This Blog Has Moved!

My blog has moved. Check out my new blog at

Your Ad Here

Sunday, November 9, 2008

Ford and GM Creative Accounting

I saw this post on Yahoo Finance, and thought it was hilarious. See if you can find the joke yourself?

DEARBORN, Mich. (AP) -- Ford Motor Co. said Friday it lost $129 million in the third quarter as the struggling automaker burned through $7.7 billion in cash and set plans for more job cuts.

I also liked this article on GM, but it wasn't as ridiculous as Ford's earnings report.

DETROIT, Mich. (AP) -- General Motors Corp. reported a $2.5 billion loss in the third quarter and warned Friday that it could run out of cash in 2009 if the U.S. economic slump continues and it doesn't get government aid.


GM said its cash burn for the quarter accelerated to $6.9 billion, and government aid will be "essential" because of the slow economy and credit crisis.

Did you get the joke?

Ford reported an accounting loss of $129M during the third quarter. However, "money spent" minus "income" is $7.7B.

According to accounting fantasies, Ford showed a slight loss, while its cashflow was -$7.7B. Similarly, GM had an accounting loss of $2.5B while its cashflow was -$6.9B.

Corporations are allowed to take "one time charges" to earnings that don't count as part of earnings. However, corporations have a tendency to do this frequently.

GM and Ford will probably get bailed out. As usual, everyone else pays the cost as higher taxes or higher inflation.

An individual or small business owner that is struggling due to the recession/depression loses everything. Insiders always qualify for a bailout

GM and Ford receive indirect State subsidies in the form of loans with negative real interest rates. They receive indirect State subsidies in the form of regulations that make it hard/impossible for someone to start a competing car manufacturing business. There are so many regulations that must be followed in order to get a car approved as legal to drive; this effectively makes a small car manufacturing business unprofitable.

Now, GM and Ford will probably receive an explicit bailout. The average person pays the cost as inflation or higher taxes. The average person pays the cost as higher prices for cars, and lower quality cars. For example, cars are designed with "planned obsolescence" in mind. A car is designed to wear out after 5-10 years, so people will buy a new car. It is possible to build better cars, but with a monopoly, why bother building quality cars?


fritz said...

I know that GM and ford love and hate each other.they support each other through competition,are heavily unionized ,and there stocks are publicly traded.
Both companies are American icons.I would bet my bottom dollar that either company has the ability to produce a truly economical,reliable,modern car that the average person could afford.something like "the peoples car" .A car you could fix yourself and would be of high quality..

Now would be the time to do it.It almost seems like they are drugged,blind folded, and fighting with one hand tied behind there back.

thomasblair said...


I doubt we'll see a "people's car" from GM or Ford. They have a vested interest in planned obsolescence - they need us to keep buying their shitty cars to stay in business. It wasn't always this way. One specific piece of equipment I'm familiar with - the double reciprocating compressor - lasts as long as it's properly maintained. The design is such that the double reciprocating action compresses air on the down- and up-strokes, relieving stresses on the moving parts. Not surprisingly, the only double recips you see anymore are ones that were built 50 years ago and have been properly maintained. I wonder how the business climate and manufacturing incentives have changed over the years to encourage this throw-away-and-buy-a-new-one mentality rather than build a solid piece of properly engineered equipment and have it last for years and years.

fritz said...

Thomas blair,

Thanks for the feed back.I understand that there are many tech"s competing for the money.there are oil revinues ,standard business practices,and the industry to be considered.

But why the hell isn't anyone thinking of the regular guy who just wants to just buy a car,drive around,and go to work.

Henry ford wanted 2 things,personal power,(To be known as a great business man) and most of all, to give the average man the power to liberate his of her self.

with this day and age,our technology,I wonder why the powers to be can't step back into the past. Do whats good for people,and that would be good for the company. People buy shares of the company, and have a say.

I'm just perplexed as to why no one is acting on our behalf. I almost think those large companies don't exist to help people. that they only exist to help them selves.

I would rather believe that Gm or Ford would love to help people more than keeping the insiders financed ..

I know,,slap your self and wake up..I think I'm begining to understand whats going on........................................................

This Blog Has Moved!

My blog has moved. Check out my new blog at