EXERCISE 8–1 A press report carried the following news item: General Motors, Ford, and Chrysler are expected to post losses on fourth-quarter operations despite sales gains. Automakers’ revenues are based on factory output rather than retail sales by dealers, and last quarter’s sales increases were from the bulging inventories at the end of the third quarter, rather than from models produced in the fourth quarter.

Required:

Discuss likely accounting-based reasons that contribute to these expected fourth-quarter losses of automakers.