General Motors was the dominant automobile manufacturer throughout the world for decades. The company's car line spanned several brand names and its dealer network was ubiquitous in the United States. Annually, the company's market share for new car sales in the U.S. was well ahead of rival firms, both domestic and international. However, in the latter part of the first decade of this century, sales dropped while expenses, often locked in at contractual rates, grew substantially. Competition from the likes of Toyota and Honda eroded market share and profitability, while GM and its dealers became dependent on offering steep rebates to move cars. Eventually, the company's losses grew so much that the U.S. government, in an unprecedented move, took over ownership of the firm and negotiated GM into and then out of bankruptcy court. Only recently is GM beginning to rebound and reduce the government's ownership stake.
How do you measure profit margins? How can profits turn quickly into losses? How does management affect the financial statements? And how do investors respond to the present success but the future uncertainty of changing markets and competition? These kinds of questions are addressed in Part 2 of this textbook.
The Measurement Fundamentals of Financial Accounting
The Mechanics of Financial Accounting
Using Financial Statement Information