Channel Stuffing At GM?

Hidden deep in today's disappointing GM November sales release is a number that all GM longs may want to quickly forget, or else pay serious attention to. But first, earlier today, GM reported slightly disappointing sales numbers: the newly IPOed company sold 168,739 cars in November, a 11.4% increase to November 2009, which came in below expectations of a 13% rise. That's mostly noise. What isn't, however, is the linear rise in GM's auto inventory safely stashed away at dealers, i.e., unsold. The chart below demonstrates what some may argue is nothing less than a blatant case of channel stuffing. Is it really surprising that GM will resort to such pathetic schemes to boost its top line numbers? Of course not: the government's GDP report demonstrates that this is occurring everywhere in the US economy, courtesy of near record inventory accumulation which two years after the start of the depression refuses to let up, providing a hollow boost to economic numbers as the much anticipated pick up in end demand (sorry Goldman) courtesy of record deleveraging ( Jan, let's discuss the hundreds of billions of leverage lost in the shadow banking system on December 7 shall we?) continues to accelerate.

It is obvious that beginning in July, GM has started an aggressive channel stuffing program whereby it offload tens of thousands of cars (over 110,000 since July) on dealer lots, hoping these will get sold somehow, at some price, all the while dealers enjoy taxpayer subsidized floorplan leases which allows them to hold nearly infinite inventory. If and when the liquidation event takes place who cares? After all the company is now public and has managed to massage it artificial sales numbers sufficiently to fool investors that there is actual end demand for its cars.

So what would have happened if in October GM had held its dealer inventory flat (not declining, just flat): well, the top line number would have been 21,000 cars less sold. Which also means that total sales would have been not 169k but 148k, and instead of a 11.4% increase, GM would have reported a drop of 2.4% in November sales YoY, which would have made the life of GM DMM GETCO that more unbearable as the High Frequency Trader would soon end up with 100% of the stock float at $33.

And just to show that dealer inventory is actually not a bad thing, despite the spin that the company and Phil Lebeau may come up with, we present the Company's very own December 2009 sales report in which it itself boasted how efficient it was in having its dealer inventory at year end 2009 be the lowest on record: "U.S. Dealer Inventory Reaches 385,000 – Lowest Year-End Level on Record." So what happens when the inventory is the highest in years? One will likely not see a comparable statement in today's sales release. Sure enough, try hard as we might, there is no spin from GM's corporate spinsters that had anything good to say about today's 536,000 cars in dealer inventory.

Bottom line - if indeed GM is right, and manages to sell hundreds of thousands of cars in December, we will take back everything we said above. On the other hand if the number remains flat, or, heaven forbid, increases, it will be more than obvious that GM is now involved in nothing less than the most transparent channel stuffing scheme we have seen in years.