GM Reports Record "Channel Stuffing": Dealer Auto Inventory Highest Since June 2007

As we await all US carmakers to report June auto sales, we remind readers that when we discussed last month"s disappointing monthly car sales report, which badly missed expectations showing the fifth consecutive month of declining auto sales - the first time this has happened since July 2009 -  with domestic light vehicle auto sales printing at an annualized 12.59, the lowest sales number going back more than three years - we noted what may be the biggest concern for the auto industry: inventory days continued to trend higher as OEMs push product on to dealer lots even though sale-through to end customers has seemingly stalled.

Of note, we highlighted GM, one of the few OEMs to actually disclose dealer inventories in monthly sales releases, which reported that May inventories increased to 101 days (963,448 vehicles) from 100 days at the end of April and just 71 days (681,402 vehicles) in April 2016. Indicatively, analysts say an overall inventory level of 60 to 70 days is healthy. 100 is not. GM management was eager to deflect attention from this troubling statistic, and said that soaring inventories are normal and, somehow, "reflect strong sales", as per the press release: "As planned, GM’s inventories reflect strong sales, lower car production and strategic, launch-related growth in truck and crossover stocks."

Or maybe not, because as Automotive News reporter Nick Bunkley pointed out something troubling: with 935,758 unsold GM units collecting dust in dealer lots at the end of June, this was the highest inventory number in 9.5 years,  the highest since November 2007, one month before the recession began.

Fast forward to today when GM reported its June results which again disappointed, and were down 4.7%, more than the expected 3.4% decline (although one wouldn"t know it by looking at the stock which was up as much as 3%). GM sales were dragged by most brands: Chevy -6.4%, GMC -3.6%, Buick +16.4%, Cadillac -11.8%. But that"s not what caught our attention: a bigger problem is what GM revealed in its deliveries report which disclosed a whopping 980,454 units in dealer inventory at the end of June, up nearly 17k from the past month, and representing 105 days of supply, up from an already red-flag raising 101 in May. As Buntkley notes, "GM"s inventory has officially hit a 10-year high. 980,454 units in stock (a 105-day supply) as of June 30, the most since June 2007."

???? GM"s inventory has officially hit a 10-year high. 980,454 units in stock (a 105-day supply) as of June 30, the most since June 2007.

— Nick Bunkley (@nickbunkley) July 3, 2017

In short: GM "channel stuffing" just hit a new all time high for the restructured company, with the number of GM vehicles parked at dealer lots and patiently waiting for a buyer rising to the highest since the summer before recession officially began, when GM was still pre-bankruptcy GM, with far greater (if ultimately superfluous and in need of restructuring) production.

Carmageddon: After Abysmal April Sales, Auto Workers Prepare For "Extended" Summer Shutdowns

Auto OEMs typically shut down plants once a year during the summer to retool for model changeovers and whatever general maintenance is required.  But this year summer shutdowns will be about much more than just retooling plants.  With inventory soaring on dealer lots, auto OEMs will likely have no choice but to extend their typically summer shut down schedule and it will take a "yuge" toll on the 1,000s of auto workers that are considered "short term" employees and not eligible for unemployment benefits...the folks who pretty much single-handedly voted Trump into the White House.

As we noted yesterday (see "Auto Bloodbath: Every OEM Misses April Sales Estimates As Inventories Continue To Soar"), after an abysmal March print and growing speculation on wall street that auto sales are looking less like a "plateau" (Ford"s label not ours) and more like a debt-fueled bubble on the verge of an epic collapse, auto investors were looking toward April auto sales for signs of hope.  Unfortunately, the "hope" trade failed to materialize as every single, major auto OEM missed their April sales estimates in fairly spectacular fashion. 

The total auto SAAR came in at 16.8mm for April, compared to hopes of 17.1mm, and the YoY change in unit sales was the worst since 2011.

Meanwhile, inventory days continued to soar to multi-year highs with GM leading the pack on "channel stuffing" with over 935,000 unsold cars sitting on dealer lots.

All of which has automotive analysts now predicting that the "typical" summer shutdown cycle in 2017 will be anything but typical and could include 3-4 shutdowns for plants producing some of the worst performing models.  Per Bloomberg:

“We’re not seeing the same picture as the president,” said Michelle
Krebs, a senior analyst with Cox Automotive. “We are not seeing any new plants being built in the United States or increases in production. The fact is we have passed the sales peak and we’re now seeing decreases in production.”

Even if that happens, weeks of production suspension seem almost certain to be on tap for the industry, said Mark Wakefield, managing director and head of the automotive practice at AlixPartners. He said automakers have aggressive plans for temporarily shuttering assemblies that make slow-selling sedans and small models.

“For certain plants, we’ll see three or four summer shutdowns for the tougher-selling products,” Wakefield said. Right now, automakers “are a little less worried about inventories because they know they’ll be taking the plants down more.”

“People are starting to see that this is not necessarily a plateau,” Wakefield said. “It’s a meaningful reduction, and they’re starting to make plans around that.”

Of course, as J.D. Power recently pointed out, growing inventories on dealer lots come despite OEM"s spending $16.4 billion on incentives through April, or roughly $3,800 per car, up 13% vs. last year.

“While industry retail sales pace remains high, it is being powered by elevated levels of incentive spending which pose a serious threat to the long-term health of the industry. The total value of incentives used to sell new vehicles has increased by $1.9 billion through the first four months of the year.”

Total incentive spending in the marketplace stands at $16.4 billion through April, up 13% from last year. On a per unit basis, spending for the average new vehicle through April was $3,814, up $460 from a year ago.  On trucks and SUVs, spending was $3,740, up $578, while on cars, spending was $3,938, up $308.

Despite record incentive levels, average days to turn continues to rise. Nearly 30% of vehicles sold in 2017 sat on dealer lots for over 90 days, up from 27% last year. “With flat retail demand and inventory at record levels, manufacturers will continue to face a difficult choice between maintaining elevated incentives or making production cuts,” Borrego said.

On the bright side, for Trump anyway, at least the auto jobs aren"t going to Mexico.

Auto Bloodbath: Every OEM Misses April Sales Estimates As Inventories Continue To Soar

After an abysmal March print and growing speculation on wall street that auto sales are looking less like a "plateau" (Ford"s label not ours) and more like a debt-fueled bubble on the verge of an epic collapse, auto investors were looking toward April auto sales for signs of hope.  Unfortunately, the "hope" trade failed to materialize as every single, major auto OEM missed their April sales estimates in fairly spectacular fashion. 

Here"s a summary of the April carnage:

SAAR:

According to GM estimates, April SAAR came in at 17.0mm units, down 2.9% YoY, which was well below the JD Power estimate released last week of 17.3 mm.

Inventory Days:

Meanwhile, inventory days are still trending higher as OEMs continue to push product on to dealer lots even though sale through to end customers has seemingly stalled. 

GM, one of the few OEMs to actually disclose dealer inventories in monthly sales releases, reported that April inventories increased to 100 days (935,758 vehicles) from 98 days at the end of March and just 71 days (681,402 vehicles) in April 2016.  But please don"t worry because GM would like for you to know that their soaring inventories are normal and "reflect strong sales"...no really, here"s the quote from their press release:

"As planned, GM’s inventories reflect strong sales, lower car production and strategic, launch-related growth in truck and crossover stocks."

Incentive Spending:

Meanwhile, GM"s incentive spending also soared YoY to 11.7% of their average transaction price (ATP) versus 10.3% last year. And Ford also announced on their sales call that average incentive spending was up about $300 YoY.

And, as one industry observer notes, the combination of rising inventory levels, higher incentive spending and pending model changeovers in coming months could imply that the auto industry could unravel in fairly short order.

to a very specific point in time. If new car retail numbers miss by the degree that I"m concerned about; it"s going to cause a huge day

— Daniel Ruiz (@DRuizG80) April 29, 2017

with even larger incentives. This will all be happening during the 60 day period that I pointed out relating to unsold used car inventory.

— Daniel Ruiz (@DRuizG80) April 29, 2017

rid of prior model year new cars. I believe that new car incentives will put massive pressure on used car values in that time period.

— Daniel Ruiz (@DRuizG80) April 29, 2017

OEM Commentary:

Of course, despite the abysmal numbers, OEMS still tried to paint a rosy picture for their industry. 

• GM: “When you look at the broader economy, including a strong job market, rising wages, low inflation and low interest rates, and couple them to low fuel prices and strong consumer confidence, you have everything you need for auto sales to weather headwinds and remain at or near historic highs."


• Ford:  "We"re maintaining our industry guidance for the year of 17.7 million vehicles. To put things into perspective, it"s important to note that we"ve seen a plateauing industry, basically last year and this year, and when you have that kind of an industry, you"re going to have variations, both up and down, month-to-month."

But while OEM mgmt teams remain optimistic, it seems that investors are getting slightly concerned as both the OEMs...

...and suppliers all tanked on today"s sales figures.

Chinese Auto Dealers Hit Panic Button As Tax Hike Triggers "Inventory Early Warning"

With the US automakers facing an "inventory bubble," hope for any momentum rested squarely in the shoulders of China... until today. China Automobile Dealers Association just unleashed their "Inventory Early Warning Alert" for January 2017, citing sales-tax increase on small-engine cars and Chinese New Year holiday.

As we detailed previously, J.D.Power analyst Thomas King warned, 2016 ended with an inventory "bubble" that will require less production or more incentives to clear.

With near record high inventories of 3.9 million vehicles...

U.S. auto inventory finished 2016 at about 66 days supply, up from 60
days a year earlier. Inventory would last 2.23 months at the November
sales pace, according to the latest available data from the Census
Bureau. The stock-to-sales ratio in 2016 is extremely elevated compared
to historical norms...

And now China Auto Dealers issue a Vehicle Inventory Alert - the index soared most on record by 18.6 percentage points to 61.5%. (A reading above 50% indicates low market demand and high inventories)

The market demand index, average daily sales index, business conditions index chain decreased, of which the market demand index and the average daily sales index chain fell sharply, which is due to the December market overdraft.

The total market demand index was 23.0%, a decline of 51.6 percentage points, a substantial decline in market demand index.

Worse still, China Auto Dealers Association warns that further inventory pressure is expected in February due to holidays and fewer working days.

More Bad News For NYC Real Estate As Luxury Co-Op Contracts Collapse 25%

Luxury real estate broker Olshan Realty, Inc. has some bad news for New York"s hedge fund managers looking to dump their luxury $5 million, 1,500 square foot palaces as the market for luxury New York City real estate just might be on the verge of collapse.  Accroding to a year end report published by Olshan, contracts for luxury co-ops (defined as those with an asking price above $4mm) collapsed 25% in 2016 while the average number of days that apartments sat on the market surged 31% and discounts to original listing price also jumped a point to 6%.

The decline reflects classic price resistance. There was a 2% increase in the average asking price, but a 30% increase in the average days on the market—318 days. You read that right—it took more than two months longer to sell a luxury property in 2016 than in 2015. The average price drop from listing to contract signing was 6%, an increase from 5% in 2015. There was also a 5% decline in contracts signed at $10 million and above.

The steepest fall from grace was in co-ops: 25% fewer contracts at $4 million and above from 2015, signaling a continuing market shift in the luxury market to new condos that offer freedom of ownership, new infrastructure, robust amenities, and some hip architecture—particularly seen Downtown.

Of course, this news should come as little surprise to our readers as we"ve frequently written about the unintended consequences of the massive overbuild of luxury apartment inventory over the past several years in Manhattan. 

In fact, a few weeks ago we warned New York City apartment owners to take note of the latest 3Q16 "Elliman Report" that showed the number of apartment closings had plunged 18.6% YoY while apartments sat on the market an average of 8.2% longer.  Inventory also spiked with new development inventory up a massive 27.2%.   

"The number of re-sales has fallen year over year in each of the last four quarters at an increasing rate.  Listing inventory reflected significant differences in the rate of growth between re-sale and new development.  Re-sale inventory expanded 8.2% to 5,290 while new development inventory surged 27.2% to 973 respectively from the same period a year ago."

Meanwhile, the re-sale market looked even more bleak, on a standalone basis, as the number of closings collapsed over 20% YoY while days on the market increased 7.5%

The lesson seems to be that the marginal New York City buyer has been priced out of the market while sellers have not yet accepted that the bubble has burst deciding instead to maintain listing prices while letting their apartments sit on the market longer amid growing inventory levels...that should work out well...