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China's Auto Dealers' "Backs Are Broken" As 'Channel-Stuffing' Gets "Dangerous"

Tyler Durden's picture


While LeBeau et. al. have sung the praises of a renaissance in Auto companies and their manufacturing recovery supporting what woeful growth we have seen, we have mournfully noted the ever-increasing builds of inventory (or 'channel stuffing') at auto-dealerships and most recently pointed to China's 'debilitating price cuts to come' three weeks ago here. Bloomberg this evening is reporting that the situation is getting worse, much worse, as Chinese dealership inventory levels have exploded from under 45 days to over 60 days supply as "dealers can't shoulder the burden anymore... Their backs are broken". This should come as no surprise to ZeroHedge readers but this is forcing dealers to deepen discounts and sell cars at a loss to meet mandatory sales targets. As GM just this week crowed of its 21% rise YoY in 'sales' in China, local analyst channel checks show two-month levels of inventory for foreign brands and even worse 60-80 days worth of inventory for domestic brands adding that this much inventory "is pretty dangerous for the industry". China's largest distributors of autos are canceling debt issues and their views are scarily summed up (by them not us): "The picture we have is very different from what the automakers are painting. The sales increases they’re reporting are achieved by loading dealers with stock."


In the meantime, production continues to rise - as we show here, the 3-month average production relative to sales is running at its highest in 14 months...

We assume Auto manufacturers are living 'The Field of Dreams' inventory-model - If We Build Them, They Will Come. Sadly, as this chart clearly shows, we have seen this picture again and again and it hasn't worked out well - maybe this time is different...


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Thu, 06/07/2012 - 00:09 | 2502198 AU5K
AU5K's picture

China has entire cities that are empty.  Why not fill them with cars so when the people come, they will have something to drive.

Thu, 06/07/2012 - 00:14 | 2502209 northman
northman's picture


Thu, 06/07/2012 - 00:38 | 2502275 The Monkey
The Monkey's picture

"This is a problem that can be fixed via balance sheet expansion." -- Janet Yellen

Thu, 06/07/2012 - 02:01 | 2502435 old naughty
old naughty's picture

Or, better still, allow Tokyoians (also known as Tepco-vics) to migrate in, win-win.

They can buy up all the stuffed cars and houses-for-no-man...

Thu, 06/07/2012 - 02:21 | 2502466 Michael
Michael's picture

There's a slowdown coming worldwide. I can see it in orders at the top of the food chain.

Thu, 06/07/2012 - 06:18 | 2502638 Manthong
Manthong's picture

How many parking spaces are there in the underground garage at 32 Chengfang Street?


Thu, 06/07/2012 - 10:05 | 2503413 Jay Gould Esq.
Jay Gould Esq.'s picture

There are "sales channels" in a command economy ? Rather oxymoronic, no ?

Thu, 06/07/2012 - 02:42 | 2502492 Max Fischer
Max Fischer's picture



There is a subtle - yet very important - difference between the monthly auto sales in China, monthly sales in the US and how these sales are reported/tallied.

In the United States, the sales figures that are reported on the 1st of each month are vehicle sales from dealers to end users, where a specific VIN is attached to a specific owner.  For verification of this, please read GM's press release from last week:

It clearly says, "...the highest monthly total since August 2009 when dealers delivered 246,479 units."

It does NOT say, "dealers purchased from the manufacturer" or the "manufacturer sold to dealers."  It says DEALERS DELIVERED. In other words, one cannot say that GM is artificially propping up their US sales figures by "stuffing" dealers with inventory.  Those "stuffed" vehicles are NOT part of the count... in the US, anyway.   

This is further proved by Tyler's Bloomberg link:

"Luo’s warning is a contrast to the jump in sales reported by automakers including General Motors Co. and Honda Motor Co.....which only disclose the number of vehicles sold to Chinese dealers -- instead of consumers."

Even Bloomberg understands that US sales figures are sales to "consumers" not dealers.  

In China though, monthly sales are counted differently by the manufacturers.  There, GM reports total sales to Chinese dealers, not end users.

Is this enough to prove my long-standing point?  Both revenue recognition and "channel stuffing" have NOTHING to do with the monthly sales tally in the US reported on the 1st of each month by GM. 


Thu, 06/07/2012 - 04:41 | 2502592 Go Tribe
Go Tribe's picture

I'm not following you. Where does it discuss US inventories, thought this article was about CHINA stuffing?

Thu, 06/07/2012 - 05:06 | 2502614 Max Fischer
Max Fischer's picture



Yes, you're right.  

I'm making reference to numerous past articles at ZH which (erroneously) claimed that GM's US sales figures were the result of "channel stuffing" or GM stuffing dealers with unsold cars just to make their monthly sales figures look better.  Much to the chagrin of all the doomer goons, I have proven numerous times that the monthly sales count does NOT include dealer inventory.   

If you're not familiar with this long standing dispute, then just never mind. 


Thu, 06/07/2012 - 06:41 | 2502669 PeterLemonJello
PeterLemonJello's picture

Well Max, if you've proven it, then I guess it just is....however, as an auditor who happens to work on the GM're wrong.  The monthly sales figures that the OEMs report are sales to distributors, dealers and bulk (rentals).  Come look at any GM or Toyota lot in Detroit...they are stuffed.  They have every color and option package available with no wait.  All bullshit.

Thu, 06/07/2012 - 06:56 | 2502681 Max Fischer
Max Fischer's picture




I don't give a fuck if you're an auditor or not.  Another ZH reader claimed to work in the accounting offices of GM and still got it WRONG.  You clearly don't understand how GM reports the monthly sales figures, either.  In fact, I'm wondering if there is anyone at GM who is competent enough to understand the SIMPLEST of numbers:  how many fucking cars are being sold each month.    

Let it say it this way.... if you're right, then all GM shareholders should get a class action lawsuit together and sue GM for blatant misinformation. It CLEARLY says it in the press release, and dozens of prior releases.  If wrong,  this would be a MAJOR MISREPRESENTATION of material information.

You're wrong.  


Thu, 06/07/2012 - 07:29 | 2502777 Northeaster
Northeaster's picture

I've pointed this out before in prior posts, read their SEC filings, 10-K. Their Level 3 "unobservable assets" YoY have not only increased to nearly $1 Billion, but the spread has grown.

Secondly, ZH has covered another area of GM, sub-prime lending, which again, can be found in their 10-Q, and sub-prime borrowers out number a shrinking prime base by a margin of over 2-1. That should work out great for GM...and taxpayers.

Of course, since mark-to-market has been suspended indefinitely, we'll never know what the truth is about GM or any other publicly traded company.

It's right there in black & white (with a pretty shade of blue), 30% owned by The Treasury, aka Taxpayer, getting raped yet again by a failed, government intervened model:


Thu, 06/07/2012 - 14:55 | 2504887 AustriAnnie
AustriAnnie's picture



"Production and Retail Vehicle Sales Volume
Management believes that production volume and retail vehicle sales data provide meaningful information regarding our automotive operating results. Production volumes manufactured by our assembly facilities are generally aligned with current period net sales and revenue, as we generally recognize revenue upon the release of the vehicle to the carrier responsible for transporting it to a dealer, which is after the completion of production. Retail vehicle sales data, which represents estimated sales to the end customer, including fleets, does not correlate directly to the revenue we recognize during the period. However, retail vehicle sales data is indicative of the underlying demand for our vehicles and is the basis for our market share."



(a) GMNA vehicle sales primarily represent sales to the end customer. GME, GMIO and GMSA vehicle sales primarily represent estimated sales to the end customer. In countries where end customer data is not readily available other data sources, such as wholesale or forecast volumes, are used to estimate vehicle sales."
(Primarily, meaning "mostly".  So, yes, estimates may also be included in the GMNA data for U.S.  Unless you can prove otherwise, it appears that estimated sales get factored in).
Quotes are from SEC filings.
Thu, 06/07/2012 - 14:58 | 2504919 AustriAnnie
AustriAnnie's picture

Not that U.S. data matters all that much when discussing the channel stuffing issue, since we are focused on China.

And, according to GM:

"In the three months ended March 31, 2012 73.3% of our vehicle sales volume was generated outside the U.S., including 46.7% from emerging markets, such as Brazil, Russia, India and China (collectively BRIC), which have recently experienced the industry's highest volume growth."

Fri, 06/08/2012 - 03:11 | 2506431 Max Fischer
Max Fischer's picture



Thank you for proving my points.

1.  I've repeatedly argued that revenue recognition and retail sales numbers are mutually exclusive. 

Proof:  Retail vehicle sales data....does not correlate directly to the revenue we recognize during the period.....

2.  I've also repeatedly argued that "channel stuffing" has NOTHING to do with monthly sales figures released on the 1st of each month.

Proof:  GMNA vehicle sales primarily represent estimated sales to the end customer.

GM uses the word "estimate" as a "CYA" word.  If a sale is made on the last day of the month, but is unwound a few days later because of a "3 day right of recision" or financing fell through, GM does not want to be held accountable for their figures being nominally off.

Thank you for finding the necessary quote in GM's SEC filings to prove all my points.  No one has believed me in a year of debating this. 



Thu, 06/07/2012 - 06:08 | 2502642 onthesquare
onthesquare's picture

Henry Ford did the same thing back in the early 20's.  He make all Ford dealers buy his cars or lose the Ford dealership.  A lot of them went bust but good old Henry was seen as a hero by his employees for keeping them working.

Thu, 06/07/2012 - 07:35 | 2502807 azzhatter
azzhatter's picture

GM does not sell cars to consumers. Their dealers do. The dealer is the customer of GM and GM sales are to dealers. I worked in the industry for 30 years and sales were always reported as sales to dealers, not end users. End users are reflected in dealer sales and most dealers are privately held. However, you can't channel stuff month after month ultimately there has to be follow thru sales to end users

Thu, 06/07/2012 - 09:13 | 2503140 Freddie
Freddie's picture

Hope & Chains with the Kenyan's GM.

Thu, 06/07/2012 - 08:12 | 2502926 sessinpo
sessinpo's picture

Very unlikely. The Chinese and Japanese are not so close. Asians do not forget past wars so easily. It is like USA vs Russia. Besides, we need those radiated Japanese to migrate to the USA to buy houses.

Thu, 06/07/2012 - 00:19 | 2502219 ACP
ACP's picture

Geez, China is beginning to look like a Zombie Apocalypse Wastleland without even having a Zombie Apocalypse.

Ah, what the archeologists will say in 2000 years...


Thu, 06/07/2012 - 00:56 | 2502318 indygo55
indygo55's picture

We should export bath salts to help with the zombie thing.


Thu, 06/07/2012 - 01:00 | 2502329 Alpo for Granny
Alpo for Granny's picture

Christ don't these people know ANYTHING about marketing? Just throw in a spiderman towel with the purchase of every car and those lots will be empty before you can say....... Silver Bitchez!



Thu, 06/07/2012 - 02:01 | 2502434 potlatch
potlatch's picture

we exported our bubble.  We *are* their bubble.  last laugh?  haha.  I'll take the one with a strong democratic tradition, basic infrastructure, and coast to coast wireless, Bob!

Thu, 06/07/2012 - 00:34 | 2502259 Peter Pan
Peter Pan's picture

Empty cars, empty houses and pretty soon empty stomachs when factories stop producing. The rhythm of capitalism has been bastardised by the top 1% who in 2010 took 93% of the total increase in income in the economy over the previous year. It's not just the economy that is at risk but humanity itself.

Thu, 06/07/2012 - 00:45 | 2502294 Peter Pan
Peter Pan's picture

I don't mind a down tick but a reason would be appreciated particularly when the figures I have quoted were in a ZH article not so long ago. By depriving people of a decent wage is it any wonder they become demoralised individuals that seek to cling to the breast of government whilst amusing themselves with cheap food and entertinment?

Thu, 06/07/2012 - 02:23 | 2502463 potlatch
potlatch's picture

I like to at least keep open as a possibility that the entire point of all this may be to crash China so that its government collapses.  Does anyone think any Western leader can think of the Red Chinese and not throw up in their mouth?  It is a vile state, and sooner or later must die, and die utterly.  The Red Chinee no sooner sees ya then he computin in his head how to get you into his kowtow.  But I have thjree words, my friends.


America. Fuck. Yeah.






seriously.  get out of China.  it's going down, as gw bush would say

Thu, 06/07/2012 - 13:43 | 2504588 Cthonic
Thu, 06/07/2012 - 01:02 | 2502332 piceridu
Thu, 06/07/2012 - 01:41 | 2502403 lolmao500
lolmao500's picture

Evacuate a 300km radius around Fukushima and put all these people in China empty cities. Problem solved.

Thu, 06/07/2012 - 08:14 | 2502941 sessinpo
sessinpo's picture

Excuse me for being crass but fuck China. How about we let 10 million Japanese buy houses in the USA and alleviate the over supply?

Thu, 06/07/2012 - 02:02 | 2502438 potlatch
potlatch's picture


Thu, 06/07/2012 - 00:11 | 2502202 eurusdog
eurusdog's picture

They will be stacking them in like this

Thu, 06/07/2012 - 00:15 | 2502214 Dr. Engali
Dr. Engali's picture

In the spirit of the broken window theory , why not just smash them and build new ones? It's economic activity and the keynesians will love it.

Thu, 06/07/2012 - 06:04 | 2502637 Freewheelin Franklin
Freewheelin Franklin's picture

Nah. That doesn't work. I tried it. People generally tend to frown on it when you smash their car windshields in the parking lot of the local mall, and jump and down on the hood yelling, "broken window fallacy. Another job created". Especially, if you are naked when you do it. It gets kind of messy, The police show up and pepper spray you and tase you, and drag you by your feet, and all you can do is yell, "FUCK OFF, SLAVERS"

Thu, 06/07/2012 - 06:26 | 2502661 krispkritter
krispkritter's picture

Man, and it's only Thursday. You must be a real hoot when the weekend rolls around. Oh, and might want to wrap the 'boys' in a ziploc or something. Pepper spray can bring new meaning to the line 'Great Balls of Fire!'...

Thu, 06/07/2012 - 07:13 | 2502713 Freewheelin Franklin
Freewheelin Franklin's picture

Yes. Especially when mixed with small shards of glass.


But hey, no pain, no gain, bitchez.

Thu, 06/07/2012 - 00:16 | 2502215 q99x2
q99x2's picture

My suggestion is to put metal compacting machines at the end of the assembly lines and move them from there into furnaces to keep the numbers looking good. It is easy to fudge the numbers through fraud and it keeps everyone happy except the miners and salespersons.

Thu, 06/07/2012 - 00:38 | 2502269 Caggge
Caggge's picture

They will soon announce a new financing option. Zero down and -20% interest on the balance. It solves 2 problems. If someone doesn't have a job they can just buy 10 cars. They get a new "career" and transportation.

Thu, 06/07/2012 - 00:38 | 2502274 Maos Dog
Maos Dog's picture

lol if you really wanrt a heart attack look at the baltic dry...

Thu, 06/07/2012 - 00:40 | 2502280 AurorusBorealus
AurorusBorealus's picture

All of the problems of the world are not monetary and the result of fiat currency (though this is a major problem, in fact, the major problem).  There is also the inherent flaw in pure laissez-faire capitalism that Marx addressed... overproduction.  Industry has moved to where labor is cheapest, resulting in workers not being able to consume the same quantities as they produce.  The result is inevitable... overproduction.

This is not to say that Marx was right about everything (or even most things), but he was right about overproduction.

Thu, 06/07/2012 - 00:46 | 2502297 CrashisOptimistic
CrashisOptimistic's picture


The problem is oil scarcity.

The rest is just hand waving.

And it's forever.

Thu, 06/07/2012 - 02:49 | 2502498 Max Fischer
Max Fischer's picture



Supposed oil scarcity had/has NOTHING to do with this past/current financial crisis.  


Don't be a carnival barker. 


Thu, 06/07/2012 - 06:18 | 2502653 onthesquare
onthesquare's picture

natural gas is at an all time low.  Build a car that runs on natural gas and keep those fracking bastards working. 

Thu, 06/07/2012 - 08:20 | 2502960 sessinpo
sessinpo's picture

The declining price in oil would suggest the markets disagree with your assessment of oil scarcity. And the fact that more analyst are coming out suggesting that is at least 200 years of oil just in the west would support the declining oil prices and not oil scarcity. But as I see it, global deflation and economic slowdown as industrial production is reduced is the main factor.

Thu, 06/07/2012 - 00:48 | 2502303 Peter Pan
Peter Pan's picture

Agreed. We have reached the point where we have discarded the worker but still expect them to be a consumer by taking on credit. That game is well and truly over for the main part.

Thu, 06/07/2012 - 04:14 | 2502582 Bohm Squad
Bohm Squad's picture

There's so much wrong with this post.  The price mechanism resolves overproduction.  In fact, the article addresses just that.

Thu, 06/07/2012 - 00:59 | 2502325 reader2010
reader2010's picture

That's the good news for oil price.

Thu, 06/07/2012 - 01:03 | 2502336 world_debt_slave
world_debt_slave's picture

not to worry, GM is backstopped by the US taxpayer with broken backs


Thu, 06/07/2012 - 04:03 | 2502570 ebworthen
ebworthen's picture



And rusting ghost towns like Detroit.

And 46 million on food stamps.

And cronyism run amok.

Thu, 06/07/2012 - 01:16 | 2502359 WageSlave
WageSlave's picture

Maybe the Chinese are just hanging out for the new Tesla model S.

Thu, 06/07/2012 - 01:19 | 2502366 chump666
chump666's picture

China economically will be torn apart.



Thu, 06/07/2012 - 01:43 | 2502406 lolmao500
lolmao500's picture

And bring down Australia with it.

Thu, 06/07/2012 - 02:11 | 2502455 skepticCarl
skepticCarl's picture

China is not immune from the business cycle, and very well could have a recession. So?  The U.S., during it's great growth centuries, had plenty of serious recessions (as well as a pretty big Civil War).  Nations go through these events.  Some crumble, others emerge stronger, depending upon how they address their problems.  I expect the industrious and motivated Chinese to continue to progress into the powerhouse of the 21 st Century.   A month of auto channel stuffing will not get much mention when they write their incredible history.

Thu, 06/07/2012 - 02:26 | 2502473 misterc
misterc's picture

Volkswagen just sacked their China CEO.

Thu, 06/07/2012 - 02:50 | 2502499 prodigious_idea
prodigious_idea's picture

You mean the stats we've been getting are misleading?  I'm shocked.

Thu, 06/07/2012 - 02:55 | 2502504 silverdragon
silverdragon's picture
China's Auto Dealers' "Backs Are Broken" As 'Channel-Stuffing' Gets "Dangerous"

What a load of nonesense, what totally untrue sensationalism.

Last time I checked Chinese either pay 100% cash down when they buy a car or 40% deposit and it must be paid off in two years after putting up your land title deed as collateral.

The vehicles my China based company bought were all bought with 100% cash down as the loan process for business is difficult and time consuming. It's easier to just pay cash.

So the truth is that the govt. currently has the foot on the break ref car sales growth. Not that there is actually a structural issue with car sales.

If the govt. dropped deposits to 10-20% and no land title deed required or other collateral, it would be booming again.

The real question is will they remove the foot off the break and if so when.

Oh and buy shitloads of Silver before there isn't any left.



Thu, 06/07/2012 - 04:34 | 2502590 laomei
laomei's picture

This precisely.

At the same time, there's an explosion of metro systems being built, traffic's congested, gas isn't cheap and it's harder to snap up a parking spot.


The government also ended the subsidies for the auto market, as it is no longer considered a targetted industry domestically.  If you really want a car, sure you'll get a car and pay the price for it, but the country isn't exactly designed in a way that a car is required for much of anything.

Thu, 06/07/2012 - 02:55 | 2502505 Jack Sheet
Jack Sheet's picture

Cash for crunkers!

Thu, 06/07/2012 - 03:51 | 2502564 ebworthen
ebworthen's picture

No CNBC soup for you!

Steve LeBaue will throw a spork at you, turn red, and stomp off to cry on the shoulder of Bob Lutz.

Thu, 06/07/2012 - 05:47 | 2502627 Freewheelin Franklin
Freewheelin Franklin's picture

but this is forcing dealers to deepen discounts and sell cars at a loss to meet mandatory sales targets


What they lose in margins they'll make up for with volume.

Thu, 06/07/2012 - 05:51 | 2502631 Disenchanted
Disenchanted's picture





Meanwhile back at the Foxconn ranch...


Report: Dozens Arrested After Riot at Foxconn Factory,2817,2405383,00.asp

Thu, 06/07/2012 - 10:00 | 2503378 ParkAveFlasher
ParkAveFlasher's picture

Thanks for this, Dis. 

I love how they use the words "employees", "dorms", "campus", and "off-campus", when they should be using "indentured servants", "barracks", "work camps", and "high security work camps".

Thu, 06/07/2012 - 05:56 | 2502633 justsayin2u
justsayin2u's picture

are they buying volts???  the teleprompter/community organizer/ warrantless slayer - in -chiefs peoples car of choice???

Thu, 06/07/2012 - 06:44 | 2502673 Max Fischer
Max Fischer's picture



Actually, Obama repeatedly questioned the viability of the Volt.  The only reason you think Obama loves the Volt so much is because you're a slave to right-wing propaganda and disinformation.  

"...while the Chevy Volt holds promise, it will likely be too expensive to be commercially successful..."



Thu, 06/07/2012 - 07:45 | 2502845 El
El's picture

Considering how Obama threw 3 billion tax payer dollars at the Volt despite his reservations, what's love got to do with it?

Thu, 06/07/2012 - 08:27 | 2502991 sessinpo
sessinpo's picture

Max Fischer                 2502673

Actually, Obama repeatedly questioned the viability of the Volt.  The only reason you think Obama loves the Volt so much is because you're a slave to right-wing propaganda and disinformation.  


"...while the Chevy Volt holds promise, it will likely be too expensive to be commercially successful..."



Please dude, use a little logic and reasoning. Obama could have questioned the viability of Solyndra and other green companies. But he supported them anyway despite the facts that you have just pointed out - that Obama could see that a product was not viable but Obama still threw (wasted) tax payer money on it.  In other words, I have clearly shown you are a slave to the left wing propaganda and disinformation and despite using your own words, you still believe it.

Thu, 06/07/2012 - 06:04 | 2502639 silverdragon
silverdragon's picture

I guess there would be about 1,000 subway stops under construction in China right now, there are about 100 stops being built in the city I reside in.



Thu, 06/07/2012 - 06:40 | 2502667 orangegeek
orangegeek's picture

The IT industry used to do this in the 1990s and then the stock would collapse.

SP500 hourly shows upward correction - should see a big fall - probably next week.

Thu, 06/07/2012 - 07:50 | 2502857 f16hoser
f16hoser's picture

Glad to see our tax dollars (20 Billion) sent GM to China. Another timely move by Obummer. This guy is hopping around like a one-legged cat trying to bury shit on a frozen pond....

Thu, 06/07/2012 - 08:32 | 2503003 Stimulati
Stimulati's picture

Deflation in China?  You don't say.

Thu, 06/07/2012 - 09:19 | 2503161 Atomizer
Atomizer's picture

Buy one Chinaman car and get one free 2012

Mon, 09/17/2012 - 10:55 | 2803364 EmmaG
EmmaG's picture

Atomizer that is just mean! They should donate a car to charity so they will make some good PR! They don't stand a chance against the big competitors so they should use tricks like this one. I know that FORD did a thing like this in the `80s and it worked out pretty well.

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