ADMG 302 Final Project – Step 4 -- Analysis Questions (90 points).docx

ADMG 302 Final Project – Step 4 -- Analysis Questions (90
points)
Before answering these analysis questions, complete the first
three steps of the project (see the Canvas module).
To answer these analysis questions, you will need the
worksheets from Steps 1, 2, and 3. You will also need IPG
Photonics Corporation’s 12/31/2016 financial statements from
the Form 10-K filed 2/27/2017 and Coherent Inc.’s 10/1/2016
financial statements from the Form 10-K filed 11/29/2016. If
you have not already printed the worksheets and financial
statements--balance sheets, income statements, and statements
of cash flow--it is recommended you print them before
beginning your work on these questions. Also, you will need to
look in IPG Photonics’ Notes to the Financial Statements to
answer some questions, so have IPG Photonics’ 12/31/2016
financial statements available to view online.
The financial statements can be found in the typical place on
each company's website (Investors or Investor Relations, SEC
filings, Annual Reports). To access Coherent’s Form 10-K, you
will need to accept the terms relating to a statement about risk
factors—interesting!) As usual, the financial statements are in
Item 8 of the reports, and the Notes to the Financial Statements
are immediately following the financial statements.
To answer each question in this assignment, you first need to
decide which information to use. Some questions require you to
look closely at the ratios for IPGP, Coherent, and/or the
industry averages on the Ratios worksheet. Other questions
require you to use the percentages calculated in the Vertical and
Horizontal analysis worksheets, and other questions require you
to look in the financial statements or the Notes to the Financial

Statements. The last six questions pertain to the investment
analysis you started in Step 3.
One additional note that applies to several of the questions: On
the Ratios worksheet, industry averages are the averages of all
similar companies in the Semiconductor and Other Electronic
Components industry. Although Coherent, Inc. is IPGP’s
closest competitor, all similar companies in the industry are
competitors, so when a question asks you to compare IPGP to
competitors, look at Coherent’s ratio results and the industry
averages.
After answering the questions in this file, login to Cengage and
complete the "Final Project – Step 4 – Analysis Questions"
assignment. There are no “Check My Work” opportunities on
this assignment, and you can submit only once. Immediately
after submitting the assignment, you will be able to see only
your score. The detail about which questions you missed and
the correct answers will display after the assignment deadline.
You are encouraged to work with classmates to discuss the
questions and answers, but each student must complete his/her
own assignment in CengageNOW.
Questions (2 pts. each)
Answers
1
In 2014, 2015 and 2016, how did IPG Photonics (IPGP)
generate most of its cash flow?
a) through operations (by doing what it is in the business of
doing)
b) by selling off its buildings and equipment, which could
indicate it was in financial trouble
c) by obtaining bank loans, which could indicate either it was a
startup company, or it was in financial trouble

d) by issuing stock, which could indicate it was a startup
company
2
Calculate the dollar amount of increase or decrease in IPGP’s
working capital from the end of 2015 to the end of 2016.
Calculate the percent of increase or decrease in IPGP’s working
capital from the end of 2015 to the end of 2016.
Remember to check the financial statements to see if the
numbers are in thousands or millions (or neither). Include all
the zeros in your answer.
$ __________________ (Increase or decrease?)
Round your answer to one decimal place.
______ % (Increase or decrease?)
3
At the end of the 2016 fiscal year, based on the liquidity
measures of Working Capital, Current Ratio and Quick Ratio,
how does IPGP’s ability to pay current liabilities and pay them
on time compare to the same measures for its closest
competitor, Coherent, Inc. and other companies in the same
industry?
Remember, Coherent’s ratios (and industry averages) are on the
right of the Ratios worksheet you completed in Step 2.
At the end of the 2016 fiscal year, IPGP was in a _________
(better or worse) position than its competitors to pay current
liabilities and pay them on time.

Which company will probably have an easier time obtaining a
short-term loan?
better
worse
IPGP
Coherent
4
Remember that “net” means something has been subtracted.
What has been subtracted from IPGP’s Accounts Receivable on
the balance sheet?
a) The cumulative amount of depreciation recorded in the past
b) The amount of refunds IPGP received from its vendors
because of defective products IPGP returned
c) The amount of discounts IPGP received from vendors
because of paying invoices early
d) The estimated amount of money IPGP will not be able to

collect from customers who owe IPGP for products and services
already delivered to those customers
e) The amount of inventory shrinkage
5
How many days, on average in 2016, did it take IPGP to collect
payments from customers for products and services IPGP had
sold to them?
_______ days
6
Given the data you have, which of the following statements is
(are) true regarding IPGP’s management of accounts receivable?
Hint: Remember to look on the Ratios worksheet at Coherent
and the industry averages when asked about IPGP’s
competition.
a) Comparing 2016 to 2015, the percent increase in IPGP’s Net
Sales was larger than the percent increase in its Accounts
Receivable.
b) If IPGP’s typical credit terms are 2/10, n/30, receivables
need to be further analyzed to find out why they are taking
longer to collect than they should be.
c) If IPGP’s credit terms are typically something such as 2/20,
n/60, the company’s collection of receivables is on track.
d) In 2016, on average, IPGP collected its receivables more
slowly than its competitors collected their receivables.
e) A, B, and C are true.
f) A, B, C, and D are true.
7

What method of inventory valuation does IPGP use for
accounting purposes? (Refer to Note 1 in the Notes to the
Financial Statements.)
a) FIFO
b) LIFO
c) Average Cost
8
How many days, on average, in 2016 did it take IPGP to sell its
inventory?
_______ days
9
Given the data you have, which of the following statements is
(are) true regarding IPGP’s management of inventory?
a) The ratios indicate IPGP has been efficiently managing its
inventory, as compared to competitors (Coherent and industry
averages).
b) Comparing 2016 to 2015, the percent increase in IPGP’s Cost
of Sales was larger than the percent increase in its Inventory.
c) It took IPGP more days to sell its inventory in 2016 than it
took in 2015.
d) In 2016, IPGP took longer than competitors (Coherent and
industry averages) to sell its inventory.
e) A, B, and C are true.
f) A, B, C, and D are true.
g) B, C and D are true.
h) C and D are true.
10
Looking at IPGP’s and Coherent, Inc.’s Statements of Cash

Flows, which of the following statements is (are) true regarding
the companies’ cash investment in property, plant, and
equipment in 2014, 2015, and 2016?
a) IPGP brought in more money from selling property and
equipment than it spent buying and/or improving property and
equipment.
b) Each year, IPGP invested more cash in new property and
equipment than that year’s depreciation and amortization on
existing assets. (See the top section of the Statement of Cash
Flows to find “Depreciation and Amortization” for each year.)
c) Each year, as compared to the previous year, IPGP steadily
decreased the amount of money it invested in property, plant,
and equipment.
d) Each year, IPGP invested more money in property, plant, and
equipment than Coherent, Inc. invested in property and
equipment.
e) A and C are true.
f) B and D are true.
11
Of the fixed assets IPGP owned at the end of 2016, which fixed
asset category had IPGP spent the most money on?
(Hint: Remember, when you cannot see the detail you need in
the financial statements, look in the Notes to the Financial
Statements. You will find a breakdown of IPGP’s property,
plant, and equipment in Note 4.)
a) Buildings
b) Machinery and equipment
c) Office furniture and fixtures
d) Construction in progress
12
As an IT manager, you know you will need to make equipment
and software purchases. Which of the following statements is
(are) true regarding IPGP’s ability to pay for, and attitude

toward, purchasing new equipment?
a) IPGP appears to have excess cash and relatively few
liabilities.
b) IPGP appears to be very profitable as compared to its
competitors.
c) IPGP appears to be willing to invest in equipment.
d) All of the above are true.
13
What method of depreciation does IPGP use for book (financial
accounting) purposes? (Remember, the Notes to the Financial
Statements give you this type of information. Look for
“Significant Accounting Policies”.)
a) Straight-line
b) Double declining balance
c) MACRS
14
In terms of total assets, which company (IPGP or Coherent)
grew more in the 2016 fiscal year (as compared to 2015)?
a) IPGP grew more than Coherent, Inc. did.
b) Coherent, Inc. grew more than IPGP did.
15
Did IPGP purchase any companies (businesses) in 2016?
Remember, you can get clues in the Statement of Cash Flows.
(Which section would you check?), and the Goodwill account on
the balance sheet.
Yes
No
16

While reviewing the liability section of the balance sheet, you
notice IPGP has Accrued Expenses. What kinds of things might
be included in this line?
a) Items such as insurance plans and office supplies that IPGP
had paid for but had not used up prior to the balance sheet date
b) Items such as depreciation on equipment that was purchased
in the past but had not been fully depreciated as of the balance
sheet date
c) Items such as employee wages that were earned but that IPGP
had not paid for as of the balance sheet date
d) Items such as lawsuit expenses that might possibly occur, but
for which the amount had not been determined as of the balance
sheet date
17
Remember that many companies use the term "Long-Term Debt"
or “Long-Term Obligations” when referring to bank loans. The
current portion is shown under Current Liabilities, and the long-
term portion is shown as part of long-term liabilities.
What is the total amount IPGP owed to banks (current portion
plus long-term portion) at the end of 2016?
Include all the zeros in your answer.
$ _________________________
18

Considering the Debt Ratio and the Ratio of Liabilities to
Stockholders’ Equity for 2016, has IPGP used more or less debt
to finance its operations than its competitors have used?
(Competitors include Coherent and the industry averages.)
a) IPGP has used a higher portion of debt than its competitors
have.
b) IPGP has used a lower portion of debt than its competitors
have.
19
Considering the Ratio of Liabilities to Stockholders' Equity, has
IPGP used more debt (loans) or more equity (selling stock
and/or using its own earnings) to finance its operations?
a) IPGP has used significantly more debt than equity to finance
its operations.
b) IPGP has used significantly more equity than debt to finance
its operations.
20
Comparing IPGP’s and Coherent’s Ratio of Fixed Assets to
Long-Term Liabilities, are noteholders (creditors such as
bankers) likely to feel more comfortable extending additional
long-term loans to IPGP or to Coherent, Inc.?
a) Noteholders are likely to feel more comfortable extending
additional long-term loans to IPGP than to Coherent, Inc.
b) Noteholders are likely to feel more comfortable extending
additional long-term loans to Coherent, Inc than to IPGP.
21
Comparing IPGP’s Times Interest Earned ratio to Coherent’s
and the industry averages, what can you say about IPGP’s

creditors’ level of comfort with IPGP’s ability to make interest
payments in the future?
a) IPGP’s creditors would assume IPGP would have absolutely
no problem making its interest payments when they come due,
even if IPGP experiences a slight decrease in earnings.
b) IPGP’s creditors would be nervous about IPGP’s ability to
make its interest payments when they come due, especially if
IPGP’s earnings decrease even slightly.
22
Which statement best describes the trend in IPGP’s revenues
and the trend in its closest competitor, Coherent, Inc.’s,
revenues over 2014, 2015, and 2016?
a) IPGP’s revenues (in dollars) steadily increased. Coherent’s
revenues also steadily increased. In each of three years, IPGP’s
revenues were greater than Coherent’s.
b) IPGP’s revenues (in dollars) steadily increased. Coherent’s
revenues also steadily increased. In each of the past three
years, IPGP’s revenues were less than Coherent’s.
c) IPGP’s revenues (in dollars) steadily increased. Coherent’s
revenues decreased from 2014 to 2015, but increased in 2016.
In each of the three years, IPGP’s revenues were greater than
Coherent’s.
d) IPGP’s revenues (in dollars) steadily increased. Coherent’s
revenues also steadily increased. In 2015, IPGP’s revenues
surpassed Coherent’s revenues, and IPGP’s revenues were
greater than Coherent’s again in 2016.
23
What was IPGP’s percent increase in revenues from 2015 to
2016?

_____ %
24
Which statement is correct regarding the trend in IPGP’s net
income and Coherent, Inc.’s, net income over 2014, 2015, and
2016?
a) IPGP’s net income steadily increased, both in dollars and as a
percent of revenues.
b) Coherent’s net income steadily decreased, both in dollars and
as a percent of revenues.
c) In each of the three years, IPGP’s net income was greater
than Coherent’s net income, both in dollars and as a percent of
revenues.
d) In each of the three years, IPGP’s net income in dollars was
more than Coherent’s, but IPGP’s net income as a percent of
revenues was less than Coherent’s.
25
In 2014, 2015, and 2016, what was IPGP’s most costly income
statement item?
a) IPGP’s cost of the products and services it sold to customers
b) Sales and marketing expenses
c) Research and development expenses
d) General and administrative expenses
e) Interest expense
f) Income taxes
26
On average, for each dollar IPGP spent on the cost of products
and services it sold in 2016, how many cents did it add on to

establish its selling price? (In other words, in 2016, on average,
for each dollar in cost, how many cents did IPGP mark up its
products and services?)
For each dollar in cost, on average, how many cents did
Coherent, Inc. mark up its products and services?
For each dollar in cost, on average, how many cents did all
companies in the industry mark up their products and services?
NOTE: If you are having trouble with this question, look back
at the Chapter 4 Analysis Questions. To see the correct answers
to those questions, go to the CENGAGE gradebook and click on
your score for each question.
Round each answer to the nearest one-tenth of one cent (one
decimal place) – for example, 83.8 cents. If the markup is
greater than $1.00, still write it in cents. For example, a
markup of $1.346 would be 134.6 cents.
_______ cents
_______ cents
_______ cents
27
In 2016, on average, for each dollar of product and service sold,
how many cents in profit did IPGP and Coherent make after

accounting for their cost of the products and services sold?
Round each answer to the nearest one-tenth of one cent (one
decimal place).
IPGP (year ended 12/31/2016): ______ cents
Coherent, Inc. (year ended 10/1/2016): ______ cents
28
How did IPGP’s 2016 Gross Profit Percent and Operating Profit
Margin (also called Return on Sales) compare to 2015?
a) IPGP’s Gross Profit Percent and Operating Profit Margin
were both better in 2016 than in 2015.
b) IPGP’s Gross Profit Percent and Operating Profit Margin
were both worse in 2016 than in 2015.
c) IPGP’s Gross Profit Percent was better in 2016 than in 2015,
but its Operating Profit Margin was worse in 2016 than in 2015.
d) IPGP’s Gross Profit Percent was worse in 2016 than in 2015,
but its Operating Profit Margin was better in 2016 than in 2015.
29
How did IPGP’s 2016 and 2015 Gross Profit Percent and
Operating Profit Margin compare to Coherent’s and the
industry averages?
a) IPGP’s Gross Profit Percents and Operating Profit Margins
were better than Coherent’s and the industry averages.
b) IPGP’s Gross Profit Percents and Operating Profit Margins
were worse than Coherent’s and the industry averages.
c) IPGP’s Gross Profit Percents were better than Coherent’s and
the industry averages, but IPGP’s Operating Profit Margins
were worse than Coherent’s and the industry averages.
d) IPGP’s Gross Profit Percents were worse than Coherent’s and

the industry averages, but IPGP’s Operating Profit Margins
were better than Coherent’s and the industry averages.
30
For IPGP, which of the following types of expenses increased
the most in 2016, as a percent increase from 2015?
a) Sales and marketing expenses
b) Research and development expenses
c) General and administrative expenses
31
In a high-tech industry, research and development of new
products is essential. In 2016 and 2015, how did IPGP’s
research and development costs compare to Coherent’s?
a) IPGP spent more on research and development than Coherent
did, both in dollars and as a percent of revenues.
b) IPGP spent less on research and development than Coherent
did, both in dollars and as a percent of revenues.
c) IPGP spent less dollars on research and development than
Coherent did, but as a percent of revenues, IPGP spent more on
research and development than Coherent did.
32
In order to be profitable, it is important for a company to keep
its selling, general, and administrative expenses under control.
In 2016 and 2015, how did IPGP’s selling, general, and
administrative expenses compare to Coherent’s?
Notice, you will need to combine two lines for IPGP (Sales and
marketing, and General and administrative). Coherent’s are all
on one line.
a) IPGP spent significantly more on selling, general, and
administrative expenses than IPGP did, both in dollars and as a
percent of revenues.

b) IPGP spent significantly less on selling, general, and
administrative expenses than Coherent did, both in dollars and
as a percent of revenues.
c) IPGP spent less dollars on selling, general, and
administrative expenses than Coherent did, but as a percent of
revenues, IPGP spent more on selling, general, and
administrative expenses than Coherent did.
33
Considering the Asset Turnover ratio, in 2016 was IPGP more
or less effective than its competitors at using its long-term
operating assets to generate sales?
a) In 2016, IPGP was more effective than both Coherent, Inc.
and the industry averages at using long-term operating assets to
generate sales.
b) In 2016, IPGP was less effective than both Coherent, Inc. and
the industry averages at using long-term operating assets to
generate sales.
34
Considering the Return on Total Assets, in 2016 was IPGP more
or less effective than its competitors at using its total assets to
generate profits?
a) In 2016, IPGP was more effective than both Coherent, Inc.
and the industry averages at using total assets to generate
profits.
b) In 2016, IPGP was less effective than both Coherent, Inc. and
the industry averages at using total assets to generate profits.
c) In 2016, IPGP was less effective than Coherent, Inc. at using
total assets to generate profits, but more effective than the
industry averages.
35
What type(s) of stock has IPGP issued to stockholders?
a) Common stock
b) Preferred stock
c) Common and preferred stock

d) The financial statements do not show what kind of stock has
been issued.
36
Considering the Return on Stockholders' Equity and Earnings
Per Share, are IPGP's stockholders likely to be happy with
IPGP’s ratios, compared to the competition (Coherent and the
industry averages)?
a) Stockholders would be concerned about the decrease in the
Return on Stockholders’ Equity, because it was caused by a
decrease in net income in 2016. However, they would be happy
that IPGP’s Earnings per Share continues to be higher than
Coherent’s.
b) Stockholders probably are happy that IPGP’s Return on
Stockholders’ Equity and Earnings per Share continue to be
higher than competitors’, including Coherent.
c) Stockholders would not care about the Return on
Stockholders’ Equity or the Earnings per Share, because
investors tend to ignore both ratios.
37
Considering IPGP's most recent Price-Earnings (P/E) Ratio, do
investors appear to expect IPGP's future earnings to be more or
less favorable than its competitors' future earnings, on average?
a) It appears investors expect IPGP’s future earnings to be more
favorable than Coherent’s future earnings and the industry on
average, which is not surprising, given the most recent
profitability ratios.
b) It appears investors expect IPGP’s future earnings to be less
favorable than Coherent’s future earnings and the industry on
average, which is a bit surprising, given the most recent
profitability ratios.
c) It appears investors expect IPGP’s future earnings to be less
favorable than Coherent’s future earnings, but slightly more
favorable than the industry on average.

38
What was IPGP’s largest asset at the end of 2016 and the end of
2015?
a) Cash and cash equivalents
b) Receivables
c) Inventories
d) Prepaid expenses
e) Property, plant, and equipment
39
When companies have enough cash and enough retained
earnings, typically, shareholders expect to receive a return on
their investment in the form of dividends. They also expect
dividends to be consistent or to increase from year to year.
Which statement best reflects what IPGP’s shareholders most
likely think about the dividends they received in 2016 and
2015?
a) IPGP’s shareholders probably were happy they received
dividends in 2016 and 2015.
b) IPGP’s shareholders probably understand that the company
could not pay dividends in 2016 or 2015 due to low cash
balances in each of those years.
c) IPGP’s shareholders probably wonder why they did not
receive dividends in 2016 or 2015, given that the company’s
cash balances and retained earnings both increased in each of
those years, and given that the company had so much cash in
2016 and 2015, it even purchased more short-term investments.
40
For this question and all remaining questions in this assignment,
refer to the information you prepared for Step 3, related to the
new inventory management system.

Assuming you had used the correct number for the company’s
required rate of return (15%), and assuming there are no other
investment proposals competing for the same money, would
IPGP consider the new inventory management system to be a
good capital investment opportunity?
Yes
No
41
In Year 1 of the project, how would the proposed inventory
management system impact IPGP’s Current Ratio?
Would this make the Current Ratio better or worse?
Increase the ratio
Decrease the ratio
Better
Worse
42
In each of Years 2-4 of the project, how would the proposed
inventory management system impact IPGP’s Current Ratio?
Would this make the Current Ratio better or worse?
Increase the ratio

Decrease the ratio
Better
Worse
43
In each of Years 1-4 of the project, how would the proposed
inventory management system impact IPGP’s Inventory
Turnover?
Would this make the Inventory Turnover better or worse?
Increase the turnover
Decrease the turnover
Better
Worse
44
Notice all five of the solvency measures in Step 2 would be
affected each year of this project. Would the proposed project
make the solvency measures better or worse?
Better
Worse
45
Almost all of the profitability measures we used in Step 2 would
be affected each year of this project.
Would the proposed project make the Gross Profit Percent
better or worse (even just a little)?

Better
Worse
Page 1
Final Project Step 4 – Analysis Questions Page 1
Page 1 of 4 © 2017 Factiva, Inc. All rights reserved.
No Traction: Europe's Car Makers Spin Their Wheels
By Vanessa Fuhrmans
2,085 words
1 October 2013
The Wall Street Journal
J
A1
English
(Copyright (c) 2013, Dow Jones & Company, Inc.)
Sergio Felice embodies a woeful present for European auto
makers. He may also reflect a dim future.
Growing up in Italy, the 41-year-old bank consultant says, "it
was always important to have a nice car." Now living
in Barcelona, he had been saving up to buy an Audi TT. Then
Europe's economic distress pushed him to
reorganize his financial priorities, and owning a car is no longer
one of them.
Even when better times return, he says, he probably won't buy a
car until he is in his 60s. He uses public

transportation, a motorbike and car-sharing services, he says,
and "I prefer to put the money I don't spend on a
car in a retirement plan."
Behind Mr. Felice's shift in driving habits lie trends that present
Europe's car makers with a hard prospect:
Whenever the Continent crawls back from its debt-crisis
ravages, its auto market likely won't.
Europe's largely unprofitable auto sector already is among the
biggest industrial casualties of the crisis. New-car
registrations in Europe have fallen to nearly a two-decade low.
Most mass-market car makers are losing money
on the Continent. Moody's Investors Service Inc. estimates that
PSA Peugeot Citroen, General Motors Co.'s
Opel, Fiat SpA and Ford Motor Co. will lose a combined 4.9
billion euros ($6.6 billion) in the region this year.
Some industry executives and consultants warn that Europe's
economic crisis isn't just sparking a temporary
downturn in car sales, but is also accelerating a more
fundamental decline in consumer appetite for cars -- a
decline that may presage more plant closings, job cuts and
economic pain well into a broader recovery.
A combination of factors -- rising fuel prices, more-durable
vehicles, the car's decline as a status symbol and
fewer youth getting licenses, among them -- has made buying
new cars less of a habit for Europeans.
While some of those factors are playing out in the U.S., where
auto sales have roared back to pre-slump levels,
there is one difference: America's driving-age population is still
growing, while the number of driving-age
Europeans is projected to shrink.

"Europe is going to be tough for a long time," says Carlos
Ghosn, chief executive of Nissan Motor Co. and
Renault SA. Renault has said it plans to cut 7,500 jobs by 2016,
or 17% of its French workforce, after an 18%
drop in its European sales last year.
Even when consumer confidence rebounds, he says, Europe isn't
likely to see the growth of years past. As in
other developed markets, he says, autos have become less
relevant among younger Europeans because of
smartphones and other products that connect people.
IHS Automotive, an auto-industry forecaster, predicts European
passenger-car sales will climb to 14.7 million
vehicles in 2020, 8% short of their 2007 peak, from an
estimated 12.2 million this year.
Some car makers see a glimmer of hope, arguing that sales have
fallen so far in six years that Europeans will fuel
a modest recovery when they replace aging cars. The average
car age in Europe's top five markets climbed to
8.7 years in 2012 from 7.9 years in 2009, according to the
Roland Berger Strategy Consultants.
"It is likely some pent-up demand is building," says Ellen
Hughes-Cromwick, Ford's chief economist, and "that will
be an important feature going forward."
Executives at car makers such as Peugeot and Daimler AG have
said they see signs the market is stabilizing and
could improve next year.

And it is too early to tell exactly what Europe's auto market will
look like in better times, given that the overall
economy still remains weak. The euro zone, on the whole, saw
its first growth since 2011 in the second quarter of
this year, as the currency bloc's economy expanded 1.1% on an
annualized basis.
European manufacturers with big sales abroad say fast-growing
emerging markets will more than offset Europe's
stagnation. Volkswagen AG, in particular, aims to dethrone
Toyota Motor Corp. as the world's biggest car maker
within five years on the back of growing sales in China and
other developing countries. While VW's European
sales also have declined, the company has managed to gain
market share in the region.
Any European forecast counting on a broad rebound is too rosy,
says Jean-Marc Gales, a former Peugeot
executive and head of a Brussels-based umbrella group for
European automotive suppliers.
"At best," he says, Europe "is stabilizing. But moving up? I
don't see it because of structural trends, and they're
not going away overnight."
More than any other of those structural trends, demographics is
working against Europe. In the U.S., the
population aged 15 to 65 is set to expand well past 2020,
according to United Nations data.
The same population in Europe, in contrast, appears to have
peaked in 2011, because of decades of declining
birthrates, and the U.N. projects that it will contract 1.4% over
the next decade.
A 2012 Morgan Stanley report projected that Europe's aging

population alone could depress sales by 400,000
cars a year over that period.
"People may become optimistic as soon as some indicators
improve and they start thinking, 'My job is safe, and I
can invest in a car,' " says Mr. Gales, the former Peugeot
executive. "But demographics don't change, and they
are not positive for most European countries."
European youth who are coming of driving age also are less
inclined to operate and own cars.
Across much of the developed world -- including in the U.S. --
fewer young adults have been getting their drivers'
licenses than in previous decades, according to a study by the
University of Michigan Transportation Research
Institute.
But many young adults in Europe appeared to be turning away
from cars faster than youth in the U.S. even
before the crisis. In Europe's biggest markets -- Germany,
France and the U.K. -- the under-30 crowd used cars
for a smaller proportion of their total travel as of the mid-2000s
than they did in the previous decade, according to
research by BMW AG's Institute for Mobility Research;
Americans under 30 used cars for about the same
proportion of their travel over roughly the same time period, it
found.
"Owning a car just isn't so important for my generation," says
Angus Ross, a 28-year-old restaurant interior
designer from the U.K. now living in Paris.
Though Mr. Ross considered himself a "real car nut" in his
youth and initially studied automotive technology, he
says he probably won't consider owning one until his 40s. "For

my dad, a car was always a kind of status thing,
but they really just bore me."
Such shifts have been especially pronounced in crisis-stricken
parts of Europe, where unemployment has stolen
legions of entry-level car buyers. But even in car-adoring
Germany, Europe's strongest economy and largest car
market, the share of new cars bought by those under 30 fell to
2.7% of total auto sales in the first half of 2013
from nearly 6% in 1999, government data show; the population
size of that age group remained roughly the same
over that time.
Even before the crisis, young Germans' attachment to cars
appeared to be waning. Among households of people
aged 18 to 34, 72% owned one or more cars in 2008, down from
80% in 1998, according to German-government
data analyzed by the BMW research group.
Europeans, like Americans, also have been driving fewer miles
per year since the mid-2000s, reducing wear and
the need to replace cars as often.
Such factors will suppress car sales "until there is a big change
in European demographics or a significant shift in
technology," such as electric cars, says Stefano Aversa, co-
president of AlixPartners LLP, a global consulting
firm.
Europe's dense public-transportation system has made it easy
for Europeans to forgo owning cars. So has a
surge in car-sharing services, from companies such as Avis

Budget Group Inc.'s Boston-based Zipcar Inc. and
ride-sharing networks such as Paris-based Blablacar that offer
an option to drivers who don't want to own cars.
One such driver is Mr. Felice of Barcelona, who sometimes
turns to Zipcar for business trips in and around the
city. Before he moved to Barcelona from Manchester, England,
in 2003, he had owned a car for much of his
adulthood, including a Fiat Tipo hatchback. He saved money in
recent years to buy a sportier car, an Audi TT.
Once the crisis hit, he changed his mind. Though his bank-
consulting work hasn't suffered, he says, he realized
"in bad times, you need to be prepared."
Now, between his motorbike and the car sharing, he realizes he
does fine without owning a car. A couple of
weekends a month, he escapes town in a Mercedes A-Class he
rents from a local woman he located through a
startup that links car owners with people who want to rent. "I
still get to have a car whenever I want," he says.
Some auto executives suggest that Europe's aging population
and economic woes mean its car market may
come to look like that in Japan.
There, decadeslong economic stagnation and a declining
driving-age population have suppressed annual car
sales to 30% below their 1990 peak. Hakan Samuelsson, Volvo
Car Corp.'s CEO, in an interview early this year,
said Europe's aging population means not only little growth for
its car market long-term but will make it harder to
tackle public deficits and reignite growth.
In many ways, "Europe resembles Japan in the early '90s," he
said.

As in Japan, most European auto makers have been slow to
restructure. GM, Ford and Chrysler Group LLC
closed multiple U.S. plants during the financial crisis, partly
under pressure from the federal government. By
contrast, European governments and unions have tried to
prevent plant closings to save jobs.
But with a factory-capacity glut already -- and Europe's
demographic and other long-term challenges --
AlixPartners's Mr. Aversa predicts the industry will likely have
to cut capacity equal to another five to seven plants
in Europe over the next five years. Even that, he says, would
fall short of the roughly dozen factories it would
need to shut to be profitable.
Some union leaders agree that the combination of trends may
mean their workers' pain will continue past any
modest recovery. One of them is Guido Nelissen, an economic
adviser to Belgium's ACV-CSC Metea, one of
three unions that represent auto workers in Belgium, which has
already lost two of its four auto factories since the
euro crisis.
In 2010, Ford agreed to produce its next-generation Mondeo and
two other models at the 49-year-old plant in
Genk, Belgium. But as Ford's European sales plummeted, in
October 2012 it announced two plant closings in the
U.K. and said it would shut the Genk plant next year. Some
Genk workers reacted by torching cars, smashing
windows and storming a building.
"It is just a huge blow -- this is my second family," says Ugur
Alkis, a worker at the plant since he was 19. Now
aged 46 and with three children, he says he is at "a dangerous
age," too young for an early retirement package

but "at a point when the job market doesn't want you anymore."
"For a long time we were able to stop plant closures with
proposals to share the pain across European plants,"
says Mr. Nelissen. "But when there is too much pain, someone
has to die."
Mr. Nelissen says the probability of anemic economic growth
for years -- as well as younger Europeans' waning
appetite, or ability, to buy cars -- is likely to push auto makers
to pursue more consolidation and possibly further
cuts.
"Some industry forecasts are pretty optimistic because they are
based on demand from all of these postponed
purchases, but I'm not so sure," he says. "Even if there is a little
boom, it will be only a temporary pickup."
---
Ilan Brat, David Pearson and Benjamin Schenkel contributed to
this article.
License this article from Dow Jones Reprint Service
Document J000000020131001e9a100023
Search Summary
Text No Traction: Europe's Car Makers
Date 05/31/2013 to 10/31/2013
Source All Sources

Author All Authors
Company All Companies
Subject All Subjects
Industry All Industries
Region All Regions
Language English
Results Found 1
Timestamp 6 December 2017 2:48
http://www.djreprints.com/link/DJRFactiva.html?FACTIVA=wj
co20131001000077
Econ 201 Fall 2017
Dr. Chiara Gratton-Lavoie
WRITING ASSIGNMENT
The article: “No Traction: Europe’s Car Makers Spin their
Wheels” by Vanessa Fuhrmans. The article
appeared in The Wall Street Journal on October 1, 2013.
Instructions for obtaining the article from the
CSUF online library database are provided below.
Your assignment consists of writing a short essay discussing
how changes in economic factors are driving
the decrease in European demand for automobiles. You may use
as references the article, your textbook,
and your class notes. Note that any collaboration among
students on writing this paper will be considered
a violation of the honor code.

Step 1: Print out and read carefully the short article assigned.
Print out and read carefully this instruction
sheet.
Step 2: Follow the instructions below carefully.
Obtaining the Article
Go to the CSUF library web site using your student portal.
Click on the tab Find Databases. Use database
Factiva. Log onto Factiva using your CSUF ID and password.
Once you are on Factiva, go to the search
tab and type the full title of the article in the search box. Do
not forget to select the proper date range for
the article’s search before in fact hitting Search. Select the
article and select to download in pdf format.
Please let me know in class if you are having any trouble
obtaining the article.
Assignment Details/Rules (not following these requirements
will FOR SURE negatively impact your
grade)
Your essay must incorporate the points listed below.
1. Please provide two paragraphs summarizing the main points
raised by the authors, in YOUR
OWN WORDS. These paragraphs will serve as an introduction
to your essay.

2. In your own words, focus now on the economic content of the
article. More specifically, refer to
particular sentences or phrases in the article to identify at least
three of the key
determinants of demand discussed in class as they pertain to the
demand for automobiles
in Europe. Be sure to explain how each sentence or phrase
illustrates the particular
determinant of demand.
3. Use a supply/demand diagram to illustrate ONE of the three
cases you have selected. Indicate
which case your diagram is illustrating.
4. Conclude your essay with a short paragraph comparing the
automobile market in Europe with the
automobile market in the United States. Identify two key
differences between these markets.
5. Your submission should be no longer than TWO PAGES,
STAPLED. Please DO NOT use
folders, cover sheets, or binders. Do not include Reference
section either.
6. All work you submit MUST BE done ENTIRELY using the
computer, including graphs.

Use Times New Roman Font, 12 point, one-inch margins on all
sides, and single space. Leave
one blank line between paragraphs in your write-up. Do not
indent paragraphs. On both pages,
create a header where you will include your name and the class
section/time in the top right
corner.
Deadlines (not respecting these deadlines will FOR SURE
negatively impact your grade)
1) If you would like to get some feedback and a chance to revise
your work before final submission,
you may choose to turn in a draft, submitting a copy of your
paper to me in class by Monday,
November 27. I will return the draft to you with a tentative
grade and, if needed, recommendations
on how you may improve your grade. If you decide to revise, it
is expected that you will use the
feedback received on the first draft to improve your writing and
analysis in the final graft. If you
are satisfied with the grade assigned to the draft, then you will
simply submit the original paper (the
one with my feedback/comments) back to me on the last week of
class, but no later than
Wednesday, December 6. If you are not satisfied with your
grade, you will submit the original
paper AND the revised version in class by the same deadline,
Wednesday December 6.
2) If you choose not to submit a draft, you must turn in your

paper in class no later than
Wednesday, December 6.
No late submissions of either draft paper or final paper will be
accepted.
Grading
Your grade on this assignment will be determined by:
a) the accuracy of your economic analysis
b) the quality of your writing (which includes correct use of
language and grammar)
c) adherence to all the above specified requirements.
*PLAGIARISM WILL RESULT IN A GRADE OF F IN THE
COURSE.
WHEN REQUESTED BY THE INSTRUCTOR, YOU HAVE TO
SUBMIT
AN ELECTRONIC COPY OF THE PAPER. THE ELECTRONIC
VERSION OF YOUR PAPER WILL BE SUBMITTED TO
TURNITIN.COM*

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