Despite What They Say, GM’s Inventory Build Is Anything But ‘Normal’

For months now we’ve been warning that the great auto ‘plateau‘ is nothing more than a debt-fueled bubble, courtesy of the Fed, that is on the verge of collapse.  Of course, bubbles typically get exposed when customer sell-through starts to slow but OEM’s go on believing that 10% volume growth is possible in perpetuity…that usually results in inventory growth that looks something like this:

The second sign of a bubble usually comes when companies issue carefully crafted excuses for their inventory build.  And that’s where Alan Batey, GM President of the America’s, comes in to explain that his company’s inventory glut isn’t a sign of the auto industry’s impending implosion but rather a modest build up ahead of planned shut downs and retooling efforts later this summer.  Per Automotive News:

Automakers and dealers started April with near-record U.S. stocks of unsold new vehicles, but much of the surplus may stem from General Motors bulking up to prepare for factory shutdowns.

The industry started the month with 4,191,700 light vehicles on hand, the highest unit count for April 1 since 2004 and 348,200 higher than a year earlier.

GM, however, accounted for three quarters of the industry’s 348,200 units of inventory growth in the past 12 months. GM added 260,800 units since April 1, 2016, to 924,800 this month. GM had the industry’s highest April 1 stocks, with a 97-day supply, up six days from March 1. BMW, at 36 days, had the lowest.

Alan Batey, GM president of the Americas, said the stockpiling is deliberate to keep dealers supplied while the automaker temporarily shuts multiple assembly plants later this year. GM must retool for a number of redesigned vehicles, including full-sized pickups and several large SUVs.

“Our inventory’s high because we’re going to take 10 weeks out in the back end of the year as we’re modifying our plants, particularly in pickup trucks,” Batey said last week at the New York auto show.

Of course, factory shutdowns and retooling for model change overs are fairly common in the auto industry.  Therefore, if Batey is correct in his assertion that GM’s inventory build is just a ‘normal’ preparation for retooling then we should see a similar pattern in inventory builds last year.

But, per the chart below, and to our complete ‘shock’, that is simply not the case.  For all of 2015 and the first half of 2016, GM inventory ranged between 625k – 750k units in dealer lots.  That said, since July 2016, GM inventory has ballooned from 700k units to well over 900k which is way more than anything that could reasonably be attributed to ‘normal’ seasonality.

But maybe we’re too naturally pessimistic.  So what say you?  Just ‘normal’ seasonal patterns or signs that the auto bubble is about to pop?