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).