On May 1, North American car makers (or more accurately, their dealers) had 2.1 million units on hand. That sounds like a lot — and I would certainly hate to have to wash all those vehicles — but in the grand scheme of things, it is remarkably little (Carmakers turn into inventory control freaks, May 17, Automotive News).
Ever since the disruption of cash for clunkers last August, automakers have matched production closely to U.S. sales. It has paid off in leaner, more balanced inventories. 2.1 million units on hand May 1 equaled a 56-day supply, the lowest in 19 years of records for the month. The average has been a 69-day supply. For manufacturers and dealers, there were 562,900 fewer unsold units to finance than a year ago, even though April sales volume jumped 20 percent.
“Since the end of 2009, there is a real sense of discipline with the balance of supply and demand,” said Jeff Schuster, head of forecasting for J.D. Power and Associates. “The true test will be the continuation of this approach post-recovery.” Except for Toyota, all major players have reduced incentives this year, raising per-vehicle margins.
To further put those numbers in perspective, industry inventories were averaging 86 days in early 2009. Going back to the relative boom years from 2004 – 2007, industry inventory was around 4.3 million units which represented about 70 days of demand. Thus both the absolute and relative amount of inventory in the supply chain have fallen.
Much of the decrease is due to Chrysler and GM. The last year has seen both firms cut their inventory by 42%. Of course, some of the absolute decrease in inventory is due to them kicking dealers to the proverbial curb as they exited bankruptcy. On top of that, GM no longer has Hummers, Saturns, Pontiacs or Saabs on its books.
Still both firms have been fairly disciplined about trying to stick close to demand as sales have rebounded as opposed to stuffing dealers with inventory. One reason is that the UAW blinked and agreed to eliminate the Jobs Bank. For years, laid off Big 3 workers were paid for not working. They received over 90% of their regular wages to wait around for demand to pick back up. It’s good work if you can get it, but it provided horrible incentives for the Big 3. If you can’t shed costs by idling a plant or scaling back to one shift, why not keep it open for two shifts and hope to sell the cars? That was a large part of why the Big 3 always had such huge inventories. The Jobs Bank went away with Chrysler’s and GM’s bankruptcy and they are now able to make more sensible production and inventory decisions.
In a related vein, BMW is planning to push custom ordered cars in the US (BMW Tries to Convert ‘Impulsive’ Americans to Orders, May 14, Bloomberg). (more…)
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