jmack91z28

As I read this editorial, if it's bashing anything, it's bashing a business model that allows the average on-hand inventory to equal approximately 90 days' sales, when a top competitor has a business model that keeps average on-hand inventory to about 30 days' sales. (Of course, it would be interesting to know whether Toyotas on U.S.-bound ships counted as on-hand inventory. This would have to be balanced against how GM reported the 119k imports included in its annual sales report.) At any rate, if you can refute any of the points Samir made, I'm sure he'd be grateful to read your refutation (witness his response to the issue of how GM and Toyota sales are reported). In the absence of refutation, I must conclude that your appeal to emotion is part of the problem that is keeping American auto manufacturers from solving their problems.

Why does Gregg Easterbrook hate the Patriots so much?

The manufactures in thier monthly sale reports, report retail/fleet sales – sales that were delivered to end user mainly via dealers.

So Simar and AGR were both right.

None of this matters for the analysis because GM has had the same problem for years and Toyota has not. The dealer inventory just creates a lag effect.
Bottomline the 100 days supply at GM dealers vs. 30 days at Toyota’s HOLDS.

But the analysis failed to take into account the percent of vehicles GM and Toyata sells to fleets.
GM runs around 30% and these sales are immediate and for NO profit. These numbers are in Simar’s analysis so the dealer intentory vs. sales problem is even worse than reported here given the zero days turn on fleet sales.

My guess is Toyota’s fleet sales are less than 5%. So the Toyota analysis holds pretty true.

After all, how many Toyota’s do you see at Hertz, National etc vs GM’s?

Then on top of all of this is the number of GM dealers vs Toyota franchises. GM has about 6000 vs. under 2k for Toyota.

GM – too many brands, too much production, too many dealers, too many models

Nice piece.
You often hear that the ‘ideal’ inventory level is 60 days. Even with that GM would be at a disadvantage.

How much extra working capital does GM need because of this and what is their earnings hit?

I had that experience when my Saturn Vue broke down while on vacation. Luckily it was in a city with a Saturn dealership (only Saturn dealerships are allowed to perform warranty work on Saturns). I was standing there listening to the dealership’s mechanic argue with GM about providing me with a rental so I could get home, as they had to order the parts and the repair was going to take a minimum of four days (actually took five days). I also had to argue with GM about getting them to pay to tow the vehicle to the dealership when it broke down on a Saturday night.

On the other hand, I read a story about the Toyota dealership in Nampa, Idaho, (just west of Boise) where they ripped off a senior citizen with a cognitive disorder (how do these people get a driver’s license)and were being sued by one of the man’s children. So, to say that GM has bad dealerships and Toyota has good ones is unfair to the individual dealerships.

Farago – Well handled edit.

I’m pretty sure thats why GM has always been on top because they’re parts have ALWAYS been inter-changable. They’re motors have always been the easist to work on. GM shares a lot of the same motors. The 2500 truck has (i think) a LQ9 6.0 and the Corvette has the LS2 6.0- two completely different vehicles, but motors are almost identicle. Explain to me how thats wasteful and how Toyota does better than that.

Now that its cleared up, and we are going to get out of the trees, the forest that Samir is referring is the fact that Toyota can achieve results in a much “leaner” fashion than GM or other manufacturers.

By taking waste(inventory) out of the distribution system it helps Toyota make more money as well as the other stakeholders.

In the US Toyota still has wholesale distributors – Southeast Toyota is one example.

The entire process of when a vehicle rolls out the door of the plant, to when its retailed to an end user is not very efficient. It makes sense that Toyota in their constant pursuit of efficiencies constantly fine tunes the system to remove inefficiencies.

The ideal system would be one of built to order, components roll into an assembly plant on a JIT basis, but when it rolls out its a different story.

There are lean distribution systems, to out of control distribution systems, and everything in between. Most dealers order their vehicles,with the colors and specs that they want for their market. If a manufacturers just builds we know what can happen. Dealers constantly trade vehicles among themselves to facilitate a retail sale.

This is an informative link, although most of the information is for members only http://www.icdp.net/

Mr. Syed writes:

I was unable to sleep because of the comments on my latest editorial and I began to wonder what if AGR was right. The numbers I used came from automotive news (www.autonews.com ), not Toyota. Around 11, I got up and went to Toyota’s Japanese site, where after some digging I found an annual report in English from 2007. Long story short, Toyota and GM have the same revenue recognition policy.

Here is the direct quote from Toyota’s annual report:

Revenues from sales of vehicles and parts are generally recognized upon delivery which is considered to have occurred when the dealer has taken title to the product and the risk and reward of ownership have been substantively transferred, except as described below.

As a result, at Samir’s request, I’ve edited out the following graph:

“Equally significant, GM reports sales upon shipments to a franchised dealer. The hundreds of thousands GM vehicles sitting on dealer lots waiting for new homes are considered a done deal, no matter how large the unsold inventory, no matter how long they linger. Toyota reports sales based on retail sales. Despite these product mix and accounting disparities, we can draw some valid conclusions by comparing their numbers”

For those of you who’ve been following this debate, this change makes Samir’s editorial even MORE relevant, as both Toyota and GM report their sales in the same way.

First, thanks to AGR for sticking to his guns. All of us at TTAC– including our esteemed commentators– are dedicated to telling the truth.

Second, thanks to Samir for having the courage and professionalism to carefully consider criticism, investigate the facts of the matter, and make the appropriate change.

Third, my bad. I apologize for not fact checking this article more thoroughly.

Rest assured that TTAC is dedicated to editorial accuracy. When we get it wrong, we put it right. More than this we cannot do.

Its my understanding that public companies must abide by accounting rules, and by SEC regulations, its also my understanding that GM is a public company, and that unless we hear differently its abiding by the same accounting rules and regulations.

Its also my undesrtanding that “industry sales” are retail deliveries to end users by dealers. There are enough analysts tracking these figures on a monthly basis that one should conclude at 99.9% that its retail sales to end users that are reported by all manufacturers.

Its also my understanding that franchised new car dealers reports sales on a retail delivery report to their respective manufacturer on a monthly basis. Many analysts will compare Polk registration figures with retail delivery figures to see if there are any discrepencies.

The automotive industry is very competitive, and every month every one looks at what the other is doing, and every manufacturer makes sure that everyone is playing on the same field with the same playbook when it comes to retail deliveries.

Its sad when people try to confuse issues that are simple, we are all individuals and entitled to our opinions and view points.

Now, to be serious–and fair–the confusion doesn’t arise from GM’s financial statements; it stems from GM’s refusal to report NON-financial statement data (i.e., monthly unit sales by dealers to consumers) which makes it hard to know how well the company is doing at the retail level. Presumably that quirk is an artifact from GM’s halcyon days. But I’m sure revenue is properly stated, and no leap of faith is needed. (Save that for buying GM stock.) Of course, one wonders about future expenses to help dealers move the metal.

For further reading, one might try Howard Schilit’s “Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports.”

But the good dealerships are out there. It took me forever to find a decent, honest Toyota dealership in the Houston area that didn’t play numbers games or have a million “pad-ons” ($800 paint and upholstery ‘protectant’ jobs “required by Toyota”). As opposed to the rip-off dealership 5 minutes from my house, we (and extended family members) have now bought over a dozen new Toyotas from the dealer 20 minutes away. Their service department is a pleasure as well – clean, efficient, and reasonably priced.

I’m waiting for the dream to end.

Amazing how defensive some folks get over plainly stated facts.

They are public documents, we seem to be interpreting them in different fashions.

Do we agree that industry sales are retail end user sales? If yes page 6 is retail sales.

Do we agree that when a vehicle leaves the plant all manufacturers will recognise it as a sale for revenue recognition? If yes GM recognises its revenues the same as Toyota, Ford, Chrysler, and the rest of the industry.

Where we don’t agree is the difference between a retail sale, and revenue recognition. You could say that its the same, or its not the same.

If you keep on reading on Page 111 its clear that they leave the door opened to a myriad of future adjustments, which could also then be interpreted as taking units back.

Do we agree that like it or not GM has been copied and emulated by every other manufacturer on the planet when it comes to accounting, and control systems. Much of what is in place in the automotive industry when it comes to the internal workings started at GM.

I already covered this — a vehicle that is built is taken into inventory before it is shipped off. Very few are built to order.

In any case, the financial statement clearly defines what a “sale” is, and a cursory comparison of the numbers makes clear that a “sale” and a “delivery” are the same thing. I don’t see how you can debate Mr. Syed when he’s directly quoting documents available to the public.

Please tell us how Toyota counts its sales? When they leave the plant or when the dealer delivers the car.

pch101,

How do you account for the discrepency in US production and sales?

Page 6 is industry sales which are retail deliveries to end users by dealers, the Toyota, and everyone else sales are part of the industry sales.

Page 111 is Revenue Recognition which is when the units roll out the door of the plant, they recognise the revenue when the unit rolls out the door, they recognise the sale when the unit is RDR’d by the dealer.

On the same page they do mention the various adjustments that can impact the revenue after its been recognised.

On page 6 of the annual report, GM reports what it calls “vehicle unit sales.”

On page 111 of the annual report, GM defines a sale as follows: “Vehicle sales are recorded when the title and risks and rewards of ownership have passed, which is generally when the vehicle is released to the carrier responsible for transporting vehicles to dealers.”

If you compare the figures on page 6 of the annual report with the total YTD figures on the December 2006 “deliveries” report, the numbers are the same.

Therefore, we know that a “sale” and a “delivery” are the same. Since we know what a “sale” is, based upon page 111, and since we know that a “delivery” and a “sale” are equivalent, we can see that a “delivery” is counted when the vehicle hits the truck.

Furthermore, we know that GM differs in its reporting conventions from others in the industry because of Chevy’s 2005 contest with Ford. The disparity: Ford counts registrations as measured by Polk, while GM counts “deliveries.” Note 3 of the annual report explains this quite clearly.

I didn’t respond to this right away, because I wasn’t sure if it should be left up at all. Generally speaking, personal attacks are not allowed by TTAC’s posting policy. However, in the faint hope that you’ve returned and in the interest of fostering civil discussions, let me address this point.

Firstly, assuming I am a foreigner based on the only information you have (my name) is fallacious. The fact is, I was born in the NAFTA zone and I grew up watching the decline of American cars just like anyone else.

Secondly, GM may outsell Toyota but what really counts is profits. On that note, I’d invite you to take a look at GM’s quarterly results for the last few years and compare them to Toyota’s. I’m not bashing GM by pointing out inefficient forecasting and inventory management, I’m stating plainly obvious things and the numbers bear it out – Sales, Inventory, Profit, whatever number you pick.

samir,

They all count the same way, retail deliveries.

No, they don’t. Go look at GM’s release yourself. It’s been quoted to you by myself and PCH101

You are repeating something that is clearly in conflict with an assertion that was supported by primary evidence. Do you have evidence of your own, or will you keep repeating a point that is completely incoherent with what General Motors itself states in its financials

They all count the same way, retail deliveries.

As it rolls out the door its paid to the manufacturer, and the manufacturer pays the suppliers in 90 to 150 days.

The manufacturers through its captive finance in most instances starts making money floor planning these vehicles for the dealers.

The automotive industry in North America counts retail deliveries as sales…[]

But General Motors does not. What would be confusing is if I didn’t point this out.

If I didn’t, you’d think I’m comparing apples to apples, when in fact, I dedicated 12.5% of the word allotment in the article to a disclaimer that plainly and obviously states that General Motors accounts for a sale upon shipment.

I made it as clear as possible, and it seems the only person confused by it is you.

GM does not mention how many vehicles rolled out the plant doors, how many were sold to dealers, and how many are still in inventory.

For the US in 2006 GM dealers delivered at retail to end users 4,065,341 light duty units(cars and light duty trucks), in 2005 it was 4,454,385 units. Toyota delivered in 2006 2,542,525 units and in 2005 2,260,295 units.

These units come from different plants, in different locations, and from different countries.

The Tundra assembled in Texas, are not all sold in the US, the RX350 assembled in Canada are not all sold in Canada, the Corvettes assembled in Kentucky are not all sold in the US.

Toyota more than GM will alter the sourcing of vehicles to deal with currency fluctuations.

In 2006 GM produced as of YTD Dec 25, 2006 3,095,111 vehicles in the US, Toyota produced 829,703 vehicles. Clearly what rolled out of US plants was not enough to supply the US market.

GM surely carries some finished goods inventory, it’s not as if every car is shipped as soon as it is built.

On the balance sheet, GM is converting inventories into accounts receivable, because it “delivers” a unit on credit. So there, it is probably a wash.

The implications are on the income statement. When that “delivery” or “sale” is made, GM recognizes it as revenue, whether or not the cash is actually collected. This is typical — most firms report based upon accruals, not cash — but is certainly easy to manipulate when the company also provides the financing used by its stores to purchase vehicles from the mother ship. These are the very conditions that would encourage the company to use substantial year-end incentives to push dealers into buying vehicles, so that the parent company can convert those inventories into revenue, even if the cash isn’t immediately forthcoming.

I have no doubt that GM also tracks actual retail sales. But that is not what it reports in its monthly “retail deliveries” reports that it issues to the public and to the media.