I had plans for this evening. I really did. But then Zero Hedge has gone out of their way to be so fabulously wrong about how the world works I had to take a break to refute their latest attack of nonsense.

Note, the last time I wrote about Zero Hedge it attracted a lot of unwanted attention for them because it pointed out, fairly clearly, that they were basing their conclusions β€” that there are millions of unsold cars β€” on old pictures from an old story and, I don't know, massive doses of peyote.


Did it bother them? Probably. Below is a snippet from an email chain where "Tyler Durden" β€” the anonymous writer/s of the site β€” emailed with someone concerned that I was somehow in bed with GM.


I am not and, so far as I know, we do not, but glad to know they're worried.

ZH, to their credit, responded with a pretty hilarious burn in my direction in their latest post saying:

Ten days ago, some of the more confused fringes of the blogosphere took great offense at our repost of an article showing thousands of idle cars strewn around various ports, dealer lots, parkings, airports and any other flat surface in what is merely the world's largest ongoing manufacturing channel stuffing and working capital gimmick.


They didn't link to us, but I think they were talking about us and not, say, Snopes (which called their article "false") or Bloomberg View's Barry Ritholtz, who considered it so bad he used it as an example for why you should be careful about what you read on the web.

Of all the many smart people to call them wrong β€” and there were many smart people who recognized how wrong they are β€” I'm going to take the heat here and assume I am the fringe.


I don't want to break this out point-by-point because I've done that and most of the critiques of the last piece still stand and their "uh we didn't want to waste time looking up new google maps" bit is one hilarious dodge, but let's get to two big areas.

This is going to require understanding a little bit of nuance which is something you can't do if you're going to enjoy Zero Hedge because they're hoping you won't think too hard about any subject.

The Bogeyman β€” AKA β€” The Cadillac ELR


If you wanted to know how deceitful Zero Hedge is trying to be, just read their latest article, which does the classic ZH trick of taking a small fact and blowing it way out of proportion to make ridiculous assumptions β€” like knowing that Usain Bolt can run 100 meters in 9.58 seconds and then assuming cats are really ninjas trained by President Obama to steal our Cheetos.

They may be afraid to link to Jalopnik because it exposes their faulty reasoning, but I'm so sure that reasonable people can see the problems with their arguments I'm happy to have you read them.

In this case, they've found the perfect bogeyman in the Cadillac ELR, which is GM's Chevy Volt in a tuxedo and is, I think most people would agree, a pretty shitty product.

And in lieu of that, instead here is a verbal account of precisely what happens when domestic car-makers overestimate the purchasing power of the US, and clog channels to an epic extent. In this case, we refer to the recently launched GM Cadillac ELR, launched to much aplomb just five months ago as a competitor to the Tesla Model S for a $76,000 price point (above Tesla's $70,000), has been a complete disaster. And how is GM dealing with this latest sales disappointment (which struck even before all the recent recall scandals had hit)? Why by jamming dealers with an unprecedented 725-day supply, or exactly two years worth of cars!


I swear to God they bolded that, I am not adding that for editorial effect.

Yes, as MarketWatch noted, there are 1,700 ELR coupes unsold on dealer lots as of the end of April.


That's not, in the grand scheme of things, a lot of cars. There are about 900 Cadillac dealerships in the United States, which is to say there are less than two cars for every dealer to stock in the showrooms, which is to say you can have a burgundy one and a white one, maybe (the reality is not all dealers are getting the cars, but an annual supply for a store is about four).

That hilarious "725-day supply" number comes from the current selling rate, which is low, because it's an overpriced Chevy Volt that isn't as sexy, useful, or interesting as a Tesla. It's a bad car that's meant as a green "halo" model and not at all intended to sell in high numbers.

But the inventory is so low that it's a number that's more amusing than illuminating.


If you sell one blue Lamborghini Gallardo a year, and you have three blue Lamborghini Gallardos on your lot, in theory you have a 1,095-day supply. Or to over-simplify even more: if you had one taco yesterday, and today you had four tacos, that's a 300% increase in taco consumption... but you don't need to go to the hospital because four tacos is a totally fine number number of tacos to have.

So yes, while those lots filled to the brim we showed were not of ELR models, they should have been. Unfortunately stock photos of this brand new car sitting untouched on dealer premises are unavailable, at least for now.

Are you fucking serious? You think there are multiple dealer lots with dozens of ELRs piling up? As I already pointed out, 1,700 cars doesn't even equal two per dealer, you morons.


Do you not understand how large numbers work? I have a feeling the author of this piece wanders into a grocery store, opens up a carton of eggs and goes "Man, there must be millions of eggs in there, I can't even count them all. It's uncountable."

So yes, they made a very small number of Cadillac ELRs and they're so shitty they barely have sold any of those. Fair point. Yes, it's nonsense for GM to call this a Tesla killer, also a very fair point.

But saying this means GM and the industry as a whole is dangerously overbuilt is like saying the failure of Kim Kardashian's marriage to Kris Humprhies in 72 days is a sign that all new marriages are doomed to end soon.


No, she sucks, that's it. She is not representative of all marriage, you weirdos.

We Have High Inventories And This Means There Are Millions Of Unsold Cars

Carmakers don't just produce vehicles on demand, they make some assumptions about how the economy is going to be in the future and build cars to meet those numbers. Sometimes they overestimate, sometimes they underestimate, but they ideally keep about 65 days worth of cars somewhere in the supply chain for the same reason they don't just send one tube of toothpaste or box of Cheerios to each an individual store.


Look at this scary chart:

That's GM Month-End inventory and it, conspicuously, only goes back to November 2009, which is a few months after their bankruptcy. As you might imagine, as the economy took a giant dump and GM went south they, like other automakers, cut back on car production.


But here's the chart Zero Hedge doesn't want you to see:

This chart is from Calculated Risk and it shows the number of auto sales (called SAAR because it's seasonally adjusted and adjusted here to roughly the same period as the ZH chart, you can see the full chart at the link above) in the United States.


Why are carmakers producing more cars? Because, durr, they're going to sell more.

As Bloomberg View pointed out, if you go back to when that chart began to what's projected by the end of the year you'll see that sales should be up somewhere by about 78%.

This has Zero Hedge very concerned and, if we're going to be nuanced about this, I think it's a very fair argument to make that we're a little overbuilt right now. We're at about a 74-day supply when we should be at a 65-day supply and I'll bet all the money in my wallet against all the MDMA in ZH's system that we'll see GM and Ford idle their plants this summer a bit to even that out.


Does this mean β€” as Zero Hedge contends β€” that there are millions of unsold cars sitting around waiting to be scrapped? Of course not. It just means that some automakers will need to take a week or two off in the summer so that demand catches up with supply.

You can't sell 16.1 million cars one car at a time and the bigger problem some automakers have had lately is not with having too many cars to sell, but with supplies that were too low.

The only thing worse than having too many cars to sell is having a customer come to your door, not be able to get a car, and go somewhere else.


A Challenge

There are definitely discussions to be had about the failure of GM in certain areas, the state of production, and the future of American automakers.

I invited Zero Hedge in a personal email to come and debate this on Jalopnik but they sheepishly refused. Unfortunately, unlike the real fake Tyler Durden, it seems like they'd rather run from a fight.


This is worthy of a serious discussion so I invite them to let me know a time and I'll invite some smart people and we can talk it out.