I couldn’t help but notice some perhaps misguided optimism in today’s news: Giant and Merida, two of the largest manufacturing facilities in Taiwan, announced that things are positively rosy and everything is just all aces.Â I am not convinced.
In the past 3 months, Merida’s share price is down 42%, and Giant is down 22%.Â If I were a shareholder (and in the spiritÂ of full disclosure, I am not), I’d have a hard time rationalizing today’s news against the market we see today.Â The kicker on this is one of invoice dating: They’re producing bikes in a frenzy (so they say), to appease a market that is predicted to soften over the holidays, to sell into markets that are already seeing big drops in shipping container receipts, and ultimately to end up in bike stores that were given these bikes on generously long credit terms.
Does anyone else think this sounds like an industry that could get hit with problems like the car dealerships are facing now?Â Dealers full of inventory that isn’t moving (because the orders were placed 6 months prior at no cost), and the oversupply hits at a time when that inventory should move, but might not because of an economic belt-tightening (springtime). There is an assumption that bike stores in the spring will sell bikes at similar quantities/prices as to what they sold last spring.Â I think that is a particularly dangerous assumption.
If it’s indeed true that they’re running at total capacity, and that Giant is bringing on another manufacturing facility to increase units further, then I think these companies share prices are probably a better indicator of what’s going on here than the earnings press release is indicating.Â Â This seems like more of the same that we’re seeing in all kinds of sectors right now: production that isn’t looking forward to consider reduced future demand, or perhaps simply locked into an economic model that requires a certain throughput to keep the lights on.Â I hope I’m wrong, but it’s just all sounding so familiar.