GM's Channel Stuffing Catches Up With The Company: Dealer Backlogs Force Plant Shutdowns; Q3 GDP Cuts To Follow

Tyler Durden's picture

A few days ago, JPM's Michael Feroli literally wrote off Q2 GDP: "Recent economic data have been dispiriting, and increasingly 2Q is being written off as a lost quarter in which no progress will be made in closing the output gap." The silver lining, however, according to Feroli was that Q3 GDP would jump on a surge in auto supplies and sales to fill the vacuum left in the post-Fukushima space: "Motor vehicle assemblies sank in April, particularly at the US plants of Japanese automakers, as supply lines for parts from Japan were interrupted. That, in turn, led to a steep drop in inventories of cars on dealer lots. As Japanese parts and supplies come back on line, automakers located in the US are planning to ramp up production to replenish lean inventories." Uhm, lean inventories? It seems Michael has not had a chance to actually see what inventories look like (unlike Zero Hedge readers). In fact as we demonstrated three weeks ago, GM dealer stuffing has hit an all time high, so we can attribute this oversight to Mr. Feroli's zeal to validate yet another projection hockeystick. Yet somehow we fail to see how this massively excess inventories situation will be amenable to prompt restocking. And now we are not the only ones. According to the AP, "General Motors plans to close two U.S. pickup truck plants for two weeks in July as sales of pickups begin to wane and trucks are backlogged on dealer lots, the Associated Press reported Tuesday, citing the auto maker." That sure doesn't sound to us like something that would happen to an industry that has just faced a "steep drop" in inventory.

As a reminder, here is what GM's record channel stuffed picture looks like:

We are happy to provide the JPM head economist with a free subscription to Zero Hedge if that will help in writing more accurate research reports. Because if he had actually seen this chart, he would know that as a result the Q3 GDP picture will be far worse than the consensus predicts.

To wit:

GM said shutdowns at its Flint, Mich., and Fort Wayne, Ind., factories have been scheduled for months to do maintenance on equipment and help to outfit the Flint plant for a third shift that's coming in August.

Company spokesman Tom Wickham wouldn't comment on the growing pickup inventory, but he said workers at the plants were told about the closures during the first quarter.

The plants make both the heavy-duty and regular versions of the Chevrolet Silverado and GMC Sierra. Together they built about 420,000 pickups last year. The shutdowns will cut production by more than 16,000 trucks.

GM no longer has an automatic two-week summer factory shutdown so it can switch from one model year to the next. But the company said nine of its 12 U.S. assembly plants will shut down for a time this summer.

We give the Wall Street lemming crew two weeks to realize what has been painfully obvious to all our readers months ago. And when that happens, the resultant Q3 GDP cut will make the disconnect between the economy and the Never Never Russell 2000 even more ridiculous (and make the need for QEx even more poignant).

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EscapeKey's picture

We are happy to provide the JPM head economist with a free subscription to Zero Hedge if that will help in writing more accurate research reports

An accurate report from JPM is one which maximizes their profits.

Libertarians for Prosperity's picture

Sorry Tyler, but this article is wildly off the mark.  

Michael Feroli's analysis is perfectly accurate. There is a massive shortage of vehicles on dealer lots.  The IHA Automotive estimates there are ~400,000 fewer vehicles in dealer inventory than what the current national sales pace would allow for.  

When you bring up the 2-week Silverado factory shut-down, you're taking the outlier and erroneously anchoring your entire thesis around it.  The truth is, dealers are starved for inventory. The Silverado story has utterly nothing to do with 3Q GDP estimates, nor the entire auto industry as a whole.   

You've taken one data point, jammed it into the Fully Automated ZH Apocalypse Sausage Maker and cranked out nothing but a turd. Sorry. 



Freddie's picture

More UAW/union/Obama Motors goons here on ZH. Massive shortages of Volts and the Cruze where the steering wheels fall off.

Go at least pretend to assemble 1 transmission before so you can go drink a quart of malt liquor and smoke a dube at lunch.

Michael's picture

It seems the only people who can afford to buy a new vehicle these days are government employees who make 2X the private sector worker wages.

What is going to happen this summer when hundreds of thousands of teachers and government employees are laid off when the States pass their budgets for the coming fiscal year?

I suppose Apple product sales will be dropping as well.

Michael's picture

As I see it, there are three major Components of inflation.

1) Managed Manipulation of the Money Supply (MMMS) by the Federal Reserve, IMF, World Bank, Exchange Stabilization Fund, etc. (


2) Investors and Speculators, who work for the folks in the #1 component.


3)Supply & Demand, You and Me.


In the end we know who is most responsible for our suffering. Those people in item #1 and some in #2. The big names in those two components are people who are well known to all of us. I think I know who the most scared people on the planet are.

Michael's picture

I'm a bit perplexed.

Who now owns the Central Bank of Libya?

Does Gadaffy now own it since the US bombed his country?

Does Gadaffy now get to spend that 5 billion printed up for them by the Federal Reserve?

Are the Gadaffy tribesman out on a spending spree with the US Federal Reserve Notes they were able to take possession of in country?

OK. Lets sat the Gadaffy gang were able to take possession of $2 billion and are now out on an arms spending spree.

I sure wouldn't say no to a cut of that action.

faustian bargain's picture

Did you look at the other ZH post, the one with the chart showing all the channel stuffing? You know, the one where the dealers are buying a lot more cars than they're selling, at an accelerating pace? How does this 'data' square with IHS(?) Automotive's 'estimate'?

JohnF's picture

It doesn't. Someone isn't paying attention.

Ergo's picture

Yep.  If anyone isn't sure about channel stuffing, just drive by your local dealer, and cast your eyes over.  It's blatant.

What's really amazing is that GM would rather shut down plants rather than price their cars competitively.  They're way overpriced compared to almost anything else. 

Ergo's picture

From Back to School:

 Dr. Phillip Barbay:, not withstanding Mr. Mellon's input. The next question for us is where to build our factory?

Thornton Melon: how 'bout fantasyland?


Cognitive Dissonance's picture

Nobody saw that coming.

deez nutz's picture

Friend just leased new Silverado.  The air conditioning didn't work when he drove it off the lot.  Same GM, same crap.   I laffed at him for being stupid.

luster's picture

"I laffed at him for being stupid."


I laughed too.

Freddie's picture


GM/Obam Mugabe Motors is worse now.

tarsubil's picture

You had me at 'leased new Silverado'. Why is everyone retarded?

Buck Johnson's picture

I totally agree with you, the QE's where the only thing keeping the economy somewhat on the rails.  But like anything the more you use it the less it works and everytime they used it it gave the impression of a good economy, but in the long run it made it more unstable. 

hedgeless_horseman's picture

Note to Buck Johnson and Ben Bernanke: the stock indices are NOT the economy.

That is all.

Cdad's picture

So bullish...they have to shut down the plants.  And funny, as I was just listening to a cute little criminal syndicate Wall Street analyst who was bullish on GDP [3.1%] because of the inventory build out in automobiles to come "in the better second half."

It really makes you wonder sometimes if the banker class of folk have given up caviar and switched to putting paste fluoride on their crackers.


NotApplicable's picture

Given that any rational analysis would cost them their jobs, they probably partake of all sorts of chemical substances in order to dull the pain.

SheepDog-One's picture

WILDLY bullish! More vehicles can be stuffed in the channel when they put them into the compactors as they roll out of the closed down factory doors. 

Go Gubmint Motors GO!

azusgm's picture

Expect another round of tax credits for Volts and Chevy flex fuel vehicles. Free market kapitalism at its finest.

NotApplicable's picture

If pressed, he'll just state that he mistyped, and was really stating there was a steep drop in additional inventory on dealer lots. At that point only ZH readers will notice, or care.

breezer1's picture

all hopes are resting on the the new model  that will be called 'the can kicker' and will debut in mumbai and bejing simultaneously in 2012.

bob_dabolina's picture

I understand Tylers disconnect from reality on this one. I'll explain -

It's just like how QE will be replaced by Operation Twist, a revival of Cash for Clunkers will be remodeled in the form of Cash for Clingers, where the backlogged dealer inventory gets destroyed. This provides room for fresh vehicles that haven't been collecting dust and allows GM to make coitus with the US  taxpayers prolapsed anal cavity as they  will inject another several billion (against their will) into a company that makes a product no one wants.

This is pro GDP bro -BO

Cognitive Dissonance's picture

.....into a company that makes a product no one wants.

That's not true. No one wants them at the present price. If they were to discount them down to I might be willing to take one or two off GMs hands. That is as long as the 3/4 ton comes equipped with the towing package, the deluxe urban cowboy interior and totally free maintenance for the first 10 years or 100,000 miles.

Yeah, that's the ticket.

Cheesy Bastard's picture

I suppose the copper in the wiring might be worth something.

bob_dabolina's picture

That is as long as the 3/4 ton comes equipped with the towing package, the deluxe urban cowboy interior and totally free maintenance for the first 10 years or 100,000 miles.

I will make sure, as POTUS, that this is part of my next stimulus package. Thank you for your input.


Cdad's picture

Now now, brother Cog,

My study of the Great Depression did clearly indicate that one of the things that was sought after during that time was automobiles.  Once the plant shutdowns gets into full swing, there will truly be a supply constraints.

So if you get one for free, you let me know and I'll come pick it up...park it out in a field or something.  

buzzsaw99's picture

ST. PAUL, Minn. (AP) - A union leader says Ford Motor Co. has set a date for closing its St. Paul plant.

Chairman Jim Eagle of United Auto Workers Local 879 says Ford is saying the plant’s last day will be Dec. 22.

Ford spokeswoman Marcey Evans confirms to the St. Paul Pioneer Press that the plant closing would take place by year’s end, although she says the company hasn’t publicly disclosed the date.

The plant makes the Ranger pickup. Ford has confirmed that it will not sell the next generation of the small Ford Ranger pickup truck in North America.

RKDS's picture

That really sucks too.  My next vehicle, a couple years from now, was going to be a Ranger.  All this crying about energy and the SMALL TRUCK is what Ford dumps?  I don't need a house on wheels like an F150 or Ram, I don't like the Silverado, and I WILL NOT buy a foreign truck.

RKDS's picture

That really sucks too.  My next vehicle, a couple years from now, was going to be a Ranger.  All this crying about energy and the SMALL TRUCK is what Ford dumps?  I don't need a house on wheels like an F150 or Ram, I don't like the Silverado, and I WILL NOT buy a foreign truck.

Cheesy Bastard's picture

Merely a weather related soft patch on the speed bump on the road to the summer of recovery. Bullish.

Cdad's picture

Yep, because everyone knows that entirely closing plants is gasoline for upside guidance for demand in the second half crowd.

SheepDog-One's picture

So much demand Cdad, they have to close down the factories for their own safety of assembly line workers!

Go central planners, GO!

Cheesy Bastard's picture

Cut em some slack.  After all, they've got to compete with the (cough) Japanese.

LudwigVon's picture

At least we got a head start with 1/3 of Japan going radioactive

Cdad's picture

More and more good news, Dog.  Our Summer of Recovery and inventory rebuilding and better second halfs has clearly kicked in:

Gannett Announces Newspaper Layoffs

"...expected to affect 700 workers...largest layoff by the media giant since 2009."

Mr Lennon Hendrix's picture

GM gets to lay off workers.  Damn right it is bullish for the corporation.  Move those jobs overseas.  GM cutting costs to raise profits.

Rick64's picture

 Or maybe some more Cost Plus contracts for the contractors in Iraq and Afganistan. Watch your tax dollars at work.     At 7:20 (Escalades, Hummers, Pickups, ect..)

apberusdisvet's picture

All this talk about stuffing.  Is it Thanksgiving already?

The Fonz's picture

Thats right, and we are the turkeys :P

SparkySC's picture

Didn't they try these tricks (i.e.) Channel stuffing- before BK? Nothing is new.

Same ol' Same ol' Shit from a horribly run company. 

Instead of trying to grow the right way, S-L-O-W-L-Y and for legitimate reasons,

they try to speed up the process and do what Americans do best, create a Ponzi style business, 

so they can quickly show how great/bitchin'/successful they are, 

and they can give themselves a fat payday and buy more worthless 'stuff'.



Great. Nothing learned by these fools.

Hey LET THEM FAIL/WITHER to the very end next time.



Blano's picture

How much do these union guys make now while they're laid off??  Will they even care about being laid off??

SheepDog-One's picture

Hell its all just worthless fiat paper anyway, give em as much as they want who cares?

tinylittleguy's picture

my dad worked in a GM engine making foundry in 60's-70's and it closed EVERY YEAR in July for 2 weeks to retool for the next years' models

SheepDog-One's picture

Retooling! Thats gotta be it! AHH HA HA HA HAAAA HA HA HAAA!!!

Cdad's picture


You mean like dozing the place, tapping a Federal prairie restoration fund, and turning the place into a horse ranch for a St. Paul criminal syndicate banker?

bam_son's picture

I lived near Flint for most of my life.  THEY HAVE ALWAYS HAD THE 2 WK SHUT DOWN. This is news to me "GM no longer has an automatic two-week summer factory shutdown so it can switch from one model year to the next."  

I am guessing they stopped the shut down sometime in the last couple yrs or more likely that this is a half truth. It was pretty amazing to see the whole state take a vacation to the BEAUTIFUL lands of Northern Michigan (those Pure Michigan commercials are dead on).

The truck plant in Flint is one of the few good things going for the city. I cringe to think of how much worse the city (already with insane murder and arson rates) will get if that plant shuts down.  

EVERYONE in FLINT drives a GM car but I have always thought they were horrible. This week I saw a passing Corvette and noticed how horrible the interior looked in this $60k car. Black plastic everywhere and no attection to detail.   The styling has been appaling ever since Harley Earl left the company and nimbleness was sacraficed for UAW power.

While the Flint area will always be my true home even if I never go back, I am short GM stock because there is no upside. I truly will be donating any profits from this trade to an educational institution in Flint.


One last thing to this rambling post, GM's demise was very obvious during the boom before the bust if one traveled out of MI and compared the auto landscapes.  As I said, everyone drives GM in Flint/Michigan but its not just that. YOU SHOULD HAVE SEEN HOW MANY SUBURBANS AND H2s WERE BEING DRIVEN IN MICHIGAN. There is no doubt that MI was the expensive-soccer-mom-truck capital of the world.  GM employees got to ignore and were immune to the realities of rising gas prices (those who were high enough to actually make decisions) bc not only did GM provide a new company car every 6mo but also paid for their gas for their hr commute (no one with a job actually lives in Flint/Detroit).  As a high schooler at the time I would have discussions with my father on how THIS was going to end.  We knew there were way too many people driving 40k+ cars and that their current product line was going to get crushed by the Japanese as soon as the next gas spike came but we knew there was nothing we could do.  Today... the only thing to do is (sadly) stay short.  I have long tried and wished to believe in this company that defines an entire state but, I wouldn't buy one.  


Freddie's picture

F Flint and UAW parasites.  Michigan was killed by liberalism.  MI also voted for Mugabe in 2008.