Supplies of unsold vehicles have ballooned to the highest level since the recession, and U.S. sales growth has slowed significantly in the past five months. It's an ominous combination that could mean a return of bigger discounts and lower profit margins throughout 2014.
Each of the Detroit 3 started February with more than a 100-day supply of unsold vehicles, enough to last until roughly Memorial Day at the slow January selling rate. Across the industry, automakers had 88 days' worth of vehicles as of Feb. 1, the most for that date since 2009, when the industry's downturn was at its worst.
"We think incentives are going to start climbing," said Larry Dominique, executive vice president of TrueCar. "The way to avoid an incentive war is to back off on production, but other than Ford with the switchover to the new [F-150], we haven't heard much about production coming down."
In what might be the first volley, General Motors on Friday began a nearly monthlong Presidents Day promotion on Chevrolet, Buick and GMC vehicles, offering some of GM's biggest incentives in months.
The sales event runs through Feb. 28, according to a summary sent to dealers. The brands are offering $500 to $2,000 rebates on most models and have sweetened lease pull-ahead deals. Dealers will offer the deepest discounts so far on the redesigned 2014 Chevy Silverado and GMC Sierra pickups, which were launched last summer.
U.S. new-vehicle sales have risen just 2 percent year over year since Labor Day, compared with a 10 percent gain in the 12 months before that. In January, sales declined 3 percent and the seasonally adjusted annualized selling rate fell to 15.2 million, the lowest since April, as relentless snowstorms and subzero temperatures deterred buyers in much of the country.
But analysts are warning of troublesome signs that go well beyond bad weather.
After four years of rapid growth, the sales pace "appears to have stalled," Morgan Stanley analyst Adam Jonas said.
"The industry stands at a crossroads," Jonas said. "We really think the best of the U.S. auto replacement cycle is over. The incremental buyer is moving from someone who needs to replace their car to one who just wants to, making financial willingness to lend and credit availability more important than ever."
Publicly, at least, automakers are downplaying rising inventories. And most are holding the line on incentives so far.
TrueCar said incentives declined 3 percent in January year over year, though Ford Motor Co. and American Honda Motor Co. posted double-digit increases. Incentives dropped 10 percent from December, when year-end sales created a flurry of business as dealers scrambled to meet 2013 targets.
GM's inventory grew by about 32,000 units in January as its sales fell 12 percent. That resulted in a 114-day supply of vehicles as of Feb. 1, the highest among major automakers and up from 81 days a month earlier.
"We're closely watching U.S. industry and our own inventory levels, and we will maintain our disciplined approach to balancing supply and demand," GM CFO Chuck Stevens said during a conference call to discuss quarterly earnings last week.
Ford Motor had a 107-day supply as of Feb. 1, after starting the year at 73 days, and Chrysler Group had a 105-day supply, up from 79 days. Chrysler's inventory did not grow as much because its sales rose 8 percent last month, largely because of the new Jeep Cherokee.