Is GM Using Inventory to Fudge Earnings?

GM logoGeneral Motors recently reported that it has a 93 to 95 day supply of vehicles at dealerships in its latest inventory report. This is well above the industry average of a 67 day supply, as well as exceeding analysts recommended 60 day supply. According to Jim Bunnell, general manager of GM’s dealer networks, the reason is because they expect strong demand for vehicles. There is a more likely reason that should be a cause of concern for GM’s new shareholders.

General Motors records revenue when vehicles are shipped to dealerships. While GM has technically sold these vehicles to the dealerships, retail customers haven’t yet purchased the vehicles. This stresses the dealerships as they are paying for vehicles that have not yet been sold.  There are usually incentives (paid by GM) for dealerships to accept the inventory. Once shipped, the inventory is financed (in most part) by government owned Ally Financial. It is probable that in an effort to pad their earnings prior to their IPO, GM made sure they shipped as many vehicles to dealerships as possible and continues to do so going in to fourth quarter earnings. These revenue figures would not give an accurate picture of their sales strength, or more accurately, weakness. Just as concerning is the spin that GM executives put on the reasons for building inventories. Once again, this company does not seem to be honest with investors or the general public.

Wall Street analysts are sure to pick up on any GM inventory ploy. I am sure the next earnings conference call will bring questions regarding inventories. I am less confident that television financial news networks will report the red flag. General Motors spends a great deal of money on television ads, and to this point the networks seem to give a Pollyannish analysis of GM as an investment choice. Some went so far as to suggest all taxpayers should be allowed to “benefit” from being allowed to participate in GM’s IPO. This without any disclaimer suggesting viewers contact their own financial advisors. More cautious opinions can be found on internet sources’ reporting, however.

Eventually a true picture of General Motors financial strength will develop. They have benefited from an influx of over $50 billion of taxpayer money to their balance sheet which buys them a good deal of time. GM’s success will depend on the quality of the vehicles and marketing coming out of the company.  The sooner they get out of the habit of deception, the sooner the odds of succeeding will improve.


GM’s Smoke and Mirrors Accounting

GM IPO Land Mines

CNBC: Flaherty Says Open GM IPO to All (But Retail Investors Should Not Buy)

GM IPO: Buyer Beware

Government Motors’ Chevy Volt Sparks Criticism

How Can Auto Bailout Succeed When Its Based on Fraud?

GM’s Stagemanaged IPO (Investor’s Business Daily)

Obama is Wrong About Auto Bailout

CNBC: Flaherty Slams GM Acquisition of AmeriCredit (video)

SEC Must Ban Auto Czar Steven Rattner From Securities Industry

Nonunion Delphi Retired Employees Get Shaft in Auto Bailout

Consumers Beware: Ally Bank is GMAC

Flaherty: Obama’s Actions on Auto Bailout are Unconstitutional (CNBC video)

Obama Arranges Takeover of GM and Chrysler; Auto Workers Union Gets Huge Stake