Accounting 12 - Chapter 15

Link :
http://money.cnn.com/2009/03/03/news/companies/chrysler_viper.reut/index.htm?postversion=2009030317

Summary:
The Dodge Viper. It is a V10-powered sports car manufactured by the Dodge division of Chrysler LLC. Chrysler LLC is recently in discussions with two to three companies for the possible sale of the Dodge Viper sports car line, but the economic recession has slowed the process. But why sell this unique car to another company? The answer is simple, “Chrysler is exploring the sale of the Viper business in efforts to generate cash and ride out the deepening U.S. auto industry downturn.” Chrysler has had a 169% increase of sales of the Viper from the previous years, but recently, they have been struggling along with other automakers through the downturn in U.S. auto sales. Chrysler tries to seem calm by saying that they “are not in a big hurry to [sell the] Viper.” U.S. auto sales have declined 44% in February.

Connections:

The insiders and the outsiders of a company, and trend analyses were the connections I made between the article and chapter 15. The insiders, Chrysler, had to study their financial statements thoroughly and look at how the economy was doing in order to make key decisions about their company. In this article's case, Chrysler came to the decision that they wanted and probably needed to sell the Viper in order to survive the U.S. automobile industry downturn. The two to three companies interested in buying the Viper, the outsiders, had to analyze Chrysler's financial statements, and look at how the sales industry was doing in order to see if the Viper was worth purchasing or not. The outsiders are always looking for something that will grow in the future and something that will become very profitable. The last connection I made was the use of trend analyses. Chrysler uses presents their financial data as very well (ie. 169% sales increase from previous years), but it does not also show that U.S. auto sales have also declined 44% in February alone.

Reflection:

SELL SELL SELL! If Chrysler sells their Viper to another company, they will most likely ride out the deepening U.S. auto industry downturn. In general terms, Chrysler will actually benefit from the sale of their Viper for now. As for the company that purchases the Viper, I believe they will be in even harder times as the sales of automobiles have declined 44% in February alone. I think Chrysler is selling the Viper only because of the following reasons:

1) Auto sales are declining and will continue to decline.

2) Gas prices are rising, and the demand for V10-powered, fuel-eating sports cars are declining.

As for now, if Chrysler sells their Viper, they will benefit for the next couple of years. But if the economy turns around in a couple of years, the company that purchased the Viper, assuming they do not go bankrupt, will benefit.