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 [5] 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 [6]. Bloomberg [7]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...
[8]
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...