Volkswagen Profit drops 86%; Sales Decline

http://www.bloomberg.com/apps/news?pid=20601100&sid=aEtL7LDxc_ms

Summary

This article explains how the recession is causing Volkswagen, a German car producer, to see a 86% drop in net income and a 10% sales decline to 26 billion euros. However, the number of deliveries rose 8.9 percent, which means that the marketing plan was more quantity than quality. The main reason that Volkswagen is able to see an increase in its deliveries is because of China's rising economy and large market. An analyst from Fairesearch suggested selling these stocks because the ratio between revenue and deliveries is alarming. However, Volkswagen itself believes that it will perform better than the average market . The article further describes Volkswagen’s rise in most deliveries except in Audis. Also, the CEO of Volkswagen predicts 2010 to be a tough year and global auto markets will not return to pre-recession levels for several years. However, Volkswagen is still looking to take over Porsche's carmaking operations.

Connection

This relates to chapter 2 in that sales do not necessarily mean income. As even though Volkswagen's sales and deliveries were equal or greater than the previous year, there was too much of a decrease in the production-sales ratio to see the same results in net income. Quantity of the sales were kept as high as possible to disguise themselves as less impacted by the recession. The profit margin ratio that this results in would not be attractive to potential or current stockholders. However, this rise in inventory helped raise the net liquidity which can benefit the corporation’s intentions to take over the carmaking operations of Porsche.

Reflection

I think that while this strategy may not be reflected positively towards the company, it is a good move to keep stability in the auto market. Image is important in any type of business, and the increase in unit sales can keep typical customers interested. In such a competitive market in the modern society we have today, this is priority as there are too many choices out there. The decision to buy Porsche can also help brighten their image. However, this may be a risky move if all doesn't turn out the way they want. If there is another "dip" in the global economy, Volkswagen's hands may be tied due to the lack of recent income.

Citigroup Shareholders Agree on Increase on Outstanding Stock

http://www.forbes.com/feeds/ap/2009/09/03/business-financials-us-citigroup-shares_6845348.html

Summary
This article reveals that the shareholders of Citigroup Inc. has agreed upon increasing the number of outstanding shares, as it is necessary to complete a debt exchange program which gives the debt holders common stock. Shareholders have also agreed upon a reverse stock split which may happen any time before June 30, 2010, which will give shareholders 7 shares swapped for each held now. The article also explains how Citigroup has been the hardest hit American bank in the recent recession. Due to this recession, Citigroup saw its stock drop 17 dollars (750%) additional to the 30 dollars it dropped in the past 2 years. Citigroup has received 45 billion dollars from the government to aid its losses of more than 300 billion dollars in risky assets. Some of the fund will also be converted to stock as part of the debt exchange program, which will give the government 34% of the stocks. This process has been completed and Citi now has 22.88 billion shares of common stock outstanding.

Connection
This article relates to Ch.1 as we can see how although shareholders do not take part in everyday decisions, they are really a part of the corporation as a whole and can help make important decisions like this one. Furthermore, we can see how shares can be altered in order to make implications work. Citigroup is a great example of a bank who has to borrow money and issuing shares in order to repay debts. They also showed how bad equities and unreliable assets may lead to future problems which are often covered behind the temporary benefits.

Reflection
As hard as American banks were hit by the recession due to unreliable loans, they are able to temporarily recover by "making" more money from within the company itself. While this can help the economy recover, I believe this may only create future problems as the money from the government is coming from printers and borrowed from other countries. Furthermore, the current situation of Citigroup and other American banks have been caused by questionable decisions to invest on assets and loans which do not have a steady future.