By on June 7, 2012

China’s car dealers’ “backs are broken,” Luo Lei, deputy secretary general of the China Automobile Dealers Association told Bloomberg. “Dealers can’t shoulder the burden anymore.” They are overstuffed with cars. Average inventory at Chinese dealerships stands at more than two months of sales at the end of May up from a 45 day inventory by the end of April. It could be worse: In America, inventories are way ahead of China.

At 45 days, dealers in China already struggled with the rising number of unsold cars.  Now, they are ringing the alarm bells. “The worsening glut of vehicles across the nation’s dealerships is unsustainable,” Bloomberg writes.

But how does this jibe with the great sales data published by General Motors for instance? A few days ago, GM China announced a surprising 21.3 percent increase for May, with Wuling up an even more baffling 35.9 percent.

Bloomberg  says that these numbers are in stark contrast with rising dealer inventories. Carmakers, says Bloomberg, “only disclose the number of vehicles sold to Chinese dealers — instead of consumers.”

Dealer representative Luo Lei disagrees with the rosy numbers:

 “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.”

 Average Days To Turn

Meanwhile at home, the channel is being stuffed with greater vigor than in broken back China. GM’s and Chrysler Groups inventories stood at 70 days in April, Edmunds reports. Ford is a little more conservative with only  60 days.

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31 Comments on “Channel Stuffing Breaks Dealers’ Backs In China. In America, The Picture Is Even Worse...”


  • avatar
    MrWhopee

    Shoving cars down the dealers’ throat… I guess carmakers are bringing bad habits from their old country into their new one.

  • avatar
    docrock

    Number manipulation in a company partially owned by the citizens of the U.S. I wonder where they might have gotten that idea? Maybe the President offered them a blueprint?

    • 0 avatar
      Dirk Stigler

      That practice goes back long before the bailout. Still, it’s not a coincidence that two countries with extensive government involvement in their auto industries are both engaging in deceptive practices and reporting positive numbers orthogonal to the ground truth.

    • 0 avatar
      highdesertcat

      The problem is not enough buyers willing to take the plunge even though this is an excellent time to buy a new car or truck.

      In my area, 2012 Silverado Texas Edition 4dr advertised at $27,995 (MSRP=$38K+) after all discounts with 25 to choose from at this price. Lesser trims and/or fewer doors at similar heavy discounts with many to choose from at that same price.

      Or how about a 2012 Malibu or Cruz, heavily discounted, with many to choose from at that price.

      If you need transportation and can afford to buy a new car or truck, you don’t have to be an Einstein to spot a bargain. A good deal is a good deal in any country or language.

      This is a direct result of dealer stuffing, but not enough people are biting because of all the uncertainty still ahead, in both politics and the economy, especially in the US.

      Who wants to buy a new car today if tomorrow you’re going to get laid-off? That reduces the numbers of players a bit.

      • 0 avatar
        Landcrusher

        And, the stuffing is obvious to any savvy buyer. Want a deal on a 3 series? Well, they don’t have many, so they don’t have to bargain. Tahoe? If I buy today, I will want to shoot myself tomorrow when my neighbor gets 12k off instead of the 10k they offered me. No thanks.

      • 0 avatar
        highdesertcat

        That is exactly the sentiment that drives most potential buyers. The threat of even lower prices and better deals next week hovers all the time over potential buyers. Tahoes advertised for $32K in MY area, with several to choose from at that price.

        I’m not at all familiar with BMW-car sales, never bought a new one. Did own a few used ones bought from GIs, but never felt I needed a vehicle beyond the ones I chose to keep, namely a large sedan, a truck and usually an SUV or, now, a CUV.

        Friends who are addicted to BMW cars tell me that the demand for all BMW cars is usually greater than their capacity to produce and many choose to sell their old 3/5/6/7 models on their own for more than what they would get on a trade-in. Several people I know own more than one BMW product, as in motorcycle or older BMW car.

        But many of these people buy their BMW products tax free overseas. Not everyone can do that. There’s only ONE BMW dealer in my area, and they often have only ONE 3-series on the floor. That makes it game for the highest bidder, nez pas?

      • 0 avatar
        sunridge place

        Well, outside the United States of El Paso, your beloved Chrysler is offering the highest level of incentives according to Truecar.

        Look it up yourself.

        blog.truecar.com…scroll down for the May #’s. You might learn something.

        GM is offering 7k in rebates on Texas Editions.

        4k in rebate
        2k in option discount for the Texas Edition
        1k if you trade in a 1999 or newer vehicle.

        If a dealer wants to kick in 3k of his own money to move some product….who really cares?

        Not too many ‘poor’ dealership owners out there so I kind of think they know what they are doing.

      • 0 avatar
        200k-min

        “Want a deal on a 3 series? Well, they don’t have many, so they don’t have to bargain.”

        Where do you live? In my area they are advertising low lease rates on 3-series all the time. Close to me is a used lot that deals almost entirely in 2yr old used bimmers. They always have at least a dozen or more on the lot. The Audi dealer is leasing a neighbors parking lot to store their huge stockpile of A4’s and A6’s. The Euros have overflowing lots from what I’ve seen driving by.

      • 0 avatar
        Landcrusher

        Houston, if they have excess new ones here they hide it well. Still it’s just an example i used because its high volume. Could have used Volvo. I doubt seriously anyone is overstocked with new Audis. Know the real story on those cars?

  • avatar
    billfrombuckhead

    GM and Ram are changing over truck designs so they have big inventories of trucks. BTW, these fullsize trucks are among the world’s most profitable mass market vehicles.

    • 0 avatar
      KixStart

      billfrombuckhead: “BTW, these fullsize trucks are among the world’s most profitable mass market vehicles.”

      When they sell. However, from time to time, they stop selling.

      • 0 avatar
        highdesertcat

        They’ll never stop selling completely because people with money and/or secure in their job or livelihood continue to buy.

        I know several contractors who are scooping up the good deals right now, but there just aren’t enough people buying to get this new overstuffed stock into the ownership pipeline.

        But, hey, whatever they don’t sell at the end of each year, maybe the US government will buy them at cost and use as them as foreign aid to give to Mexico, Iraq and Afghanistan so terrorists can use them for target practice.

      • 0 avatar
        billfrombuckhead

        70 days supply is actually a very good number for truck inventory. 60 days is considered optimal for a car dealer, trucks are more specialized and have more variations. This really isn’t an issue. Over 90 days becomes an issue although a smart Chevy dealer might want a bunch of inventory on hand for the model change.

      • 0 avatar
        mkirk

        Sorry, the Afghans who drive sport Toyota’s, Mahindras, and Chinese stuff…most sport 2 wheels though, be it bike or motorcycle. Only the Air Force seems to drive domestic stuff. All the Army units I know of have Land Cruisers or HiLuxes. Our commander has a 70 series Cruiser I lust after. You can always count on that one lone airman to be rolling around the FOB in an F-350 though.

        This is of course for non-tactical vehicles. Most of our tactical stuff is OshKosh.

    • 0 avatar
      KixStart

      GM did warn analysts that an increase in fullsize truck/SUV inventory was coming, precisely because of the anticipated changeover, which would involve a long shutdown.

      The rolling shutdown looks to average something like 6 weeks per plant but, at this point, they can coast for about 13 weeks on what they have on hand. That seems excessive.

      • 0 avatar
        SpinnyD

        6 week shutdown? Wow, Toyota only shuts down for 2 weeks per year! One in July and the other at Christmas!

      • 0 avatar
        sunridge place

        Yep…GM is so frickin’ stupid that they have to shut their truck plants down for 6 weeks when Toyota only needs 2 weeks.

        Nope Spinny D….this is a rolling shutdown to retool for the next generation of Silverado/Sierra at a variety of plants. This is part of the reason for the higher inventories of GM Trucks…they know plants will be down for extended periods as they retool and want to make sure there is enough inventory at the dealership level to get through those periods.

      • 0 avatar
        SpinnyD

        They actually shut down for that? I guess they are pretty stupid then. When I said Toyota shuts down for two 1 week periods, I didn’t mean they did any model changeovers.That time is for major maintenance items. Model changeovers are done while the old model is running, usually when the last car of a model is run the production people just walk over to the new equipment and start the new model. No shut down required.

  • avatar
    Volt 230

    The automakers could help their own situation by not sending assembly and supply jobs overseas, it would make people a little more secure about their own jobs and than they can spend the money on new cars and also lobby the govt to stop adding more and more laws that make cars more expensive all the time.

  • avatar
    roadrabbit

    The headline is a bit sensational given the data. 60 days supply is consider normal for American new car dealers. GM and Chrysler are a bit above, so that’s something to watch. Ford is right on target. That number is meant to be an indicator that a consumer would be able to find enough inventory to select the preferred color/option/trim of the model desired. Being at 60 days is not in and of itself a sign of dealers getting crammed. Also, “Days to Turn” and “Days Supply” are different metrics that describe the inventory condition and not interchangeable.

  • avatar
    Zackman

    Very interesting. This reminds me of the infamous Chrysler sales bank from the 1970’s. Companies never seem to learn.

    I have thought seriously about replacing my Impala, now with over 100K on the clock, but I’m 61 and who knows what will happen next month? Guys like me aren’t getting jobs, and although feeling pretty good where I work, I have other things I need to spend money on, like fixing deferred upgrades/maintenance to the house.

    If one of the cars breaks, that’s why we have three. If one dies, well, we’ll be down to two…

  • avatar
    Felix Hoenikker

    Buying near the end of the model year requires a big discount to make up for the drop in resale value when the 2013s come out in the fall. Otherwise yor’re really upside down if you financed the deal.

    • 0 avatar
      chicagoland

      If you buy late in the year, down the way, you have a ‘low mile’. If you buy early and roll extra year of miles, then down the lane, you’ll have a ‘high mile car’, never mind that it was bought in fall.

  • avatar
    jthorner

    Turning over retail stock once every two to three months is actually pretty good for any kind of consumer retail product. The overall public market average inventory turnover rate is 2.8. That means that your typical consumer retailer sells through the inventory 2.8 times per year, or once every 4.3 months. The new car industry actually beats broader averages in this regard.

    The vast majority of US new vehicle purchases are bought off the lot, and you have to have inventory variety on hand to do that.

    A more rational business model would have most purchasing being special order with a one to two month delivery time ARO, but that is not how the car biz. works in the US.

    As I understand it, Japan is much more of a build to order retail new car market. I’m not clear which way the Chinese new vehicle market is going, off-the-lot or build-to-order.

    • 0 avatar
      jmo

      “Turning over retail stock once every two to three months is actually pretty good ”

      Sort of off topic… But, did you see this? Apple’s turnover isn’t 2.8…it’s 74.1!

      http://www.appleinsider.com/articles/12/05/31/apple_turns_over_entire_inventory_every_five_days.html

  • avatar
    Tom_M

    Did someone say “apple turnover”? I like where this thread is going!!!

  • avatar
    rmwill

    Definition:
    http://www.investopedia.com/terms/c/channelstuffing.asp#axzz1x894RNpl

    Channel stuffing is an illegal practice in the US and the car makers are highly unlikely to be engaged in it. Rising inventories are a result of larger dealer orders, which at this time are a logical response to a messed up supply chain for delivering completed vehicles. There is a massive shortage of car haulers and rail cars, which is a largely untold story. In order to have product that customers want, dealers have ordered more inventory. Also, vehicles that are being refreshed will experience greater dealer incentives to buy, with the goal to clearing the stock out before the new product arrives.

    • 0 avatar
      dastanley

      “There is a massive shortage of car haulers and rail cars, which is a largely untold story.”

      That’s interesting. Do you know why? Sounds like a good story for TTAC.

  • avatar
    NormSV650

    Don’t to travel that far to see lots stuffed. Toyota lot, south of Cleveland, has every square inch of grass covered they have so many cars. The asphalt is cover door-handle-to-door handle with Camrys. You can tell where their property line is as they have Camrys lining it.

  • avatar
    Omoikane

    Did it happen to cross your mind that Canada buys about 2000 Camry’s a month – all coming from south of Cleveland- and Canadian Pacific Rail being on strike there was no way to ship them across the border?

  • avatar
    billfrombuckhead

    Chrysler groups days supply is 61 days as of June with Ram trucks and Jeep compacts with the highest numbers. Chrysler division has only 46 days. Avenger only 19 days. Grand Cherokees 57 days.

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