Amazingly, vehicle inventories are low

Chevy cut Silverado stock almost in half in a year.
Call it a miracle, but despite the industry's biggest sales collapse since 1980, automakers have prevented inventories from spiraling out of control.

The sales plunge and a huge swing in the model mix could have sent stockpiles soaring. Yet none of the six big manufacturers has excessive supplies of any high-volume model.

Auto dealers are cutting their own inventories as floorplan financing rates rise and lenders pressure them to reduce stock.

"They're being very careful in ordering in the new model year," said Mike Robinet, head of forecasting for CSM Worldwide.

The industry's combined stock of 2.9 million unsold vehicles on Oct. 1 was almost 300,000 units below the 10-year average for that date. The total generally includes vehicles at dealerships, factory lots, ports of entry and in transit.

The industry as a whole had a 72-day supply of vehicles as of Oct. 1, up from 61 days on Sept. 1 and 59 days on Oct. 1, 2007. But the number is inflated now because of September's disastrous selling rate.

As sales have deteriorated with each month, production cuts have kept pace. No action is too extreme. Automakers have closed factories, idled plants for months, eliminated shifts, moved production to different plants and cut imports. And dealers are showing discipline.

"We are reducing all of our inventories, with the exception of Honda, to targeted levels," said Joe Jankowski, CEO of Schaefer and Strohminger, a group of dealerships in Baltimore that sells brands including Honda, Dodge, Mazda, Jeep, GMC, Hyundai and Pontiac. "We're factoring in a combination of days supply and specific floorplan expense levels."

Trimming inventories
Units of unsold vehicles
 Oct. 1 2008Oct. 1 2007
Chevy Silverado115,700213,600
Dodge Ram70,600111,300
Ford F series132,400185,900
Honda Civic32,00043,000
Source: Automotive News Data Center; companies

Incentives help

Automakers also are buying their way out of excess stock. Incentives were high on slow-moving pickups and SUVs this summer and are increasing on small and mid-sized cars this fall.

Despite terrible sales in August, the Sept. 1 stock of 2.8 million vehicles was the lowest of any month since 1998, when a General Motors strike cut supplies.

Even September's steep 26.6 percent collapse to the first submillion unit sales month since 1993 added only 81,300 vehicles to inventory.

"Auto manufacturers have been pretty disciplined about gauging demand and keeping inventory under control," said George Pipas, the top sales analyst at Ford Motor Co. "You can't just put the business on cruise control anymore."

This year, North American manufacturers have slashed production by 1.5 million units through Oct. 11, down 13.2 percent from a year earlier.

Through September, U.S. sales are down 12.8 percent to 10.8 million. But the rate of decline has accelerated, driven by $4-a-gallon gasoline prices followed by a financial and credit-availability crunch.

Worse, consumers have been fickle about what they buy. In May and June, as fuel prices spiked, buyers clamored for efficient small cars and spurned trucks and other gas guzzlers. But as prices at the pump fell, pickups rebounded.

In June, the best-selling vehicle was the Toyota Corolla. In September, it was the Chevrolet Silverado large pickup, whose 50,428 sales total last month was nearly as much as the Corolla and Toyota Camry combined.

"The reason people are not out of shape is that the industry has been driving the fundamentals this year," said GM spokesman John McDonald.

GM, Toyota, Ford, Honda, Chrysler and Nissan have cut inventories substantially in the past year. Combined, the big six are down a quarter of a million vehicles from 2.6 million in September 2007.

Industrywide, automakers reduced stocks by 646,100 units from February to August, a reduction of 19 percent in the six-month period. Inventory normally falls between February and August. But despite plunging sales, stocks this year fell by about 100,000 units more than the 10-year average for the period.

There is a powerful incentive for holding stocks down.

"Cutting inventory makes more capital available for the needs of the corporation," said Robinet of CSM. "It's capital that can be spent on product development."

Dealers finance vehicles on their lots, but automakers save by reducing the number of completed vehicles in factory lots and in transit.

Civic sales are up this year, but Honda cut inventory to 32,000 on Oct. 1 from 43,000 12 months earlier.

Better tools

Ford's Pipas said manufacturers have developed better analytical tools and information systems so they can react quicker, even after monthly production schedules are issued.

Toyota, which shut its new San Antonio plant for three months starting in August, and Honda are the only two of the six largest automakers to boost inventory — in terms of actual units — over the last 12 months. Much of that can be traced to a drop in sales in their mid-sized sedans in September.

In June, the Camry and Corolla and Honda Accord and Civic were the four top-selling models. But their combined sales were 41.4 percent lower in September.

In September, Honda's inventory jumped by 18,000 units, to 242,000, and the smaller sales total pushed the carmaker's day supply to 60, the upper end of its target range, from 41 in August. Last week Honda slashed production of two slow-selling models, the Odyssey minivan and Pilot crossover.

Toyota's September inventory jumped 88,500 from a year ago. Slower sales this year boosted its days supply to 64 from 34.

Indeed, the rapid swings in demand and model mix make this an especially tricky year for controlling inventory, said Pipas. "It reminds me of the kind of ride you only see at theme parks," he said. "It's all up, down and around. It's as wild a ride as we've ever seen." 

You can reach Jesse Snyder at jsnyder@crain.com

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