By not overbuilding -- and absent the multiple crises of 2008-09 -- automakers started the month with the leanest May 1 inventory on record.
Ever since the disruption of cash for clunkers last August, automakers have matched production closely to U.S. sales. It has paid off in leaner, more balanced inventories.
The 2.1 million units on hand May 1 equaled a 56-day supply, the lowest in 19 years of records for the month. The average has been a 69-day supply. For manufacturers and dealers, there were 562,900 fewer unsold units to finance than a year ago, even though April sales volume jumped 20 percent.
"Since the end of 2009, there is a real sense of discipline with the balance of supply and demand," said Jeff Schuster, head of forecasting for J.D. Power and Associates. "The true test will be the continuation of this approach post-recovery."
Except for Toyota, all major players have reduced incentives this year, raising per-vehicle margins.
"There is no faster way to profitability than to cut incentives," said Dave Cole, chairman of the Center for Automotive Research. "And the pressure on domestics to build more vehicles to spread legacy costs over more units is gone."
On May 1, car and truck stocks were each at a 56-day supply -- it's the fourth time they have matched in the past seven months. Over the same period, stocks have been near or below the 60-day supply the industry traditionally considers ideal.
It's a huge contrast to the inventory roller coaster in 2008 and most of 2009, when a sales collapse, fuel-price spike and bankruptcies created a spectacular glut and then cash for clunkers drained it. Industry supplies averaged 76 days in 2008 and 86 days in the first half of 2009.
Tony Schnurr, CEO of the Larry H. Miller Automotive Division, a 39-dealership group based in Salt Lake City, says manufacturers have helped dealers reduce inventory.
"All of them are managing inventory better than they ever have. And so are we," he said. "We have developed better tools, like internal dealership reports we didn't have before and more actively monitoring supplies of specific models."
For the past 12 months, General Motors and Chrysler have led the inventory reduction as they both went through and emerged from bankruptcy. Both have cut unit inventories 42 percent since last May 1. Chrysler Group's current 53-day supply contrasts with 114 days a year ago. GM slashed its days supply to a near-ideal 61 from 111.
GM spokesman Tom Henderson says substantially cutting production capacity and shedding four brands have helped the automaker manage production and inventory better.
"We're not the same company we were a year ago, and we're not faced with the same challenges," he said.
Among the automakers, the Detroit 3 have shed the lion's share of inventory because new labor contracts enabled them to control production, says Rebecca Lindland, IHS Global Insight's top North American analyst.
"It used to be more expensive to close factories because of UAW benefits like 95 percent pay [during layoffs] and the jobs bank," she said.
Current average industry supplies are lower than from 2004 to 2007, the back side of a nine-year plateau of U.S. annual sales above 16 million units, when automakers overbuilt and then boosted incentives to move excess stock. Annual average supplies then ranged from 64 to 73 days, or up to 4.3 million units, because of the higher volume.
Power's Schuster says with less capacity and a better cost structure, automakers might even break the build-and-incentivize cycle. "There is a focus on margin and not just keeping the factories running," he said.
Under the disciplined leadership of CEO Alan Mulally, Ford's mantra has been to match production to sales demand. Ford keeps reducing model complexity and working to turn stock faster to help dealers sell more with less inventory, says George Pipas, Ford Motor Co.'s chief sales analyst. And Ford is using more computer modeling. "It helps us determine what incentive is best to avoid building excess inventory." Pipas said. "We're also analyzing consumer preferences in specific geographic areas to get units in stock that sell the best."