Chart Of The Day: Channel Stuffing Bonanza

by Derek Kreindler

Published: July 25th, 2012

chart of the day channel stuffing bonanza

Today’s Chart comes from finance blog Zero Hedge, which has taken a periodic interest in General Motors channel stuffing endeavors. While we don’t normally report on stock prices here at TTAC, this one is worth mentioning.

The chart, using an inverted axis, shows the relationship between GM’s month-end inventory levels, and their post-IPO share price. The lower it goes, the more inventory The General seems to have.

Channel stuffing is an addiction that GM is unwilling to get help for, and it’s always the same nasty habit of loading up dealers with big full-size trucks and SUVs (to the tune of 130 day supply levels, or more), even though that’s what got them in to the whole bankruptcy mess in the first place. But that’s ok, because their sales numbers look great, even if their share price is in the toilet.

#AmericanCars #BigThree #ChannelStuffing #Finance #GeneralMotors #GM #Ipo #Sales #Trucks

Derek Kreindler

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10 of 82 comments

Buickman on Jul 25, 2012

what hits 15 first, share price or market share?

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- CJinSD on Jul 26, 2012
  
  15-15-15! 15 share in 2015 with a $15 share price! Reality will be worse.
  
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Sunridge place on Jul 25, 2012

Hey...look everyone...Ford did the same thing last time they did a major redesign. And, golly, they didn't go bankrupt. So, maybe the morons at GM are just following a proven strategy to not go bankrupt again. http://www.autoblog.com/2008/03/17/ford-ramps-up-f-150-production-ahead-of-2009-model-changeover/

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- Pch101 on Jul 25, 2012
  
  "Ford did the same thing last time they did a major redesign." The 2014 Silverado is still in final testing. It isn't supposed to be launched until fall of 2013. There won't be any retooling for that just yet. Rather than defending it or squawking about channel stuffing, Occam's Razor provides a simpler answer -- GM botched the forecasting, and built more stuff than it needed. Here are some sales numbers for the full size domestic pickup truck market: Model/ Jan-Jun 2012 / Jan-Jun 2011 Silverado / 194,508 / 182,785 Sierra / 72,945 / 67,598 Total GM / 267,453 / 250,383 Ram / 138,581 / 111,898 Ford F-Series /301,141 / 264,079 Total / 707,175 / 626,360 Now, do the math: -The total market grew by about 81,000 units (13%.) But GM grew only by about 17,000 units (7%.) -For the January-June 2011 period, GM had 40% market share. For the same period of 2012, that slipped to 38%. Ford is leading in share, and added the most volume, and Chrysler increased sales the most in percentage terms. Ford and GM currently have similar incentives on pickups, while Chrysler has the most. It's a matter of time before GM cranks up the truck incentives in order to burn through these extra units. I would suggest that anyone who wants to buy one of these should hold off for a bit.
  
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- Sunridge place on Jul 25, 2012
  
  @Pch101 Agree with some of your thoughts on the missed forecast being a part of the oversupply and I acknowledged that earlier in this discussion...but you are incorrect on the timing of the 2014 Silverado/Sierra half tons. Start up is in Q2 of 2013. Arrival will be before fall. Retooling will be staggered. There will be a short 2013MY and a lot of the downtime is in 2012CY. http://www.bloomberg.com/news/2011-12-23/gm-plans-21-idle-weeks-at-u-s-pickup-plants-in-2012-for-updates.html Last earnings call: http://seekingalpha.com/article/557061-general-motors-ceo-discusses-q1-2012-results-earnings-call-transcript see pages 4,7,9 It will be interesting and revealing to get applicable updates during the next earnings call to see what has changed.
  
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- Type57SC on Jul 26, 2012
  
  @Pch101 Here's Ward's from June: GM Car = 56 Ford Car = 53 Chrysler Car = 46 Toyota Car = 50 Honda Car = 57 Nissan Car = 50 Hyundai/KIA Car = 26 Ok, looks good. Well managed except for Hyundai screwing up the capacity planning and being caught without capacity GM = 91 (Sierra/Silverado 137) Chrysler = 76 (Ram 108) Ford = 63 (F-Series 81) Toyota = 58 (Tundra 96) Honda = 53 (Ridgeline 78, but not really relevant) Nissan = 85 (Titan 103) Hyundai/KIA = 32 (seriously Hyundai, just build a damn plant already!) So yes, GM has about a month too much inventory in full size PUs. I doubt this has anything to do with the stock price. Opel? China? UST ready to dump shares? Sales and earnings? These are the dominant factors. PLEASE: Don't confuse correlation with causation. Look at days, not total. Separate for mix a little (incentive and inventory norms are very different in vehicles sold to fleets and upfitters. F150 is a great comparable. Ram is close. Others are not).
  
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CJinSD on Jul 26, 2012

Wow. This thread is serving as the counterpoint to TTAC. GM could have introduced MY 2013 in May if they were preparing for a short model year. All it would have taken is three new colors and a set of optional BFG A/Ts, which is all Silverado fans are going to get next year. Surely 2013 trucks would have been more valuable in January than 2012s will be. Instead they are recycling the same story they used last year when they added 100,000 vehicles to their baseline inventory that were never shifted. Baseline was 500,000. Then it was 600,000. Now it is 700,000. Supposedly the big shutdown that is going to reduce inventory to manageable levels is coming this fall, just as it was last fall. I'm a big fan of a car company or two that makes some poor decisions. I don't defend the ones that are obviously ridiculous, but then I don't get paid to.

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- Sunridge place on Jul 26, 2012
  
  GM started the 2013 trucks in June...not May. They were a month off from your suggestion. So, lets say a car company wants to get an extra 2 months supply of a product to plan for a shutdown and slow ramp up of a new product. And, lets say that car company is already running around 90% factory utilization. How would you suggest that car company build up that supply? Lets assume that car company sells around 45,000 units of that product on a monthly basis and has the capacity to produce around 60,000 units of that product if they stretch to 110% utilization on a monthly basis. To build an extra 90,000 units of that product to plan for the shutdown and ramp up should they: a. Decide to build those extra 90,000 units of that product in a few months right before they shutdown (hint...not possible) b. ramp up prodution of the course of a year...make extra units a month to get to that extra volume in inventory to plan for the production shutdown and slow start up of the new product? Oh, by the way, make sure to account for the 100's of suppliers and THEIR production capacity amid THEIR increased utilization since the meltdown to make sure you have enough windshields, hoses, screws, AC units, sound systems etc. at the right time You tell me? What would you do? How would you do it?
  
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Bertel Schmitt on Jul 26, 2012

Gentlemen, I am proud of you. All of you. Apparently, it is possible to have even a heated discussion without name calling. Without the name calling the quality of the discussion improves. Isn't "The good news is that if you want to sue your math teachers for gross negligence, you’re going to have a slam dunk case" m,uch better than calling the other guy a moron? Thank you.

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- Geozinger on Jul 26, 2012
  
  I guess it IS nice that this didn't degenerate into a name calling event, but is it really that much of an accomplishment when the premise (the suspect graph) is at the heart of the discussion? I think Derek's claims to channel stuffing could have been made using other references (as several posters seemed to able to show) and we would have avoided all of the posts debating the effectiveness of math instruction in the US...
  
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