U.S. Dealer Inventory At Highest Level Since 2005, Production & Incentives Discipline Challenged

While U.S. auto sales in November were at the highest level they've been at since before the recession started, automakers entered the month with the most cars and light trucks they've had on dealer lots in eight years. Increased inventories are testing car makers' commitments to pricing discipline and matching production to demand. Inventory went up to almost 3.4 million vehicles going into November, a 76 day supply, the highest November figure since 2005.

Automakers increased production to meet demand but deliveries missed estimates in October and were down year to year in September, increasing the number of unsold vehicles. Also, some dealers have been taking advantage of low interest rates to stock up on cars before the spring. If buyers don't absorb that extra inventory, other automakers may follow Ford's lead and trim production. Ford has recently announced a week's suspension of Fusion assembly at their Flat Rock plant, cut Focus and C-Max production and announced that builds in the first quarter of 2014 will be down 2% from the same period this year.

The monthly seasonally adjusted annualized industry sales rate was 15.8 million units in November and analysts expect it to grow next year but more slowly, to 16.1 million vehicles.

"As the market begins to slow down and begins to peak, it's going to get tougher for everybody," Joe Langley, an analyst with IHS Automotive, said, "Are manufacturers going to be responsible and curb production and keep inventory in check, or are some going to resort to old, bad habits and churn it out and then throw incentives on them? That's what's going to be interesting, to see how that plays out."

Also increasing pressure to raise incentives from foreign automakers are more competitive products from domestic companies. Toyota Camry supplies in October were about 25 days higher than historical averages and Honda Accord supplies were about 40 days higher than usual.

from The Truth About Cars http://www.thetruthaboutcars.com

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