Monday, July 9, 2012

Lawsuit Filed Against Government Motors For Channel Stuffing; Dealers 'Double Dip' Tax Credits

A class action lawsuit has been filed against General Motors aka 'Government Motors' (GM) for channel stuffing dealer inventories at their dealers. In the mean time, their dealers have been double dipping tax credits to increase their profits. The Federal Gov't says since they are buying fleet vehicles from GM & cannot use the tax credits, the dealers can pocket them.

GM is one of the prime examples of 'crony facism' in the US, only this time the owners of GM are not benefiting, rather the labor unions that received sweetheart deals during the GM bankruptcy. Who suffers? Why of course, you do as the 32% common equity taxpayer 'owner' of this company, for propping it up so union bosses can profit, for paying for the $7,500 tax credit to purchase a Chevy Volt, for paying for the tax credits to the GM dealers, and for paying for the vehicles produced by GM sold to the Federal & municipal Gov'ts. A sure fire loose-loose situation at every turn for the underlying 'owner,' YOU. Moreover, Obama wants to increase the subsidy on the purchase of a Chevy Volt to $10,000 per car that would increase the cost to taxpayers to 10 billion dollars!

Outraged yet? Let's not forget the individuals, mutual fund, institutional & individual shareholders and bondholders of pre-bankruptcy GM that were either wiped out or faced 'cram downs' on their bonds as the Gov't under Obama circumvented existing & well established bankruptcy laws to favor a result for their labor union cronies. Are you tired of paying your "Fair Share" yet?

First,let's get to the background with the underlying 'con' of this cronyism debacle:

Next to the facts from two sources, the National Legal & Policy Center (NLPC) and Bloomberg News. From NLPC:

"It is past time that the unethical aspects of the GM bankruptcy process be fully investigated by authorities. This latest evidence of probable paybacks funded by more taxpayer money and seemingly laundered through Obama's wasteful green energy programs [through the Dept. of Energy] should enrage Americans. The arrogance of this Administration to blatantly award contracts to firms that they were in bed with should not go unnoticed. It is doubtful that the Energy Department just innocently happened to dole out contracts worth millions of dollars to "track" or "advise" on money lent to companies like Fisker to legal firms that coincidentally helped with the GM bankruptcy process. In addition, the wastefulness of the Energy Department is evident as they throw good money after bad on taxpayer-funded fiascoes like Fisker and Beacon Power."

It just gets better from here:

"Taxpayers continue to help with the cause as President Obama campaigns on the "success" of GM following the manipulated bankruptcy process that cost taxpayers $50 billion and another $45 billion of tax credits gifted to GM to help protect powerful UAW interests. We now learn that government purchases of GM vehicles rose a whopping 79% in June.

The discovery of the pick-up in government fleet purchases at the taxpayers' expense comes just weeks before GM announces its second quarter earnings. Overall fleet sales (which are typically less profitable than retail sales) at Government Motors rose a full 36% for the month, helping to drive decent sales improvements year over year."
"The government's increased spending on GM vehicle purchases presents yet another conflict of interest as Treasury refuses to sell taxpayers' stake in GM and Obama campaigns on the auto bailouts. It does not appear that any members of Congress (from either party) are questioning the increased spending. Also ignored was the Department of Energy's gifting of $2.7 million of taxpayer money to GM to reduce energy consumption in its door manufacturing process by 50%. The DOE seems to be one of the main conduits to funnel taxpayer funds to cronies of the Administration. The $2.7 million contribution to GM comes after additional millions of dollars were spent by the DOE on advisory fees paid to legal firms that helped smooth the way for the GM bankruptcy process (as reported here); another move that went unquestioned.

The upcoming earnings announcement by GM is, politically, the most important to date. The pressure is on Government Motors to appear financially strong as this may be the last earnings report before November elections and sets the stage for how "successful" GM is. One of GM's past tricks to help fudge earnings numbers has been to stuff truck inventory channels. Old habits die hard at GM. According to a Bloomberg report, "GM said inventory of its full-size pickups, which will be refreshed next year, climbed to 238,194 at the end of June, a 135 days supply, up from 116 days at the end of May." 135 days supply is huge, the accepted norm is a 60 day supply.""

Here's a graph of the ever increasing supply, to which I'll add the trick here is that GM records revenue when vehicles go into dealer inventories, not when actually sold to customers.

Let's move on to some accounting chicanery in the upcoming quarterly earnings report shall we. The report is due out on August 2nd.

"The US Treasury has stated that they will wait until after second quarter earnings are reported to sell the taxpayers' ownership stake in GM. Why is Treasury so sure that GM share price will only go up after earnings and is not at risk of falling further? The Obama Administration and Democrats have scoffed at past ideas of investing Social Security assets into equity markets because of the risks to capital. Now they seem to have no problem gambling with the taxpayers' stake in GM by market timing its exit. Perhaps the administration and GM are overconfident in the ability to drive share price by fudging earnings with such tricks as channel stuffing. As Obama continues to campaign on the perceived "success" at GM, the pressure is on to put a good face on second quarter earnings, credibility be damned."

"...The problem was that most of the profits were derived from non-operating income. Money managers and analysts saw past the surface and GM share price did not react well. It will be interesting to see what tricks GM might have up its sleeve when second quarter numbers are reported and more interesting to see how share price reacts. I'm guessing that the figures will once again look good on the surface, but be of questionable quality. It seems that trickery is the modus operandi at GM when it comes to financial reporting.

The higher profits that come from higher truck sales, or put more accurately, rising truck inventories, will goose GM's numbers on the surface. The underlying truth is that truck sales are down compared to lower profit cars. As an asides, it baffles me that GM CEO, Dan Akerson, has stated that he wants higher gas prices so that car sales will improve at the expense of higher profit trucks. Worse yet is the focus on the Chevy Volt, which loses money with every sale. It is absurd for the leader of a publicly traded company to campaign for actions that will negatively impact profitability. And campaigning is exactly what is happening at Government Motors."

It's no wonder, after all this chicanery, investors have instigated the class action law suit against GM. This from Zero Hedge:

""General Motors was being sued by a group of IPO investors (nursing losses of about 40%), for precisely this: "In connection with the IPO, and in order to assuage concerns that GM was predicting revenue based on production rather than actual sales, GM falsely assured investors that it was actively managing its production by monitoring its dealer inventory levels. Additionally, GM assured investors that in 2011 it would improve inventory management, which would improve average transaction price. These statements were false when made. In July 2011, reports began to surface that GM had engaged in an extraordinary inventory build-up. In particular, an article published by Bloomberg on July 5, 2011 revealed that GM may have been unloading excessive inventory on dealers, a practice known as "channel stuffing," in order to create the false impression that GM was recovering and sales and revenues were rising." Luckily, since this is a class action lawsuit, anyone else out there who bought GM on the belief that the company would not engage in precisely the behavior that we have shown month after month to occur, is invited to enjoin the plaintiffs and to sue the company that exists only courtesy of taxpayer generosity (and more importantly, courtesy of labor unions subverting priority rights in bankruptcy, in exchange for presidential votes). Finally, and if nothing else, this lawsuit will certainly force the general co-opted media to pay some more attention to a topic that is quite sensitive for the administration: the business model of the one company that the president is so proud and happy to have saved from the clutches of evil bondholders.""

For those that were shafted by the Obama administration's 'cram down' you may want to seek legal counsel to see if you can join in the class action suit. I'm hoping enough folks are outraged at all of this illegal activity going on daily in the Obama regime, that the GOP & others shine a spotlight of truth on this before the November election. Taxpayers aren't you tired of feeling like a boiled frog?

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Anonymous said...

This makes me so angry. When everyone was touting Gm sales numbers,they neglected to mention that the government placed a significant order.

Will the MSM or will the Wash post or NY Times make this a front page above the fold story? No way! Pravda was probably less biased then these US News sources.

BOSMAN said...


"Will the MSM or will the Wash post or NY Times make this a front page above the fold story? No way! Pravda was probably less biased then these US News sources."

At least with Pravda, you knew where you stood. They weren't posing as an unbiased free press.

Anonymous said...

GM should call themselves AGM.
'American Government Motors'

Right Wingnut said...

Never again will we buy a GM or Chrysler vehicle. We are now the proud owners of two Toyotas. Unlike the Dodge I use to own, they are both built in the USA with non-union labor. I would consider a Ford in the future since they didn't take a bailout.

Right Wingnut said...

It's pretty sad that we have to rely on Zerohedge to uncover this scandal.

LH, You should try to spread the news. Email Erick Erickson and Hot Air, and see if they will write about it, and link to your story.

Right Wingnut said...

I just emailed Erickson.

Anonymous said...

Thanks RW, if the folks know you, it might have a chance. I hope all will link it up to the social media. This is a great story even if the MSM will totally ignore it. ;)