– GM’s Channel Stuffing Goes To Germany: Is Europe’s Largest Economy A Fraud? (ZeroHedge, July 31, 2012)
We have long argued that auto manufacturers have been channel-stuffing (and subprime-lending) themselves back into a disaster and as such class-action lawsuits have begun. Recently we also pointed out the epidemic of dealer-inventory-stuffing in China (and again this morning the Chinese luxury car market’s over-stuffing). So today’s report from Reuters that German auto manufacturers have been stuffing dealer channels just like the rest of the world as Europe’s largest car market is in recession even if few outside of the industry would know it. “Essentially, the carmakers are deceiving their shareholders, since they make it look as if the vehicles were actually sold. They want to pull the wool over their eyes,” as three in every ten new vehicles in Germany are sold not to customers, but to carmakers and their dealers – a type of automotive industry pump priming known as “self-registration”. At nearly half a million such registrations in the six months through June, the total is greater than the entire new car market in Spain. Is Germany’s economy really what it is reported to be given all this fake demand pull-forward – or is it a total fraud?
Reality versus ‘official’ figures:
So while official figures show a 0.7 percent rise in German car sales for the half year, figures from auto market research firms Dataforce and BDW Automotive show private demand fell 5 percent in the period, which would mean all the growth had been manufactured by the manufacturers.
Leaving dealers with major problems:
…manufacturers across the board are paying dealers cash bonuses that can be worth 3-4 percent of a vehicle’s listing price to reach targets linked to the number of new cars registered as officially sold…
A tactic that can have a “devastating cost” for dealers, as they end up caught in a vicious circle:
“If you push at the end of one month, you start the next one in deficit because you’ve registered a car you still have to sell,” he said. And when dealers can no longer keep it up, carmakers do it themselves. As a result, the two account for a combined 30 percent of the new car market, making the industry the second largest source of demand behind only private customers, who account for 39 percent.
and the reaction:
“It seems that people are burying their head in the sand.”
but dealers end up footing the bill as:
“If employed over a long period of time, this is an enormous danger since they completely erode all pricing power, and manufacturers can no longer expect customers will pay more for a car in the future,”
which further distorts reality:
“If you stripped out those distressed vehicles registered only so they can gather dust on the parking lot of a dealer or manufacturer, then the size of the German new car market would have been below 3 million vehicles last year (instead of 3.17 million),” ZDK President Robert Rademacher told Reuters.
“And it’s not only irresponsible but also counterproductive to use force to jam these vehicles down the market’s throat, since it doesn’t lead to higher sales in the end. It only creates distortions down the road.”
and if Zee Germans are doing it, you can imagine the rest (who are in real trouble) are at it too:
“It’s incredibly difficult getting statistics on what the number of self-registrations actually is. I don’t know of any for Europe as a whole,” said JATO’s Hession, himself a former DaimlerChrysler sales planning manager.
but pleas to carmakers to “accept reality” and stop stuffing the market appear to be falling on deaf ears.
“We can only appeal to the reason of the manufacturer, something we do at every possible opportunity. But unfortunately reason is a rare commodity in this world,”