Ford Up in Revenue, Down in Earnings

        Ford Motor Co. has seen a sudden 2% drop in earnings, even though its revenue has increased by 14% (1). Revenue is the value of what a firm received for goods sold, services performed, and other additional payments received.  If their revenue escalated by such a large amount than why is Ford seeing a drop in earnings?

            This question is answered by simple accounting equations such as net income or net loss. Subtracting the total cost of goods sold and operating expenses from the total revenue gathered throughout the quarter calculate these losses or gains. What Ford endured was a sudden increase in the cost for commodities, materials, warranty and freight costs (1). This cost increased by more than $1 billion in comparison to the previous quarter (1). Ford Chief Financial Officer Lewis Both said “the commodity costs caused Ford to lower its estimate for automotive operating margins to 5.7% from 6.5% for the full year” (1).

           To account for this decrease, Ford is also planning on lowering its capital spending to $4.6 billion down to $5-$5.5 billion (1). Mr. Booth said that Ford will restore the dividend, which has been gone since 2006, “as soon as our balance sheet can stand it” (1). Ford will continue to lower its company’s debt, which sits at $12.7 billion but was once at $33 billion in 2009 and is expecting industry sales to be higher than its previous quarters this year (1).

Sources

(1)http://online.wsj.com/article/SB10001424052970203687504576654740804146776.html#articleTabs%3Darticle

(Image) http://smallbiztrends.com/wp-content/uploads/2009/09/reduce-boost-graph.jpg

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Auto Workers Union Revises Contracts with U.S. Auto Makers

The United Auto Workers, a union which represents more than 39,000 auto workers in North America (1), is reworking labor contracts with Ford, General Motors, and Chrysler. A tentative agreement reached with GM on Friday will help shape similar agreements with Ford and Chrysler. GM was chosen as "the lead company" because the UAW felt GM was most likely to meet the UAW's terms (2). 


The agreement with GM will not become an official contract until all 45,800 UAW workers at GM vote to ratify it. The agreement secures several items on the UAW's wish list that were not included in previous contracts. This contract is also the first new contract to be reached since GM recieved a federal bailout. The new terms include raising wages $2 to $3 for entry level workers and reopening a plant in Tennessee which has been left in the dark as a part of GM's restructuring plan. GM also included terms in the agreement that link employee bonus checks to vehicle quality (3). 


An agreement with Chrysler has yet to be reached, partially caused to disagreements and accusations between Chrysler's CEO and the UAW president. Negotiations will resume this week. Ford has been waiting to see the terms of the GM and UAW agreement before it finalizes its own agreement. 


While GM promised to restore previously lost jobs in its agreement, Ford may not be able to commit to similar action. GM has a larger workforce within North America and its factories have been operating at a higher capacity than Ford's factories. 


The problem with Chrysler's agreement may be matching a raise by Ford in entry level workers' salaries. Chrysler has more entry level workers than Ford, making it more costly for Chrysler to raise that group's wages.


Sources 
(1) http://www.uaw.org/node/39
(2) http://online.wsj.com/article/SB10001424053111904194604576579123890851828.html?mod=WSJ_auto_LeadStoryCollection
(3) http://online.wsj.com/article/SB10001424053111903927204576574693025239016.html?mod=WSJ_auto_IndustryCollection
(Image) http://www.sodahead.com/united-states/should-politicians-wear-their-sponsors-patches/question-

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