Article Summary Inventories of SUVs, the Most Popular Class of Automobile in Automobile

question 177

Essay

Article Summary
Inventories of SUVs, the most popular class of automobile in the United States, have been growing, and automakers have been increasing incentives to reduce the supply. According to J.D. Power and Associates, incentives on SUVs rose an average of 24 percent from 2016 to 2017. Specials for Presidents' Day included no-money-down leases, cash rebates, and zero-interest loans on many SUV models from automakers including Ford, General Motors, Fiat Chrysler, Toyota, and Honda. Automakers have been able to afford larger incentives on SUVs due to the profitability of that segment of the auto market, but according to data from J.D. Power, while incentives are rising, the average sales price of SUVs has also started to decline.
Source: Keith Naughton and Jamie Butters, "Automakers Offer Massive Rebates to Move Surplus of SUVs," bloomberg.com, February 17, 2017.
-Refer to the Article Summary.What happens to the profit a car company makes on each car sold if it offers incentives such as cash rebates, low-interest loans, or lease incentives to customers? How might a car company decide which of these strategies to use?

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Definitions:

Prepaid Expense Account

An asset account that represents payments made in advance for goods or services to be received in the future.

Expenses

Outflows of resources or incurring of liabilities (or a combination of both) resulting from a company's activities intended to generate income.

Assets

Economic resources owned or controlled by a business or an individual that are expected to produce value.

Accounting Information System

A system designed to collect, store, manage, process, retrieve, and report financial data for its users.