How Do You Say "GM" in Mandarin?
Looks like China's been cooking the books using an old (but still useful!) trick from General Motors:
Zero Hedge covered the topic of automotive channel stuffing long before it became a conversation piece, particularly as it pertains to Government Motors, a topic which has recently taken precedence after being uncovered at such stalwarts of industry as German BMW and Mercedes, implying the German economic miracle may, too, have been largely fabricated. Another core topic over the years has been the artificial and inventory-stockpiling driven (in other words hollow) "growth" of China's economy, whose masking has been increasingly more difficult courtesy of such telltale signs of a slowdown as declining electricity consumption and off the charts concrete use. It was only logical that the themes would eventually collide and so they have: the New York Times published "China Besieged by Glut of Unsold Goods" in which, as the title implies, it is revealed that China is now nothing more than one big "stuffed channel."
One of the reasons people learned to hate GM cars was they had lousy resale value. There were two primary reasons for that. One was GM's over-reliance on sale to rental companies, which meant there was a steady and large supply of used cars as Hertz, Dollar, etc. rolled over their inventories. So when you went to trade in your five-year-old Chevy, it was worth maybe half of what your neighbor was getting for his Honda. The channel-stuffing hurt, too. GM had to get rid of those cars eventually, and the way to do that was to put cash on the hood -- discounts, rebates, subprime loans, whatever it took to move the metal. Downward price pressure on new models did nothing for the resale value of your older model. To say the least.
Helluva way to build brand loyalty, eh? You might be getting screwed on your Chevy trade-in, but at least you're trading it in for a new Honda. Once bitten, twice shy.
But we're not supposed to be talking about GM; we're supposed to be talking about China.
Imagine, if you will, that the world's smokestack country, the place that manufactures all the cheap stuff, has been stuffing all the channels. From coal and steel to finished products, there's just a lot of excess inventory built up of everything.
What happens to the price of steel, the price of coal, when Chinese firms have to "move the metal?" That could very well kill demand for our country's products, as China sells at big losses. Sure, we'll get even-cheaper Chinese goods to import, but that won't make much difference for laid-off steelworkers. And our own manufacturers won't be doing much extra hiring in the middle of a price war.
Next year -- maybe sooner -- is looking more and more like a hard landing. And we're still not yet to the point where we've been down so long it looks like up. There's a long way down left to go.
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