Professional Documents
Culture Documents
9-205-096
!r and ~ i(o president of finance for Genei -,A %lotors, attention to a lonWsUndhip sushyl wncern : the economic conwqwqY,, of Japanese yen. The yen fi8LUVd heap iV- h-t the cost structures of sonti-, at G\Vs and Feldstein had to anticipate ho} ,, c\di . -inge rate movements might finp~kct those GM it~,Af . his Aq lren,urv team were responsible far managing ttw H4 , i- ,,ociated with foi,~i ,, , n hdns,ktillm and rnovements . 1 For the most part, CUricn,% ri4 , arising from CAI's 1\101 ldw i(L' ojwl'ltkv11' in a- ; , rd,mio with the companyi orin,if hedging policy . ~41111t,111ti,'11 t , \ po~urt , to the did not arise ftom ~p,,, 'ilic foreign exchan tk , n- it nonothJ , ~s real risk, to the cam r. Feldstein Lid to understand GNI's yen exposure, and to determine how best to manage those
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Goicna'Alo0v CkmmA Aw q, Y jv the ",M Ltr~ ,,o,t i wornak-crand, since 11)11, the world'~ ,i 1, ~,i, lo r, CAI li,id unit N N5 million \ MIA, and A III ~ ." vwW" ido market char . krunde, C"'f 11,1,1 in nwr ,, tn,in '20 -'Llntrw~ '11 -1d its '.%u[c -'O(X), i!ii,itek -'.011 c)untries, In it generawd vwmn" Q A 4 We m -I- q Q K ; ; 7
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203-096
(0 --silt_-, to cnd ;(1~tom,'l, 111,1 thL' I,lr ;~~' ..t iancentrlti,~n of net property, pl,mt, :m,l equipirwrlt stewing as ,l i-'r'rcc'nt F'xhIt,II~2 and 3), Llut tlli' importance- ,_,f GM's intern,Itional operation, ell,_' o .oral
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1'A Ill~ln,l~',c'illt'tlt in l m,mrcr t-orisititellt %,, Ith. hour GM oper,a<'d its Ltpp,)rted by the fc,nnal lu'rl in :, policy. rtr~ln,~lt 1 ion , " ,I)(-ure,j onI,, uld i ;tinoled klhnt' sh,-et e\itu5ures
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ith'I ha~i, ,) that financial m,m,l 1 'mt'nt \\<l ; cc3lr;i~tc'nt '.\ itll the
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exchange exposures al i ,,ing from the cash flows associated with clrlgoing bus ayables. rmine the riskin,- ; of the exp, -,L~ure and the amrlant to hedt.;t, on a rolling =chine ; policy ak,l dctined the in~trunlent; used ,lri>in to ht-dge c'~l,c\~ur~' arising within ~i ,, n),-,mils, a \~ (thin --,on to t\\ ~ I\ c' months. All dc, \ iation~ from these Su,- h conlrnt, rcial expel>ures were foreca,t en
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1hpr\''\ cd b% ~r'nicar r~t'ttlti\ ~'~, nrlt.l Feld~,tt2in scrutinized su,-h rcc~ut'~t~, closely. FE'1,-1~tr'irt Mild his team also monitor(', forci~lt exchange expo,,ores
Recc nt1\ , I'1'le,tein 1-I,)d paid increasin:; ~Itt,-nt ioii to the strength of the dollar aga and
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III, , tluc,tic,n li to m,lrLi~ .re (,M , \,'r\ ,ubst,111ti,11 rt-'n exposure . `ctlml~ctiti\ - <'' 1'\1Ik11Lll'ti c%'('rt' di~cu,>c'd lit uristic,Ilh t)ut tllcr <ll-t;c'nc~r of analytica ,lu,lntih, - the','.' c\h'c-un'> limit-d the ubilit~ to itllhl~~mc't7t -flee itic
otrtpef tive
Exposures
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autKid 1irge portions of their, ost structure clenomin .3ted in imion III ti ,' '. - cl) Iv\C,'I','d their relat7\'c ~i),t structure as C{ , 7111`Lli"c'll \\ - ith .ieid Furopean 1utIl munu( .i, ttar-'r1 . If of GM's ct~m!aetitr~r> _1chieved significantly through currenc} dt'I,i, ci,lti n-, tlii- rrtc,int that tire p," rf, -, rm,~net of n~ y risk: lower costs for ]zi p . m',c t i r m, ;\ ~ -,u ld lead to L, ",\ ," r re,,1 u i r,'d prices to ac itabilitvlevels, thus erodin h,iic---andm- .IrL't\ - .iltee' . ear,'\ cli ," cchange rate had fluctuated i\ i,lel\ over the l, .i-t t\\ o ,IE,-,id~,~ and now pre~i,itin~ r-~ , c E\liihit -i) . J<Ihanese automakers derived -,iind -t,' . of their revenues U .'~ . m .irk,'t in l'Aci ,nd 2'00n, :ant \ "'I r' tli, \ ~ cIld 4.1 million units in lively. In c' United tit,j tt- . Fq~e[i~ i nmk-t, lied :--t[ruated that t ipicc!~ition trcuu 117 to 1117 Burin first hAf of '000 had reclu,t'd h[, ,m,,,c _i itomakers' glot,a l , i l,," r, l ring profits by $=1 bi cin r~~\ er "~d th,it tit .iti-;tic in lie, mind : t rrt CIEprc " ci,Aion against the onil, ,'tltt~r,' c,,llccti\ : ~~L-,~ratirt~~ I , r,rfit -~r< \\ b\" more th,m ~1!?tl million. Rou ;' 1'~,tinrites .h rch iepoothat the Japane-,'fii nis ~%-ere unprofitable '.hen the y cn \\,i , -tronger the clolhr :ind profit,ibleat 12(1 or more \,'l3 to the doe _1 Jc " r~ trr itl, : Comta " tifive Fxvol-o
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Fei~1, t,'in of tlii~, ~~, \posure as iected recei .I\ JbI,A and no capital investment or loan to be repz impact that ,temmed from fluctuations in exchange rates . Because of the explicit transaction, Feldstein realmcd hC ~.\tiff outside the usual territory of GM's hedgi pith res 'n lm~cd t , n this Ferceived competitive exposure would new prcsee --s omethin tein felt lw had to consider very carefully . At the very lt?~lst, he needed an tight story justi ding the ni,iL'nitude of the exposure and how be 41ecti hedged . Feldstein felt that a compell depreciation in along some of this benefit to consumers the Jap,m,'se automatic I', gain (6) fns\ ~'rrtl GM's profit=, \ ",-hick thetie ~ - .Iri,ibics and,'ti,'cts . , terse, Fel&t,'in mould also nee ,_roll " rein :~\p-Lire . of ~- 1 ?00 LIl,Ari, ;, . O fl)[ .ink- , . ,-,'Ml" " ,11 !I,),I r ;~nipl,'tod a h iti followi
.i 1('~ult of lov, ~ I - 1, ricas ich (5) arc- int,.i unit ales at GM, %,hich Tlicih. ; " \ nurnericallvestimati
,'-ti ni,it,'d
c, ~nipcti titi- e exposure' in the cuntr\t of r " teltin~; lri,nt c,luit\ in tl?rliugh :I ten-den min,it,rd ;sot? niilli : ,n worth of , )lit-ttimding
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tel .ite Liter . \tt, r itli 1lW f , u~ln ,j : " \, It , l'nik t?t [C,1111,lie 11 .?, ind 41.i" iri,-lud,.\,-1! a-, h! -' r ,in,! !chest ~",p,r[<,' ili,rerr :,l in 1,11,111 . l \ t!,_ I"'t,'nti .al t,, r,au"l t - I'I rl rf _o~t ~,I\ !ei ;_< riii llt tiltinl,ll, l\ l,r 11 :1--,, .a on t c11,1 ku\rr-, I eld~t,,in
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." 4 kAl 711a nhv,- , r h A\ t jap I s 1), AJUIM NLV ExhiNt Uk , wci ahn%-t idle'-thiid ot per-v-
n.]-,"it,and45,,n of tl-iec, ,-t a ,, Tn2000, k httl,' m iii,entives compared with A, rest of be iJ Vii,, ~ it away more than the induct
most ,'Ajriiak? were the consuni~ , i ela~tj,i(% and the cross GM Ra eiii cot-indied vvith ont- oi'the lor dealci networks and 1% 1 , wul that .l 5~ p ewc -11d I- tkpected to 11"0, "I'Lillit b\ 11 - OL111d It)' , . . . . Lite thr ch ~1, F,1d,tei umed that any- rnarkut shav hows hi japm"e auto= Detroit hai, ,,1 t ,qiaallyaulC)Hgand eni n .
dwlicit\ to
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jlivd that a rotj : ,,h -11,1_111,ltion around a 20% %LM devaluation wmdd capture an upper L4) o4pmm' . Tht , aiintial11]5p t e,n GM's income statement coulc .1, be vaMed as a perpctiaitv at a A) , 'fi-oWlt: 1Jto---C1,'J1'k a ~ ,14, Ili' t-i'll to d,, I ,, c decj , i'r [i)(, , 1h ,2 numbers.
Feldstein iinking to do . While many auto execu of t hktein "\,)11i"d to move past the standard rhetoric on exchaivge uites and c dun tjlr ', ildi an he concluded, had to underpin anv ivAvrnmenda c-,n 11)r)Ilagilw, (-M'~ ii,k, '-petially since the corporate he dgiii ,_ poli,y 'J ,ic l f) , ,1,-'ili~,,, iichC,Ifllr)r titi\Cexposures.
tiv,e I I odging Strategies at General Motors : ( oiti po tit icc F yoski ic-
Exhibit
December 31
2000
1999
1998
140,708
Interest a) Earnings before taxes and minority interests mWaNy interests ad Opt re
2,956 (63)
Source:
205-096
Exhibit 2
Source : General Motors, 2001 Annual Report (Detroit : General Motors, 2002).
Exhibit 3
Source : General Motors, 2001 Annual Report (Detroit : General Motors, 2002).
1'0 IN
205-0%
LC
hibit 4
TI : a]
1,
p,
i ric- , Yen
(sec-8{l
Dec-$2
Dec-84
Dec-86
Dec-88
Dec-90
Dec-92
Dec-94
Dec-96
Dec-98
Dec-00
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ihc" L\Posures
Fkhibit 4
GenoW Wm , In tvnwiit, in
\ut-fn,il ;ers
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Land-Rover Jaguar h~lifsubisf~i DaimlerChrvsler Volvo 1,969 Industry Average san Daewoo aru Kia 6 h1'v"d Audi j i Su uki Hyundai Toyota Eionda Volkswagen -Benz zda I 1