauxhall brands. These brands have also undergone changes to be more aligned with VW in that they bring quality to the masses. This past year, these brands experienced their first market share increase in 14 years. GM is looking to continue this brand development and market share growth through the introduction of new models. In the United States, after a terrible news year with the massive recall in 2014, GM is looking to change their brand to be one known for quality. So far it has made progress, winning numerous awards for different vehicles. Cadillac is

Source: Skolkovo Institute for Emerging Market Studies

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University of Oregon Investment Group Figure 22: General Motors Technology

January 30, 2015 another area where GM is looking to for growth. In 2014, it was the fastest growing full-line luxury brand, and GM has several models lined up for launch in 2015. Decreasing gas prices have also increased demand for larger cars and trucks, and GM looks to capitalize as it currently holds an 80% market share of the large SUV market segment.

Technology OnStar, GM’s in-car safety and security technology, continues to be developed and remains a selling point for the vehicles. GM recently released an app for the feature that allows users to remotely start their vehicles, as well as measure such things as tire and oil pressure, was downloaded more than one million times in 2014. GM has continued integrating technology into OnStar and recently announced integrated 4G LTE technology, turning the vehicle into a mobile hotspot. This feature is offered on the Buick Lacrosse, Chevrolet Malibu, and Cadillac ATS, with it being added to several more models in the coming years. It will be the world’s largest automotive deployment of 4G LTE connectivity. The OnStar service is estimated to generate $1.5 billion in revenue per year. Source: General Motors

Figure 23: 2013 US Market Share Breakdown

The increased use of aluminum in frame construction to increase rigidity and decrease weight is another technology that GM has been developing. This will lead to 20% fewer parts on the car and increase torsional stiffness. Road noise will be reduced and ride quality will improve. By 2017, GM will roll out another technology named Super Cruise, an automated driving system to aid those driving for extended periods of time on the highway. As mentioned earlier, hybrid and flexfuel technology are other areas that GM is investing in to increase the efficiency of its automobiles. The success of the Tesla Model S has shown automotive manufacturers that they can no longer rely solely on internal combustion engines. The redesigned Chevrolet Volt and the newly introduced Bolt will lead the way for the company in terms of hybrid and electric vehicles. GM also offers hybrid versions of several of its current models including the GMC Suburban and offers 25 vehicles with at least an EPA estimated 30 mpg on the highway.

GM Financial Source: IBISWorld

Figure 24: GM Financial Commercial Finance Receivables Outstanding ($ in millions)

Since 2010, GM Financial has grown its assets from $8.7 billion to $37 billion today. The financing arm of the company is looking to expand aggressively into the Chinese market in the coming years. GM Financial has also spent the past four years since becoming a part of GM expanding their product offerings, with 2015 being the year of a full line of offerings. In the third quarter of 2014, GM Financial financed approximately ten percent of GM’s new-vehicle loans and leases, compared to 50% of other captive financing arms of automotive companies. Many dealerships prefer working with captive financing divisions as opposed to an outside firm as they were doing previously with Ally. In September 2014, GM and GM Financial entered into a new support agreement that GM executives cited as “Critical” for the continued success of GM Financial. In the agreement, GM will extended a $1 billion revolving credit facility to GM Financial in the event that the financing arm’s earning assets leverage ratio rise above a pre-determined level. For the first time since its bankruptcy, GM has received an investment grade rating from Standard & Poor, allowing the company credit at a lower cost. Management has mentioned that they will look to this for increasing investments to continue with their quality development.

Source: GM Financial UOIG 9

University of Oregon Investment Group Figure 25: GM Financial Revenue

January 30, 2015

Management and Employee Relations Mary Barra – Chief Executive Officer Before assuming the position of CEO in January 2014, Barra had been with the company since 1988. She served as Executive Vice President of Global Product Development from 2011-2014 and held several engineering and staff positions before that. She received her Bachelor of Science in electrical engineering from the General Motors Institute (now Kettering University) and her Masters of business administration from Stanford University.

Dan Ammann – President Source: UOIG Projections

Figure 26: GM US Product Mix

Ammann was named President in January 2014, after having served as Executive Vice President and Chief Financial Officer of GM since 2011. He joined GM in 2010 after serving as the head of Industrial Investment Banking for Morgan Stanley. He is also a certified industry pool test driver at the Nürburgring Nordschleife racetrack in Germany. Ammann received his Bachelor of Management Studies from the University of Waikato in New Zealand.

Chuck Stevens – Executive Vice President and Chief Financial Officer Stevens was appointed to this role in January 2014 after having served as Chief Financial Officer for GM North America since 2010. He has held various positions within GM since 1983. He received his bachelor of industrial administration from the General Motors Institute (now Kettering University) and his Masters of business administration from the University of Michigan-Flint.

Management Guidance

Source: SEC Filings

For the final quarter of 2014, management has stated they expect capital expenditures to be roughly $9 billion, coming from significant investment in their North American factories, the company’s most profitable region. The company also expects its pre-tax earnings and profit margins to increase in 2015. Historically, they have provided little to no guidance for revenue growth and EBIT growth, but have been accurate in predicting expenditures.

Portfolio Strategy Figure 27: Buick Avenir Concept World

General Motors is not currently held in any of the group’s portfolios. The Svigals portfolio is currently overweight both large cap and consumer goods, while the Tall Firs portfolio is underweight both large cap and consumer goods. The addition of GM to the Tall Firs portfolio would help better align it with the benchmark, and the addition of GM to the Svigals portfolio would increase exposure to consumer goods, of which the Russell 2000 benchmark has very little.

Recent News Buick, For Once, Has the Hottest New Car in Detroit – Yahoo! Finance – January 19, 2015 The arrival of the new Buick Avenir concept at the Detroit Auto Show this month is the centerpiece of Buick’s branding change, and although GM did not Source: General Motors World UOIG 10

University of Oregon Investment Group

January 30, 2015

Figure 28: Annual Worldwide Electric Vehicle Sales (thousands of vehicles)

directly state it, the car is aimed at the Chinese market. Its price target of $45,000-$60,000 would put it in competition with the Mercedes E Class, the BMW 5 Series and the Audi A6. Analysts are anticipating that the car will be immensely popular among the Chinese upper middle class, with whom the brand is already very successful.

2015 Detroit Auto Show: GM Targets Tesla, Unveils New $30,000 Electric Bolt Concept Car – Forbes – January 12, 2015 With an estimated 200-mile range, GM is gearing itself up to compete with the much-anticipated Tesla Model 3. Electric Vehicles have become increasingly popular, and Tesla is aiming to compete against the BMW 3 Series, the Audi A4 and the Mercedes C Class. The company is very serious about breaking into the electric vehicle market and hopes to have the Bolt and another fully electric model on the road by 2017.

Source: Navigant Research

Catalysts Upside  Figure 29: GM Relative Valuation Multiple EV/EBIT EV/EBITDA EV/(EBITDA-Capex) Price Target Current Price Undervalued

Implied Price $30.71 $48.42 $47.93 $42.35 33.70 25.67%

World

Weight 33.33% 33.33% 33.33%

Source: UOIG Projections World

  

The increasing number of upper class Chinese will continue to grow, driving revenue through both the Buick brand and GM’s joint ventures in the country Positive response from the global expansion of the Cadillac brand will drive future profit margins higher The company’s recent upgrade to investment grade will allow GM to borrow at a less expensive rate GDP growth in the US combined with low gas prices will increase consumer spending

Downside    

Unexpected costs costs from the 2014 recall will have a significant negative impact on GM’s profitability. Continued strengthening of the US Dollar decreases the value of GM’s sales abroad Further lawsuits filed by states over the loss of value of GM vehicles could be filed, hampering future company profitability Remaining negative notions from the 2014 recall may hinder revenue growth in the coming years

Comparable Analysis Figure 30: Ford Motor Company Logo

Comparable companies were chosen based off similar revenue drivers, product line-up and diversity, risks, and growth rates. Because each of the companies in the space have developed their own economies of scale, growth rates and margins are relatively comparable across the board.

Ford Motor Company (F) – 40%

Source: Ford Motor Company

“Ford Motor Company develops, manufactures, distributes, and services vehicles, parts, and accessories worldwide. The company operates through two sectors, Automotive and Financial Services. The Automotive sector offers vehicles primarily under the Ford and Lincoln brand names. It markets cars,

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University of Oregon Investment Group

Figure 31: Fiat Chrysler Logo

Source: brandingsource.com

January 30, 2015 utilities, trucks, service parts, and accessories through distributors and dealers in North America, South America, Europe, Turkey, Russia, and the Asia Pacific region. It’s financing division provides leasing and other financing products to its customers.” – Yahoo! Finance Ford was given the strongest weighting due to it being the only other American manufacturer, and thus bearing the same international currency risk. Estimated growth rates for both revenue and EBITDA are very comparable for 2015 and 2016, and both companies operate with similar margins. In addition, Ford and GM have almost the same estimated beta, and are competitors in almost every automotive segment. Both companies have a significant focus on trucks and SUVs, and constantly fight for market share in these areas. For this reason, it was given a 40% weighting.

Fiat Chrysler Automobiles N.V. (FCAU) – 25% Figure 32: Volkswagen AG Logo

“Fiat Chrysler Automobiles N.V. designs, engineers, manufactures, distributes, and sells vehicles and components, and production systems. It offers passenger cars, vans, minivans, utility vehicles, SUVs, and pick-up trucks under the Chrysler, Jeep, Dodge, Ram, SRT, Fiat, Alfa Romeo, Lancia, Abarth, and Fiat Professional brand names, as well as related parts and accessories under the Mopar brand name. The company also produces and sells luxury sports cars under the Ferrari and Maserati brand names. In addition, the company produces several types of drivetrains and other automotive parts under the Magneti Marelli brand name.” – Yahoo! Finance Fiat Chrysler was given a weighting stronger than the other foreign automotive manufacturers because of its ownership of Chrysler and thus has some exposure to the same currency risk that GM has. The company also has very comparable estimated revenue and EBITDA growth rates in 2015 and 2016 and almost identical margins. The company also has diverse range of brands and vehicles, with everything from Jeep to Ferrari. For these reasons, Fiat Chrysler was given a weighting of 25%.

Volkswagen AG (VOW-DE) – 15% Source: motrolix.com

Figure 33: Honda Motor Company Logo

“Volkswagen AG, together with its subsidiaries, manufactures and sells automobiles primarily in Europe, North America, South America, and the AsiaPacific. The company operates through four segments: Passenger Cars, Commercial Vehicles, Power Engineering, and Financial Services. The company provides its products under the Volkswagen Passenger Cars, Audi, Skoda, SEAT, Bentley, Bugatti, Lamborghini, Porsche, Ducati, Volkswagen Commercial Vehicles, Scania, and MAN brand names, as well as financial services under the Volkswagen Financial Services brand name.” – Yahoo! Finance Due to its diversity across different brands, demographics and regions, Volkswagen is very comparable to GM. In the same way that GM can, it can make shifts across only some of its brands to better serve the global market, without changing its entire line-up. However, many of its brands are targeted at a much more wealthy demographic than those that purchase GM vehicles. Because of that, Volkswagen will be more volatile during uncertain economic times. It does have very comparable growth rates and margins to GM though. Taking this into consideration, Volkswagen was given a weighting of 15%.

Honda Motor Company (HMC) – 10% “Honda Motor Co., Ltd. manufactures and sells motorcycles, automobiles, and power products. It operates through four segments: Motorcycle Business, Source: carpix.com UOIG 12

University of Oregon Investment Group Figure 34: Renault S.A. Logo

January 30, 2015 Automobile Business, Financial Services Business, and Power Product and Other Businesses. The Motorcycle Business segment offers business and commuter models, as well as sports models, including trial and moto-cross racing motorcycle; all-terrain vehicles; and multi utility vehicles. The Automobile Business segment manufactures various automobile products, such as passenger cars, light trucks, and mini vehicles. The Financial Services Business segment provides various financial services comprising retail lending, leasing, and other financial services consisting of wholesale financing to dealers and customers.” – Yahoo! Finance Honda Motor Company was given a weighting slightly less than Fiat Chrysler because it is a Japanese company and thus not exposed to the USD currency risk that GM is. However, with its Acura line, Honda has product diversity with two brands targeted at different demographics. With that, Honda and GM have similar revenue, EBITDA and EPS growth rates in 2015 and 2016, as well as somewhat comparable betas. Honda however, has higher margins than GM. Taking this into consideration, the company was given a weighting of 10%.

Source: cartype.com

Renault S.A. (RNO-FR) – 5% “Renault S.A. designs, manufactures, and sells vehicles worldwide. It provides passenger cars and light commercial vehicles; electric vehicles; sports vehicles; and power train components. The company sells its vehicles under the Renault, Dacia, and Renault Samsung Motors brands. It also offers financing and insurance services; maintenance and repair services; car hire services; vehicle assistance services; consulting services; and vehicle customization services.” – Yahoo! Finance Although it is a major automotive manufacturer, Renault has significantly less diversity in its line-up than the other companies used in this analysis. However, its vehicle line-up is targeted at a very similar demographic to those who buy GMC and Chevrolet sedans. It also has revenue, EBITDA and EPS growth rates that are very similar to GM, as well as almost identical margins. It doesn’t sell vehicles in North America and Asia, which are GM’s two largest business segments. For these reasons, it was given a 5% weighting.

Figure 35: Toyota Motor Company Logo

Source: valuewalk.com

Toyota Motor Corporation (TM) – 5% “Toyota Motor Corporation designs, manufactures, assembles, and sells passenger cars, minivans, commercial vehicles, and related parts and accessories in Japan, North America, Europe, Asia, and internationally. It operates through Automotive, Financial Services, and All Other segments. The company offers hybrid cars, conventional engine vehicles, mini-vehicles, passenger vehicles, commercial vehicles, mid-size cars, luxury cars, Century limousines, sports cars, sport-utility vehicles, pickup trucks, minivans, large, medium, and small trucks, and large, small, and micro-buses. Toyota Motor Corporation sells its products through dealers. In addition, it provides a range of financial services comprising retail financing, retail leasing, wholesale financing, insurance, and credit cards.” – Yahoo! Finance Toyota is very similar to Honda due to its similar product diversity as well as also being a Japanese company, thus bearing the same economic risks. Both companies operate luxury brands, with Toyota operating a third brand, Scion, aimed at younger customers. The company has very similar revenue, EBITDA and EPS growth rates as GM and its beta is somewhat comparable. Its enterprise value and margins are different however. Taking these metrics into consideration as well as its diversity across three brands, Toyota was given a 5% weighting.

UOIG 13

University of Oregon Investment Group

January 30, 2015

Discounted Cash Flow Analysis Revenue

Figure 36: GM Equity Income From Investments

World

Revenue was projected by first breaking down vehicle deliveries in each geographic segment, and then projecting the average revenue per vehicle. These numbers flow down to the total, where the revenue from GM Financial is added to get to total General Motors revenue. Several factors were taken into consideration when projecting these items, including management’s opinions on the regions, currency appreciation, economic growth, automotive market growth and brand recognition. Because GM has halted the delivery of vehicles to Russia and it is impossible to predict when the country will stabilize, revenue from the country was left at zero going to 2023. Cost of goods sold Cost of goods sold was projected by looking at its average historical percentage of revenue, with the figure trending down slightly into the terminal year due to cost-cutting measures that management has spoken of to help reach the company’s margin goals. Selling, General and Administrative Expenses

Source: UOIG Projections

Because management has maintained its focus on raising EBIT margins, SG&A expenses are projected to decrease slightly going into 2023. Depreciation and Amortization

World

Depreciation was projected going forward as a percentage of beginning PP&E. This percentage was taken from looking at historical values and taking into account management’s estimation of capital expenditures. Equity Income from Investments This income for the company originates from its joint ventures in China. GM has recognized that these ventures are essential to its business in China and thus looks to grow them as the company grows its revenue. Looking to the future, this income is projected to remain at 1.35% of total company revenue. Figure 37: GM Estimated Beta Beta

SE

Capital Expenditures Weighting

1 year daily

1.13

0.11

30.00%

3 year daily

World 1.35

0.07

40.00%

3 year weekly

1.53

0.16

20.00%

Vasiceck 3 year daily - ETF

0.60

Analysis Company Beta

1.24

Source: UOIG Projections

10.00%

Management has stated that they expect capital expenditures to be roughly $9 billion for 2014. Going forward, management has stated that they will be investing heavily in North American production facilities, as well as funneling more investment into China. Significant investment will also be required to produce new models after its product revamp for the Indian car market and it’s changing of the Opel and Vauxhall brands. Going to 2023, capital expenditures was projected as a flat percentage of revenue, based off of historical percentages. Beta

World

Beta was calculated by regressing the company’s stock returns against the returns of the S&P 500 for the one year daily, three year daily and three year weekly time horizons. Hamada and Vasiceck betas for these time horizons were also calculated, but only the three year daily Vasiceck beta blended with a consumer goods ETF was weighted. For each of the foreign companies used as comparable companies, their betas were calculated by regressing the returns of

UOIG 14

University of Oregon Investment Group

January 30, 2015 their stock on their respective home countries’ exchanges against that market’s index. Honda (7267-JP) and Toyota (7203-JP) were regressed against the Nikkei 225, Fiat (F.MI) was regressed against the FTSE MIB, Volkswagen (VOW-DE) was regressed against the DAX and Renault (RNO-FR) was regressed against the CAC 40. Once these betas were calculated, weightings of each beta were assigned to the give a final estimated beta of 1.24. Cost of Debt

Figure 38: GM Final Implied Price Source

Implied Price

Intrinsic Valuation Relative Valuation

Weighting

$

41.61

50% 50%

World

42.35

Weighted Implied Price

$

41.98

Current Price

$

Undervalued

33.70 24.58%

Source: UOIG Projections

World

Cost of debt was calculated using an average of the calculated cost of debt of 3.40%, the average cost of debt of comparable companies of 4.79%, and the average cost of debt for the industry of 3.71%. Weighting these three values evenly gives an implied cost of debt of 3.96%.

Recommendation After a dismal 2014, General Motors is poised to capitalize on its global vehicle innovation in 2015. The company has undergone a significant turnaround to be a leader in quality and reliability. It has positioned itself to take advantage of the growing middle and upper classes in China, and is positioning itself to be a leader in just about every global market. With a 50% weighting given to both the intrinsic and relative valuation, a price target of $41.98 was reached, implying a 24.58% undervaluation. Because of this, it is recommended that GM will outperform and should be added to the Svigals and Tall Firs portfolios.

UOIG 15

University of Oregon Investment Group

January 30, 2015

Appendix 1 – Relative Valuation Comparables Analysis

(IRG figures in Thousands, Comp figures in Millions) Stock Characteristics Current Price Beta

Max $178.15 $1.81

Min $12.05 $0.83

Median Weight Avg. $44.40 $48.04 $1.05 $1.22

Size Short-Term Debt Long-Term Debt Cash and Cash Equivalent Non-Controlling Interest Preferred Stock Diluted Basic Shares Market Capitalization Enterprise Value

75,548.49 82,990.50 41,444.75 7,280.94 0.00 4,087.00 199,830.81 324,205.99

9,835.81 7,061.00 11,556.28 0.00 0.00 274.10 14,808.56 33,970.33

32,176.50 46,459.89 31,720.50 2,095.90 0.00 1,407.19 57,604.81 120,447.70

Growth Expectations % Revenue Growth 2015E % Revenue Growth 2016E % EBITDA Growth 2015E % EBITDA Growth 2016E % EPS Growth 2015E % EPS Growth 2016E

7.49% 7.59% 42.61% 14.85% 111.07% 51.01%

3.34% 3.95% 9.91% 5.50% 7.32% 0.17%

26.02% 8.85% 13.72% 7.10%

Profitability Margins Gross Margin EBIT Margin EBITDA Margin Net Margin Credit Metrics Interest Expense Debt/EV Leverage Ratio Interest Coverage Ratio Operating Results Revenue Gross Profit EBIT EBITDA Net Income Capital Expenditures Multiples EV/Revenue EV/Gross Profit EV/EBIT EV/EBITDA EV/(EBITDA-Capex) Market Cap/Net Income = P/E

GM

F

General Motors Company

Ford Motor Company

FCAU VOW-DE HMC Fiat Chrysler Honda Motor Co., Automobiles Volkswagen AG Ltd. Sponsored N.V. ADR 25.00% 15.00% 10.00% $12.05 $178.15 $29.41 1.81 1.05 0.83

RNO-FR

TM Toyota Motor Renault SA Corp. Sponsored ADR 5.00% 5.00% $59.38 $126.04 0.89 1.41

$33.70 1.24

40.00% $15.22 1.04

34,320.87 55,362.32 30,774.76 2,529.71 0.00 2,288.15 57,679.39 119,117.52

13,402.87 27,719.00 18,060.00 0.00 0.00 1,606.70 54,145.66 77,207.54

38,063.00 76,625.00 36,568.00 364.00 0.00 4,087.00 62,204.14 140,688.14

9,835.81 31,367.65 27,909.00 5,867.31 0.00 1,228.93 14,808.56 33,970.33

59,987.00 61,517.00 35,532.00 2,304.00 0.00 486.10 86,598.09 174,874.09

25,467.47 31,402.78 11,556.28 1,887.81 0.00 1,802.29 53,005.48 100,207.25

26,290.00 7,061.00 12,253.00 377.00 0.00 274.10 16,275.82 37,750.82

75,548.49 82,990.50 41,444.75 7,280.94 0.00 1,585.46 199,830.81 324,205.99

5.69% 5.12% 12.14% 11.32% 24.56% 15.34%

5.87% 4.72% 22.85% 11.90% 51.08% 24.65%

3.34% 4.92% 42.61% 5.50% 54.54% 0.17%

7.14% 3.95% 39.25% 10.52% 45.76% 17.89%

4.23% 5.40% 12.75% 14.85% 111.07% 51.01%

4.23% 3.99% 9.91% 12.03% 7.32% 11.23%

7.49% 5.71% 11.31% 12.63% 14.98% 12.78%

4.23% 7.59% 11.53% 10.61% 34.14% 25.26%

7.17% 4.83% 15.25% 7.59% 14.14% 10.38%

13.08% 3.03% 7.78% 1.04%

17.17% 4.22% 10.86% 4.72%

17.10% 4.45% 9.89% 3.81%

17.20% 3.03% 7.78% 2.86%

17.30% 3.96% 8.39% 4.87%

13.08% 3.86% 9.13% 1.04%

17.04% 4.49% 11.78% 4.60%

26.02% 6.34% 13.05% 4.85%

16.05% 3.03% 9.94% 1.43%

18.97% 8.85% 13.72% 7.10%

$2,878.28 1.21 $9.57 $138.84

$0.00 0.49 $0.00 $0.00

$639.50 0.76 $3.98 $8.61

$1,323.05 0.86 $5.61 $18.38

$0.00 0.53 3.31 0.00

$829.00 0.82 9.57 8.12

$2,878.28 1.21 3.68 1.73

$1,513.00 0.69 4.28 9.10

$126.52 0.57 0.00 62.05

$450.00 0.88 0.00 3.81

$195.51 0.49 4.43 138.84

$243,041 $51,616 $27,146 $35,800 $20,691 $17,741

$42,318 $9,124 $1,713 $4,736 $1,612 $2,749

$133,605 $24,889 $7,290 $11,701 $6,197 $8,623

$145,941 $24,841 $8,232 $15,015 $6,493 $9,528

$159,948 $27,505 $4,843 $12,439 $4,576 $9,278

$146,557 $18,756 $6,728 $11,988 $6,432 $7,624

$120,653 $18,315 $4,984 $11,185 $1,612 $10,531

$208,213 $44,141 $13,774 $28,370 $11,776 $17,741

$116,551 $31,021 $7,851 $11,414 $5,961 $5,653

$42,318 $9,124 $1,713 $4,736 $2,395 $2,749

$243,041 $51,616 $27,146 $35,800 $20,691 $9,622

1.33x 7.50x 22.03x 11.74x 51.94x 11.83x

0.28x 1.85x 6.82x 3.04x 12.38x 6.80x

0.88x 4.05x 12.73x 8.38x 18.20x 9.04x

0.78x 4.90x 14.95x 8.11x 31.66x 8.98x

0.48x 2.81x 15.94x 6.21x 24.43x 11.83x

0.96x 7.50x 20.91x 11.74x 32.24x 9.67x #NULL!

0.28x 1.85x 6.82x 3.04x 51.94x 9.19x #NULL! Implied Price $30.71 $48.42 $47.93 $42.35 33.70 25.67%

0.84x 3.96x 12.70x 6.16x 16.45x 7.35x #NULL! Weight 33.33% 33.33% 33.33%

0.86x 3.23x 12.76x 8.78x 17.39x 8.89x #NULL!

0.89x 4.14x 22.03x 7.97x 19.00x 6.80x #NULL!

1.33x 6.28x 11.94x 9.06x 12.38x 9.66x

Multiple EV/EBIT EV/EBITDA EV/(EBITDA-Capex) Price Target Current Price Undervalued

UOIG 16

University of Oregon Investment Group

January 30, 2015

Appendix 2 – Discounted Cash Flows Valuation Discounted Cash Flow Analysis ($ in millions) Total Revenue % YoY Growth Cost of Goods Sold % Revenue Gross Profit Gross Margin Selling General and Administrative Expense % Revenue Depreciation and Amortization % Revenue

2009A

2010A

57,474.00

2011A

135,592.00

2012A

150,276.00

2013A

152,256.00

155,427.00

2014E

2015E

154,773.98

159,948.05

2016E 167,821.25

2017E

2018E

175,637.24

183,747.50

2019E 192,205.59

2020E

2021E

2022E

2023E

200,801.60

209,525.83

218,212.23

226,884.37

(61.43%)

135.92%

10.83%

1.32%

2.08%

(.42%)

3.34%

4.92%

4.66%

4.62%

4.60%

4.47%

4.34%

4.15%

3.97%

51,805.00

111,845.00

122,959.00

101,474.00

126,884.00

130,097.38

132,442.77

138,939.21

145,357.38

152,032.69

158,992.46

166,062.92

173,235.95

180,374.23

187,497.24

90.14%

82.49%

81.82%

66.65%

81.64%

84.06%

82.80%

82.79%

82.76%

82.74%

82.72%

82.70%

82.68%

82.66%

82.64%

$5,669.00

$23,747.00

$27,317.00

$50,782.00

$28,543.00

$24,676.61

$27,505.28

$28,882.04

$30,279.86

$31,714.82

$33,213.13

$34,738.68

$36,289.87

$37,838.00

$39,387.13

9.86%

17.51%

18.18%

33.35%

18.36%

15.94%

17.20%

17.21%

17.24%

17.26%

17.28%

17.30%

17.32%

17.34%

17.36%

6,006.00

11,446.00

12,163.00

14,031.00

12,382.00

12,271.08

12,152.48

12,737.63

13,330.87

13,928.06

14,569.18

15,200.68

15,861.11

16,518.67

17,175.15

10.45%

8.44%

8.09%

9.22%

7.97%

7.93%

7.60%

7.59%

7.59%

7.58%

7.58%

7.57%

7.57%

7.57%

7.57%

4,511.00

6,923.00

7,427.00

38,762.00

8,041.00

7,458.56

7,595.84

8,336.37

8,627.54

8,958.48

9,322.91

9,717.07

10,135.00

10,572.24

11,022.99

5.11%

4.94%

25.46%

5.17%

4.82%

4.75%

4.97%

4.91%

4.88%

4.85%

4.84%

4.84%

4.84%

4.86%

Financial Operating and Other Expenses

-

152.00

785.00

1,207.00

2,448.00

3,683.19

2,913.49

3,020.78

3,161.47

3,307.46

3,459.70

3,614.43

3,771.46

3,927.82

4,083.92

% Revenue

-

.11%

.52%

.79%

1.58%

2.38%

1.82%

1.80%

1.80%

1.80%

1.80%

1.80%

1.80%

1.80%

1.80%

Goodwill Operating Expenses

-

-

1286.00

27145.00

541.00

-

-

-

-

-

-

-

-

-

-

% Revenue

-

-

.86%

17.83%

.35%

-

-

-

-

-

-

-

-

-

$5,226.00

$5,656.00

($30,363.00)

$5,131.00

(8.44%)

3.85%

3.76%

(19.94%)

694.00

1,098.00

540.00

489.00

1.21%

.81%

.36%

(375.00)

(1,531.00)

% Revenue

(.65%)

Loss (Gain) on extinguishment of debt

Earnings Before Interest & Taxes % Revenue Interest Expense % Revenue Interest (Income)

% Revenue Equity Loss (Income) and Loss on Investments % Revenue Earnings Before Taxes % Revenue Less Taxes (Benefits) Tax Rate

7.85%

($4,848.00)

-

$1,263.78

$4,843.47

$4,787.25

$5,159.98

$5,520.82

$5,861.33

$6,206.50

$6,522.30

$6,819.28

$7,105.07

3.30%

.82%

3.03%

2.85%

2.94%

3.00%

3.05%

3.09%

3.11%

3.13%

3.13%

334.00

299.00

-

-

-

-

-

-

-

-

-

.32%

.21%

.19%

-

-

-

-

-

-

-

-

-

(851.00)

(845.00)

(1,063.00)

(409.00)

-

-

-

-

-

-

-

-

-

(1.13%)

(.57%)

(.55%)

(.68%)

(.26%)

-

-

-

-

-

-

-

-

-

101.00

(196.00)

(18.00)

250.00

212.00

-

-

-

-

-

-

-

-

-

-

.18%

(.14%)

(.01%)

.16%

.14%

-

-

-

-

-

-

-

-

-

(497.00)

(1,438.00)

(3,192.00)

(1,562.00)

(1,810.00)

(2,107.09)

(2,197.30)

(2,265.59)

(2,371.10)

(2,480.59)

(2,594.78)

(2,710.82)

(2,828.60)

(2,945.87)

(3,062.94)

(.86%)

(1.06%)

(2.12%)

(1.03%)

(1.16%)

(1.36%)

(1.37%)

(1.35%)

(1.35%)

(1.35%)

(1.35%)

(1.35%)

(1.35%)

(1.35%)

(1.35%)

(4,771.00)

7,293.00

9,177.00

(28,695.00)

7,458.00

3480.87

7040.76

7052.84

7531.09

8001.41

8456.10

8917.32

9350.90

9765.14

10168.01

(8.30%)

5.38%

6.11%

(18.85%)

4.80%

2.25%

4.40%

4.20%

4.29%

4.35%

4.40%

4.44%

4.46%

4.48%

4.48%

(1,000.00)

672.00

(110.00)

(34,831.00)

2,127.00

519.45

2,464.27

2,468.49

2,635.88

2,800.49

2,959.64

3,121.06

3,272.82

3,417.80

3,558.80

20.96%

9.21%

(1.20%)

(121.38%)

28.52%

.34%

35.00%

35.00%

35.00%

35.00%

35.00%

35.00%

35.00%

35.00%

35.00%

Net Income

($3,771.00)

$6,621.00

$9,287.00

$6,136.00

$5,331.00

$2,961.42

$4,576.50

$4,584.34

$4,895.21

$5,200.92

$5,496.47

$5,796.26

$6,078.09

$6,347.34

$6,609.20

Net Margin

(6.56%)

4.88%

6.18%

4.03%

3.43%

1.91%

2.86%

2.73%

2.79%

2.83%

2.86%

2.89%

2.90%

2.91%

2.91%

4,511.00

6,923.00

7,427.00

38,762.00

8,041.00

7,458.56

7,595.84

8,336.37

8,627.54

8,958.48

9,322.91

9,717.07

10,135.00

10,572.24

11,022.99

Add Back: Depreciation and Amortization Add Back: Interest Expense*(1-Tax Rate) Operating Cash Flow % Revenue Current Assets % Revenue Current Liabilities % Revenue Net Working Capital % Revenue Change in Working Capital Capital Expenditures % Revenue Acquisitions % Revenue Unlevered Free Cash Flow Discounted Free Cash Flow

548.54

996.83

546.47

1,082.57

238.74

298.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

$1,288.54

$14,540.83

$17,260.47

$45,980.57

$13,610.74

$10,717.97

$12,172.34

$12,920.72

$13,522.75

$14,159.40

$14,819.38

$15,513.33

$16,213.09

$16,919.58

$17,632.20

2.24%

10.72%

11.49%

30.20%

8.76%

6.92%

7.61%

7.70%

7.70%

7.71%

7.71%

7.73%

7.74%

7.75%

7.77%

22,129.00

25,197.00

28,412.00

41,900.00

51,261.00

58,221.84

60,663.25

63,303.09

66,251.33

69,310.57

72,501.00

75,743.46

79,034.29

82,310.85

85,613.11

38.50%

18.58%

18.91%

27.52%

32.98%

37.62%

37.93%

37.72%

37.72%

37.72%

37.72%

37.72%

37.72%

37.72%

37.73%

52,435.00

47,157.00

48,932.00

59,006.00

70,279.00

67,975.33

68,718.53

68,983.97

71,674.43

74,379.98

77,224.52

80,018.06

82,805.75

85,581.04

88,298.42

91.23%

34.78%

32.56%

38.75%

45.22%

43.92%

42.96%

41.11%

40.81%

40.48%

40.18%

39.85%

39.52%

39.22%

38.92%

($30,306.00)

($21,960.00)

($20,520.00)

($17,106.00)

($19,018.00)

($9,753.49)

($8,055.28)

($5,680.88)

($5,423.10)

($5,069.42)

($4,723.52)

($4,274.60)

($3,771.46)

($3,270.19)

($2,685.32) (1.18%)

(52.73%)

(16.20%)

(13.65%)

(11.24%)

(12.24%)

(6.30%)

(5.04%)

(3.39%)

(3.09%)

(2.76%)

(2.46%)

(2.13%)

(1.80%)

(1.50%)

($39,141.00)

$8,346.00

$1,440.00

$3,414.00

($1,912.00)

$9,264.51

$1,698.21

$2,374.41

$257.78

$353.68

$345.90

$448.92

$503.13

$501.27

$584.88

1,862.00

4,200.00

6,249.00

8,068.00

7,565.00

9,003.55

9,278.31

9,414.77

9,853.25

10,308.23

10,782.73

11,264.97

11,754.40

12,241.71

12,728.21

3.24%

3.10%

4.16%

5.30%

4.87%

5.82%

5.80%

5.61%

5.61%

5.61%

5.61%

5.61%

5.61%

5.61%

5.61%

2,127.00

3,580.00

53.00

44.00

2,623.00

(101.00)

-

-

-

-

-

-

-

-

-

3.70%

2.64%

.04%

.03%

1.69%

(.07%)

-

-

-

-

-

-

-

-

$36,440.54

($1,585.17)

$9,518.47

$34,454.57

$5,334.74

($7,449.08)

$1,195.81

-

$1,131.54

$3,411.72

$3,497.48

$3,690.75

$3,799.44

$3,955.55

$4,176.60

$4,319.11

$993.29

$2,826.38

$2,734.39

$2,723.13

$2,645.58

$2,599.31

$2,590.13

$2,527.79

UOIG 17

University of Oregon Investment Group

Appendix 3 – Revenue Model GM North America (GMNA) (Total Revenue in $millions, all other figures in thousands) United States Unit Sales % Growth Other Unit Sales % Growth Total Vehicles Sold % Growth Average Revenue Per Vehicle % Growth Total GMNA Revenue

2010A

2011A

2012A

2013A

2014E

2015E

2016E

2017E

2018E

2019E

2,215.00

2,503.00

2,595.00

2,786.00

2,918.81

3,061.47

3,197.71

3,333.61

3,468.62

3,605.63

6.29%

13.00%

3.68%

7.36%

4.77%

4.89%

4.45%

4.25%

4.05%

3.95%

410.00

421.00

424.00

448.00

472.80

496.64

517.75

539.23

561.07

583.24

2.76%

2.68%

.71%

5.66%

5.54%

5.04%

4.25%

4.15%

4.05%

3.95%

2,625.00

2,924.00

3,019.00

3,234.00

3,391.61

3,558.11

3,715.45

3,872.84

4,029.69

4,188.87

5.72%

11.39%

3.25%

7.12%

4.87%

4.91%

4.42%

4.24%

4.05%

3.95%

31.63

29.41

29.78

29.41

29.72

30.00

30.29

30.60

30.93

31.25

38.73%

(7.03%)

1.27%

(1.26%)

1.06%

.95%

.95%

1.05%

1.05%

1.05%

$130,903.99

$83,035.00

$85,991.00

$89,910.00

$95,099.00

$100,296.76

$106,222.39

$112,527.67

$118,526.01

$124,621.24

% Growth

46.66%

3.56%

4.56%

5.77%

5.47%

5.91%

5.94%

5.33%

5.14%

5.04%

% of Total Revenue

61.24%

57.22%

59.05%

61.19%

64.80%

66.41%

67.05%

67.48%

67.82%

68.11%

GM Europe (GME) (Total Revenue in $millions, all other figures in thousands) United Kingdom % Growth Germany % Growth Russia % Growth Other Unit Sales

2010A

2011A

2012A

2013A

2014E

2015E

2016E

2017E

2018E

2019E

290.00

281.00

272.00

301.00

307.45

316.21

325.07

334.01

343.02

352.11

1.05%

(3.10%)

(3.20%)

10.66%

2.14%

2.85%

2.80%

2.75%

2.70%

2.65%

269.00

299.00

254.00

242.00

237.15

239.43

241.94

244.72

247.78

251.13

(29.58%)

11.15%

(15.05%)

(4.72%)

(2.01%)

.96%

1.05%

1.15%

1.25%

1.35%

159.00

243.00

288.00

258.00

139.00

11.97%

52.83%

18.52%

(10.42%)

(46.12%)

(100.00%)

-

-

-

-

0.00%

0.00%

0.00%

0.00%

944.00

928.00

796.00

756.00

539.75

512.49

490.71

473.54

461.70

454.77

% Growth

10.02%

(1.69%)

(14.22%)

(5.03%)

(28.60%)

(5.05%)

(4.25%)

(3.50%)

(2.50%)

(1.50%)

Total Vehicles Sold

1,662.00

1,751.00

1,610.00

1,557.00

1,223.35

1,068.13

1,057.72

1,052.26

1,052.50

1,058.01

(.42%)

5.35%

(8.05%)

(3.29%)

(21.43%)

(12.69%)

(.97%)

(.52%)

.02%

.52%

Average Revenue Per Vehicle

14.49

14.37

12.85

12.92

17.07

17.20

17.33

17.47

17.64

17.83

% Growth

.61%

(.83%)

(10.55%)

.51%

32.18%

.74%

.75%

.85%

.95%

1.05%

$24,076.00

$25,154.00

$20,689.00

$20,110.00

$20,884.85

$18,369.40

$18,326.75

$18,387.23

$18,566.12

$18,859.28

.19%

4.48%

(17.75%)

(2.80%)

3.85%

(12.04%)

(.23%)

.33%

.97%

1.58%

17.76%

16.74%

13.59%

12.94%

13.49%

11.48%

10.92%

10.47%

10.10%

9.81%

% Growth

Total Revenue % Growth % of Total Revenue GM International Operations (GMIO) (Total Revenue in $millions, all other figures in thousands)

2010A

2011A

2012A

2013A

2014E

2015E

2016E

2017E

2018E

2019E

China

2,352.00

2,547.00

2,836.00

3,160.00

3,530.76

3,849.95

4,129.07

4,407.78

4,678.86

4,929.18

% Growth

28.81%

8.29%

11.35%

11.42%

11.73%

9.04%

7.25%

6.75%

6.15%

5.35%

725.00

735.00

780.00

726.00

692.64

678.61

675.21

678.59

683.68

691.54

% Growth

15.81%

1.38%

6.12%

(6.92%)

(4.60%)

(2.03%)

(.50%)

.50%

.75%

1.15%

Total Vehicles Sold

3,077.00

3,282.00

3,616.00

3,886.00

4,223.40

4,528.56

4,804.28

5,086.37

5,362.54

5,620.72

% Growth

25.49%

6.66%

10.18%

7.47%

8.68%

7.23%

6.09%

5.87%

5.43%

4.81%

6.98

6.41

6.35

5.21

3.76

3.77

3.78

3.79

3.80

3.82

15.72%

(8.16%)

(.94%)

(17.86%)

(27.87%)

.25%

.15%

.30%

.35%

.40%

$21,447.81

Other

Average Revenue Per Vehicle % Growth Total Revenue

$21,470.00

$21,031.00

$22,954.00

$20,263.00

$15,767.02

$16,981.92

$18,141.26

$19,264.07

$20,381.11

% Growth

45.21%

(2.04%)

9.14%

(11.72%)

(22.19%)

7.71%

6.83%

6.19%

5.80%

5.23%

% of Total Revenue

15.83%

13.99%

15.08%

13.04%

10.19%

10.62%

10.81%

10.97%

11.09%

11.16%

Appendix 4 – Revenue Model (Continued) GM South America (GMSA) (Total Revenue in $millions, all other figures in thousands) Brazil % Growth Other

2010A

2011A

2012A

2013A

2014E

2015E

2016E

2017E

2018E

2019E

658.00

632.00

643.00

650.00

578.95

568.23

561.13

556.92

558.31

10.40%

(3.95%)

1.74%

1.09%

(10.93%)

(1.85%)

(1.25%)

(.75%)

.25%

562.50 .75%

368.00

434.00

408.00

388.00

295.25

260.26

240.09

226.88

221.21

220.10

% Growth

33.33%

17.93%

(5.99%)

(4.90%)

(23.90%)

(11.85%)

(7.75%)

(5.50%)

(2.50%)

(.50%)

Total Vehicles Sold

1,026.00

1,066.00

1,051.00

1,038.00

874.20

828.49

801.22

783.80

779.52

782.61

% Growth

17.66%

3.90%

(1.41%)

(1.24%)

(15.78%)

(5.23%)

(3.29%)

(2.17%)

(.55%)

.40%

14.99

15.60

15.89

15.87

14.58

14.07

13.86

13.72

13.65

13.72

(.49%)

4.09%

1.84%

(.09%)

(8.15%)

(3.50%)

(1.50%)

(1.00%)

(.50%)

.50% $10,738.40

Average Revenue Per Vehicle % Growth Total Revenue

$15,379.00

$16,632.00

$16,700.00

$16,478.00

$12,746.83

$11,657.98

$11,105.10

$10,755.11

$10,642.91

% Growth

17.08%

8.15%

.41%

(1.33%)

(22.64%)

(8.54%)

(4.74%)

(3.15%)

(1.04%)

0.90%

% of Total Revenue

11.34%

11.07%

10.97%

10.60%

8.24%

7.29%

6.62%

6.12%

5.79%

5.59%

Total (Total Revenue in $millions, all other figures in thousands)

2016E

2017E

2018E

2019E

Total Vehicles Sold

8,390.00

9,023.00

9,296.00

9,715.00

9,712.56

9,983.29

10,378.67

10,795.28

11,224.26

11,650.21

% Growth

12.23%

7.54%

3.03%

4.51%

(.03%)

2.79%

3.96%

4.01%

3.97%

3.79%

143,960.00

148,808.00

150,253.00

151,950.00

149,695.45

153,231.69

160,100.79

166,932.42

174,211.38

181,949.48

Total Automotive Revenue % Growth % of Total Revenue Average Revenue Per Vehicle (Global)

2010A

2011A

2012A

2013A

2014E

2015E

32.60%

3.37%

.97%

1.13%

(1.48%)

2.36%

4.48%

4.27%

4.36%

4.44%

106.17%

99.02%

98.68%

97.76%

96.72%

95.80%

95.40%

95.04%

94.81%

94.66%

17.16

16.49

16.16

15.64

15.41

15.35

15.43

15.46

15.52

15.62

University of Oregon Investment Group

Appendix 5 – Discounted Cash Flows Valuation Assumptions Discounted Free Cash Flow Assumptions Tax Rate

35.00% Terminal Growth Rate

Risk Free Rate

1.81% Terminal Value

Beta

150,173

1.24 PV of Terminal Value

Market Risk Premium

Considerations 3.00%

6.45% Sum of PV Free Cash Flows

Avg. Industry Debt / Equity

87,890

Avg. Industry Tax Rate

20,121

Current Reinvestment Rate

194.59% 29.01% (45.45%)

% Equity

46.72% Firm Value

108,011

% Debt

53.28% Total Debt

41,149

Reinvestment Rate in Year 2019E Implied Return on Capital in Perpetuity

6.48% 46.31%

Cost of Debt

3.96% Cash & Cash Equivalents

18,060

Terminal Value as a % of Total

81.4%

CAPM

9.82% Market Capitalization

66,862

Implied 2014E EBITDA Multiple

12.4x

WACC

5.96% Fully Diluted Shares

1,607

Implied Price

$41.61

Current Price

$33.70

Implied Price Undervalued

23.49%

Implied Multiple in Year 2023E

4.8x

Free Cash Flow Growth Rate in Year 2023E

3%

Undervalued/(Overvalued) Terminal Growth Rate

42

2.0%

2.5%

3.0%

3.5%

4.0%

0

2.0%

2.3%

3.0%

3.5%

4.5%

1.04

37.69

46.78

59.73

79.64

114.20

1.04

11.84%

24.25%

77.25%

136.33%

460.68%

1.14

32.13

39.50

49.65

64.49

88.26

Appendix 1.246 –Sensitivity 27.41 33.49 Analysis 41.61 53.04

70.29

1.34

23.37

28.44

35.07

44.10

57.11

1.44

19.86

24.15

29.64

36.92

47.03

Adjusted Beta

Adjusted Beta

Terminal Growth Rate

1.14

(4.67%)

5.47%

47.32%

91.35%

293.21%

1.24

(18.66%)

(10.25%)

23.49%

57.39%

194.77%

1.34

(30.66%)

(23.60%)

4.07%

30.85%

129.99%

1.44

(41.06%)

(35.07%)

(12.06%)

9.54%

84.13%

Implied Price

Undervalued/(Overvalued) Terminal Growth Rate

42

2.0%

2.3%

3.0%

3.5%

4.0%

0

2.0%

2.3%

3.0%

3.5%

4.5%

0.0546

35.68

39.58

56.02

73.95

104.16

0.0546

5.89%

17.45%

66.22%

119.45%

391.81%

0.0571

31.27

34.57

48.15

62.31

84.75

0.0571

(7.22%)

2.60%

42.88%

84.91%

272.97%

0.0596

27.41

30.25

41.61

53.04

70.29

0.0596

(18.66%)

(10.25%)

23.49%

57.39%

194.77%

0.0621

24.02

26.47

36.10

45.48

59.10

0.0621

(28.73%)

(21.47%)

7.12%

34.96%

139.42%

0.0646

21.00

23.14

31.38

39.20

50.19

0.0646

(37.67%)

(31.35%)

(6.88%)

16.32%

98.17%

WACC

WACC

Terminal Growth Rate

Implied Price

Undervalued/(Overvalued) Terminal Growth Rate

42

2.0%

2.3%

3.0%

3.5%

4.0%

0

2.3%

2.3%

3.0%

3.5%

4.0%

0.1082

21.38

23.55

31.96

39.96

51.26

0.1082

(30.12%)

(30.12%)

(5.16%)

18.58%

52.09%

0.1032

24.23

26.70

36.43

45.93

59.76

0.1032

(20.78%)

(20.78%)

8.11%

36.30%

77.33%

0.0982

27.41

30.25

41.61

53.04

70.29

0.0982

(10.25%)

(10.25%)

23.49%

57.39%

108.58%

0.0932

31.00

34.27

47.69

61.64

83.67

0.0882

35.07

38.88

54.90

72.26

101.24

CAPM

CAPM

Terminal Growth Rate

0.0932

1.70%

1.70%

41.50%

82.92%

148.29%

0.0882

15.37%

15.37%

62.89%

114.42%

200.42%

Terminal Growth Rate 2.3% 3.0% 3.8%

4.5%

Undervalued/(Overvalued)

42

2.3%

Terminal Growth Rate 2.3% 3.0% 3.8%

4.5%

0.08

15.99

15.99

21.68

29.89

42.81

0.07

22.15

22.15

30.01

42.09

63.04

0.06

30.25

30.25

41.61

60.69

99.34

0.05

41.36

41.36

58.90

92.56

183.46

0.04

57.56

57.56

87.35

159.64

591.61

Market Risk Premium

Market Risk Premium

Implied Price

0

2.3%

0.08

(52.55%)

(52.55%)

(35.67%)

(11.29%)

0.07

(34.28%)

(34.28%)

(10.96%)

24.89%

87.05%

0.06

(10.25%)

(10.25%)

23.49%

80.10%

194.77%

0.05

22.74%

22.74%

74.78%

174.65%

444.39%

0.04

70.80%

70.80%

159.20%

373.71%

1655.52%

27.03%

University of Oregon Investment Group

Appendix 8 – Sources FactSet Forbes General Motors Investor Relations IBISWorld Motor Trend SEC Filings Wired Magazine Yahoo! Finance