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GRP – Topic Preference

Schaterika Matthews

Bus 6400

Baker College

Ramona Pollard

March 25, 2022

Finance is a discipline that involves studying how people, institutions, and corporations acquire, spend, and manage money and other financial resources at their disposal. Further, business finance covers financial planning, asset management, and money-raising by individuals, corporations, and financial organizations. An efficient financial system is a complex interplay of government and policymakers, financial system, financial companies, and financial markets that work together to accelerate the movement of financial capital from savings to investment. However, finance can not sustain itself, just by the flow and circulation of money, without some guiding principles. The finance principles guide proper investment and financial decisions, both in the short term and long term. There are six major founding principles of finance, but we will only focus on three. The first principle of finance states that money has a time value. The second principle relates to risk and return, and the third principle entails that Individuals respond to incentives. Another principle is focused around that reputation of a company. (Martin et al., 2020). This discussion analyzes Chrysler, one of the leading automobile manufacturers in the United States, and how it relates to the time value of money, risk and return, and reputation as some of the finance principles.

The time value of money is the first principle of money. It states that money has a time value and that its value decreases with time. Money earned today is more valuable than money earned in the future. This principle helps investors analyze the time value of their funds before investing, especially looking at the inflation levels in the prevailing economic times. The required rate of return of the investment should be greater than the level of inflation to accommodate any future losses triggered by inflation. Following the shortage of chips in the automotive industry, paying for them upfront helps. This, therefore, means that the company loses money for paying for products without a timely delivery, which affects car prices in the future due to inflation. Thus, to mitigate this, the company should consider timely payments for supplies.

The second finance principle states that a higher return is associated with taking higher risks. This principle emphasizes that high returns should accompany high-risk investments, and reaping low returns from risky investments is a waste of time. Chrysler risks buying chips outside the United States, and the returns are not reflected. The company would minimize this risk by having chip factories in the US and maximizing their returns. According to the U.S. Commerce Department, “the worldwide chip shortage will exist well into the last part of 2022, and possibly even 2023.” (Experts Warn Global Chip Shortage Likely To Last Beyond 2022, 2022) This issue first started its approach during the Covid pandemic, caused this chip shortage to affect multiple industries world wide. With this continuing issue, “The semiconductor shortage will lead to a decline of 400-600 basis points in sales from 16-17 per cent seen earlier to 11-13 per cent, according to a Crisil analysis of the top three passenger vehicles companies which command a combined market share of 71 per cent.” (Automobile Industry Snapshot, 2022) With this being the case, President Joe Biden unveiled an executive order with the target of half of cars sold in the US being zero-emissions vehicles by 2030. (Tovey, 2022)

The third finance principle states individuals respond to incentives, which is a very true statement, especially for FCA. This year, the profit sharing was maxed out at 15,000 for the previous work year. According to Click on Detroit,, “UAW-represented Stellantis employees, about 43,000, will be paid out profit sharing checks on March 11, 2022. The eligible profit sharing amount is $14,670, but actual payments based on individual compensated hours.”

Reputation is a crucial principle in finance. (Haddad, 2022) What this does is shift the market, to make future employees gravitate towards Chrysler, for employment. This also takes the focus point off of any other company, because the market is based from profits.

Reputation influences individuals in making investment decisions. Chrysler's reputation is at stake following the chip shortage. Customers may find the company unreliable when placing orders, and car sales may decrease. Chrysler should protect its reputation by finding a reliable supplier. The Chip shortage is a con for Chrysler, but the elevated profit sharing is the pro for Chrysler.

References

Content.ebscohost.com. 2022. Automobile Industry Snapshot. [online] Available at: <https://content.ebscohost.com/ContentServer.asp?T=P&P=AN&K=154248803&S=R&D=bth&EbscoContent=dGJyMMvl7ESeqK84y9fwOLCmsEqep7FSsKa4TLKWxWXS&ContentCustomer=dGJyMPGut1GyrrdIuePfgeyx43zx> [Accessed 21 March 2022].

Martin, J. D., Keown, A. J., & Titman, S. (2020). Financial management: principles and applications. Prentice-Hall.

Haddad, K., 2022. Stellantis employees will get largest profit sharing payment in 35 years. [online] WDIV. Available at: <https://www.clickondetroit.com/news/local/2022/02/23/stellantis-employees-will-get-largest-profit-sharing-payment-in-35-years/?outputType=amp> [Accessed 24 March 2022].

PetaPixel. 2022. Experts Warn Global Chip Shortage Likely To Last Beyond 2022. [online] Available at: <https://petapixel.com/2022/02/23/experts-warn-global-chip-shortage-likely-to-last-beyond-2022/> [Accessed 21 March 2022].

Tovey, A., 2022. Car sales slump to lowest level since 1998 over chip shortage. [online] Advance-lexis-com.bakerezproxy.palnet.info. Available at: <https://advance-lexis-com.bakerezproxy.palnet.info/document/?pdmfid=1516831&crid=afecc5e0-80cf-460b-bfeb-b67d063e1565&pddocfullpath=%2Fshared%2Fdocument%2Fnews%2Furn%3AcontentItem%3A639J-K6F1-DYTY-C0V4-00000-00&pdcontentcomponentid=8109&pdteaserkey=sr0&pditab=allpods&ecomp=wzvnk&earg=sr0&prid=ab67c8cd-d61d-4170-87b9-2c0fffd05835> [Accessed 21 March 2022].