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post #1 of 1 (permalink) Old 05-14-03, 08:28 AM Thread Starter
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Vehicle backlog hits new highs

Overproduction could bring buyer incentives

May 14, 2003

U.S. automakers are sitting on an overflow of unsold cars and trucks that is the largest backlog in U.S. auto history.

The stockpiles, backing up on auto-dealer lots, at assembly plants and wherever else automakers can put them, could help consumers as automakers use pricier incentives to spur demand. Otherwise, a larger production cut at assembly plants could be in the offing to trim supply.

About 3.93 million unsold vehicles are sitting on dealer lots, in transit from the plants where they were made or at hushed-up overflow sites like the Michigan State Fairgrounds. All told, about 630,000 more unsold cars and trucks are sitting around than a year ago. Since March, inventories have been at all-time highs.

There are several reasons for the jump. One is poorer-than-expected sales this year. Another is that Ford Motor Co. is building extra F150 pickups because its Norfolk, Va., and Kansas City, Mo., plants will be down for several weeks through July while launching the new F-series.

A third reason, but one the automakers won't concede: the UAW negotiations this summer. A backlog of unsold cars and trucks gives the automakers a buffer in case there's a labor strike, while also acting as a subtle, unspoken bargaining chip.

General Motors Corp., Toyota and others are trying to lure buyers with special offers, but should May and the rest of the vaunted spring selling season fizzle, heavier-than-expected production cuts could be coming. Already, a 10-percent production cut is expected for the April-to-June quarter.

Any cut would directly hit -- and hurt -- the bottom line for automakers and their suppliers. It can also mean less overtime and some downtime for hourly plant workers. As an auto-investment report from Merrill Lynch noted Tuesday, "April's excess inventories are just another sign of the industry's poor health."

"Until we get a real decent economic recovery, I think sporadic production cuts will have to happen," said Michael Wall, auto production and forecast analyst at CSM Worldwide, a Farmington Hills auto-analysis firm. "There's a chance a strong May could burn off that inventory, which is as high as I've ever seen. There are just a lot of vehicles out there backed up on dealer lots."

Among the vehicles at sky-high levels: the Buick Regal and the Ford Excursion and Nissan Pathfinder SUVs. Enough are sitting around unsold to fill orders for 100 days or more. The preferred range is 60 to 75.

Automakers admit their inventory is high, even for the spring, when they usually load up to prepare for strong sales months like May and June.

Merrill Lynch and Ward's Communication project the industry is carrying about 14 percent more unsold cars and trucks than usual. Ford and GM have the highest rates, but even Japanese automakers like Toyota, who keep their inventories low, are at higher ranges than usual.

Ford has an 84-day supply of unsold vehicles, while GM is next at 82 days. DaimlerChrysler Corp. is in the normal range with 71 days, though its truck supply is high at 79 days.

"It's high but it's not unmanageable. We'd like to have about 1.2 million, but we've got about 1.25 million, so it's something we have to manage," said Paul Ballew, GM executive director of market and industry analysis. GM has already said its second-quarter production will be about 10 percent lower than a year ago, which translates into GM making about 154,000 fewer vehicles in the April-June period.

"It's safe to say none of us, except maybe Honda, would seek to add inventory," said Ballew.

Part of the problem is that automakers project production months ahead of time. The last few years they guessed low and predicted U.S. sales in the low 16 million range -- but sales came in at or above 17 million. This year, they estimated high.

"We all stuck a stake in the ground late last year, and sales have then come in less than a lot of us expected," said George Pipas, Ford sales analysis manager. Ford is cutting its second-quarter production by 16 percent.

"We could solve our inventory problems overnight by closing our 20-plus assembly plants tomorrow, but that's not smart business. It's much better to reduce inventory gradually, and that's what we will do in the second quarter," he said.

None of Detroit's three automakers will acknowledge that the coming UAW talks, which kick off July 16-18, have influenced the buildup of inventory.

"I don't think there's any sinister plot by any of us to prepare for UAW talks," said Gary Dilts, Chrysler senior vice president for sales and marketing. "I think some of our colleagues just pushed hard at the end of March to optimize their first quarter."

Wall Street analysts think it's only natural for automakers to stock up on inventory, just in case.

"I think they absolutely are building up inventory for that reason. Not a lot, but a modest buffer," said Scott Hill, auto analyst for Sanford Bernstein in New York. "GM and Ford also have some launches to account for, but I think they like to have some inventory so the union knows they've got that bargaining chip in case there's the threat of a strike."

My first car was a 67 Mustang Coupe, 2nd one was a 67 Cougar XR-7, 3rd one was a 66 Mustang Coupe. Why did I get rid of these cars for ? I know why, because I'm stupid, stupid, stupid.

My next Ford.....
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