AUTOMOTIVE ENTERPRISE VALUES

Enterprise Value is a more comprehensive measure of the real value of a company to its various stakeholders than “Market Capitalization” which only reflects the company’s residual value to its Equity Shareholders

These other stakeholders have superior interests in the company’s income, assets and cash flows and they include Debtholders and Employees

Their interests can be added to the market value of the Shares to get a better measure of what the market thinks a company is really worth

In this chart I have used the face value of the Debt and Unfunded Pension Obligations minus Cash to make a quick approximation of the Enterprise Value of these 15 players in the Automobile industry

It shows that many of today’s automakers are owned more by their Debtholders than by their Equity Shareholders

In other words, they have transferred corporate value from Shareholders to Debtholders by leveraging up the company with Debt or by not funding the Pension Obligations

If their management were to deleverage the companies then they should become worth more to their Shareholders

- and they would certainly have less risk of bankruptcy or other corporate restructurings

It is important to recognize that the financial value of an industry is the sum total of all of these corporate Enterprise Values rather than just the sum of their Market Capitalizations