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Write a memorandum addressed to Irving Backbreaker, the CEO of Delorean Inc., a local carmaker, that addresses the issues you face with turning around Delorean Inc., which is on the brink of bankruptcy. Limit your discussion to identifying issues you see, your next step(s) and your recommended solutions. The hypothetical is at the end of this homework document.
Other Notes to Consider:
• Use the memo template listed in doc sharing as your guide
• This memo is to the CEO (Write in a business like manner)
• Keep your memo to LESS than 3 pages, and preferably 2 pages
• Be concise and don’t merely provide theory or background
• Use single spacing
• Reread (Proof) your memo to ensure grammar and spelling is correct
You have just been hired as the new Chief Financial Officer (CFO) of Delorean, Inc. (“Delorean”) and you are in your first week of work (January 2008). Delorean is a local carmaker that produces sports cars at one manufacturing facility and sells these vehicles through numerous car dealerships around the United States. As part of your first week, you have met with the CEO (your boss), the leader of the employee union, the company general counsel, the director of internal audit, the controller and the director of the treasury department.
Upon speaking with the CEO, he mentioned that investors are anxious about the financial situation of the company and worried that the company will fail. The CEO is also concerned that the company has not made a profit in the last two years and investors expect at least an 8% return. The CEO has spoken with investors and they will be happy if the company is returned to profitability within two years and breaks even this year and the next. The CEO wants to know the issues you face in order to help fulfill the investor expectations and wants to meet in two weeks to determine what courses of action should be pursued. Further, the CEO is a hardworking, “old-school” type of person, who believes in pay for performance and will reward his employees for bringing the company back to profitability. The company is a private company and no stock has ever been issued.
While you were speaking with the Union leader, she mentioned that the plant employees have received 5% raises for the last 5 years under the existing labor agreement and when this agreement expires early next year, the union will demand at least a 6% raise per year in the new agreement or they will consider a strike. Other car companies provide between 3% and 7% annual raises, depending on the car company.
When you spoke with the company general counsel, he mentioned to you that the government is beginning to investigate various car companies for price fixing, monopolistic activities and unfair labor practices. Additionally, the general counsel stated that the prior CFO, who was terminated for embezzling company funds, may sue Delorean for wrongful termination based on his sex, age and religious preferences. The general counsel could not provide a dollar value liability for the company or whether the company will face an investigation by government agencies.
Upon speaking with the director of internal audit, you learn that previous memos discussing internal control issues sent from the internal audit director to the CFO had been ignored repeatedly. Further, the director of internal audit did not know if the memos had been forwarded to the CEO or audit committee of the Board of Directors.
Finally, you spoke with the controller and director of treasury and they mentioned that they had hoped to be promoted to CFO (your position), the company also needed a new computer system and their departments need to receive training for current accounting developments and issues facing the automotive industry.
The director of internal audit, the controller and treasury department all report directly to you. The director of internal audit also reports via a dotted line reporting relationship to the audit committee of the board of directors.