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Contradiction of Low Sales And High Profits

In 2010 the sales of motorcycles for Harley-Davidson have dropped – this being the third consecutive year. It does not seem likely that a change for the better is in the offing. But despite the dry spell, the profits for the company are increasing – in fact it is soaring. Very recently profit of $71 million was reported during the second quarter – it being three times more than the previous year during the same period.

Apparently dropping sales and increasing profits seem to be a contradiction. The mood in Wall Street is bubbling in sharp contrast to the gloom in families facing unemployment that is giving no indication of retreating.

Many firms are concentrating on cutting costs to keep the profits swelling. The benefits are generally being reaped by the shareholders; nothing is diverted to the general economy as the businesses save cash without propping up either hiring or production.

For instance Harley has declared that it will cut jobs by more than 1,400 or 1,600 by the close of 2011. Last year 2,000 jobs have already been sliced off – it being over a fifth of its total work force.

The firms reporting their earnings for second quarter show they have reaped neat profits that have given a boost to the stock market. The index of Standard & Poor has gone up by 7%. But grave questions are being posed about the roots of these profits and the growth sustainability. Fingers are also pointing at more than 14 million unemployed who are desperately hanging around to join work hoping for economic recovery.

Robert C. Pozen of Harvard Business School and formerly of Fidelity Investments said, “Because of high unemployment, management is using its leverage to get more hours out of workers. What’s worrisome is that American business has gotten used to being a lot leaner, and it could take a while before they start hiring again.”

Many of the business concerns, inclusive of Harley-Davidson are laying the foundations for a tomorrow where they will prosper despite non-recovery of sales. The goal is to perpetually stay in a position that will churn out rich profits on a base of low revenue.

Looking at it from a different angle it seems USA has an edge in global competitiveness by being able to hike profits while facing drop in sales. It is some sort of a triumph. The real problem is that the profits are not being ploughed back into the economy; rather cash is being piled up to high levels – breaking records of the past fifty years.