As the U.S. economy glides into a soft landing, dealers are slicing orders to compensate for the slowdown in auto sales.
Fort Lauderdale, Fla.-based AutoNation, the nation's largest dealership group with 1999 sales of nearly $21 billion, saw the slowdown coming six months ago.
'We really started focusing on asset management last June, after the Fed raised the prime rate a half point in May,' said Michael Maroone, president of AutoNation Inc. 'We felt an immediate impact in our showrooms.'
It was obvious that increasing incentives were not getting the same lift, and at some point, the incentives were going to become untenable, Maroone said.
'So we began tracking our inventory, and we were much higher than we would have liked to have been in June,' he said. 'We very aggressively targeted asset management. We believe that good asset management is a characteristic of great retailers. So we've been focused on it all along.'
Paul Taylor, chief economist for the National Automobile Dealers Association, said the days supply for all makes for North America is 67 days.
'Ideally, you want a 45- to 52-day supply,' Taylor said. 'The concern is that when you get a big supply, the push system goes into operation. You have more of whatever was built because incentives are moved around to induce you to hold them. You hope inventory that was conceived of in the third quarter is what customers want in the fourth quarter.'
At Cherry Capital Oldsmobile-Cadillac-Subaru in Traverse City, Mich., owner Otto Belovich cut his GM vehicle order by about 50 percent from year-ago levels mainly because of publicity about sluggish vehicle sales and a slowing economy. He declined to provide numbers but did say he has a 60-day supply of GM vehicles.
But this is also a traditionally slow sales period for Belovich.
'My Cadillac customers have gone to Phoenix and Florida for the winter,' joked Belovich, whose dealership is located in the northern Michigan snow belt. He retails about 500 new and 500 used vehicles annually. So far, his year-ago sales are down only two vehicles.
Said Belovich: 'We're just trying to be cautious. We don't want to get stuck with a bunch of cars in January and February.'