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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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.

The Monkey's picture

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

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...

Michael's picture

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

Manthong's picture

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


Jay Gould Esq.'s picture

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

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. 


Go Tribe's picture

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

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. 


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.

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.  


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:


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.
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."

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. 



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.

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

Freddie's picture

Hope & Chains with the Kenyan's GM.

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.

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...


indygo55's picture

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


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!



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!

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.

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?

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

lolmao500's picture

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

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?

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.

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"

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!'...

Freewheelin Franklin's picture

Yes. Especially when mixed with small shards of glass.


But hey, no pain, no gain, bitchez.

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.

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.

Maos Dog's picture

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

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.

CrashisOptimistic's picture


The problem is oil scarcity.

The rest is just hand waving.

And it's forever.

Max Fischer's picture



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


Don't be a carnival barker. 


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. 

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.

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.

Bohm Squad's picture

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

reader2010's picture

That's the good news for oil price.

world_debt_slave's picture

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


ebworthen's picture



And rusting ghost towns like Detroit.

And 46 million on food stamps.

And cronyism run amok.