Financial Reporting and Accounting
February 5, 2013
GROUP PROJECT GM VS FORD
Less than 60 years ago, on Jan. 17, 1956, Ford Motor(F) launched its IPO into an economy in which U.S. industrial might was the envy of the world and American cars represented the apex of the automotive pyramid. Today, as GM eases into its second go-around, the questionable future of industry and the shifting definition of "made in America" cast a dark shadow over the car company's public celebration (www.dailyfinance.com). So, when using 2009 as the baseline year to conduct GM’s vertical analysis, it appears that the company had a substantial decrease in net income for 2010. However, it is important to understand that the company received government assistance during July of 2009. At July 10, 2009, GM applied fresh-start reporting following the guidance in Accounting Standards Codification 852, “Reorganizations” (GM Company 10-K). Since old GM was not able to complete the cost reduction and restructuring actions, GM filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. Ford reported an operating margin of 6.3% in the first half of 2012, while General Motors reported an operating margin of 3.8%. However, these margins are not really comparable, as the large lending operation of Ford (Ford Credit) inflates the operating margin, and General Motors reports its joint-venture in China as equity-income (which isn't included as operating profit) (www.seekalpha.com). It is observed in the Cash Flow Statement that GM received a significant issuance of debt in 2009 under financing activities. The UST Loan Agreement also required Old GM to, among other things, use its best efforts to achieve the following restructuring targets: (1) debt reduction of at least two-thirds; (2) labor modifications to achieve an average compensation competitive with that of foreign-owned U.S. domiciled automakers; and, (3) modification...