what causes your auto to depreciate in value? driving it off the lot aging: older cars sell for less...
TRANSCRIPT
What Causes Your Auto to Depreciatein Value?
What Causes Your Auto to Depreciatein Value?
Driving it off the lot
Aging: Older cars sell for less (until they become antiques)
Heavy Use: Cars with more mileage sell for less.
Damage: Those dented fenders don’t help.
Obsolescence: Better Cars May Become Available
New Cars with better fuel efficiency.
New Cars with better safety features.
New Cars with more comfortable rides.
New Cars with the latest styling.
Can an auto that is still operating have value equal to its scrap value?
Can an auto that is still operating have value equal to its scrap value?
Sure, cars are often driven to the junk yards.
Because they are• Costly to repair• Not so safe• Not very fuel efficient• Not so fun to drive• Not very reliable• Costly to maintain
IBM System 360 Mod 75Purchase price range from $10.6 million to $16.9 million in today’s dollars
Announced April 22, 1965 and withdrawn March 15, 1977.
The Depreciation of Electronic Computers Is Different from the Depreciation of Your CarThe Depreciation of Electronic Computers Is Different from the Depreciation of Your Car
What Causes Depreciation forElectronic Computers?
What Causes Depreciation forElectronic Computers?
Very Little Depreciation Due to Aging– those electronic parts can last a very long time.
Most of the Depreciation Comes from Obsolescence– Cheaper Computers That Can Perform the Same Function.
– Better Computers That Can Do Things The Older Ones Cannot Do.
The TEM-5 is Like a ComputerThe TEM-5 is Like a Computer
Relatively Little Depreciation Due to Aging– The TEM-5 was only a few years old.
Most of the Depreciation Comes from Obsolescence– The 2A7 was cheaper and could perform similar functions.
– The TEM-5 had a dangerous design.
– The TEM-5 was making an obsolete product.
The Business Value of the Tem-5The Business Value of the Tem-5
1. Ongoing Production Value
2. Future Production Value
3. Interim Production Value
4. Resale Value, or Parts and Scrap Value
4/24/2000TEM-5 Out of Service
7/24/20002A7 Fully Operational
Production TimelineProduction Timeline
1/1/2002Demand Exceeds2A7 Capacity?
InterimProduction
Value
OngoingProduction
Value
FutureProduction
Value
4/24/2000TEM-5 Out of Service
7/24/20002A7 Fully Operational
Production TimelineProduction Timeline
1/1/2002Demand Exceeds2A7 Capacity?
1. Ongoing Production Value
Was the TEM-5 needed in the Fall of
2000, after the move to Mesa
and after the installation
of new equipment?
OngoingProduction
Value
On Going Production ValueWas the Tem-5 Capacity Needed in the Fall of 2000?
On Going Production ValueWas the Tem-5 Capacity Needed in the Fall of 2000?
In the Fall of 1999, SDI ordered two new machines (the 2A7 and 2A8) that could perform the same functions as the TEM-5. - Delivery was scheduled for Spring of 2000
- Each machine had about twice the capacity of the TEM-5
The 2A8 was intended for the TRW Rack and Pinion Program, though this was to be phased out in 2002/2003
The planned levels of production were well within the capacity of the 2A7 alone.
Capacity (thousands per 4-week month)
0
100
200
300
400
500
600
700
800
Nov-99 Dec-99 Jan-00 Feb-00 Mar-00 Apr-00 May-00 Jun-00 Jul-00 Aug-00 Sep-00 Oct-00
TEM-5 TEM9 2A7 2A7+TEM9 2A7+2A8
TEM-5 Capacity
TEM-9 Capacity
2A7 Capacity
2A7 + TEM-9 Capacity
2A7 + 2A8 Capacity
The 2A7 and the 2A8 Added a Lot of CapacityThe 2A7 and the 2A8 Added a Lot of Capacity
Shipments and Capacity (thousands per 4-week month)
0
100
200
300
400
500
600
700
800
Nov-99 Dec-99 Jan-00 Feb-00 Mar-00 Apr-00 May-00 Jun-00 Jul-00 Aug-00 Sep-00 Oct-00
Sales Projected TEM-5 TEM9 2A7 2A7+TEM9 2A7+2A8
TEM-5 Capacity
TEM-9 Capacity
2A7 Capacity
2A7 + TEM-9 Capacity
Actual
2A7 + 2A8 Capacity
Projected
There Was No Ongoing Production Value:The 2A7 Alone Had More Than Enough Capacity
to Handle Demand in the Fall of 2000
There Was No Ongoing Production Value:The 2A7 Alone Had More Than Enough Capacity
to Handle Demand in the Fall of 2000
There Was No Ongoing Production Value:The TEM-5 Capacity Was Not Needed in the Fall of 2000
There Was No Ongoing Production Value:The TEM-5 Capacity Was Not Needed in the Fall of 2000
There was a Honda transition fee of $250,000, but this was never actually charged
SDI knew there was no ongoing production value– No replacement for the TEM-5 was ordered after the
accident.
– Even though it would have been fully paid for by the insurance coverage.
4/24/2000TEM-5 Out of Service
7/24/20002A7 Fully Operational
Production TimelineProduction Timeline
1/1/2002Demand Exceeds2A7 Capacity?
FutureProduction
Value
2. Future Production Value
Would it be a wise business decision
to put the TEM-5 into “mothballs” and
plan to use it again at some time
in the future?
An Example of Future Production ValueAn Example of Future Production Value
When would it make sense to park your old car in the garage for some future use rather than selling it?– Your daughter is 13 and you want her to have the car when
she turns 16.
PROPRO
CONCON
You won’t have to buy her a car in three years
It’s not good for the car to sit there idle all that time, It could cost a lot to get it running well again The car will depreciate in value just sitting there. If you sold the car now, you could invest the money in the
stock market, and, if things go well, you could use the gain to buy a really great car when your daughter is 16.
Important Consideration for SDI PlanningThe 2A8 Could be Used for Future Production
Important Consideration for SDI PlanningThe 2A8 Could be Used for Future Production
In TRW Rack and Pinion Program for which the 2A8 was planned– Phase in 2000/2001
– Phase out 2002/2003
Rack and Pinion Forecast Volumes (MM)2A8 Capacity: 4.5 million per year
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
CY2000 CY2001 CY2002 CY2003 CY2004
Mil
lio
ns
of
Un
its
Forecast 9/10/1999
Excess Capacity
Hypothetical Ramp-up in Demand and Available Capacity
-
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
Jul-0
0
Oct
-00
Jan-
01
Apr
-01
Jul-0
1
Oct
-01
Jan-
02
Apr
-02
Jul-0
2
Oct
-02
Jan-
03
Apr
-03
Jul-0
3
Oct
-03
Jan-
04
Apr
-04
Jul-0
4
Oct
-04
Jan-
05
Apr
-05
Jul-0
5
Oct
-05
Jan-
06
Apr
-06
Jul-0
6
Oct
-06
Jan-
07
Apr
-07
Jul-0
7
Oct
-07
Jan-
08
Apr
-08
Jul-0
8
Oct
-08
Jan-
09
Apr
-09
Jul-0
9
Oct
-09
Jan-
10
Un
its
per
yea
r
2A7 Capacity
2A7 + 2A8 Capacity
Hypothetical Increase in Sales
January 2006More Capacity Needed
The TEM-5 Might Be Needed Againin January 2006
The TEM-5 Might Be Needed Againin January 2006
TEM-5 PlanHypothetical Ramp-up in Demand and Available Capacity
-
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
Un
its
per
yea
r
2A7 + 2A8 + TEM-5 Capacity
2A7 + 2A8 Capacity
Hypothetical Increase in Sales
January 2006TEM-5 Back in Service
July 2008More Capacity Needed
If the TEM-5 is Brought Out of Moth Balls,Another 2A7 Might be Needed in July 2008If the TEM-5 is Brought Out of Moth Balls,Another 2A7 Might be Needed in July 2008
2A7 PlanHypothetical Ramp-up in Demand and Available Capacity
-
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
Jul-0
0
Oct-
00
Jan-
01
Apr-0
1Ju
l-01
Oct-
01
Jan-
02
Apr-0
2Ju
l-02
Oct-
02
Jan-
03
Apr-0
3Ju
l-03
Oct-
03
Jan-
04
Apr-0
4Ju
l-04
Oct-
04
Jan-
05
Apr-0
5Ju
l-05
Oct-
05
Jan-
06
Apr-0
6Ju
l-06
Oct-
06
Jan-
07
Apr-0
7Ju
l-07
Oct-
07
Jan-
08
Apr-0
8Ju
l-08
Oct-
08
Jan-
09
Apr-0
9Ju
l-09
Oct-
09
Jan-
10
Un
its
per
yea
r
2A7 + 2A8 + 2A7 Capacity
2A7 + 2A8 Capacity
Hypothetical Increase in Sales
January 2006New 2A7 Delivered
But if a 2A7 Were Purchased, No AdditionalCapacity Would be Needed Until January 2010
But if a 2A7 Were Purchased, No AdditionalCapacity Would be Needed Until January 2010
Should the TEM-5 Be Stored for Use in the Futurewhen Demand Exceeds the Capacity of the 2A7/2A8?
Should the TEM-5 Be Stored for Use in the Futurewhen Demand Exceeds the Capacity of the 2A7/2A8?
PROPRO
CONCON
Allows delay in purchase of an additional 2A7- But if demand continues to increase, additional capacity will eventually be needed.
$457,000 cost to move TEM-5 to Mesa and upgrade it,compared with a fee of $775,000 for the 2A7 which has 80% more capacity - Storage Costs - Safety risks when the TEM-5 is put back in operation. - Various problems with equipment that has been stored for a long time – both mechanical and personnel issues
The TEM-5 Had No Future Production ValueThe TEM-5 Had No Future Production Value
There are no plausible scenarios in which it would make good business sense to keep the TEM-5 in mothballs.– Hardly any upside potential and a lot of downside risk.
Weekly Total MGG/GGGs Production and Capacity: ThousandsSource: SDI-H/567-571
0
20
40
60
80
100
120
140
11/7/1999 11/7/2000 11/7/2001 11/7/2002
Th
ou
san
ds
of
Un
its
MESA
Hollister
TEM-5
2A7
FY 2001 FY 2002 FY 2003
As it turned out, the 2A7 had plenty of capacity to handle the sales volume at least through
the end of fiscal year 2003
As it turned out, the 2A7 had plenty of capacity to handle the sales volume at least through
the end of fiscal year 2003
4/24/2000TEM-5 Out of Service
7/24/20002A7 Fully Operational
Production TimelineProduction Timeline
1/1/2002Demand Exceeds2A7 Capacity?
InterimProduction
Value
3. Interim Production Value
How valuable would it have been to
have had the TEM-5 operating
until the 2A7 was up and running?
Should the Tem-5 Have Been Operated During the Transitional Period, April 2000 – July 2000?
Should the Tem-5 Have Been Operated During the Transitional Period, April 2000 – July 2000?
PROPRO
CONCON
Potential Lost sales Customer Good Will Cost of $9,000 to make the TEM-9 capable of
production during the transition.
Safety Risks for Employees More Expensive to Operate in Hollister ($300,000)
Some Lost Sales, PossiblySome Lost Sales, Possibly
Actual Cumulative Shipments / Projected
91%
60%
65%
70%
75%
80%
85%
90%
95%
100%
105%
110%
Nov-99 Dec-99 Jan-00 Feb-00 Mar-00 Apr-00 May-00 Jun-00 Jul-00 Aug-00 Sep-00 Oct-00
Should the Tem-5 Have Been Operated During the Transitional Period, April 2000 – July 2000?
Should the Tem-5 Have Been Operated During the Transitional Period, April 2000 – July 2000?
PROPRO
CONCON
Potential Lost sales Customer Good Will: NOT A BIG ISSUE Cost of $9,000 to make the TEM-9 capable of
production during the transition.
Safety Risks for Employees: A VERY BIG ISSUE More Expensive to Operate in Hollister ($300,000)
How Much Interim Value?How Much Interim Value?
A reasonable solution is the profit from sales that did not occur during that period of time.
This has already been paid.
The Business Value of the Tem-5The Business Value of the Tem-5
1. Ongoing Production Value
2. Future Production Value
3. Interim Production Value
4. Resale Value, or Parts and Scrap Value
NONE
NONE
PAID