GM’s Channel Stuffing Cost Its Share Price 40%

In response to General Motors’ slight-of-hand tactics, a class-action suit was filed against the company on June 29, 2012. But news of the channel-stuffing practices Rodney described above surfaced over a year ago, in the first week of July 2011.

On July 1, in an investor conference call, GM fessed up to exceeding inventory targets. At the time, it showed a 122-day supply of pickup trucks on dealers’ lots. This exceeded the industry-recognized maximum supply of 100-days and even that limit is considered high.

Don Johnson, the company’s VP of U.S. sales, gave a weak, non-explanation. He acknowledged the company had exceeded its inventory target, but emphasized that “it’s important people realize why we are there and what we may do about it.”

Say what? What does that EVEN mean?

By July 5, major media outlets were exploring GM’s channel-stuffing tactics. And still-weary investors voted with their feet – or more accurately their sell orders – as the news cycle unfolded, as you can see in this chart of GM’s stock.

And this sell off couldn’t have come at a worse time as it dove-tailed with last summer’s broad market selloff.

See larger image

GM’s stock is now 40% lower than it was at the beginning of last July. The broad equities market has since staged a recovery. GM has not.

The market is making one thing very clear: GM will have to sell real vehicles to real consumers before we trust them again.

If you haven’t done so already read the Survive & Prosper issue on “General Motors’ Channel Stuffing Their Sales”.

 

 

 

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Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.