Dealer's first overflow lot in 37 years sign of U.S. inventory pileup

For the first time in his 37 years working at New Jersey car dealerships, Larry Kull had to rent extra space to store unsold new Honda vehicles -- one of the latest signs that the record U.S. auto market is cooling.

Across dealer lots in America, inventory is piling up as automakers produce more cars than are being bought. Dealers had about 85 days worth of cars and trucks on hand at the beginning of February -- about 22 days more than at the beginning of 2017 and eight days more than a year earlier, according to Automotive News Data Center.

“The sales are good, I just have more product on the ground than I’ve had before,” said Kull, who has about 60 days of passenger cars including Civic compacts and Accord sedans stocked at an office parking lot down the road from his Honda store in Marlton, N.J.. He prefers to have just 45 days worth of cars on hand.

Trimming production

Production cutbacks also have already begun. GM and Fiat Chrysler have eliminated shifts, laid off employees or scheduled days off early this year at plants making slower selling models including the Chevrolet Cruze compacts, Chrysler Pacifica minivans and Buick Lacrosse sedans.

While heavy inventory is a signal of potential pressure on automakers’ profits, it also boosts costs for dealers, which pay interest on inventory as well as any extra expense to store vehicles.

Raj Murjani, a sales manager at a Lexus dealership in Queens, said he’s selling about 40-50 fewer vehicles than usual this month. He sees the gap in popularity between light trucks and sedans continuing to widen, as low gasoline prices encourage consumers to switch to bigger vehicles.

“If it’s a person who’s been in a sedan and they got just the slightest taste of an SUV, they don’t ever want to go back,” he said. “They think going back into a sedan is a downgrade.”

Still, even SUV and crossovers are contributing to the industry’s inventory issues. Manufacturers scrambled to meet surging demand for them and overbuilt in November and December, said Jeff Schuster, an analyst with researcher LMC Automotive. Incentives on SUVs rose in January.

Kull is the president of Burns-Kull Automotive Group, which operates seven dealerships in New Jersey. He leased an extra lot to store Hyundais in anticipation of new Genesis luxury vehicles. But it’s Honda, with its sedan-heavy mix, that’s giving him the biggest headache.

If automakers moderate production, “it should be OK,” he said.