President Obama’s campaign claim that he rejuvenated the ailing General Motors depends on practices called “overbuilding” and “channel stuffing,” critics say.
Car dealerships’ lots are filling up with unsold trucks and SUVs because GM built more vehicles than it can sell in order to inflate sales claims and artificially boost its profits, The Daily Caller has learned.
The Detroit automotive giant records sales for vehicles in dealers’ inventories before car buyers make their purchases, said Mark Modica, a National Legal and Policy Center associate fellow.
GM’s overbuilding “probably helped [GM] in the second quarter, but will hurt in the third quarter,” a Standard and Poor’s Capital IQ analyst added.
Third quarter results won’t be made public until after the November election, allowing Obama to tout the company’s short-term success while masking troubles that are not yet apparent to voters.
GM spokesman Jim Cain said the company is “overbuilding” because it plans to shutter four assembly plants for a combined 29 non-consecutive weeks in order to ready them for production of its newest models.
Cain said the scope of the closure “doesn’t matter” and “the overbuilding is necessary.”
Meanwhile, dealers are swamped with autos that they can’t sell. GM began taking plants offline in the second quarter but will close production even longer in the third quarter.
“It’s like somebody being constipated, it’s got to go somewhere,” said Republican congressman Mike Kelly, who owns a Butler, Pa., dealership that sells GM vehicles. “And who’s it going to end up hurting? Me and dealers like me.”
The American public may hurt as well, as taxpayers’ investment in GM will lose value when GM’s latest actions negatively impact its stock price.
The company’s stock currently floats around $20. Charlie Brown, president and CEO of CB3 Financial Group Inc., said that too much production is driving GM’s stock price down. Sales incentives, he warned, may do little to reverse the downward trend.
“People that are investing don’t want to see excess inventory. You can only over-incentivize people so much,” Brown said. “Their stock price could reach 16 dollars.”
Reason Foundation senior policy analyst Shikha Dalmia said GM is stable and making profits, but added that the company would need to sell stock at $55 per share in order for taxpayers to recover their investment.
GM’s channel-stuffing tactic has already prompted a class-action lawsuit in New York.
Cain declined to comment on the litigation, but insisted GM has been “very transparent on sales and earnings calls with the media.”
Modica said GM has been fiddling with the numbers for a long time, using “smoke and mirrors” to promote a positive public image.