In the news: GM Records Biggest Profit Ever

The following post is more directed to my ECON 2302/Microeconomics Students:

Recently on Yahoo News, the Associated Press reported record profits for General Motors.  This is just 2 years after it nearly fell apart due to financial difficulties.  General Motors went through major downsizing and had shuttered the Oldsmobile, Pontiac and Hummer makes during the past few years, closed plants, and went through a government sponsored bailout.

Per the article:

Strong sales in the U.S. and China helped the 103-year-old carmaker turn a profit of $7.6 billion, beating its old record of $6.7 billion in 1997 during the pickup truck and SUV boom.

GM is a vastly different company than it was back then. It's smaller, has less debt and its contract with the United Auto Workers is less costly. But it took a government bailout and a trip through bankruptcy protection in 2009 to cut its bloated costs. The company made record money last year even though U.S. auto sales were near historic lows at 12.8 million cars and trucks.

But problems surfaced in its 2011 results. GM lost $747 million before taxes in Europe, and its South American operations lost $122 million. Sales growth slowed in the U.S. in the fourth quarter, even as more Americans bought cars and trucks. Also, GM's fourth-quarter profit fell 8 percent and results missed Wall Street expectations.

This year, GM expects to increase its revenue as global auto sales grow and it charges more for models. However, it will make less money per vehicle as the mix of sales continues to shift to cars from trucks, which have bigger sticker prices. It also expects to invest $8 billion on new products and technology, and says pension expenses will rise. The company wants to keep expenses down by freezing its underfunded U.S. pension plan for salaried workers.  

Several Unit 2 concepts in Microeconomics are covered within this particular article and as we go through Unit 2 I would like you to add to the discussion in the comments.

Questions for Discussion:


1.  Under which of the four output market structures is the Automobile Industry?  How well does it fit the descriptions?  Consider all attributes: type of product, size of an individual firm relative to market, ease of entry/exit to the market, degree of price control an individual firm possesses, degree of non-price competition in the market.

2.  What type of costs are detailed in the news article (explicit or implicit, fixed or variable)?  Explain why these costs fit the description.

3.  What economic term could be used in the place of the phrase "money per vehicle"?  Explain why that is the appropriate term.

As always, any articles presented in the blog are NOT AVAILABLE for students to use for their semesterly article reports.

I welcome all thoughtful comments/discussion.

Success to you all!!!

Prof. Hank Lewis