How will selling more trucks than cars affect automobile manufacturers’ profits?

Photo source: http://worldcarslist.com/page/ford-pickup/default.html According to a recent article in USA Today (“Crossovers, trucks beating cars in sales,” Alisa Priddle, Detroit Free Press, March 16, 2014), the sales mix for automobile manufacturers such as Ford and GM has shifted to a ratio of approximately 47% cars and 53% trucks.  “Trucks” includes light trucks, crossovers, and SUVs.

In 1980, cars accounted for 80% of the market.  Cars accounted for the majority of the market until 2001, when trucks outsold cars for the first time.  When the economy tightens, as in 2008, cars are more in favor with buyers since cars are, on average, less expensive to purchase and operate than are trucks.  High gas prices also tilt buyers towards cars over trucks.

Trucks are generally more profitable for automobile manufacturers than cars.

Questions

  1.        What does the term “sales mix” mean?
  2.        Is it possible for an automobile manufacturer to sell exactly the same number of vehicles in two consecutive years but have different net incomes?  Assuming the difference is due to a shifting sales mix, describe what would happen to net income given a change in the sales mix.

Instructor Resources

These resources are provided to give the instructor flexibility for use of Accounting in the Headlines articles in the classroom. The blog posting itself can be assigned via a link to this site OR by distributing the student handout below. Alternatively, the PowerPoint file below contains a bullet point overview of the article and the discussion questions. The YouTube video link below is a narration of the blog post article (no discussion questions are included in the YouTube video; those can be assigned separately.)

  • Student handout (pdf) (word) (contains entire blog posting + discussion questions)
  • PowerPoint file (brief article overview + discussion questions)
  • YouTube video (narrated article in shareable YouTube link)

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License.

About Dr. Wendy Tietz, CPA, CMA, CGMA

Dr. Wendy Tietz is a professor of accounting at Kent State University in Kent, Ohio, USA. She is also a textbook author with Pearson Prentice-Hall.

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