GM's "Channel Stuffing" Goes Mainstream

Tyler Durden's picture

"General Motors Co. stocked Jim Ellis Chevrolet in Atlanta with plenty of Silverado full-size pickups in early 2011, part of a wager on a strong economic recovery. The strategy is backfiring. “We thought that this year would bring back the kind of economic activity that would translate into us selling more trucks,” Mark Frost, the dealership’s general manager, said in a phone interview. “It’s not happening.” Supply of Silverado has ballooned to 6 1/2 months worth at the dealership, a figure Frost, 52, calls “a little scary.” The Detroit-based automaker, 33 percent owned by the U.S. after its 2009 bankruptcy, has 280,000 Silverado and GMC Sierra pickups on dealers’ lots around the country. If sales continue at June’s rate, that would be enough to last until November." Thus begins a story just published by Business Week covering a topic that Zero Hedge has been pounding the table on since last December, and which just hit an all time record for fresh start Government Motors a few days ago - namely the firm's propensity to dump as much inventory as possible on dealer floors. Granted, many have been quick to mock, ridicule and ignore our glaringly obvious findings (especially since these come at a time when the light vehicle sales SAAR is back to a 10 month low, and likely to plunge once the long overdue inventory liquidation finally takes place), although now that the topic of General Motors' "strategy" of overfilling dealer inventory is front page news, it finally may get the overdue respect it deserves, especially since as Jefferies' Peter Nesvold cautions, this is nothing more than new GM reverting to the habits of the old one (the one that filed and needed taxpayer bailouts for a few hundred thousand union workers).

So because we have pretty much said all there is to say on the topic, here is Business Week's far more "credible" perspective on precisely the same issue:

After GM’s truck inventory swelled to 122 days worth of average sales, the company said 100 to 110 will be normal going forward for such a large and complex line of vehicles, compared with 60 to 70 days for most models. Peter Nesvold, a Jefferies & Co. analyst, isn’t convinced. Ford Motor Co., which makes similar trucks, is running at 79 days, and Nesvold says GM averaged 78 days on hand at year end from 2002 to 2010.

It’s unbelievable that after this huge taxpayer bailout and the bankruptcy that we’re right back to where we were,” Nesvold, who has a “hold” rating on the stock, said in a telephone interview. “There’s no credibility.” In a research note he asked: “Is GM falling into old, bad habits?”

GM's response:

“Unequivocally no,” Don Johnson, vice president of U.S. sales, said in a July 3 interview in response to the question. “We’re managing the business to match production with demand in the marketplace. Nothing in the last few months that we have done would indicate any different.”

Two plants in Michigan and Indiana are idle through July 15, and GM “may make some tweaks or additional adjustments if necessary,” Johnson said on a July 1 conference call. Truck output will slow in the second half of the year, he said.

The net effect of GM carrying higher truck supply is pulling ahead 2012 earnings into 2011, said Nesvold, who has a $36 price target on the stock.

“They feel a lot of pressure to put up some good numbers,” he said.

And because there is "pressure", Channel Stuffing is perfectly allowed, even though it sure raised a few eyebrows over at AOL some years ago:

“Truck sales are pretty subpar, and that’s really the only area that is getting my attention,” Paul Ballew, chief economist for Nationwide Mutual Insurance Co., said in a phone interview. “If you’re at GM or Ford, you’re certainly focused on that issue right now, and you should be.”

Full-size pickups are still the two top-selling vehicles in the U.S. Ford sold 264,079 F-Series in the year’s first half, a 9.9 percent increase, while customers bought 182,785 of GM’s Silverado, a gain of 9.6 percent.

The volumes are much lower than before the recession and the bankruptcies of GM and Chrysler Group LLC, the Auburn Hills, Michigan-based automaker, now controlled by Fiat SpA. In June 2005 alone, GM sold 109,359 Silverados when it offered employee discounts to all consumers. Ford followed suit and sold 126,905 F-Series pickups the next month.

GM’s target of 100 to 110 days supply of trucks at the end of this year and next year is higher than some competitors in part because Silverado and Sierra have fewer direct sales to fleet customers, Johnson said. Those orders spend almost no time in inventory, which can lower the days-supply figure.

But none of this matters: GM's response - it is transitory:

GM’s Johnson says he sees inventory of higher-mileage cars and lower-mileage trucks being “more in balance” by fourth quarter. The March 11 earthquake near Japan helped deplete industrywide inventory of high-mileage cars.

“General Motors has so many hot-selling vehicles that it’s kind of bipolar,” said Frost, who has been selling cars since 1987. “It’s a strange place in inventory overall.”

Well, judging by recent performance it is far more unipolar. As in constant depression. For those who wish to read the balance of the BusinessWeek article, they can do so here. For everyone else, who has not yet been zombified by the lunacy of Wall Street yet, here is the chart we have been presenting for 7 months now, and which confirms everything one needs to know about the future of Government Motors.


Lastly, after we said two days ago that we "expect the broader media and Wall Street economists (and Joe LaVorgna) to completely ignore this data point as it roundly negates everything the propaganda machine has been spouting for months", we would like to extend our apologies to Bloomberg-BusinessWeek. They have once again demonstrated that in the mainstream media world they are certainly the one organization with the most honor (if a little late sometimes).

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nope-1004's picture

If you build it, pray they come.


Libertarians for Prosperity's picture

namely the firm's propensity to dump as much inventory as possible on dealer floors.

Every brand does this. It is not uniquely GM. 

Granted, many have been quick to mock, ridicule and ignore our glaringly obvious findings...

There are a few reasons why some have mocked ZH's reoccurring "channel stuffing" articles.

First, ZH leads the reader to believe that GM is purposely stuffing dealer inventory so the monthly sales figures reported by GM appear better than they really are. This is just not true. The sales figures reported on the 1st are sales of specific VIN's attached to specific consumers. The first sentence in GM's press release confirms this, "General Motor's dealerships in the US reported 215,xxx sales...."

If you're claim was correct, the press release would say, "GM reported 215,xxx sales to dealerships in June...." or "GM dealers purchased 215,xxx from the manufacturer...."

In reality, the only credible conversation about "channel stuffing" is exactly what Business Week reported: specifically, GM has far too much Silverado inventory sitting on dealer lots. Nowhere in the BW article is there any mention of GM distorting monthly sales figures by producing too much truck inventory, which is the angle that ZH takes.

GM's bloated inventory rests squarely on truck production.  Their inventory of cars and small/medium SUV's are perfectly normal and within industry standards.  Again, it's solely a truck problem.   

Now, the real reason GM has too much truck inventory is not because they're trying to fluff month-end sales numbers (which is the angle ZH took); rather, GM underestimated the rise in oil prices in the first half of this year, and overestimated consumer's willingness to ignore it. The extreme volatility of gas prices over the past 3 years has permanently affected the market's appetite for large trucks, SUVs, etc.

This fear of gas prices can be proven by the fact that Ford sold more V6 trucks than V8's in the month of May, which was the first time this happened in over 20 years (!).  If consumers are shopping for trucks, they have turned to smaller, more fuel efficient engines, and Ford was far better prepared for this.  GM, as always, made a massive error in judgement.

I absolutely loathe GM, but I think it's important for readers to understand that the "channel stuffing" theme you've been preaching is greatly distorted.  The only inventory problem GM has is with trucks, and that's a function of consumers still fretting over gas prices. All of this has nothing to do with fudging monthly sales numbers.  


homegr0wn's picture

Read GM's financial statements, you fucking dolt.

"we generally recognize revenue upon the release of the vehicle to the carrier responsible for transporting it to the dealer" 2010 GM Annual Report, pg. 44

Please do some research before you go on a long rant that is inaccurate. Else, you'll continue to look like a dipshit.

Libertarians for Prosperity's picture

Recoginzing revenue is entirely different than the sales figures that are released on the first of each month.  Idiot.

Your apology is accepted in advance.


homegr0wn's picture

Holy shit, you're dumb as rocks.

"For the month, Chevrolet Cruze had its best retail sales since launch as Chevrolet dealers reported 18,996 retail deliveries." GM May Sales Release

YOU ARE A FUCKING TARD. Didn't I just tell you to do some research before posting, son?


Libertarians for Prosperity's picture


Dude.  What the fuck is your problem in understanding this? 

"....Chevrolet dealers reported 18,996 retail deliveries...."  Operative word: retail.  Not wholesale.  How can you possibly be confused by this?  When a dealer reports a "retail delivery" that means it fucking sold it to a retail customer.  Notice how it doesn't say "wholesale deliveries from the manufacturer."

Just read the fucking first sentence of GM's press release, which I've pointed out numerous times:

"General Motors dealers in the United States reported 215,358 total sales...."

It can't be any clearer. It doesn't say the GM factories reported 215,358 sales.  It doesn't say the dealer bought 215,358 cars from the factories.  It clearly states the dealers reported 215,358 sales.  HOW FUCKING CLEAR CAN IT POSSIBLY BE?

Of course, you probably won't believe it, so I've got a risk free trade for you.  Take all the fucking money you have and buy GM stock.  If GM stock goes up, you win.  If GM stock goes down, you win.... you can sue them for misleading investors.  If your stupid claims are correct, and the month-end sales reported on July 1st are truly not "dealer sales" and are actually dealer "purchases" then you can sue them for your losses (plus punitive damages) because the press release clearly states otherwise. Call it the "Detroit put."   

There you go - a guaranteed risk-free trade, and you didn't even have to pay 2/20 for it.  And this doesn't even take into consideration the instant fame you'd receive for exposing GM's blatant sales lies. 

Eat it.  




homegr0wn's picture

Everything needed to contradict everything you have said from your initial and subsequent posts is available on the GM.

AGAIN, DO SOME RESEARCH IDIOT. I'M CAN'T STEER YOU THROUGH EVERY ARGUMENT IN LIFE. Also, please start with reading what channel stuffing is, as I think a lot of you misinformation comes from not understanding basic accounting and financial terminology. Might be useful to go look at the definition of retail delivery that GM uses. I don't think it means what you think it means.

throughthewire's picture

The dealer inventory chart above says it all. NOT GOOD.

Freewheelin Franklin's picture

The other day I saw a brand new Ford Fusion with US government tags on it. Why the fuck is the US government buying Fords when it owns GM? Don't they get a good enough "employee discount"?

Caught Stealing's picture

Its not about the price...its in the quality. Why would the government trust in a product that they themselves build?

nope-1004's picture

+1, HA!

Or, it's Fords' version of their bailout.


Freewheelin Franklin's picture

Here at Government Motors, our cars suck so bad, we won't even buy them.



Oh regional Indian's picture

Actually I've been saying this since the whole GM fiasco began.

These are WAR companies. The retail end of the business is the smoke and mirrors.

In real terms, I'll bet it's been a long time since GM made any money whatsoever. It's been a bank (GMAC), much like GE etc. anyways.

So none of this channel stuffing crap will matter when GM is wrapped in Red White an dBlue.


Dirt Rat's picture

Around these parts, the Sheriff's Department are sporting around the county in brand new Chryslers. I've never seen them use Mopar products before. There must be some sort of subsidy going on.

Careless Whisper's picture

or maybe they didn't like all the rear end problems with the po-po impalas. gm fixed them for the po but not everyone else. class action lawsuit.


snowball777's picture

Y''s difficult to muster sympathy for someone that willingly drives an Impala.

Cognitive Dissonance's picture

CNBC will be sure to ignore this until someone loads the story into a GM truck and drives it into Becky Quick's dressing room. Then the story will be about Becky's stuffed channel and not GM's channel stuffing.

Gubbmint Cheese's picture

eew.. I threw up a little CD.. ;p


Deepskyy's picture

Comments like this just beg for a "like" button.

I'm still laughing.


piceridu's picture

In your next life, a comedian...frigging hilarious!

baby_BLYTHE's picture

Becky is pretty, Warren kiss-up is a turn off though

Trish is the best on CNBS, IMHO. Maybe not fully up to speed on everything, however she can maintain a non-biased perspective during interviews few can on that network (including Santelli).

Problem Is's picture

Damn woman! I <JUNK> you!

A CNBC Anchorette is simply boob(s) in a sweater...

Not to be confused with Cramer the Clown who is a sweating boob...

BTW: I had to junk you... Stevie "The Rat" Ratner's sock puppet was here junking every post in sight... but you...

Cognitive Dissonance's picture

To be fair to the fairer sex, that means that CNBC anchors are Dicks in Depends.

Problem Is's picture

To be fair... Larry "Cokehead" Kudlow's Depends ARE prescription...

Larry has IBS... Irritable Bowel Syndrome...

baby_BLYTHE's picture

dude, I was being sarcastic

BORT's picture

I would hazard a guess that the profit on those trucks that they have counted as sales is just a "tad" higher than the more popular models they are selling.  Need profit: make some.

cougar_w's picture

What's this? Mark-to-unicorn accounting doesn't work with atoms, only binary data in a spreadsheet? Whodathunkit?

hidingfromhelis's picture

Maybe they should drop trucks (turkeys) from helicopters. Oops, been tried before.

Sudden Debt's picture

Last week I was 2 week in the New York area.

I amazed me that you hardly see new cars in the US.


Gubbmint Cheese's picture

remember Chev used the old Bob Seger song "Like a rock"

hope that happens to the stock....


Rainman's picture

They're just pulling forward demand. This is .gov-owned motors we're talking about here. Must.Save.First.Windbag in '12. That be the business plan.

Manthong's picture

No failing for GM until the pensions are fully funded for every vested/near vested UAW and the election is over.

In the mean time, I wonder if the Chinese will name a Ghost City "Silverado".

Careless Whisper's picture

Dewd, the Chinese are so far ahead of the curve it isn't funny. This week in Shanghai they opened a new cafe, perhaps DSK inspired; it's called Maid Cafe, and yes, the waitresses/servants are appropriately attired.


Servers are outfitted in black and white French maid fetish cosplay outfits, and greet you at the door with a 'Is there anything I can do to serve you, master/husband?' (the term for husband is the same as master [??] in Japanese).


kito's picture

gms recidivism rate beginning to match that of child molesters...

MsCreant's picture

Nah, child molesters start to taper off in their 40s and 50s, GM, not so much.

Yen Cross's picture

  What? Lay off the 'Nancy Grace" Yes, I agree Casey did the O.J. 'slip away' 


          Lets trade!

Yen Cross's picture

  Hey tool? Shoot me a GM chart! Better yet ! Buy (f) on the dips.

Misean's picture

Cars sitting on dealer lots. People digging holes for 4 hours a day and then filling them the other 4 hours. Printed fiat stuffed in bottles and burried accross the USeless for people to find and "juice" the ebbublemy.

I fail to see the problem here.

cossack55's picture

Problems in order presented:

1. All those autos on lots require mucho concrete/asphalt (bad for environment)

2. Digging holes disturbs worms (bad for enviro)

3. Making glass bottles requires energy needed to produce useless autos (bad for enviro)

4. Juice contains GMOs from evil Monsanto (bad for humans)

snowball777's picture

If the people digging the holes received the fiat and gave it to the car dealership, they might need a new salesman...but your estimation of where the fiat actually went is off by several hundred ladder rungs; the bottles are all buried in the PDs backyard and the only holes being dug and filled are by prisoners and goldbugs.


MsCreant's picture


Relax, you are doing better than Cassandra did.

hambone's picture

TYLER / et al - Any info beyond GM?

How does this translate for the US's other "big 2"?  Is this a GM specific issue or same at Ford? 

Just trying to discern if those not effected by the Japanese situation (who were supposed to take this opportunity to gain marketshare) are instead just gaining dealerspace?

Also, any POV on this and potential of pull forward via tax credits ending in China?

Just curious, if US lots are stuffed, China just ended their tax breaks...hmmm, is this all priced in (since stock is still priced above $0 I'm guessing not)?

BORT's picture

From Ford Q1 2011 Report
Total                              2010  2011
March 31                         679   769
December 31 -- Prior Year 677  734


It appears in First quarter up 35000

* Excludes Volvo
** South America dealer stocks are based, in part, on estimated vehicle sales for the six major markets in that region
*** Europe dealer stocks are based, in part, on estimated vehicle sales for the 19 major markets in that region
**** Asia Pacific Africa dealer stocks are based, in part, on estimated vehicle sales for our 12 major markets in that region

pizzgums's picture

perhaps the massive boycott by all the screwed over GM bondholders is starting to be felt...

Rainman's picture

...pray ye are correct, per one screwee.

JW n FL's picture

The sooner the Sheep are awakened to the Robbery and Wide Spread Systemic Treason the Sooner we can have Taxation with Representation Back!


The Lobby Whores have Robbed the World Blind!


The reason America is Broke is becuase the Top 1% does NOT! Pay Taxes!!

traderjoe's picture

That's not the reason why the US is broke. It's not a taxation issue. In a list too long to suggest it's complete: useless wars, MIC, welfare, SS, Medicare, Medicaid, bailouts, etc., etc., etc. 

Usually I get your stuff, but this one's pretty far off...

disabledvet's picture

has there ever been in history a government owned entity that didn't over produce?  i don't find this news.  SELLING those vehicles is news of course--the fact that we have a car glut is not.  I'm not predicting a price war but that is "the norm" in these matters--and the point of Government Motors is NOT to run it like a business.  We shall see.  Obviously the quality of the vehicles produced at The GM is far better as are the look and feel.  Perhaps a "recycling plan" is in order then?  Of course we can always just give up and walk away from the industry as well...