GM Non-Story: Dealer Inventory Build-up Continues
Not that it took keen insight to catch it, but yours truly was one of a very few people who pointed out that General/Government Motors unduly dressed up its financial statements in advance of its late-2010 initial public offering by foisting an unreasonable level of vehicle inventory on dealers. The effect of this was to enable the company, which in accordance with general industry practice recognizes sales when it ships vehicles to dealers, to book an estimated $900 million in sent-ahead pre-tax profit largely not supported by dealer sales.
Contrary to the drawdown or at least level-off I expected after the IPO, GM, with of course virtually no establishment media coverage, has continued to push vehicles out to its dealers to what would appear to be potentially dangerous levels, as seen in the following graphic (HT to Zero Hedge for original):
Dealer inventories are 30% higher than they were on September 30, 2010, the end of the last full quarter before the IPO (624,000 vs. 478,000), and 62% above where they were at the end of 2009 (624,000 vs. 385,000). That would make sense if GM's sales have increased by similar percentages, but they haven't. Sales through November of calendar 2011 are 14% ahead of the first eleven months of 2010. Even if you believe that pre-IPO inventories were justified, it would appear that at least half of the new layer isn't.
On a look-back basis, GM's days' sales in inventory is just shy of 100 days. On a look-forward basis, assuming the next three months' dealer sales beat last year's comparable three months by 10%, it's 84 days.
Assuming a 37%-63% product mix between cars and light trucks (which is the sales mix so far this year), $5,000 in gross profit per car, and $12,000 in gross profit per light truck (consistent with the calculations from a year ago), GM has sent ahead another $1.3 billion in pre-tax profit since September 2010. The next paragraph would seem to indicate that light trucks are an even higher percentage of on-hand inventory, which would mean that the sent-ahead profit number is even larger.
To date only one story I'm aware of (Bloomberg, July 5) has appeared in the establishment press about GM's extraordinary inventory buildup. Industry guidance on prudent inventory levels varies, but it generally suggests that they should be between 45 and 75 days, and definitely not well into the 90s. The Bloomberg item quotes an industry standard of 60 days, along with GM's justification that theirs is appropriately higher (100-110 days for trucks alone) because of the need "to meet demand for different combinations of weight classes, cab types, engines and trim levels." I don't see how that gets you into the 90s, let alone triple digits, unless you have motives beyond having vehicles conveniently available to customers. The Bloomberg article notes that Ford manages to keep days' sales at dealers of its truck lines below 80.
The danger in all of this is that if there is an economy- or gas price-driven sales slump, dealers will start resisting company pressure to keep ordering, and if successful, slow down GM's shipments and ultimately its production lines. That's a danger, thanks to establishment press non-coverage, about which the public is being kept almost completely in the dark.
Cross-posted at BizzyBlog.com.
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The auto industry version of
Submitted by motherbelt on Sun, 12/04/2011 - 11:30am.
The auto industry version of China's empty cities.
Everything about this o'bama
Submitted by ThisnThat on Sun, 12/04/2011 - 11:44am.
Everything about this o'bama administration is pushed forward until "after the electiion". obamacare impacts are "after the election". Bush tax cut expirations are "after the election". Canadian pipeline decisions are "after the election". Sanctions against the Central Bank of Iran are put off until "after the election". And now, artificial production of Gov Motors vehicles will continue until "after the election".
All of this is because o'bama will be completely free of all constraints "after the election". He will then implement the most disastrous policies ever against the United States to try to completely tear this country apart. Trust me on this.
__________
“Didn't win the Medal of Honor? Didn't even serve? Then lie about it. We'll support you." — 9th Circuit Court
GM Dealerships
Submitted by Kingfish17 on Sun, 12/04/2011 - 12:56pm.
We saw what happened when GM declared "Special Union Rules" bankruptcy. They can arbitrarily shut down any dealership they want to, so if GM wants to inflate their numbers by pumping up sales to their dealerships, there isn't much to be done until the dealerships go out of business because of artificially high carrying costs.
Tom, how about calling Jim Cramer's show on CNBC and posing this question to him on the air?
"You can’t go take a trip to Las Vegas...on the taxpayer’s dime." Barack Obama
As this link shows,
Submitted by jdhawk on Sun, 12/04/2011 - 1:05pm.
As this link shows, http://stockcharts.com/h-sc/ui?s=GM&p=W&b=5&g=0&id=p00802507334, investors get it even if the fawning lame stream media doesn't. YTD, the stock price of GM has fallen 45%!
The financial press seems to be just as bad. First Call, which aggregates analyst's ratings, rates it a buy. It dosn't record any sell ratings and only two hold ratings. Fourteen ratings are a buy and two are a strong buy. Yet, 17 of the last 18 analyst's earnings revisions were down.
Meanwhile, we, the taxpayers, still own 61% of the company or some $50 billion dollars. Our loan to GM, that was turned into equity, if liquidated today - that is sell the taxpayer's stock in the company in the open market - would make us less than half that. This means, that we, the taxpayers, would be on the hook for over $25 billion dollars. Of course, such a move would further depress the stock making us getting even less back.
Despite the above, GM has spent over a billion dollars developing the Volt electric car. Not unlike Ford's dumbass move to field the Edsel back in the day, the Volt is turning out to be a debacle of outlandish proporations. Since it was available for sale, only about 5,000 have been sold. Yet, news reports tells us that GM is gearing up to be able to sell 60,000 Volts next year.
Note, taxpayers get screwed every time a Volt is sold because the federal government provides a $7500 tax credit in the year of purchase. The Volt has an MSRP of $40,280. Even after the federal tax credit, the $33k price tag is indeed one of the most expensive cars on the road for its value and is nearly equal to the yearly median income of the American working at $39k.
To add insult to injury, the battery, the heart of the Volt's power train, is made by LG Chem in Korea! That is when the batteries aren't bursting into 1000 degree fires . . . .
Actually ...
Submitted by Tom Blumer on Sun, 12/04/2011 - 1:19pm.
... Uncle Sam owns about 26%-27% of GM, but your points almost certainly holds in terms of who IMO ultimately controls what goes on there.
gov
Submitted by kinijane on Sun, 12/04/2011 - 1:38pm.
Do you know of anything the gov is involved in where the numbers are not skewed?
What? Trick question
Submitted by Boudin on Sun, 12/04/2011 - 1:51pm.
Fact is, if the Fed is involved, it automatically skews the numbers. And never for the benefit of the masses either.
Volt sales
Submitted by reddog339 on Sun, 12/04/2011 - 6:02pm.
Obama of "Man's Country" club fame has ordered that Volts be purchased for govt. car pools.- That's one way to boost sales of fire breathing junk.
Sunbeam had Chainsaw Dunlap
Submitted by seven on Sun, 12/04/2011 - 1:10pm.
Sunbeam had Chainsaw Dunlap try this stunt years ago. It is distorting the top line to manipulate the bottom line.
And, the dealers are desperate.
Submitted by UpNorth on Sun, 12/04/2011 - 1:32pm.
They've sent me 3 offers on my car in the last 10 days. They've gone so far as to "offer" to buy the car, outright. With the condition that I spend my "windfall" on a new Chevy. Great deals on the Cruze, or Malibu, they say. Great deals on the Tahoe or Silverado, they say.
You know that they're choking on inventory when they're offering $0 down, $0 security deposit and $0 first months payment on leases.
Guarding against a rail strike?
Submitted by suburbanite on Sun, 12/04/2011 - 1:54pm.
This could have been GM guarding against a potential rail strike as of last Thursday: http://www.detnews.com/article/20111130/AUTO01/111300437/1361/GM--Ford-w...
However, it looks like a strike has been averted: http://detnews.com/article/20111201/AUTO01/112010424/1361/Agreement-reac...
IMHO, Gov't Motors is just padding their year-end financials.
It's your only way" Triumph
Is it me, or most of the cars with burnt-out lights, GM's?
Submitted by upcountrywater on Sun, 12/04/2011 - 2:06pm.
Got to keep them union job assembly lines running, damn the inventory ain't our problem.
Government Motors: a tax payer funded green business.
You Didn't Build That.
You may have hit on something, UCW.
Submitted by UpNorth on Tue, 12/06/2011 - 3:30pm.
For years, if you check the pickups with the burnt out daytime running light on the passenger side of the truck, it's a Silverado. Same with the parking light/turn signal on the mid-sized cars in the Gm line-up.
However, the vehicle with the brake lights that don't come on when the driver stops, for years, has the been the Ford lineup, car up to 1/2 ton Pickup. The switch goes bad about the time the new owner makes his third stop after leaving the dealership. And, whoever they buy the switches from has yet to really fix the problem.
Tolerate
Submitted by Lamdog on Sun, 12/04/2011 - 2:30pm.
I can tolerate the looting of the treasury. I can't tolerate is the institutional investors who bought this dog's IPO. To paraphrase Al Pacino from the Devils advocate: Don't worry the stench will reach so high, it can't be ignored.
Just another bullet comment on a failed presidency.
Tolerate
Submitted by Lamdog on Sun, 12/04/2011 - 2:30pm.
I can tolerate the looting of the treasury. I can't tolerate is the institutional investors who bought this dog's IPO. To paraphrase Al Pacino from the Devils advocate: Don't worry the stench will reach so high, it can't be ignored.
Just another bullet comment on a failed presidency.
Anyone want to bet on a GMC bankruptcy in December '12?
Submitted by drsamherman on Sun, 12/04/2011 - 5:44pm.
Right after the election?
Cynical as I try not to be, the recent news of GMC http://content.usatoday.com/communities/driveon/post/2011/12/gm-general-... , and Obama would no longer need the UAW for anything.
correction
Submitted by andrew - des moines on Mon, 12/05/2011 - 8:41am.
I assume you mean $900 million, not $900 billion.
Yeah ...
Submitted by Tom Blumer on Mon, 12/05/2011 - 10:43am.
Oops. Thx for the catch. I originally thought it was $1.1 billion and changed the $ and not the word.
Too bad -- we could have caught the sent-ahead profit and applied to the national debt. :-->
GM inventories resemble...
Submitted by P. Aaron on Mon, 12/05/2011 - 9:12am.
...Government cheese don't they?