Wednesday, December 01, 2010

Tres Awesome: Did GM Pull Off Its IPO By Stuffing the Dealer Channel With Inventory -- at Taxpayer Expense?

If you were a scam artist, can you think of anything better than pulling off a multi-billion dollar con using the imprimatur of the federal government? Let's not mince words: the folks running GM may be a unique breed of crony capitalist -- perhaps more crooked than capitalist.

Hidden deep in today's disappointing GM November sales release is a number that all GM longs may want to quickly forget... [check out] the linear rise in GM's auto inventory safely stashed away at dealers, i.e., unsold. The chart below demonstrates what some may argue is nothing less than a blatant case of channel stuffing. Is it really surprising that GM will resort to such pathetic schemes to boost its top line numbers?

...Of course not: the government's GDP report demonstrates that this is occurring everywhere in the US economy, courtesy of near record inventory accumulation which two years after the start of the depression refuses to let up...

It is obvious that beginning in July, GM has started an aggressive channel stuffing program whereby it offload[ed] tens of thousands of cars (over 110,000 since July) on dealer lots, hoping these will get sold somehow, at some price, all the while dealers enjoy taxpayer subsidized floorplan leases which allows them to hold nearly infinite inventory. If and when the liquidation event takes place who cares? After all the company is now public and has managed to massage it artificial sales numbers sufficiently to fool investors that there is actual end demand for its cars.

So what would have happened if in October GM had held its dealer inventory flat (not declining, just flat): well, the top line number would have been 21,000 cars less sold. Which also means that total sales would have been not 169k but 148k, and instead of a 11.4% increase, GM would have reported a drop of 2.4% in November sales YoY [year-over-year], which would have made the life of GM DMM GETCO that more unbearable as the High Frequency Trader would soon end up with 100% of the stock float at $33.

...Bottom line - if indeed GM is right, and manages to sell hundreds of thousands of cars in December, we will take back everything we said above. On the other hand if the number remains flat, or, heaven forbid, increases, it will be more than obvious that GM is now involved in nothing less than the most transparent channel stuffing scheme we have seen in years.

Gee, I wonder which it is?

You know, these union payoffs by the Democrats keep getting better and better with age, kinda like a fine wine.

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