Building an engine factory needs substantial cash outlay in terms of capital. Capital items don’t go to the income statement unless in terms of financial cost like interest so the statement may be un affected but the financial position will be affected as money moves from the bank/cash for construction and to be eventually capitalized.
Loans are relatively easy to acquire if there is collateral available but is a rather expensive mode of financing due to the ever increasing interest rates. Using retained earnings to finance is cheap and efficient but the disadvantage is that it will starve the company of liquidity needed to finance daily operations.
If VW ceased operations in China, this will result in a 31 percent fall in sales which was attributed to the Chinese market in the last financial results. There will be a further loss of 9.6 bn Euros that is attributed to joint ventures.
G.M’s net income of 595 million dollars that is derived from the Chinese market will also be lost.
The recall caused a charge of 3.1 billion dollars on the income of G.M.
The production expenses would certainly go down and hence increased productivity. The market being exited will experience direct and indirect job losses while the opposite will be the case for the market being entered. Shareholders are always concerned with the return on their investment and if this action results in a gain on their share value, the shareholders will be more than glad but if the share value does not appreciate then they will not be amused.