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    Accounting-based reasons that contribute to automaker losses

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    The press report carried the following news item: General Motors, Ford, and Chrysler are expected to post losses on fourth-quarter operations despite sales gains. Automakers' revenues are based on factory output rather than retail sales by dealers, and last quarter's sales increases were from the bulging inventories at the end of the third quarter, rather than from models produced in the fourth quarter.

    Discuss likely accounting-based reasons that contribute to these expected fourth-quarter losses of automakers.

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    Solution Preview

    GM, Ford and Chrysler are manufacturers. They sell to dealerships. So, they make money when they sell a car to the dealer, not to a retail customer that intends to own it and drive it. So, they will show wonderful profits when shipments to dealers are up. Retail sales, by contrast, might be expected to jump AFTER the car dealers buy a ...

    Solution Summary

    Your tutorial is 127 words and gives examples (mini-income statements) for the manufacturers and dealers to show you visually how this works.