Rumors of GM channel-stuffing became reality when we heard that the General was forcing dealers to take on unwanted inventory to qualify for incentive cash. And while the smaller dealers are stuck between a rock and a hard place, big boys like AutoNation at least have enough clout to make a choice. And CNN reports that AutoNation has told GM where it can stick its overstock. GM and Chrysler “have implemented wholesale incentive programs where they basically say to get the incentives for the inventory you want, you have to buy more inventory,” AutoNation CEO Mike Jackson said Thursday with his trademark subtlety. “The channel is full, and they are trying to stuff more in. I think this is the wrong thing to do. We are not playing that game.” Meanwhile, GM and Chrysler are exhorting their dealers to take more unwanted inventory. While on a sales drum-up dealership tour last week, Chrysler Vice Chairman Jim Press said the automaker needs dealers to begin ordering vehicles because the “downside could be a lot worse” if orders don’t increase. For the OEMs, anyway. AutoNation’s fourth quarter sales dropped 34 percent, although $200 million in cuts and $750 million in debt paydown last year have helped keep the retailer afloat. “We do believe that there’s the possibility of an improvement in March if credit really begins to thaw, but we are taking a wait-and-see attitude,” Jackson said. “We want to see it before we’ll stop at that level.”
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In the old days, stuffing the channel was to create the impression that sales were solid to influence the price of the stock. In today’s world, it’s all about creating the impression of viability so the government checks keep flowing. Sad, sad, sad.
In my frequent travels around Illinois and Missouri I don’t see how GM and Chrysler dealers can take any more inventory. As a matter of fact I think most brands have enough to last for quite awhile.
Around here (Harrisburg, Pa.) even the Honda and Toyota dealers have all of the inventory that they can handle. I don’t see how GM and Chrysler dealers can take more vehicles.
How is it the the autos can score revenue on “sales in” to their channel?
Many businesses are not allowed to record a shipment like this as revenue until the unit “sells through” to the end-customer.
Their ability to take revenue on a “sale” into their channel promotes all sorts of bad practices, and let’s face it… it’s not REALLY a sale at all until some person/sucker buys it from the dealership.
I drove through Port ELizabeth in NJ yesterday. The car pounds were packed to the gills waiting to be delivered to the dealers.
Actually, the word coming through to CJD dealers is a bit more…shall we say…less subtle.
As in, “if we don’t get the minimum order from you (dealer), we won’t make our order target, and Cerberus has told us that they will begin the liquidation in April.”
I have to defend the auto companies on this one.
Cars will not sell sitting on some company storage lot around the factory. There are people like me who have learned from bitter experience to not buy a car sight unseen.
Get the cars out so the public can see them and the dealers have more pressure to move the merchandise. If the dealers don’t like it, they may decide it is time for them to give up their franchise which is exactly what the auto makers want.
When I bought my Ranger last December, it was because the dealer had it stock. I could check out the body panel fit other details like how the color actually looks on the full vehicle. I will not bother with a dealer that does not have the vehicle I’m considering in stock.
Why should I? If I buy sight unseen the risk is on me. If the dealer has the vehicle in stock, the risk and the pressure to move it is on him not me.
@97ranger.
The problem is that your local dealers all have PLENTY of Rangers (and Foci, Tauri, etc.) on their lots. Frequently in every color and trim package known to man.
Is it good business to buy 10/20/30 or more Rangers when you already have, say, a 6 month supply?
THAT’S the issue. The factory is leaning on the retail channel (your dealer) to do something that may not be in the dealer’s best interest. Customer selection has nothing to do with it.
Motownr: I agree its bad for dealers.
Just like Detroit all the profits out of upstream suppliers they will squeeze every last bit of life out of downstream sellers, until Detroit’s very last death rattle.
There is probably a good medical analogy to this, where starving person has consumed all internal fat, next step is metabolizing muscle then skin and bone then its lights out.
What is this waiting for credit to thaw? To those who have lost or might lose their jobs, easier credit is not what they need. They need to trim their personal budgets to levels that will allow them to survive the downturn. If this takes one to three years, the domestic mfgs. of cars are toast. Everyone knows that most people who could buy a new car have a fairly late model used car. They can certainly run it another year and with repairs indefinately. If this is a sea change rather than a typical downturn, easy credit will do little to sell the piled up cars and trucks on dealers and factory lots.
FWIW, I feel a compulsion to explain what “Kemosabe” means. This is a hollywood bastardization of the Spanish “quien no sabe,” meaning “he who does not know.” In other words, the Lone Ranger’s sidekick was a clueless Native American.
So if the dealers refuse, I guess it means BR for the manufacturer, and the dealer has a lot full of orphan stuff they can’t give away.
If the dealers go along with this, the manufacturer will make more and be exerting pressure for the dealers to take those too.
So when the thing goes down and the manufacturer files BR, the dealer will have even more orphan shit they can’t give away.
Meanwhile Cerberus, in the form of GMAC or Chrysler Financial or whatever, is jacking up the floorplan on older vehicles.
Great time to be a dealer. I don’t think a dealer who’s about to to turn out the lights due to floorplan draining their blood will much give a damn about the manufacturer’s aches and pains.
A Kemosabe Pelosi automobile is in the works?
allegro, next you’ll be telling us that “Yah Mo Be There” actually means something? ;-)
Kemosabe did not refer to Tonto. Tonto was the indian sidekick. It was Tonto who addressed the lone ranger as Kemosabe.
This is from the son of one of the writers of the lone ranger
“So what’s the truth? One must look at practicality rather than logic.
An article in an old Saturday Evening Post magazine claims that Tonto
was supposed to be a Potawatomi Indian, from the great lakes area.
(Now that’s practical… at the time Dad had never been west of
Buffalo, New York and the program was launched from WXYZ in Detroit,
Michigan.) In research for my book, I came across another old
reference– a photograph of a children’s camp in the northern part of
Michigan. The photo was from the early 1930s and showed the camp
entrance. It was named camp “Ke Mo Sah Bee.” The accompanying
caption pointed out that the name stood for “trusty friend” or “trusty
scout.” These two tidbits from history dovetail nicely and are in
keeping with the meaning of the term as officially stated for the last
sixty some years.
It has been written that Jim Jewell, the radio programs dramatic
director in the early years and a native of Michigan, originally
suggested the phrase to my dad. In light of everything else, I find
that to be a credible claim.”
How is it the the autos can score revenue on “sales in” to their channel?
Most companies that don’t sell direct do this, if for no other reason than once it leaves your docks, you’ve issued the invoice and you aren’t tracking the sale, nor could you even if you wanted. Cars, because of registration requirements, short distribution channel and low volume, are a lot easier to track than most goods.
Sony’s sales of the Playstation 3 and PSP were a textbook example of how “in the channel” sales have zip to do with retail.
A decent compromise would be to report on sales by collected accounts receivable instead of orders taken or invoices. At least, then, you’d be talking about cash (yes, there’s the question of financing/leasing) in hand.
psarhjinian : “A decent compromise would be to report on sales by collected accounts receivable instead of orders taken or invoices.”
Agreed. My earlier point was simply that channel stuffing is a practice which does nothing but cause troubles in the long run – sure you’re “hitting the number” by cramming inventory down your channels throat – but its likely artificial and unrelated to end-customer demand, and IT WILL eventually catch-up to you.
It’s an awful position the dealers get put in, getting their arms put behind their backs monthly to take more shit which isn’t selling.
A tougher revenue recognition practice is the answer, and your suggestion is perfectly reasonable, although I would suggest revenue recognition at sell-thru to the consumer is the answer to this problem entirely. The dealer & manufacturer then become aligned to the same goal – selling cars to people who buy them.
I am just surprised that a mature industry such as the autos have not addressed this already.
I feel that since new cars, unlike game machines or running shoes, sell at relatively low volumes, through well-controlled distribution networks (branded dealerships) and have ample paperwork attached to them (registration, financing, etc.), there is no practical excuse for not using the moment of final customer delivery as the time to book the sale. Anything earlier only invites the problems we’re discussing here.
I suppose the one legitimate complication is the fact that some dealerships might finance their inventory/floorplan through a third party bank. At that point, once the dealer gets custody of the cars, the mfg’r has been paid and (assuming fairly normal contract provisions) the risk of sale is on the dealer and his bank. Even if the cars never sell, the mfg’r keeps the cash and the problem belongs to the dealer and his bank. The mfg’r already has his money, so why should he not recognize that? Of course, floorplan financing done through a subsidiary of the mfg’r leaves a good deal of the risk still in-house.
Well, there is nothing stopping the accounting standards people from demanding that two numbers be reported: The number of new cars shipped for which the manufacturer has been paid in cash (not financed internally) in the reporting period, and the number of new cars actually taken and registered by customers in the reporting period. Reporting both these numbers would actually be very revealing, because it would expose the level of channel stuffing going on at any given point. I’m sure a certain amount is good; dealers build up inventory during traditionally slow months and sell it down during busy selling months, and mfg’rs can run their factories at a steady rate. But excess channel stuffing could be easily detected with such numbers.
The other side of the coin is that since they’re built, they have to move somewhere. The longer that is, the less likely it will be sold. Would you buy a vehicle that’s been sitting around almost a year between factory lots, airport runways and dealer lots? Why?
With that in mind, how does that affect the 2010’s which are scheduled to be built in 5 months or less time. Is there enough time to reduce inventories?
Interesting times.