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Trading  | June 1, 2017

As we await all US carmakers to report May auto sales, we remind readers that when we discussed last month’s disappointing monthly car sales report, which badly missing expectations showing the fourth consecutive month of declining auto sales – the first time this has happened since July 2009 –  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 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. 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, this was the highest inventory number in 9.5 years, the highest since Nov. 2007, and, as Bunkley reminds us, “one month before the recession officially began.

Fast forward to today when GM reported its May results which again disappointed, and were down 1.3% vs estimates of a 4.3% increase, which in turn pressured GM stock. But that’s not what caught our attention: a bigger problem is what GM revealed in its deliveries report which disclosed a whopping 963,448 units in dealer inventory at the end of May, up nearly 30k from the past month, and representing 101 days of supply, up from an already red-flag raising 100 in April.

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


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