In the years leading up to the 2008 recession, General Motors, Ford, and Chrysler (the big three) were producing new vehicles in excess of market demand. This led to large inventories on car dealers lots across the United States. At the same time, under the absorption costing method, profits were rising and executives at these three companies were achieving their short-term incentive targets. Explain how firms can increase net operating income simply by producing more units under the absorption costing method. Identify and discuss the ethical issues involved in the decision top executives in the big three auto companies made about the level of production.

At least 600 words.