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Channel Stuffing for Fun & Electoral Profit

January 23rd, 2012 - 11:18 am

“Channel stuffing” is an age-old practice for Detroit, and other industries, too. Manufacturers ship more widgets than consumers want, then try to generate Widget Excitement! by announcing how many widgets they’ve shipped. Never mind that widgets are stacking up, unsold, on store shelves, in shipping containers, rented parking lots, wherever. The important thing is to keep churning out product in the hopes that someone, somewhere can sell it all.

Example: Apple touts how many iPads and iPhones they sell to consumers, because they sell as many as they can make. Everybody else talks about how many phones and tablets they’ve shipped to retailers, and wait for the inevitable deep discounts to clear the shelves.

Keep that in mind when you read this:

Some Chevrolet dealers are turning down Volts that General Motors wants to ship to them, a potential stumbling block as GM looks to accelerate sales of the plug-in hybrid.

For example, consider the New York City market. Last month, GM allocated 104 Volts to 14 dealerships in the area, according to a person familiar with the matter.

Dealers took just 31 of them, the lowest take rate for any Chevy model in that market last month.

The story hastens to add that

many dealers have been waiting for resolution of the National Highway Traffic Safety Administration’s investigation into the risk of fires in the car’s battery pack. Last year three packs caught fire in the days or weeks following government test crashes.

But let’s be honest. If Volts were selling, dealers would take them — investigation or no investigation. (Oops: No investigation! Move along; nothing to see here.)

Fact is, Government Motors has to keep producing Volts, or risk severe embarrassment to its major shareholder: The Obama Administration. But you can stuff the channels only so deep. Eventually, GM will have to offer huge incentives to move Volts off the dealer lots — incentives, I imagine, that will make the existing $7,500 tax incentive (paid for by you and me) look small.

A politically-friendly electric motor allows GM to sell a $13,000 three-banger for about $33,000 (shoddily-equipped). Generous subsidies allow them to first mark up to price to $40,000. Somewhere between $13,000 and $33,000 is the real market-clearing price of this car.

Does $20,000 sound about right for an undersized family sedan that runs mostly on coal? The current hot car in the full-size family segment is the Hyundai Sonata, which has a base price just under $20k. If there’s a lesson in all this, I suppose it’s that GM sold about 7,500 Volts in the US last year, while Hyundai sold 225,961 Sonatas.

And, oh year: Korean taxpayers didn’t lose tens of billions (and counting) for the privilege of channel-stuffing overpriced cars nobody wants to buy.

But that’s how crony capitalism works: Robbing Peter to pay Paul while keeping up the appearance that Peter is the one getting the benefit. (Jobs! We saved GM jobs!) Eventually it all comes crashing down, since consumers won’t take even for free things they don’t like.

The Administration must have been hoping that there was no possible way for a low-volume, halo vehicle could overstuff the channels so quickly. But here you have it: Still more than nine months away from the election, and one simple story illustrates what an expensive flop GM has made of the Volt.

There’s political hay to be made here, and lots of it.

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