The Canary Croaks

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There have been numerous “little things” indicating all is not well in the car business. Here’s a not-little thing:

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.

The buildup suggests automakers will have to cut back production or boost discounts as the market’s record growth spurt peters out. Analysts project automakers’ sales slowed this month to a seasonally adjusted annualized rate of 17.5 million light vehicles, according to a Bloomberg News survey, from 17.7 million a year earlier.

While automakers may not be facing a significant sales slowdown, they’ve supplied dealers as though the market would keep growing following last year’s record 17.55 million annual sales. The inventory glut also is a reflection of the challenge it’s been for companies to make deep enough cuts to production of slumping passenger cars, which Americans are snubbing in favor of light trucks.

“No one likes to cut production or dial up incentives, and we’re seeing a bit of both,” Thomas King, an analyst with J.D. Power, said by phone.

FCA is expected to post the biggest drop among the major automakers, with analysts estimating a decline of about 8.4 percent. GM spent 26 percent more in discounts on each Silverado truck than FCA paid per Ram and 85 percent more than Ford allocated for the F series, according to J.D. Power dealer data obtained by Bloomberg News.

As GM staged a “Truck Month” promotion in February, Nissan Motor Co. advertised as much as $5,050 off 2017 Altima sedans in some markets. Automakers marketed big incentives after it took dealers an average of 75 days to sell a car last month, seven days longer than a year before, according to data from Kelley Blue Book.

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.

 

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7 COMMENTS

  1. 12.5K off of a seriously overpriced Silverado z71 4×4…not my cup of tea! They are begging people to buy, but a 50K vehicle? Paid 42K back in my stupid youth for a used S500, but drove the car 130K miles over 10 years for about 60K all in, and got 8K in cash when I sold. Nice, but overpriced!

    • Stuck, the big profit for the last couple decades has been in light trucks, SUV’s. Easy to build(or used to be)and modify. Big ol One ton 4WD crewcab Sierra Duramax loaded out(the difference in GMC and Chevy)costs lists for $70K or more, one hell of a profit there. I might be considering them if they got cheap enough except ’94 was the last year I liked, big room, easy to work on, no airbags. Too bad nobody has figured out a mechanical pump Duramax or Cummins(big problems there on new ones) or Powerstrokes. Those would be good powertrains for old pickups. But people who want to have a reliable pickup can live without 920 lb. ft. of torque. The power wars have made everything uber-expensive and unreliable…..cars included. Seriously, does anyone really use a sub 6 second to 60 pickup for sub 6 second acceleration? Hell, I’m always having to move to the inside lane so the clovers driving them can slowly get to speed even though a little push with their bashful tootsies would have them at 80 with no sweat……and we could just all go on and not play the inside/outside lane game…..but noooooo

      Eric G, every month is truck month sorta like black history month on pandora is into its second month….anything to make a sale.

    • I see these kids today; early 20’s and own nothing outright, but have $50K in student loans and a $50K loan on a pick-up. They’ll be paying that off for the next 20 years. Add a mortgage and various insurances, and the life of a plantation slave in the 1850’s starts to look attractive.

  2. Surely those electric Hondas will be flying off of the shelves! ROTFLMAO!

    Surely the industry, in close partnership with Onkle, is making vehicles that consumers want and can afford….

    Gee, I wonder what the problem is????

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