Suit accuses GM of Channel Stuffing to improve its outlook ahead of IPO
Detroit, Mich.—Embattled automaker General Motors is facing yet another class action suit in U.S. courts.
The suit filed in the Southern District of New York alleges GM, some current and former officers and directors and several underwriting investment banks made false and misleading statements in the Registration Statement and Prospectus issued by GM in connection with its IPO in 2010.
The suit claims to GM falsely assured investors it was actively managing its production by monitoring dealer inventory levels and not predicting revenue based on production rather than actual sales.
GM assured investors that in 2011 it would improve inventory management, a move that was allegedly aimed at improving average transaction price.
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.
In January 2012 GM reported sales for 2011 were up 14 per cent year-over-year to more than 2.5 million units.
The suit quotes Don Johnson, the VP of GM’s U.S. sales operations, who stated on an investor call that “Right now we are at 122 day supply on full-size pickups. And this is slightly above where we would like to be. I acknowledge that our target is between 100 and 110 day supply but I think it’s important that people realize why we are there and what we may do about it.”
As of press time shares in GM were selling at $19.45, far below the IPO price of $33.00. The IPO raised about $20 billion.