Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 48

Productivity and Market Share in the Auto Industry; Internet Exercise The following data is obtained from the recent financial statements for two U.S. automakers (in $millions).

	Ford	GM
Sales	$154,379	$178,199
Cost of goods sold	142,589	166,239

Required

1. Calculate and interpret total productivity in dollars for the two automakers. Assume that total variable manufacturing costs are 80 percent of cost of goods sold for each automaker.

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2. Go to the Internet for these companies and look under investor information to find the financial statements for each company. Review the sections on management’s discussion and analysis and related financial statements and footnotes, and find the market size and market share information provided by these firms.

Ford: www.ford.com

GM: www.gm.com

Step 1 of 2

1.?The total productivity for the auto makers is shown below for the most recent year at the time of the question was prepared, 2007. Also, while not required,  the results for 2005 are also shown for comparison. (Chrysler LLP is excluded; since 2006 it is a private company and its financial statements are not publicly available):

		12/31/07		12/31/07
		Ford		GM
Sales	1,54,379	1,78,199
Cost of Goods Sold	1,42,589	1,66,239
Cost of good sold x 80%	1,14,071	1,32,991
Total Productivity	1.35	1.34
	12/31/05	12/31/05
	Ford	GM
Sales	1,53,503	1,58,221
Cost of Goods Sold	1,44,944	1,62,173
Cost of good sold x 80%	1,15,955	1,29,738
Total Productivity	1.32	1.22

The objective of this question is to make the students aware that total productivity can be at least approximated for a company the student is interested in by obtaining basic financial data from the firm’s annual report.

Note there are no significant differences between the auto makers or between the productivity measures for 2005 and 2007. Note that this is in contrast to the Harbour Report data on auto firm productivity, cited in Problem 16-34 which reports an increase in productivity (measured as labor hours per vehicle) for Ford. The two measures of productivity do not measure the same thing, so that these differences arise.

While the measures computed here are limited by the amount of information available, they can provide a starting point for looking at other measures of performance, and looking for more detailed information about product cost. For example, it would be useful to consider how these measures differ across the different manufacturing plants for the auto makers, across product division, and geographical divisions. For example, Ford’s 2005 annual report includes an analysis of “cost performance” which showed that costs increased from 2004 to 2005 in the following categories (in billions of dollars):

	?	Increase (decrease)
	Supplier related cost	$1
	Pension and health care	.8
	Warranty costs	.4
	Depreciation and amortization (investments
	in new equipment and faster depreciation)	.3
	Overhead (reduction in salaried personnel)	(.3)
	Manufacturing (reduction in personnel and
	improvements in efficiency)	(.9)
	Total increase in cost	1.3