Since GM’s infamous bankruptcy in 2008, their sales are finally improving. They announced their annual profit of $6.17 billion for 2010 and it was the most outstanding amount since 1997. However their shares on the stock market decreased. The drop of their stock price was probably due to the overreaction of the rising oil prices and the events in Libya, because there was no change in GM’s performance that would worry investors at that time.In the fourth quarter, the North America truck production increased by 22% from last year. This became a concern for GM because the rising oil prices will affect the sales of trucks. Akerson, the CEO of GM also explained that the fourth quarter results was lower than earlier quarters because they have been spending money on marketing and engineering, and the results for first quarter will be higher. Akerson also said that GM is prepared for the expensive energy with their energy efficient vehicles.
Connections
GM reported their net income for the fourth quarter of $1.41 billion, which would be the first item of their cash flow statement. Also, the net income of this quarter is 31 cents per share, but it would have been 52 cents per share if they excluded a charge from the purchase of preferred shares from the U.S. Treaty. This transaction would be listed under the investing section of the cash flow statement, and would decrease the amount of cash since they are purchasing shares. Also, the increase of trucks for their inventory will obviously lower their cash flow. They may run into troubles with their cash if their inventory does not get sold, causing the company to lack cash.
Reflection
Since General Motors' bankruptcy in 2008, I would say that GM has been recovering slowly. They announced that their annual profit for 2010 has been the highest since 1997, but this amount excludes a purchase of shares ($127.1 billion). GM has explained that the first quarter coming up will be better than the fourth quarter of 2010, but I would not put much hope on that. They said that they are prepared for the rising energy prices, but they do not explain in this article how they are prepared except for their energy-efficient vehicles. However, even though energy prices are increasing, this does not mean that people will go out and buy more energy-efficient vehicles. Most of the people that already has a car would not go out and buy another vehicle if energy are so expensive. People that do not have a car yet may reconsider the plan of actually buying one. Also, the inventory of trucks they have may actually cause troubles in their cash flow in the near future.
I like that your blog was well laid out and you summarized the article nicely. For your reflections, I agree with what you've said because even if gas prices went up, buying a new car is expensive and a bigger deal than paying more for gas, so I actually wouldn't have much incentive to get a new car. On top of that, who says anyone in the economy (despite our gradual improvement) would be able to afford to buy a new car?
ReplyDeleteLastly, I have another connection for chapter 5 from your article. The money GM has spent in funding marketing and engineering would also decrease cash flow and would be found under the investing activities.
- G. Wong
Your blog is very well written and very thorough. I agree with you that GM has been recovering slowly and I probably wouldn't believe them about how they said they'll have a better first quarter compared to their fourth quarter of 2010. Even though energy prices have gone up, it's highly unlikely for people that already have cars to buy an energy efficient vehicle.
ReplyDeleteJoshua Thang
ReplyDeleteFinancial Accounting 12
I agree with your connection that net income is suppose to be the first item listed in the operating activities of the cash flow statement. Net income can tell us a lot about a company. An increase in net income can either indicate that there was an increase in sales revenue earned during that year or there was a decrease in expenses for that company. In either ways, they both indicate good results for the company. A high net income can attract more investors to invest in a company. I also agree with your second connection about an increase in inventory. Right now there is a really high price in oil which is discouraging people to drive cars. People are deciding to switch to another form of transportation such as by walking or busing. Therefore this explains why sales of trucks for General Motors would decrease. The inventory stacks up as sales slow down and the leftover inventory must be stored. Therefore inventory increases. When inventory increases, General Motors must pay more money for more inventories and therefore that would result in a decrease in cash flow. I totally agree with your reflection because as long as there is a high price for oil, it would have a serious impact on automobile industries such as General Motors. I would like to bring up a new point involving General Motor’s future. In 2008 during the major financial crisis, General Motors is one of the industries who almost went bankrupt. They needed a bailout from the government to prevent themselves from going into bankruptcy. Now General Motors is slowly climbing out of the major financial crisis but it does not mean they are out of danger. In the future I think General Motors will have a tough time gaining sales because oil prices are increasing which discourages people to buy cars. Also, many people are still recovering from the 2008 financial crisis and therefore they are very cautious about their spending. Many people are switching to other modes of transportation such as biking, walking, and busing in order to save money. Overall your blog was well written and well thought out. I enjoyed reading your blog the whole way. I found some interesting facts in your article that strongly related to the chapter we are studying right now.
By: Joshua Thang
I agree with your reflection. You have mentioned that GM is expecting more fuel-efficient cars to be sold with the rising gasoline price, along with the discounts and sales. Like you said, I don't believe that because gas price goes up, people will buy energy-efficient cars, especially people that own a car. Even with the discounts and sales offered, fuel-efficient cars are usually more expensive than the regular ones.
ReplyDeleteLastly, another connection to chapter 5 is that since GM is spending more on developing new models, more cash will be used in the investing activities; thus decreasing its cash flow.