Class Action Lawsuit Filed Against GM For Channel Stuffing

Tyler Durden's picture




 

In a classic example of "speak of the devil", we were barely done with hitting save on our earlier article (in a series going back to 2011) describing the relentless (and innovative) machinations conducted by GM to perpetuate the myth of swift sales absorption when in reality it is nothing the age-old gimmick of channel stuffing, that we got notice that General Motors was being sued by a group of IPO investors (nursing losses of about 40%), for precisely this: "In connection with the IPO, and in order to assuage concerns that GM was predicting revenue based on production rather than actual sales, GM falsely assured investors that it was actively managing its production by monitoring its dealer inventory levels. Additionally, GM assured investors that in 2011 it would improve inventory management, which would improve average transaction price. These statements were false when made. In July 2011, reports began to surface that GM had engaged in an extraordinary inventory build-up. In particular, an article published by Bloomberg on July 5, 2011 revealed that GM may have been unloading excessive inventory on dealers, a practice known as "channel stuffing," in order to create the false impression that GM was recovering and sales and revenues were rising." Luckily, since this is a class action lawsuit, anyone else out there who bought GM on the belief that the company would not engage in precisely the behavior that we have shown month after month to occur, is invited to enjoin the plaintiffs and to sue the company that exists only courtesy of taxpayer generosity (and more importantly, courtesy of labor unions subverting priority rights in bankruptcy, in exchange for presidential votes). Finally, and if nothing else, this lawsuit will certainly force the general co-opted media to pay some more attention to a topic that is quite sensitive for the administration: the business model of the one company that the president is so proud and happy to have saved from the clutches of evil bondholders.

From the lawsuit:

On July 5,2011, Bloomberg published an article revealing that in the months just prior to the IPO and thereafter, GM already was falling into "old, bad habits" by "channel stuffing," a practice whereby excess inventory is "sold" to dealerships so that the manufacturer, in this case, GM, can record those sales on its books, creating the false appearance of revenues, even while those cars remain unsold on dealer lots. The article stated that GM's truck inventory swelled to 122 days worth of average sales whereas, by comparison, GM's less profitable car inventory was limited to 60 to 70 days of average sales, Ford was maintaining only a 79 day inventory on comparable trucks, and GM's truck inventory during the years 2002-2010 had similarly averaged only 78 days of average sales.

The article quoted an analyst from Jefferies & Co. stating that "[i]t's unbelievable that after this huge taxpayer bailout and the bankruptcy that we are right back to where we were." The analyst further stated, "There's no credibility."

The article also quoted an executive director of global forecasting at J.D. Power & Associates, who stated that even though trucks may require more inventory to meet the demand for different combinations of weight classes, cab types, engines and trim levels, an inventory of over 100, a figure more than 20% less than the 122 average attributed to GM, would be excessive. This expert stated that while a truck supply in the 70s or 80s "isn't considered high ... When you're north of 100, it suggests there's too much." He added that "[ e]ven if you need a lot of variety, that's still pushing it."

Indeed, on July 1, 2011, GM admitted on an investor conference call that it had substantially exceeded inventory targets. An article appearing on Barron's on July 5, 2011 quotes Don Johnson, the VP of GM's U.S. sales operations, who stated on an investor call that "[r]ight now we are at 122 day supply on full-size pickups. And this is slightly above where we would like to be. I acknowledge that our target is between 100 and 110 day supply but I think it's important that people realize why we are there and what we may do about it." Thus, GM acknowledged that its target was above the 100 vehicle figure that industry experts  considered excessive, and moreover GM exceeded even its own excessive target.

Similarly, a December 1, 2011 post on an investor website suggested that GM's monthly disclosure of car sales was completely irrelevant in light of the huge run-up in dealer inventories, which indicated that production greatly exceeded demand. In fact, GM's month-end dealer inventory in November 2011 reached what was then an all-time high of 623,666 cars, which was 3.5 times the total GM vehicles sold in that month.

As of November 2011, GM dealer inventories were 30 percent higher than they were on September 30,2010 (the end of the last full quarter before the  November 18,2010 IPO) and 62 percent higher than they were at the end of 2009. Seemingly undeterred by these statistics, GM's dealer inventories have continued to rise.

DEFENDANTS'MISREPRESENTATIONS

On November 18, 2010, GM filed a prospectus on Form 424B1 with the Securities and Exchange Commission in connection with the Company's IPO (the "Prospectus"). The Prospectus stated, among other things, that "We aim to increase our vehicle profitability by maintaining competitive incentive levels with our strengthened product portfolio and by actively managing our production levels through monitoring of our dealer inventory levels." See Prospectus at p. 6.

This statement was misleading at the time it was made, because GM did not have adequate inventory controls in place and did not monitor dealer inventory levels to ensure that production was consistent with demand. Instead, in the months following the IPO, GM continued to ramp up production and overload dealerships with excess inventory, which GM then recorded as sales, even though the vehicles remained unsold on dealer lots for longer periods of time.

The Prospectus also stated: "At September 30, 2010 Inventories of $13.0 billion increased by $2.9 billion (or 29.1%), primarily due to: (1) increased  production resulting from higher demand for our products and new product launches; and (2) higher inventory levels at September 30, 2010 compared to low levels at December 31, 2009 of $5.9 billion that resulted from the year-end shut-down in certain locations." See Prospectus at p. 90. This was false and misleading, because the increased inventories were the result of channel stuffing and were not attributable to higher demand. Indeed, at the time of these statements, dealer inventories were rising and trucks were sitting unsold on dealer lots for longer periods of time.

This statement was false and misleading when made, because the increases in vehicle sales data were the result of channel stuffing and were not attributable to higher demand. In addition, the majority of sales reported by GM were based on estimated sales to final customers and not on actual sales data, and therefore, did not accurately reflect underlying demand. See Prospectus at p. 75.

LOSS CAUSATION / ECONOMIC LOSS

Defendants falsely stated in the Prospectus that GM was actively managing production levels through the monitoring of dealer inventory levels, and that  increased inventories were attributable to and indicative of higher demand. Defendants also failed to correct these previous false statements.

The false statements and omissions described above caused GM's stock price to remain artificially inflated.

Starting in July 2011, when the risk inherent in GM's lack of proper inventory controls materialized, GM's share price fell by more than 30%, representing a  market cap of in excess of $8 billion.

A March 2012 article in The Atlantic blamed the stock price collapse on investor fears that GM had not shaken its former bad habits, including possible channel stuffing.

 

Full lawsuit here:

 

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Fri, 07/06/2012 - 15:05 | 2592891 francis_sawyer
francis_sawyer's picture

Great Scott!

Fri, 07/06/2012 - 15:12 | 2592916 NewThor
NewThor's picture

IF GM wanted to make money the fair and legal way they should start making drones. CUZ, me thinks the American soldier isn't going to be too quick to fire at Americans.

Fri, 07/06/2012 - 15:23 | 2592964 Skateboarder
Skateboarder's picture

"You stand there captain, and we all look,
But you really are mediocre.
You are the champion in the acme form book,
But I think you're just a joker.
Your face down life aint so much of a pity,
But the love-a-duckin way you're walkin around the city,
With your balls and your head full of nothin.
It's easy for you sucka, but you really need stuffin!"

-Black Sabbath

Fri, 07/06/2012 - 15:30 | 2592991 nope-1004
nope-1004's picture

The Bloomberg article appeared in July 2011, and it takes a year to file?  Me thinks this is a bit GOP.

 

Fri, 07/06/2012 - 16:01 | 2593129 TrainWreck1
TrainWreck1's picture

The filing date of the attached doc is 6/29/12, not an October surprise.

 

 

Fri, 07/06/2012 - 16:27 | 2593148 TruthInSunshine
TruthInSunshine's picture

As we speak, a modern ocean going war vessel that's part of the Navy's new, elite "Green Fleet" (that uses taxpayer funded $26 per gallon bio-fuel*) is loading up Chevrolet Volts, given their propensity to explode, for use as projectile munitions in MENA should the need arise.

Cheaper than a Tomahawk, and more lethal, as well.

*White House pushes biofuels on Navy over lawmaker objections

The Hill (blog) - 3 days ago

The Obama administration is putting another $62 million into its bet that biofuels can power the Navy, rankling many lawmakers who say the programs are wasteful.

In May, Senate Armed Services Committee members derided the $26-per-gallon biofuel and petroleum cocktail fueling the Navy’s “Great Green Fleet,” an aircraft carrier strike group testing green-energy fuels, during a markup of the 2013 Defense Authorization Bill.

 

 

** p.s. - How many ironies can exist in a single modern day event?

Fri, 07/06/2012 - 18:03 | 2593416 Town Crier
Town Crier's picture

GM is pathetic.  They "pay back" their bailout money with money that they BORROWED from another government entity, and that big jerk CEO struts around like a big swinging dick, taking a victory lap for it. All bullshit.   And now they report sales that don't happen.  Friday afternoon!  Miller time!  Bunch of zeroes.

Sat, 07/07/2012 - 01:26 | 2594240 merizobeach
merizobeach's picture

After Boilermaker vomited all over the previous GM thread, has he not come here as well to eat his shit sandwich?

Fri, 07/06/2012 - 17:46 | 2593388 Clashfan
Clashfan's picture

Bloomberg? Here's what's going on at Bberg, Mister G, and this Bberg reporter, Sarah Eisen, looks like she's about to stuff something besides channels with that huge, black strapon underneath her skirt.

Or is that what it is? Someone says there's a claim going around that this is a microphone? No way.

How does something like this happen? Does anyone else have another explanation for this? It's not a camera trick?

No, it's a sign of the times: a hot Bloomberg finance chick wearing a huge strapon under her dress, getting caught playing with it, on camera? Yep.

Better, um, protect your keyboard before you take a gander at this. You might spit your beer (or whatever) all over it:

http://www.dailymotion.com/video/xquxle_reporter-caught-off-guard-with-s...

Fri, 07/06/2012 - 18:59 | 2593483 Clashfan
Clashfan's picture

Of course, every "conspiracy" needs an "official explanation." Here it is:

http://www.allvoices.com/contributed-news/12173898-news-anchor-sara-eise...

First, the other reporter's mic was malfunctioning, not Sarah's. Second, do they really believe that readers would think that she would have a microphone between her legs or have to hike up her skirt to fix it? Third, the piece mentions nothing about a strapon, which this image clearly represents. Of course, the piece offers no image.

It's important why? Because it shows how blatantly the mm lies. Can you not see it? The chick got caught playing with a strapon, and the spin is utterly ridiculous.

Sat, 07/07/2012 - 00:59 | 2594218 Tijuana Donkey Show
Tijuana Donkey Show's picture

Yikes! Who is she fucking with that thing? Timmy G?

Fri, 07/06/2012 - 15:24 | 2592966 iDealMeat
iDealMeat's picture

Behind the remote joystick, or behind the scope..  Soldier is just as guilty..

Fri, 07/06/2012 - 15:34 | 2593013 Skateboarder
Skateboarder's picture

Before high schools started getting all-weather tracks and stuff, we ran on dirt. The old saying went "train on dirt, burn on rubber."

Taking the analogy to the drone scene, I guess it's "train on video games, burn 'em ferreals."

=\

Fri, 07/06/2012 - 15:38 | 2593036 tarsubil
tarsubil's picture

I wondered a long time ago if they would just fool the player into thinking his targets weren't real. I stopped playing shooters after that.

Fri, 07/06/2012 - 23:38 | 2594125 UnderDeGun
UnderDeGun's picture

It's all just ENDER'S GAME.

Sat, 07/07/2012 - 06:29 | 2594402 OldPhart
OldPhart's picture

Praying for Bean to show up as well as the other Battle School kids.

Fri, 07/06/2012 - 15:25 | 2592969 nope-1004
nope-1004's picture

China building vacant cities, GM channel stuffing.  These are good times.  Change you can bereave in.

 

Fri, 07/06/2012 - 17:48 | 2593392 Michael
Michael's picture

Federal government employees of the gun toting variety will be exterminated by the patriot gun toting public very quickly. Killing Federal government employees will become a way of American life, to protect our families from those federal government terrorist murderers.

Fri, 07/06/2012 - 19:44 | 2593643 GeezerGeek
GeezerGeek's picture

Although I'd probably not buy another GM car, I'd certainly consider buying a drone. Particularly if the armaments and surveilance gear met my requirements. Similarly, I once considered buying a Mitsubishi. Then I found out they stopped making the Zero.

Fri, 07/06/2012 - 21:39 | 2593917 55 men
55 men's picture

Why buy one, it only costs a $1000 to hack into one and take control....true story...university of texas i believe, did it.

Sat, 07/07/2012 - 00:27 | 2594178 Freddie
Freddie's picture

Did you the Germans actually designed the Zero?   It was based on an early proptotype of the FW-190.

Fri, 07/06/2012 - 15:56 | 2593117 Hal n back
Hal n back's picture

did not know you could sue the govt

 

Fri, 07/06/2012 - 20:24 | 2593725 Mr. Lucky
Mr. Lucky's picture

This may require executive privilege

Sat, 07/07/2012 - 06:32 | 2594404 OldPhart
OldPhart's picture

The 'government' is a fuckin' corporation.  You can sue any corporation, including Congress, the Supreme Court, your State, your county..etc.

They are owned by stockholders, and you and I are not invited to the meetings.

www.manta.com

 

 

Fri, 07/06/2012 - 15:05 | 2592892 bob_dabolina
bob_dabolina's picture

When will there be a class action lawsuit against Obama for channel stuffing hope and change?

Fri, 07/06/2012 - 15:14 | 2592919 El Oregonian
El Oregonian's picture

Maybe he meant "Channel Surfing" you know, like looking for some love from his drones+crony's= drony's.. There are enough of them on the payroll/blacmail list...

Fri, 07/06/2012 - 15:15 | 2592924 idea_hamster
idea_hamster's picture

Uh, the electorate actually did buy that (once) -- that's not channel stuffing!

 

Fri, 07/06/2012 - 15:15 | 2592927 fuu
fuu's picture

How's that 1568 short treating you Mr. Dabolina?

Fri, 07/06/2012 - 15:23 | 2592945 bob_dabolina
bob_dabolina's picture

13 bucks big guy, really hurtin' for a squirtin'.

If that was an supposed to be an insult fuu, than you're so fly you make the birds fall, girl.

Let's talk in a month, mmm k?

Fri, 07/06/2012 - 15:26 | 2592965 fuu
fuu's picture

Naw bob if I wanted to insult you I would point out your reset button or the fact you named yourself after a poser. I was just asking.

$200,000 short at $1568. Back in a month then.

Fri, 07/06/2012 - 15:28 | 2592985 bob_dabolina
bob_dabolina's picture

Girl, you're so smooth you make glass quiver with jealousy

Fri, 07/06/2012 - 15:32 | 2592998 veyron
veyron's picture

Like the glass at walmart bob?  http://tinyurl.com/bob-dabolina

 

Fri, 07/06/2012 - 15:49 | 2593014 bob_dabolina
bob_dabolina's picture

Now I have to double fist fuu AND veyron? Can we get someone else in this and make it a four way?

veryon - for the last time...

http://www.chilledbeats.net/mr-bob-dobalina/

and also stop telling people to use ad block on ZH so as to deny them ad revenue, like you were on chat.

Fri, 07/06/2012 - 15:59 | 2593126 veyron
veyron's picture

if the ads make ZH unusable, then turn on adblock.  

 

Why does ZH use investingchannel ads?

Fri, 07/06/2012 - 16:07 | 2593151 emersonreturn
emersonreturn's picture

when will there be a class action lawsuit against the Fed!

Sat, 07/07/2012 - 06:39 | 2594408 OldPhart
OldPhart's picture

Our perverted society interpreted 'channel stuffing' for 'anal stuffing', an understandable offense since our media tends to mumble over critical news.  As a result we get to harvest what was planted deep.

Fri, 07/06/2012 - 15:06 | 2592896 Western
Western's picture

Look at that list of defendants... holy shit.

Fri, 07/06/2012 - 15:07 | 2592898 drink or die
drink or die's picture

File this one under "stories CNBC will never cover".

Fri, 07/06/2012 - 15:07 | 2592900 moroots
moroots's picture

Football = Obama administration

George C. Scott = American taxpayers

http://www.youtube.com/watch?v=KpgkXQ3Lquk

Fri, 07/06/2012 - 15:09 | 2592903 fonzannoon
fonzannoon's picture

does ford do this too?

Fri, 07/06/2012 - 15:21 | 2592952 Phil Dupterjaw
Phil Dupterjaw's picture

Of course they do.  There are 5k+ Ford Escapes at the Papa John's Cardinal Stadium parking lot in Louisville, KY.  They have been there for weeks.

The only thing is, Ford didn't just go busted.  Get a Govt bailout.  Then IPO again.

Fri, 07/06/2012 - 15:27 | 2592979 Dr. Richard Head
Dr. Richard Head's picture

Ford may not have taken govt money, but Ford Credit sure as fuck did - http://www.fordinsidenews.com/forums/showthread.php?6764-Ford-Credit-took-15-Billion-in-Bailout-Money-from-the-US-Government

As did BMW, Chrysler, Toyota, GM. etc.

Fri, 07/06/2012 - 15:31 | 2592996 Uncle Remus
Uncle Remus's picture

Do they still make F-250s there? Louavul - haven't been back in a while.

Fri, 07/06/2012 - 16:10 | 2593162 HelluvaEngineer
HelluvaEngineer's picture

I thought Ford trucks were made in Mexico and sold to shitheads who say things like "I like the Toyota, but I want an American made truck."

Fri, 07/06/2012 - 19:10 | 2593572 Uncle Remus
Uncle Remus's picture

Perhaps a bubba savant?

Fri, 07/06/2012 - 20:04 | 2593689 post turtle saver
post turtle saver's picture

You know, American made trucks... like all the Toyota Tundras manufactured in San Antonio, TX, USA.

http://www.toyotainaction.com/us/tx

Yeah, those guys are always a riot... I expect nothing less from Ford fans. Ford customers are the "meat bricks" of the automotive world.

Fri, 07/06/2012 - 16:14 | 2593169 Phil Dupterjaw
Phil Dupterjaw's picture

Yes.  They make the F250s and larger trucks at one plant.  They assemble the smaller trucks at the other plant.

Fri, 07/06/2012 - 15:09 | 2592905 kito
kito's picture

rumor has it that victoria secret is getting sued over bra stuffing...........

Fri, 07/06/2012 - 15:10 | 2592911 Catullus
Catullus's picture

Well done, sir. Well done

Fri, 07/06/2012 - 15:16 | 2592934 francis_sawyer
francis_sawyer's picture

Show us your... um... PROOF...

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