Detroit's Unsold Cars Pile Up
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By JEFF BENNETT And CHRISTINA ROGERS
http://online.wsj.com/article/SB10001424127887323401904578159601729569798.html?mod=googlenews_wsj
Detroit auto makers are piling up big stocks of passenger cars at dealers despite brisk new-vehicle sales in the U.S.—a problem that executives vowed to avoid since their painful downturn three years ago.
Detroit auto makers are piling up big stocks
of passenger cars at dealers despite brisk new-vehicle sales in the
U.S.-a problem that executives vowed to avoid since their painful
downturn three years ago. WSJ's Jeff Bennett reports. Photo: AP Images.
Bloomberg News
GM's stocks of unsold cars are rapidly climbing. Above, Chevrolet Cruze and Malibu cars at a dealer in Illinois.
"They [the Japanese auto makers] really had to get aggressive about getting their market share back and maybe that did catch some by surprise or even flat-footed," said Edmunds.com automotive analyst Michelle Krebs. Toyota and Honda "have a lot of zero-percent financing" rates.
"Look at the ads, you see a lot of zero, zero, zero," she said. Edmunds.com also estimates that 38% of Toyota-financed sales last month carried interest-free loan rates.
Toyota's average incentive per vehicle rose to $2,075 in November from $1,717 in January, according to automotive tracking firm TrueCar.com. Zero percent interest rates aren't counted in TrueCar's incentives tally.
Honda, meanwhile, has increased its average incentive to $2,428 from $1,978 in February despite releasing new versions of its top selling cars in the past year. The largest incentives offered in the U.S. last month were from Japan's Nissan Motor Co., 7201.TO +0.39% whose Altima has become a top selling sedan. Its average jumped to $4,273 a vehicle last month from $2,764 in January.
That is not to say the U.S. auto makers aren't also using incentives. Ford now offers as much as $2,895 off its 2013 Focus sedan, which had only two months' of inventory to start the month. Fiat SpA's F.MI +0.22% Chrysler has offered up to $5,000 off its Ram pickups, which had 3.5 months of inventory to start the month. GM has recently offered between $2,900 and $3,500 in average incentives for its vehicles, according to Truecar.com.
But Detroit auto makers didn't expect rivals recuperating from a tsunami and floods to go toe to toe. GM started December with 788,194 unsold cars and trucks, and warned it won't meet a target of finishing the month with a U.S. inventory of less than 670,000 new vehicles. GM executives said they were caught off guard by the heavy incentives offered by others and will idle two plants for an additional week in December. It may take more steps as needed.
GM also miscalculated demand for its pickup trucks. The industry norm for U.S. auto makers is between 60 days and 70 days of sales in inventory. GM had 138 days worth of Chevrolet Silverados at the start of this month. In passenger cars, its Chevrolet Cruze inventory jumped to 64,390 vehicles or 96 days. One of the two plants that GM will idle this month produces the Cruze.
"We thought the economy would have been further along at this point but as we look into December and 2013, we will get a tailwind from housing which benefits not only autos but the entire economy," said GM spokesman Jim Cain. "The one thing we won't do is commit the sins of the past and lose our discipline around rental cars and incentives. Our competitors may be doing it, but we have come too far to go backward and do something that may hurt our brands."
Ford, which finished November with 73 days of total inventory, insists the overall number "is right exactly where it needs to be," said U.S. sales analyst Erich Merkle. "We are very comfortable with our inventory levels for the month of November and as we approach historically the strongest selling month of the year."
In contrast, Toyota has kept its U.S. inventory at about two months of sales. For example, it finished November with 68,975 Camrys and 53,835 Corolla in the U.S., a 60 day supply of each. Its big-sedan, the Avalon, has 120 days of sales on dealer lots, or 6,266 vehicles.
Producing too many cars and trucks is a problem the U.S. auto makers have wrestled with since the late 1970s. To keep their factories humming, GM, Ford and Chrysler would build vehicles and stock them at pop-up parking lots created on vacant land throughout the Detroit area. When the stocks grew onerous, they would unleash heavy incentives that eroded profitability and brand image.
Today, all three face tough decisions on cutting production or profitability as inventories have soared. Ford, for instance, finished November with 18,336 unsold Fiestas, or 124 days worth of supply, compared with 96 days in October.
The Dart, Chrysler's most important new offering of the year and its first compact sedan since 2005, began December with a 173 day supply. Sales of the Dart slipped in November compared with the previous two months.
Reid Bigland, chief executive for the Dodge brand, said Dart sales will break through the 5,000-vehicle mark in December, typically a strong selling month for auto makers. There are no plans to offer incentives beyond the $750 in cash as part of its year-end sales promotions.
"To throw $1,000 or $2,000 on the Dart is always an option," Mr. Bigland said. "No question the car will respond from a sales perspective…We're just pretty content with where we're at right now."
Write to Jeff Bennett at jeff.bennett@dowjones.com and Christina Rogers at christina.rogers@wsj.com
A version of this article appeared December 4,
2012, on page B3 in the U.S. edition of The Wall Street Journal, with
the headline: Detroit's Unsold Cars Pile Up.
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