Inventories of unsold cars and light trucks have swollen to their highest levels since the recession while sales growth in the U.S. market has slowed significantly in the past five months. That combination could mean larger discounts and incentives and lower profit margins in 2014. All three domestic automakers started February with more than a 100-day supply of unsold vehicles. Industry-wide automakers had 88 days' worth of vehicles at the start of February, the highest February inventories have been since 2009, when the industry was at its nadir.
"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."
As a portent of things to come, on Friday GM began a nearly month long Presidents Day promotion on Chevrolet, Buick and GMC vehicles, with some of GM's biggest incentive offers in months.
In January, sales declined 3 percent and the seasonally adjusted annualized selling rate fell to 15.2 million, the lowest since April. Much of that decline was attributed by automakers to the severe winter weather that blanketed much of the country. Analyst, though, say that there are other factors besides the weather.
Morgan Stanley analyst Adam Jonas said that after four years of growth, the sales pace "appears to have stalled."
"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."
Car companies are minimizing the impact of rising inventories and so far most are not giving in to increasing incentives. TrueCar said incentives declined 3 percent in January year over year, though Ford and Honda both posted double-digit increases in incentives. Incentives dropped 10 percent month to month, after year-end sales promotions in December boosted business as dealers tried to meet 2013 targets.
GM's inventory grew by about 32,000 units in January in a month that saw sales fall 12% from the previous year. That resulted in a 114-day supply of vehicles as of Feb. 1, the highest among major automakers, up significantly 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 last week.
Ford Motor's Feb. 1 supply was up to 107 days, after starting the year at 73 days, and Chrysler Group had a 105-day supply, up from 79 days. Chrysler's inventory situation was helped by strong sales of the new Jeep Cherokee.
Brian Johnson, an analyst with Barclays Capital, said even when adjusting for the weather GM and Ford each still would have had more than 100 days' worth of vehicles, the most since 2009.
Earl Hesterberg, CEO of Group 1 Automotive, a dealer group, said his biggest concern is the impact high inventories will have on profit margins. Group 1 dealerships had a 72-day supply of new vehicles.
"There's no way you can have dealerships with that level of inventory without it impacting margins," Hesterberg said on a conference call.
Asbury Automotive Group COO Michael Kearney said he's comfortable with current overall inventories, but he also said that he's paying special attention to specific brands and their production levels without identifying any of them..
"If production starts to quickly outpace consumer demand for a product, you first would expect the manufacturer to put on some sort of incentive," Kearney said. "If that did not correct the problem, what you would logically draw from that would have to be a slowdown in production of that product. There's only so much physical space to store product and inventory."
The car companies and their dealers are looking forward to the end of winter and the start of warmer weather.
"Ultimately, when the weather breaks, we figure we're going to get very busy very quickly," said Don Griffin, general manager of Kayser Ford-Lincoln in Madison, Wis.. Madison recorded subzero temperatures on 14 days in January.
"Out of the 27 years that I've been doing this, I don't ever recall a winter quite like this," he said. "We can deal with the snow, and I think the consumer can deal with the snow, but the bitter, frigid cold has definitely had an effect. I told our staff if somebody shows up out on the lot in this weather, don't let them leave because they obviously have a need."
Toyota also blamed the weather for a 7% year to year decline in sales last month. "Our sales were actually up in all Western and Southern areas," Bill Fay, Toyota Division's general manager, said last week. "But that couldn't offset the losses we had in Middle America and the East Coast."
Nissan and Subaru were exceptions in January, with 12% and 19% year to year increases respectively.
from The Truth About Cars http://ift.tt/Jh8LjA
Put the internet to work for you.
No comments:
Post a Comment