By on March 4, 2013

Zerohedge chart shows GM stuffing the channel at a frightening rate

Zerohedge, the website that caters to short sellers, has been monitoring GM for symptoms of a relapse to the Bad Old. One of these symptoms is channel stuffing, defined by Investopedia as “a deceptive business practice used by a company to inflate its sales and earnings figures by deliberately sending retailers along its distribution channel more products than they are able to sell to the public.”

Zerohedge has a chart depicting an increasingly overflowing channel, and it looks bad. Let’s have a closer look.

Zerohedge sees “a near record 743K cars” sitting in the lots of GM dealers in February, – “the second highest ever.”

If you want to come to the defense of the General, you can simply say: “Second highest February, ever? Not true at all! In February 02, 988K were out there.  In February 03, dealers drowned in 1.13 million GM vehicles. In  February 04, there were 1.2  million – shall I go on?”

Point taken. Those were the days of 17 million units a year, and we all know what happened after the channel got stuffed.

Inventories go up for GM and its peers

Let’s put the  matter in perspective by recreating the same chart for GM and its peers. Dealer inventories sure are rising. They rise for all makes, some rise more than others. A simple reason for dealer inventories to rise is that sales are up.

A better, but still confusing picture

To get a grip on this (and on inventories), the industry uses a metric  usually called “days to turn” (or “days of sale” etc.). It goes like this: “If business stays like last month, how many days will it take to move the inventory?”  Days to turn should not go up as business increases. Sure, total inventory goes up. By selling inventory faster, days to turn should stay relatively even.

In the industry, a two month inventory, or around 60 days, is considered reasonable.  As we can see from this chart, GM appears to be far removed from that 60 days ideal.

Days to turn also is a metric that must be used with care. Take GM’s  December 1 inventory of 788K. Looking at the sales rate of November, it was determined that it would take 106 days to move.  GM did put cash on the hood, year-end sales  did their part. On January 1, there was an inventory of 717K. Now suddenly, it would take only 76  days to move that inventory? It would, if January sales pace would be the same as December. Of course it was not. So we land on 738K inventory at the beginning of  February, which suddenly is said to take 95 days to turn. Confused?

We are not trying to predict inventory levels, we are trying to establish a trend. For that, we take a simple three month moving average of the days to turn to smooth out the confusing ups and downs.

GM accumulates more and more inventory, while Toyota’s remains relatively flat

This chart is less dramatic than that of Zerohedge, but it tells us a lot.  We see that days to turn trend up for all  Detroit makers. GM however remains the most profligate  inventory oinker.  On a three month averaged basis, GM has  nearly three weeks more inventory out there than Ford. Of the Detroit3, Ford looks most disciplined, especially considering its high share of trucks. In Febuary, Ford’s three month average for trucks was 77 days, that of cars was 68 days – not a large difference.

I have added Toyota as a reference.  With Toyota still  importing some 30  percent of the cars it sells in the U.S., one would assume that Toyota’s inventories should be higher. They are not.  Quite interestingly, all four of them had inventory levels slightly above 60 days  in March 2011.  After the Tsunami hit, Toyota’s inventories decreased, but they did not increase a lot in 2012. Lean inventories do not seem to be in favor in Detroit, with GM topping the obesity scale.

P.S.: Before the usual “GM needs to prepare for the truck shutdown” arguments come: In February, GM’s truck inventory stood at 94 days, that of cars stood at 95 days.

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117 Comments on “The Truth About Channel Stuffing...”


  • avatar
    doctor olds

    Isnt the increasing inventory trend the result of carmakers planning for increasing future sales by increasing inventories while the statistician is being fooled or fooling others by calculating today’s inventory on past sales result?

    • 0 avatar

      Zerohedge fell into that trap with their chart. That’s why I did all the work with days to turn data.

      You do NOT need to increase the days to turn metric to plan for increased future sales. By increasing DTT, you simply build up inventory faster than sales rise.

      Look at Toyota. Their sales were up 27 percent in 2012 – their DTT remained relatively flat. The chart on top shows that their inventory levels rose to account for higher sales, DTT goes sideways as it should.

      Or if you rather look at Ford: Ford achieved slightly higher growth than GM in 2012 while maintaining inventory discipline.

      • 0 avatar
        Scoutdude

        I have a very hard time believing the Toyota numbers, at least the DTT, based on the huge amount of 2012 Camrys they are still desperately trying to dump.

        • 0 avatar
          sunridge place

          Toyota has about 30,000 2012 Camry’s left. Their 2013MY was late to start up because of some enhancements they wanted to add.

          What is your source for desperation on the 2012 Camry?

          • 0 avatar
            Omoikane

            He doesn’t have any sources.
            The Kentucky and Indiana plants where the Camry is made are running at full capacity.

          • 0 avatar
            mike978

            I am amazed they still have 30,000 2012 Camry’s left since they switched over 2-3 months ago. They are offering $750 on the hood as cashback which is very rare for Toyota. Honda don`t do that. Also there have been special cashback offers through Edmunds. Mainly seems Nissan uses Edmunds for large special cashback on leased or purchased vehicles.

          • 0 avatar
            CJinSD

            I can find 9,528 new 2012 Camrys on this planet, which is a lot. That’s something closer to 3% of production than it is to 2%, and far more than I’d think they should have this late in MY2013. That’s almost 8 cars per dealer! Almost 25% of Camry’s in stock are last year’s models. OTOH, dealers still only have about a 40 day supply of Camrys, which isn’t bad when you’re talking about the best selling car in the US.

          • 0 avatar
            sunridge place

            30,000 is one month of sales for Camry. I will add that it is a change for Toyota to be so aggressive on rebates.

            Not sure if your $750 reference is for the US or Canada…I see $2k rebates on 2012 Camrys and they already have $500 on the 2013′s.

            http://www.gulfstates.buyatoyota.com/Advanced/Pages/OfferSearch.aspx

            Mid-size segment is brutal with competition and Toyota isn’t sitting back and letting anyone take anything they already have as far as share.

            A simple $500 rebate costs Toyota around $15 million a month in expense….a drop in the bucket but still interesting their strategy change.

    • 0 avatar
      highdesertcat

      doctor olds, That certainly is one way to look at it. But in general, the past is prologue. Unless GM put a lot of money on the hood, they did not sell as well at full pop as was anticipated by those stuffing the channel.

      I know it’s a matter of semantics, but in the case of Fiatsler, getting the in-demand version of the Grand Cherokee to the dealers to satisfy demand, has proven elusive for them. And the Dart hasn’t exactly been a hot-seller either, in spite of all the hype that accompanied it. Not everyone can afford to step up to a higher trim level or live with a color they don’t like.

      We can all hope that GM’s channel-stuffing strategy works for them, but it hasn’t worked in the past and I don’t see Americans as bullish on GM. Not in the past. Not now. And it remains to be seen if they will be in the future.

      If it doesn’t work, we’ll see even better discounts every August and September as they have to clear the lots of unsolds.

      • 0 avatar
        doctor olds

        The biggest problem I see with the channel stuffing argument is that GM dealers actually want the inventory and order it. The implication is they are forced to take product, which is not true. They pay for the floorplan to finance it, too. It is no secret to any automaker that bloated inventories can take fire sale prices to relieve in preparation for new products. GM has been quite disciplined in this regard. With GM market share up a full point YOY for February, maybe dealers are optimistic.
        You are certainly right that time will tell.

        • 0 avatar

          doc, please don’t build any case on market share increase. the month was horrific until the checkbook was spread wide open the last week. see how much biz there is this week, nothing but tumbleweed. you can only get away with robbing the future and stuffing the lots for so long.

          if we don’t significantly change the marketing there will be serious consequences. we may be seeking out the Wonder folks at Hostess to find homes for 4 rather storied brands.

          • 0 avatar
            doctor olds

            I’m not building a case on that data point, but GM is certainly not weak in any business perspective. There is reasonable logic behind expecting some share gain this year with lots of new products, and all forecasters expect the total market to grow. Market share is for bragging rights, but volume generates income and GM has good volume, especially wrt to capacity utilization and efficiency in manufacturing.

          • 0 avatar

            not weak in any business perspective? doc, you have no clothes on. our marketing is a shameful embarrassment and the reason we went broke (beyond the evil that was Wagoner). you won’t admit that, which leads me to wonder what your agenda is.

          • 0 avatar
            doctor olds

            my agenda is very simple. to lay out the truth. from a business perspective, i will side with Buffett and the facts are very clear. GM has a pile of cash, dumped $29B of future pension liability with a $2B spend in 2012 and are generating very good cash flow. New products are well received and running at high factory efficiencies. There are far more reasons to be optimistic than to see gloom and doom.

          • 0 avatar

            new products well received? you must sleep very well as your reality could only exist in dreams.

          • 0 avatar
            doctor olds

            @Buickman-yes they are well received and GM’s assembly plant efficiency proves it.

            They are doing fine and averaging highest or second highest transaction prices of any full line maker (don’t know how VW sneeked in there recently).

            GM lost a year in product development in an industry where new product is king. The new stuff is selling well, and there is a more coming.

        • 0 avatar
          highdesertcat

          doctor olds, When I commented in the past that the dealers in my region were advertising Silverado and Sierra trucks in the El Paso Times for $10,500 off MSRP with many to choose from at this price, I was severely chastised by some of the all-knowing gurus on this site as not knowing what I was talking about.

          Nevertheless, I know several people who bought a 4-door Texas Edition Silverado with all the bells and whistles for that incredulous $10,500 OFF MSRP. All of them were working people, who scooped up such a deal.

          GM products have the decades-long reputation of running badly longer than any other brand. And that’s a fact, Jack! So getting one relatively cheap is a gift horse not to be looked in the mouth.

          I don’t think that GM made any money on those sales and if GM’s philosophy was to sell each vehicle at a loss and make it up in the long run, then we’re right back where we were in 2008.

          I find it hard to accept that GM dealers actually order an oversupply of stock, floorplan it and blindly pay interest on the floorplan while stock remains unsold.

          Is it possible that the creative accounting has come down to the dealer level as well? Stranger things have happened.

          I don’t know, but it would seem to me that pre-positioned stock at the distributor level would work a lot better than overstocking the dealer lots.

          Then again, I live in the Great Southwest. Maybe business practices are different for the citified dealers.

          • 0 avatar
            doctor olds

            You may not realize it but you are repeating stereotypes that are not borne out by reality today. GM has very good reliability and dependability. Regardless of your view of reality, dealers actually order this inventory and pay floorplan interest on it. It has been long observed that at least 80% of new car sales are from dealer inventory. That would include dealer trades, of course. GM dealers must be pretty optimistic and they are a lot better equipped and interested in making the right decision than we are!
            Distributorships do not exist today for most, if not all brands. Once a key part of the auto distribution channel in America, they have gone the way of the dodo.

          • 0 avatar
            sunridge place

            @HDC

            You were criticized by me when you said an El Paso dealer was advertising ALL his Silverados at $13k off(2012′s and 2013′s).

            I’m not even sure if you will understand the difference between ‘all’ and ‘some’

            Read your own words…here they are:

            http://www.thetruthaboutcars.com/2012/12/the-incentive-wars-gm-cries-uncle-let-them-cry-a-little-louder/#comment-1979019

            There is no doubt some high end trucks are and have been discounted at large $$…same with other OEM’s on the high end trucks.

          • 0 avatar
            highdesertcat

            doctor olds, you may remember that my brothers had GM dealerships in four states, among other brands, until they retired at the end of 2011 and sold the businesses to a national retailer. It was hard to move anything GM in 2009 and 2010, even at discount.

            sunridge, I know what I wrote and that’s how the ads read, “ALL IN STOCK”. I even invited you to visit that newspaper site to see for yourself.

            Well, if this channel stuffing turns out to be true, maybe we’ll see large discounts on unsold 2013 models of GM trucks and cars. That’s got to be good for some people who want a GM product and can get one at a discount.

            Fiatsler’s Grand Cherokee is going through that now since the 2014 Grand Cherokee is already in transit to the dealers and will start to sell in April or May, depending on the unsold inventory of 2013 and 2012 models still on the lots.

            What’s still left on the lots in my region are the Limiteds, Overlands, SRT8s, RWD (2×4) and Laredos in colors nobody wants.

            I would think people are just going to hold out for a 2014 and select one to their liking. Maybe it will work the same way for the 2014 Silverado/Sierra.

          • 0 avatar
            doctor olds

            @hdc- do you think the chain is making money in those stores? if not, how’d they get so big?
            GM dealers are quite profitable these days, as a matter of fact.

          • 0 avatar
            sunridge place

            @HDC

            You never ‘invited me’ to read those ads…they weren’t online. I’m not doubting what you convinced yourself that you saw…but El Paso Chevy dealers were not offering 13k off all 2012/2013 IN STOCK Silverados in December..no matter how much you want to believe it.

          • 0 avatar
            highdesertcat

            doctor olds, I can only speak from actual knowledge, and at that time the GM side of their house was just barely breaking even. Used cars sold relatively well so they made money on those.

            But that was for the locations that affected the dealerships of my brothers and their partners. I can’t speak for anyone else.

            Possibly other dealerships with larger thru-put aka turn-over could have been making money even with the heavy discounting. I know of a dealership in Las Vegas, NV, that did well throughout the turmoil of 2009-2010, and they moved at heavy discounts.

            OTOH, what kept my brothers and their partners afloat, and I wrote about that extensively at that time, was the fact that they sold multiple brands, although sometimes not on adjacent or co-located lots, but in the same cities.

            The Toyota side of the new-car business, the Hyundai and the Nissan side really shined in those days, as it did for most other dealerships of that time.

            True, GM is doing very well right now. I don’t dispute that. But looking at the overall picture that is GM today with its inherent divisional problems outside of the US, I believe that there are more aspects tugging downwards elsewhere on the upside of GM in North America.

            Channel-stuffing aside, my personal belief is that GM should focus on its core brands, Chevrolet and Cadillac around the world, “and forsake all others”.

            GM should divest itself of GMC, Buick, Opel and its liaisons everywhere else, yes, including Australia, Europe, South Korea and China, instead making those entities separate corporations under one Holding Company distinct from GM North America, importing whatever sells well in North America from those countries and continents.

            sunridge, sure the El Paso Times was online at that time because they had a push on to get subscribers like me to switch from the printed page to the electronic one.

            I checked out for myself if the ads I referred to in my comments were online, and they were.

            But it really doesn’t matter to me, either way, what you think of my comments. If you don’t believe the validity of my comments or otherwise don’t like my comments, like so many other people you criticize here, I invite you now to skip over them.

          • 0 avatar
            sunridge place

            @HDC

            You are wrong. I looked online at the El Paso times website at the time. It wasn’t there.

            You can look yourself…

            http://elpasotimes.tx.newsmemory.com/advmarketplace.php?v=search&c=182

            They have a terrible listing of newspaper ads online. I imagine they charge a bit more for that and dealerships don’t want to pay perhaps?

            According to that link, there were only 6 automotive print ads in the El Paso Times in the last 30 days. None from Chevy.

            El Paso times does not list all their dealership ads online. Look at what they have up there today for the last 30 days:

            3 Dick Poe Motors ads
            3 Bravo Cadillac ads

            Hardly a full representation. I looked then…it was NOT there nor did you ever ‘invite me’

            I’m sure you would have posted the link if it existed.

          • 0 avatar
            highdesertcat

            I rarely post links. I have nothing to prove to anyone. If people question the veracity of my comments they can always do a Lexis-Nexis search, or go to Westlaw if they want to look at legal precedence.

            The dealers you listed are indeed in the El Paso area, but there are many more, and I haven’t visited their website since because I prefer to get the printed copy so I can use the paper as starter for my fireplaces.

            So choose to believe what you will. It really doesn’t matter to me. I don’t have to ‘win’ every discussion like you do, nor do I have to berate others because their experiences may be different than mine.

          • 0 avatar
            sunridge place

            HDC

            This isn’t about ‘winning’…its about facts. You started this back up by saying:

            ‘When I commented in the past that the dealers in my region were advertising Silverado and Sierra trucks in the El Paso Times for $10,500 off MSRP with many to choose from at this price, I was severely chastised by some of the all-knowing gurus on this site as not knowing what I was talking about’

            Kind of seems like you were trying to ‘win’ with that comment…not me.

            I never said dealers weren’t offering big discounts on the high end Texas Edition type trucks.

            I corrected you by showing that the post you remember wasn’t about having ‘many to choose from’ at $10,500 off.

            You said it was $13,000 off ALL 2012/2013 Silverados. If you can’t see the difference between the two stories then I’m not sure what to tell you other than you are wrong.

            You were basically saying a dealer was offering all his new 2013 Silverado Reg Cab Work Trucks for $11,0000…which is a joke.

          • 0 avatar

            rather than splitting hairs over irrelevant particulars, time would be better spent pointing out the failed distress merchandising that is killing brand image and costing market share.

            “never argue with stupid people, they will drag you down to their level and then beat you with experience.” Mark Twain

          • 0 avatar
            sunridge place

            @buickman

            GM Truck sales are not hurting market share these days. Ford will be doing the same thing as they transition to their new F-Series in a year or so.

            Your ideas read like a really good plan to increase GMS sales in Michigan and are irrelevant outside of your bubble…no matter how much you like to puff your chest about how great they are.

          • 0 avatar

            well sir I have sold over 25,000 cars at retail in 35 years, nationwide and done consulting across America. I’ve been General Manager of two dealerships and have written volumes about which numerous experts have proclaimed support. what have you done?

          • 0 avatar
            sunridge place

            What have I done? I read your plan.

            You complain about discounts…your plan is filled with discounts.

            AARP Discount!
            Referral Discount!
            Free maintenanc for GM Retirees!
            Let GM Employees turn their leases in right away to lease again!

            I think my favorite part of your plan is:

            STEP NINETEEN: Direct Factory Communication: Imagine going to your local dealer and ordering a new vehicle. From that point on, you might receive a call from your salesman with an update as to the order status. Usually though, no contact is made until the vehicle arrives.

            I love the fact that you acknowledge that the customer MIGHT get a call from their DEALER…from their SALESMAN about order status…but they probably won’t.

            What the hell is wrong with the DEALER doing that as a part of day to day good customer service??? That customer is paying their hard earned money for a car to the DEALER…they can’t take 5 minutes a week to reach out to their customer for an order status???

            Good lord…pathetic dealers.

          • 0 avatar

            so your claim to fame is the ability to read? judging by your twisting of my words it’s apparent that comprehension is a talent yet undeveloped. it’s funny that your slanted view differs so diametrically from my friend Jerry York, one of the greats who saw Return to Greatness as just what the doctor ordered. anyway, I’m done discussing this with you, my time is too valuable to waste.

          • 0 avatar
            sunridge place

            Ooookay Buickman…goodbye. You butted in here..not me.

            I quoted you. Sorry you felt I twisted your words. You have a lot of great ideas that could help bad dealers improve their sales and customer service.

            Your other ideas seem to spend $$ to help do more employee deals and won’t help sell Buicks outside of Michigan.

            You’ll be offering loyalty $$ to Buick customers in their graves while ignoring the need for Buick to move on and attract new customers…which they are already doing.

          • 0 avatar
            highdesertcat

            Buickman, there are times when sunridge adds to the discussion but more often than not he seems to relish circular arguments, often twisting comments of others to suit his own arguments. I can accept that.

            He is entitled to his views. We don’t have to engage him in dialog.

            And others have already identified sunridge as a condescending troll. So as they say, “One man’s troll is another man’s muse.”

            It is up to each one of us who choose to comment on a thread to continue the dialog with sunridge, or press on.

            I favor letting each reader who chooses to comment have his or her say, and take it at face value, even sunridge.

            He’s entitled to his opinionations, facts and all. I have no idea what his connection to the industry is but I suspect that it is all fiction and based on Wiki searches. No practical first-hand experience.

            If he is really connected to the business, he would have identified himself as such, just like everyone else on this board already has.

            As for me, I’m just going to let it rest. I advice you to do the same. What infuriates clowns is to be ignored.

        • 0 avatar
          MeaCulpa

          SPECULATION: Isn’t it possible that GM is using incentives to make dealers expand stock? They could make floorplanning more attractive for dealers ordering lots of inventory, or some other metod of achieving the same result.

          • 0 avatar

            you are correct. it’s called EBE. dealers are paid extra for every unit invoiced if they remodeled. large stores pick up huge money then use locator services to spin the product they can’t retail. this distorts normal inventory management and floods the system. it also creates demand for whatever the factory happens to be building as opposed to waiting for popular models and options that are constrained.

    • 0 avatar
      doctor olds

      Your inventory days to turn is still based on past sales results. 3 months trailing average, as you pointed out. Inventories are set to reflect expected future demand.

  • avatar
    DeadWeight

    I am often accused of being a pessimist and/or cynical, objectively think of myself as rationally skeptical, and hope that I’m at least somewhat of a realist.

    With that said, looking around the world today (or the parts I can see), I can’t but think the trend of higher passenger vehicle sales in the U.S. is in huge part a result of aggressive lease rates, deal making & a desire by major automakers to keep U.S. factory utilization on an upward trajectory (for a variety of reasons).

  • avatar

    dealers chasing EBE invoices are willing to bet on the come. rising tides lift all ships, but sitting and sweating on all that metal during a slow summer would be expensive.

    • 0 avatar
      Lorenzo

      Speaking of Summer, I noticed the cycle in the inventory days to turn chart, best shown by Ford over the period. Inventory days to turn goes up about this time of year, and goes down in the June-July period.

      Maybe looking at a 3-month or 6-month trend isn’t looking far enough, if you ignore the cycle. In that chart, I view Toyota and GM as the outliers, with Ford and Chrysler in near agreement that there’s a repeating cycle that needs to be taken into account.

  • avatar
    Big Al from Oz

    Like any operation, product sitting on shelves or in a warehouse is costing interest on borrowed money. Then compound that with a supply and demand situation where prices are required to drop to move stock, you will eventually go broke (again).

    It seems GM management should be fired.

    • 0 avatar
      doctor olds

      The current management has led the company to make $16B in the last two years, $7B of it in North American in 2012. I think the board is reasonably happy with their performance, as is Warren Buffett, apparently.

      • 0 avatar
        Big Al from Oz

        @doctor olds
        From what I’ve read is that GM (and probably others) move stock out of GM and into the dealerships. They count these as sold vehicles.

        How many vehicle does GM have sitting at dealerships or outside of GM? 150 000? Multiply this by $15-20 000 per vehicles, that’s alot of smoke and mirror profit.

        What is Warren Buffet’s portfolio? How many GM shares does he have, and is it in his interest just to have the stocks rise a couple of percentage points?

        • 0 avatar
          doctor olds

          @BigAl from Oz- In fact, a sale is recorded when the manufacturer ships to a dealer. An average fixed time after shipment, the dealer’s obligation for the cost of the car begins, and he or his financial company pay the carmaker. This is true for all US makers, can’t speak for entire industry, though I’ll bet it is the norm. Dealers own or finance inventory on their lots Manufacturers sell to dealers.
          Buffett has roughly $700Million worth of GM, 2/3 of it purchased in 2012 Q4. He invests for the long term in companies he sees as solid businesses.

        • 0 avatar
          APaGttH

          every auto manufacturer does that, even Honda, even Toyota -counting “shipped” as sold is SOP for the industry right or wrong.

          • 0 avatar
            CJinSD

            If you look at the numbers, GM makes a practice of counting over twice as many shipped cars as sold than Toyota does at any given time, in spite of selling only about 30% more vehicles. That’s the point, no matter how hard you claim you’re unable to comprehend it.

          • 0 avatar
            doctor olds

            It is really very simple. Every new vehicle has to be sold twice (at least) to get to a final customer.

            A manufacturer sells to their customers, who are the dealers, thus manufacturer sales, including the financial transaction, is tied to shipment to a dealer. Every brand uses this business model, though some “company stores” have existed in the past and may exist today for tiny niche brands.
            Vehicle Sales reports, such as we see from Automotive News, are Retailer sales. These include Fleets, which are still sold through dealers, though some vehicles are drop shipped to fleet locations.
            This two step sales process opens the door for the concept of “channel stuffing”. It is really a lot more accurate to view retailer inventory as more of a buffer, since, over time, it is all sold to final consumers.
            Channel stuffing can only be temporary. Every car and truck is eventually sold by dealers. More importantly, every one of those field inventory vehicles was ordered and purchased by a dealer.

          • 0 avatar
            CJinSD

            The idea that channel stuffing is temporary is predicated on the assumption that GM will eventually move to return inventory levels to a 60 day supply. Instead, they seem determined to make 95 days their new normal, lest they be forced to allow an instance of high consumer demand to be omitted from their propaganda stream as it offsets earlier fake sales. Instead, GM just pumps inventory higher, so they can claim sales a second time when they’re really made, having already counted them once via stuffing.

          • 0 avatar
            doctor olds

            Channel stuffing has to be temporary unless the somehow, the maker is force to take product back and scrap. think of an accumulator, a buffer. High GM days supply is being using to spin the idea of channel stuffing, but logically it is only when days supply is increasing that such a thing could even be occurring. For CS to be continuing, logically, days supply must continue to increase without end. If days supply remains constant, CS is not happening. Any time the days supply fall, the channel is bein un’stuffed, so to speak. For every single model year in history, all product is eventually sold, and the days supply go to zero. It can never occur past the dealers sale of the last model of a model year.
            These ideas are all simple logic and prove the temporary nature of this really imaginary concept.

            Dealers don’t have infinite financing capability, for one thing. they are choosing to stock at these levels. if they can’t move ‘em, they won’t take any more. For this imagined channel stuffing to continue, the days supply would have to grow endlessly which is financially impossible.
            GM properly counts its production as its sale in operating reports, though they also report dealer sales. GM reports production and sales the same as any othe maker.

          • 0 avatar
            CJinSD

            “GM reports production and sales the same as any other maker.” Yes, and they keep an extra 300,000+ vehicles in inventory so they can use those standards to report the sales that they want to report, rather than the sales that they’ve made. Were anyone else to make their dealers carry an extra 300,000+ vehicles on their books at year end, the rankings of US sales by brand would change drastically.

          • 0 avatar
            doctor olds

            @CJinSD- You have a couple of things quite wrong.
            #1 GM does not “make” dealers buy inventory. They choose to order those vehicles of their own volition for their own reasons.
            #2 GM reports dealer sales that have actually been made, exactly the same as any other maker.

            There is nothing whatsoever misleading about their numbers.

          • 0 avatar

            Dr. Olds:

            #1: You said you worked in sales. You should know how it works.
            #2: An automaker reports a car as sold the minute it is out of his door, at least as far as his books are concerned. What he reports as monthly dealer sales is another matter. Channel stuffing increases receivables and therefore earnings.

          • 0 avatar
            doctor olds

            @Bertel- #1 Yes, I know how it works, and I also know there is no evidence that GM dealers are being pressured to take product, despite your innuendo. Sales reps always push dealers to buy more. That’s there job! Dealers remain independent and get to decide for themselves, in the end.

            #2 Yes, the auto manufacturing business reports their sale as soon as the dealer is invoiced, as is appropriate.
            As your own charts show, GM’s DTT is maybe 10 days more than Ford and Chrysler. You are making a lot of noise about 10 days of sales worth of additional inventory being a huge impact on the current earnings. It is a trivially small deal in reality, but it sure inspires a lot of hyperbole among TTAC readers! On top of that, If GM is really wrong to have more stock, they will pay for it in the end by deeper discounts, which would take away more earnings than all the upfront factory sales that were “pulled ahead”.

      • 0 avatar
        mcs

        “I think the board is reasonably happy with their performance, as is Warren Buffett, apparently.”

        Like Buffett was happy with UsAir, Energy Futures Holdings, ConocoPhillips, Dexter Shoes, those Irish Banks…

        • 0 avatar
          doctor olds

          @MCS- Funny, I don’t recall Buffett investing $700 million in any of those companies. Clearly, he has no crystal ball and is not always right, but its hard to argue he is not smarter than most of us. He sure is a lot richer!

          • 0 avatar

            on that we can agree. I hope Mr Buffett is right and significantly rewarded for his investment and confidence in GM.

          • 0 avatar
            mcs

            “Funny, I don’t recall Buffett investing $700 million in any of those companies.”

            True, it wasn’t 700 million – Energy Futures Holdings was a $2 billion dollar investment and he lost $1 billion on ConocoPhillips.

            The data was there (at least with his energy sector investments) – he just didn’t do his homework. It wasn’t bad luck, it was a failure to do proper research.

      • 0 avatar
        JD23

        I thought that GM lost over $3 billion on normal operations in 2012. Claiming a future tax benefit to turn a profit in the current year is not cause for celebration.

        • 0 avatar
          doctor olds

          GM made $8B on operations with a net take away of $0.5B from special items including tax assets and goodwill impairment. They generated plenty of cash (# escapes me now) and have better liquidity this year than last.
          They can not have lost money on operations and accomplished these results.

    • 0 avatar

      +1 Big Al

    • 0 avatar
      th009

      @Big Al, “any operation” is generally a different type of business than US auto sales. Each domestic model is available in thousands of variations, and yet buyers expect to walk onto a dealer’s lot, find what they are looking for, and drive away in a new car.

      The end result is that dealers need to keep much more inventory than a hardware or grocery store that sells standardized products. And pickup trucks tend to have even more variations (and thus a need for increased inventory) than cars.

      • 0 avatar
        Big Al from Oz

        @th009
        I spend a lot of time in the States and I know your supermarkets have the same problems of oversupply. Some fantastic discounts can be had.

        We don’t have that problem here, we do have little oversupply. When I had my business, I used to supply department stores and it was JIT delivery, they held as small an inventory of my product as necesssary and I produced on demand, because of the wasted resources ie, money and material that could be used elsewhere

        Currently we have a higher sales rate per capita of vehicles in Australia in comparison to the US and we don’t seem to have this over supply problem. I’ve never seen oversupply like you guys have.

        It has to cost/waste money.

        • 0 avatar
          th009

          @Big Al, do Australians tend to pre-order cars (like Europeans do) or do they expect to buy from the dealer’s lot? That’s the key difference, and the reason why inventory levels are so much higher (for all manufacturers) in the US.

          • 0 avatar
            Big Al from Oz

            @th009
            We have both, I have always bought of the floor. Off the floor gives you a better opprotunity to deal.

            A lot of vehicles are ordered as well.

            Maybe the US vehicle industry has to re-model how they sell cars. But remember it isn’t the dealers who produce, then expect sales. It is all driven by the manufacturers’ “guesstimates”. This is all based on what appears flawed data.

            In the 70s my step mother was an accountant for a dealership in Australia and I remember her boss always going on about moving stock to meet floor plan requirements.

            It appeared the auto suppliers didn’t have much sympathy for the dealers.

        • 0 avatar
          ihatetrees

          >>It has to cost/waste money.<<

          Not really. It 'costs' those customers who choose to pay.

          Some pay the price of 'hot' models. Other (more savvy or less choosy) customers get a discount on leftovers that don't sell.

    • 0 avatar
      redav

      If you always do what you’ve always done, you will always get what you always got.

      I get the impression that the culture of GM has not changed, which means they will end up back where they were. I hope they do change, but that’s an awfully massive ship with a ton of momentum. It takes more than a new face, new slogans, and a new product. It takes a new way of thinking & all-new habits.

  • avatar
    thelaine

    I think GM executive board meetings is where most of the channel stuffing takes place.

  • avatar
    mike978

    An interesting article and channel stuffing is a concern to watch out for. I would expect the financial analysts who are paid to cover this would be all over stuffing if it was happening to an extreme case. If GM were stuffing then it is hardly “a deceptive business practice used by a company” since it would quickly catch up with them (Chrysler back in 2008/9 I think had this issue) and the stock price would take a major, deserved hit. The data is out there so it is not deceptive. The grpah does show what we all know, that GM typically has the highest inventories, nothing new there.

    I was intrigued to know how BS would respond to February’s sales data which was pretty uniformly good for GM and Ford and pretty terrible for Japan Inc with Honda and Nissan losing sales in a rising market and Toyota growing less than the market average. As he has said in previous articles when the sales data was bad for Detroit “not keeping up with the average sales growth means falling market share”. As for inventories, I recall articles last year, rightly, raising concern at the 120 days of supplies for trucks, now down to 97. February is not normally one of the best months – looking at previous data March, June, August, September, October and December are better so I would assume the inventory (as measured by DTT) would go down further.

    If GM are channel stuffing then they are being very foolish and deserve all they get. However I am not convinced.

    • 0 avatar
      th009

      I tend to agree with mike978. And the days of inventory data is slightly down for the last three months (using the moving average) while Ford’s and Chrysler’s figures are slightly up.

  • avatar
    KixStart

    When does a dealer own the cars he’s sent? Fluctuations in Volt inventory suggest that it can take two weeks for a GM car to reach a dealer, which is a fairly long time. Who owns the car after it’s pushed out the factory door but before it hits the dealer lot? For Toyota, there’s a long sea voyage for 30% of their inventory. Who owns it en route?

    • 0 avatar
      doctor olds

      @kixstart-Toyota surely owns the inventory enroute. Manufacturers typically figure the average shipping time and then automatically bill the dealer that time lapse after shipment from the plant.

      At one time, I was in the business of directing the diverting of cars for emission testing to comply with California’s onerous requirement to run a $1,000 (1990′s dollars) emission test on a “2% sample of California destined vehicle production, selected randomly, and continuously throughout the production run.” Reimbursement of floorplan interest for vehicles that took an excessive time to get to a dealer were handled on an exception basis and dealers rarely worried about the minimal cost. The yelled a lot louder if some important customer, say a senator or mayor, was waiting for the car!
      As an old fact that may be of interest in todays low interest rate environment, floorplan interest was so high during the late ’70, early ’80s that we at Oldsmobile had to prop the dealer up. One of my large metro dealers got $76,000/month (1980 dollars) in support. Carmakers know strong dealers are one of the keys to success.

    • 0 avatar
      th009

      The manufacturer (or importer) will own it while it’s en route. The dealer takes ownership when he takes possession.

    • 0 avatar
      KixStart

      That’s pretty much as I expected. It hits Toyota Manufacturing’s bottom line somewhere.

    • 0 avatar
      Grunt

      interest doesn’t start until after the interest commencement date on the invoice. If the vehicle arrives prior to that date you basically get to “float”. If it arrives after that date GM reimburses you for the difference in daily interest. The vehicle is billed to you generally in the next day or two after being built.

  • avatar

    this could all be solved so easily with Return to Greatness. trouble is, I’ll be dead before it’s considered and end up as a footnote if lucky. oh well, at least houses are selling again.

    • 0 avatar
      sunridge place

      Buickman,

      It would be nice to see something from you other than rants.

      I follow automotive marketing/incentive stuff pretty closely. I read your original list of suggestions on how to boost sales and was unimpressed. Not sure if you have anything new beyond ‘Chevrolet for Work and Play’ or whatever it was.

      Without getting a random ‘email me and I’ll email you’, speaking of Buick, what is you take on Experience Buick Leasing which has been out for a year now.

      Seems like it has elements that you would support.

      1. Complimentary Maintenance…getting the customer back to the dealer for oil changes etc
      2. 24 month leases..which you like and earns you (the dealer) a shot repeat business on a cycle you can follow.
      3. TV and other ads the show the product and promote the offer

      Is Experience Buick one of the stupid things you hate and rant about?

      • 0 avatar

        you were unimpressed but Jerry York felt Return to Greatness was inspired and just the thing GM needed. he mentioned over dinner at the Capital Grille that he told Mr. Rattner so. you’re entitled to your opinion, even as it differs from many industry experts.

        as to the Buick Experience, I do like it. what I don’t like is mid month changing to free first payments and then the last week of the month throwing up to $2,000 on the hood since the deliveries aren’t there and quotas are becoming unreachable.

    • 0 avatar
      modelt1918

      Houses aren’t really selling again Buickman. It is mostly sales from hedgefund managers and people looking to rent.

  • avatar
    gslippy

    Nice work, Bertel.

    Relieving channel-stuffed lots with cash on the hood is no way to make money. It doesn’t help the bottom line if you have to give away your last month’s production just to get to 60 days’ inventory.

    Bertel, can you overlay the inventory turnover data with discounts? I think they run in concert with each other.

  • avatar
    Type57SC

    using non-zero-based y-axis is a big pet peeve of mine. It makes things look more visually striking but kills the objectiveness and sense of the big picture.

    • 0 avatar
      gslippy

      For these charts, you are correct.

      For other types of charts, zero isn’t always appropriate. One example would be showing the temperatures of ER patients. Those who are living would all be between 94 and 106, perhaps.

  • avatar
    PrincipalDan

    GM is just preparing for the coming economic boom!

    (Yes that is sarcasm and please don’t try to blame one political party over the other. A pox on both their houses.)

  • avatar
    Robert.Walter

    I shudder to think what first tying up all that capital for so long and then selling it at a huge discount does toward pi$$ing away profit from the bottom line.

    • 0 avatar
      doctor olds

      @Robt Walter- You would be right, if it turns out that way, but that outcome appears exceeding unlikely. New GM has a fair track record of balancing production with demand so as not to need steep discounts. The relatively small amount of money put on trucks easily surged their sales, in their last model year, ahead of Ford in December. They can move the inventory very quickly, if necessary, without huge discounts. GM’s current inventory, including everything in process, is about $14 Billion.

      • 0 avatar
        Big Al from Oz

        @doctor olds
        Are you a GM marketing Exec?:)

        Boy, how can an over supply situation be good for a company or a country. I do know on a national level like Australia when a country has a lot of commodities stored our GDP decreases.

        We don’t dig up a lot of minerals and make piles of the stuff then go to the IMF and say our wealth has increased.

        I think GM over made some bad decisions, as an institution is GM as bad at managing as civil servants? The Big 3 are very institutionalised and to change the culture takes time. I think the Fiat input into Chrysler will hopefully turn them around. Ford I hope is better at managing.

        If I owned a business I would want to be behind in supply. That means I would have demand. Not subsidised or discounted demand, but real demand.

        This also shows that GM is charging to much for their products, this is what caused the previous collapse of the company.

      • 0 avatar
        doctor olds

        @Alluster- you are right except for the capacity issue. GM actually does not have a lot of excess capacity anymore, except in Europe. They are running the NA factories they have left at high % of capacity, adding shifts in some cases to meet demand.

      • 0 avatar
        doctor olds

        @BigAl- Not an exec, I retired from GM Powertrain Product Engineering in 2008 after working in a number of locations and staffs, including Oldsmobile Sales. You are certainly right that high inventories are costly, but they are necessary to sell cars here. You are assuming the content of this post is valid criticism of those inventories. Its weakness is using past sales to calculate inventory days supply or days to turn. Dealers stock up in anticipation of future sales and the US market is gradually coming back. It may not get to the 17M mark for a while, but, even with the economy remaining weak, pent up demand inevitably will increase sales. Millions of cars are scrapped every year and millions new drivers obtain licenses. The relationship is elastic, but the population of vehicles out there will continue to be taken out of service at rates that might surprise you.
        High transaction prices are a good thing ( when you are selling!) and a real sign of business strength. As a matter of fact, a lot of factors caused the long term financial weakness of the US carmakers. Not the least of them was the $30B plus they had to come up with to fund the UAW VEBA on top of years of uncontrollable labor costs. GM basically had to continue to pay every worker, regardless of whether their was work, as well as providing very expensive retirement pensions and health benefits for their lives. GM once employeed 800,000 workers and recently still provided health coverage for over 1.5M people. The UAW contract of 2007 was a breakthrough that relieved GM alone of nearly $8B a year in non-productive expense. That contract is the biggest reason all three US makers are making good profit today, even at total market sales levels that are quite depressed, relatively speaking.

  • avatar
    ranwhenparked

    The Ford situation looks pretty worrying too, considering their range is probably the most appealing to import buyers of all the domestic three right now. Clearly, they aren’t biting, or rather, they are biting, but not in the quantities Ford is producing for.

    • 0 avatar
      Scoutdude

      I have to question the DTT numbers. The Escape is selling like crazy as is the new Fusion and stocks at dealers are pretty limited. The Fusion is within a few units of the Accord for the first 2 months of the year and has a good shot at the #2 best selling car once the inventories better reflect the average consumers wants. Right now around here there are a handful of base models with no options, a fair number of fully loaded versions but very few in the mid level spec that usually accounts for the bulk of sales.

  • avatar
    sunridge place

    Would be curious about Bertel’s take on this:

    Considering where Toyota was in early 2011 in the metrics and knowing (obviously) that they weren’t planning for a tsunami and Thai flooding… is Toyota unable to get back to those inventory levels due to the fact that they cannot build enough above sales levels to get over the demand curve or are they trying to stay there.

    In other words, are they now like Hyundai…at max capacity and unable to build more?

    • 0 avatar
      Truckducken

      You ask a good question, sir.

      I also wonder whether Toyota, the US regions, and the dealers collectively learned something during the post-tsunami period that has enabled them to run leaner since. And if they did, what is that magic something?

      Of course, being sold out and bumping margins a la Hyundai wouldn’t be a bad situation either.

    • 0 avatar
      Omoikane

      That’s pretty much the case. Toyota’s North American plants are running overtime, or at capacity. They fall short of market demand for Corolla, RAV4, RX350, Highlander, Tundra, Tacoma and Prius. Production of Camry and Sienna is barely adequate.

      • 0 avatar
        Scoutdude

        Production of Camry is way more than barely adequate. There are tons of 2012s still on dealer lots despite holding the intro of the 2013 well past the norm and 6 months of heavy advertising of 0% for 60 mos plus cash back and/or heavily subsidized leases for a vehicle who’s list price was dropped significantly from the 2011 models.

      • 0 avatar
        APaGttH

        they fall short on TUNDRA?!?! hardly. US capacity is 250K a year at San Antonio, they move about 7K units a month.

        When NUMMI was killed Tacoma production moved to Mexico, throttling back total production capacity. Corolla went to Canada before Mississippi went online.

        • 0 avatar
          sunridge place

          Tacoma moved from NUMMI to San Antonio…not Mexico.

          Toyota does make production mistakes but they usually fix them fast. The dedicated Tundra plant blew up in their face with the financial meltdown within a year or so of ramp up there.

          San Antonio is now well utilized with Tacoma/Tundra production consolidated and 250,000ish combined US/Canada sales on those two trucks for Toyota.

  • avatar

    Fear not gentlemen! GM is building up for the soon to be additional 12 million people eligible for drivers licenses. As part of the welcoming process, each will walk out with a new GM car and an Obama phone. Just One condition – vote democratic.

    The other big problem for GM that rarely gets reported is excess capacity. Fixed costs are huge for aassembly plants. Most GM plants in NA have a 30,000 vehicle capacity per month. Bowling green makes around 2000 corvettes, Lordstown around 20,000 cruzes, ATS, CTS and Volt will never sell 30,000 units a month, and the malibu+lacrosse will not sell 30,000 units a month. With so much overcapacity, GM brought springhill back online(Union Demands). They could move Corvette and Volt production to Lansing Grand river. Move the upcoming Colorado/Canyon production to Springfield. Move Express and Savanna vans to Springfield. Move Cruze to Orion where its platform mate the Verano is built. Close Bowling green, Hamtrack, Lordstown, Wentsville and Shreveport.

    Some of the inventory issues will go away once the SAAR reaches 17 million or so. GM has a lot more dealers which can partly explain high inventory. Not saying more dealers is good, just laying the facts out there. I know it is bad when I see relatively successful models like the Verano have more than 60 days supply. Can’t even imagine how bad it is for the Malibu and Regal.

    Like i have said before on this site, GM had to pick its poison. Increse ATP at the cost of sales. The Sonic is priced $3000 more than the Aveo, The Cruze $4000 more than the Cobalt, The new ‘Nox, $5000 more than the prev gen, the Terrain $7000 more than a Torrent, the new malibu doesnt have $3000 discounts like the 2012 model and Buick’s average transaction price is up $11,000 over 2006. Bargain basement priced Pontiacs are gone. Sales are inevitably going to suffer with this stratergy.

    • 0 avatar
      sunridge place

      You make a few good points around some strange ones.

      Where is Springfield? I assume you meant Spring Hill? Bowling Green plant is tiny…they might be able to make 50,000 units a year…not 30,000 units a month.

      To say that ‘all’ GM plants can build 30,000 units a month is not correct.

      http://media.gm.com/media/us/en/gm/company_info.html

      Click on ‘Assembly’ on the right side to educate yourself on the various plant sizes.

      Shreveport is already closed. Wentzville gets the new Colorado/Canyon plus the vans. Hamtrack gets the new Impala.

      Close Lordstown? Really?? They run 3 shifts just building Cruze. Well over 100% utilized.

      Fairfax is running 3 shifts now with Malibu/Lacrosse…that’s where they are fat given that they have Malibu capacity elsewhere.

      • 0 avatar

        You apparently have a problem understanding how car assembly works. Bowling green may be small, but there are a lot of overhead costs from distribution, parts supply, utilities etc. An efficient assembly plant is one where 3500 workers pump out 30,000 vehicles a month. A good example is Fairfax assembly which employs 3900 salaried and hourly workers who in a month assembled 34,000 cars at its peak. Cars assembled per worker come to 10 a month. Bowling green has 900 workers making 1000 cars a month. Even if the new corvette sells 3 times as much, that’s only 3 cars per worker. BTW, if Faifax is running three shifts now and made 9000 cars in Feb, were they running 6 shifts in 2011 when they made 30,000 units?

        Lordstown produced 30000 Cruzes for a month in 2011. Let’s assume that as the max capacity. Currently Cruze is selling around 15,000 units a month. Let’s allocate 3000 more for Canada and Mexico. If gas prices shoot up and the SAAR improves, we can optimistically assume 25000 sales a month, the remaining 5000 capacity can be for the Verano. Move Sonic to Lansing and shutdown Orion. Move Corvette and Volt to Lansing and Shutdown Bowling Green + Hamtrak.

        Building more than what the market can bear will only kill margins. That’s what got GM bankrupt. You need to educate yourself by looking at production numbers by plant for each month. GM has been consistently producing 1.5 to 2 times the monthly sales rate. Some of the production is earmarked for Canada and Mexico, which are really negligible.

        To its credit, GM did cut down production for Malibu and Lacrosse in February to half their monthly selling rate (9000 made versus 20,000 sold). Which only adds to more losses. You have to pay workers the same even if they only made 1/3rd the capacity. That brings to my first point. TOO MANY PLANTS!

        • 0 avatar
          doctor olds

          @alluster- Your analysis is wrong. US makers, including GM, were running near or at 100% of capacity last year.
          http://wardsauto.com/plants-amp-production/north-american-auto-makers-reach-100-capacity-utilization

          One sure fact is that every single vehicle produced always gets sold! Vehicle manufacturers don’t scrap overruns. To imagine producing at twice the rate of sales means, in the end, the plant would have to be shut down half the time! That is not the case. GM’s problems have been more in the realm of inadequate capacity- Equinox/Terrain for example.

        • 0 avatar
          NormSV650

          The Buick Verano is made in Lordstown?

          Fairfax, along with a couple of others, run on weekends too.

          • 0 avatar
            doctor olds

            Verano (very successful) is built alongside Sonic (also very successful) in the Orion plant.

            Plant and process design determines production capacity. The key is to run the plants near 100% output to maximize return on investment. GM is doing very well at this these days.

  • avatar
    mr_min

    Good analysis Bertel, the data does not lie. I do wonder though if it is a GM problem (Channel stuffing) or a dealer problem?
    If it is a dealer problem, are the GM dealers to bearish on their orders?
    Or is it a reflection on GM’s ordering system, that GM dealers need to sit on more stock at the dealer to ensure customer satisifaction?
    Do GM customers, on average, want to walk in and buy there car on the day versus Toyota customers who are prepared to wait.
    A few points worth teasing out in a future article perhaps?
    The other point worth considering is does GM offer a wider number of options and variants, compared to competitors eg Model x comes in 6 paint colours, 3 trim levels, and 2 option packs. Vs GM Model x 8 colours, 3 trim levels and 4 option packs?
    Something to consider.

    • 0 avatar
      doctor olds

      @Herr Schmidt- no reason to be sorry that the data is based on history, but it does not prove you hypothesis that GM is overstating revenue by channel stuffing. Some makers, at least in the past, built vehicles for storage lots and pushed them on dealers. That is not the case with GM’s inventory.They are all orders placed by dealers, independent business men. Logically, as the overall market grows, which has been the case in America, days supply or dtt should rise. No reason to be sorry, but for the conclusions drawn.
      Of course, If you are right, GM will have to suspend production and or discount heavily. There are no signs of either of these actions in the offing.
      Being a glass half full kind of guy, I would say GM is just well positioned for a strong Spring selling season!

      • 0 avatar

        “Logically, as the overall market grows, which has been the case in America, days supply or dtt should rise.”

        If that’s what they taught while you were at Oldsmobile, no wonder they are out of business.

        Over time, DTT should be LEVEL. If the market grows, you fill faster to account for a faster outflow. If the market slows, you fill slower. DTT SHOULD remain level in any market.

        To use your half full glass: If you fill the glass faster than the man drinks, it flows over.

        • 0 avatar
          Kevin Jaeger

          The ability of GM insiders to deny and rationalise away clear problems truly is astounding. It appears to be a learned behaviour that continues even after retirement from the company and there’s no apparent incentive to continue denying the problems.

          I can only imagine what the internal meetings of like-minded GM management must be like. It certainly explains a lot about their bankruptcy – and their next one, I assume.

        • 0 avatar
          doctor olds

          Mr. Schmidt- My concept was that the average of last three months sales will be less than the expected next month demand in a situation where the market gets bigger every month. It is simple arithmetic, though I have to admit, after playing with some hypothetical numbers, that the growth rate has to be pretty fast before the days supply will increase with “right size” inventory for the next month. Over time, you are, of course right.
          Mr. Jaeger- Your presumption that this data reflects a clear problem is not universal and it is surely not evidence of so called channel stuffing. Dealers may be optimistic, but they are ordering the cars and trucks.

  • avatar

    @ Dr Olds:

    “Your inventory days to turn is still based on past sales results.”

    I am sorry, that’s how those things are calculated in the business. You take your ending inventory, you look how much you moved last month, and you convert that into days to turn your inventory on hand. I think they did that back in the days when you worked “in Oldsmobile Sales.”

    Also, the story says very clearly that it does not want “to predict inventory levels.” I leave that to the folks with a clearer crystal ball. This is a story about past bad inventory management.

    You very correctly point out that “inventories are set to reflect expected future demand.” Well, they should be. If your DTT consistently climb, then you are having the wrong expectations, and you simply push more into the channel than what the channel can digest.

    A well managed inventory would show a rather flat DTT trajectory, at (or preferably below) the 60 day mark. I don’t see that.

    I sincerely hope that the market will align with GM’s expectations. Once you see that graph go sideways in the 60 days area, then you see that expectations and market are in alignment. As long as that curve goes up, you build more than you can sell, plain and simple.

    What this graph shows is that, beginning in October 2011, GM has been consistently pushing more inventory into the channel, where it bulks up. GM produced, and reported on its books, an additional month of “sales” and parked it on dealer lots.

  • avatar
    AFX

    Reasons I could think of why GM would be channel stuffing for this time of the year.

    1. Punxsutawney Phil predicted an early spring.
    2. Everybody got their tax returns so they’re in a big hurry to spend their money before the economy finally collapses.
    3.With the introduction of the new C7 Corvette they expect everybody to want to rush out and buy cars with Camaro style tail lights.
    4. They can afford to give away cars at rock bottom prices during the time of initial sale because with their quality they’ll make it all back later in parts sales.
    5. They may lose money on each car sold, but they’ll make it back up in volume.
    6. The cars are just a ploy to lure buyers into the dealerships where they make their real money off of True Coat finishes, and Mr Goodwrench merchandise with the number “3″ on it.

  • avatar
    Summicron

    Remember Annie Hall where Woody Allen pulled Marshall McLuhan into the scene to stifle the guy pontificating about Marshall McLuhan?

    Wish we could get a few paragraphs from Warren Buffet on this topic.

    Right or wrong, I think doctor olds is magnificent.

  • avatar
    Grunt

    The inventory of 1500 crew cabs is a large contributing factor to the current days supply. It is the first model of Silverado to be transitioning to the new body style 2014. It is also the highest volume model in the Silverado lineup. I am the inventory manager of a Chevy dealership that sells about 60 to 70 new Chevrolets a month, the vast majority of which are trucks in that out of that number we may average 5 cars a month. We essentially ordered about 5 months worth of those in a 2 month cycle. When starting up a new product the ramp-up is slow so those will carry us through the lean start-up period. They have had big cash on the hood and will continue to do so til they are gone. We will be just fine though my availability of 1500 crew cab is currently about 150 days that number will plummet over the next several months as we sell down and wait on them to ramp-up production of the new one.

    • 0 avatar
      highdesertcat

      If you are located in TX, we may have met at a NADA meeting a couple of years ago and discussed your product mix.

      • 0 avatar
        Grunt

        northeast Louisiana. I have avoided NADA meetings for years :p

        • 0 avatar
          highdesertcat

          LOL! Bobby Jindal country.

          I actually enjoyed the meetings. If for nothing else but the socializing and talking to others, exchanging ideas and trying new approaches.

          My brothers competed in the brutal Houston and Dallas areas, and in three other states.

          Thought you might have been from the Waco and/or San Antonio area. Sorry.

  • avatar
    jkross22

    As someone who thought the bailout was all bullshit, I’m at least glad to see GM making money*.

    *By making money, I mean wiping out debt and then trumpeting their tremendous turnaround and making boatloads of money. I’m sure most US households would be hunky dory if Uncle Sam came in, forgave all forms of consumer debt and allowed us to carry forward tax credits and bid us adieu.

    But I digress.

    • 0 avatar
      thelaine

      +1 Its the taxpayer’s channel that got stuffed.

    • 0 avatar
      doctor olds

      They’d probably let you carry forward some tax credits, too, if you were going to pick up much more in pension liability in exchange.

      In 2012, GM disposed of $29B of that liability, a small fraction of the total pension obligations the new company did take on in exchange for those credits.

      The tax credits are not a free lunch.


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  • Marcelo De Vasconcellos, Brazil
  • Matthias Gasnier, Australia
  • J & J Sutherland, Canada
  • Tycho de Feyter, China
  • W. Christian 'Mental' Ward, Abu Dhabi
  • Mark Stevenson, Canada
  • Faisal Ali Khan, India