Big 2.5 Inventory Glut
10-27-2006, 10:17 AM
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Big 2.5 Inventory Glut
Largest dealer network in nation sheds light on true inventory glut faced by most retail outlets for Big 2.5 cars.
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Originally Posted by Detroit Free Press
Unsold cars rile mega-dealer
The nation's largest dealer of new cars and trucks said Thursday it is struggling to sell many more domestic vehicles than industry reports about swelling inventories would suggest -- and the problem must be dealt with soon.
"The challenge that we have is even greater than people are talking about," Mike Jackson, chief executive officer of Florida-based AutoNation Inc., told the Free Press in an interview. "It's weighing on every retailer."
AutoNation is a crucial cog in the U.S. auto industry, with 80 General Motors Corp., 48 Ford Motor Co. and 58 Chrysler Group dealerships nationwide, in addition to 147 other auto franchises. Jackson's remarks came after AutoNation reported that its profits sank 37% in the past three months, to $81.8 million -- giving a glimpse into how Detroit automakers' falling sales are affecting dealers.
Jackson said GM, Ford and Chrysler need an aggressive combination of incentives and production cuts soon to deal with the inventory glut. Otherwise, he said he feared dealerships across the country would be selling 2006 vehicles well into 2007.
All three automakers noted that they already are taking steps to cut production.
Ford said it would cut its production of new cars and trucks during the last three months of the year by 168,000 vehicles -- its deepest production cut in more than two decades. GM is cutting 150,000 from its production. Chrysler, meanwhile, has said it would build about 135,000 fewer vehicles during the second half of this year.
Paul Ballew, executive director of market and industry analysis at GM, and George Pipas, Ford's top sales analyst, emphasized that AutoNation orders its vehicles, so it has some control over its inventory levels.
But Jackson insisted the automakers are not being aggressive enough in managing their supply of vehicles.
Dealers take out hefty loans to pay for the big inventories they keep on their lots, an expense that can become painful when inventories swell or interest rates rise. The Federal Reserve raised interest rates 17 straight times before August to keep inflation in check. That means the candle has been burning at both ends for domestic auto dealers.
How inventory is measured
Jackson expressed concern the automakers are not taking the problem seriously enough because they are relying on an outdated industry measurement called "days supply."
That is the number of vehicles in inventory divided by the selling rate of vehicles in the prior month. Historically, a 60-day supply of vehicles is considered adequate to meet consumer demand. Anything more than that has been viewed as excess inventory, leading to discounts or production cuts.
"They're sitting there saying, 'Well, we have 75 days. That's not too far from 60. What's the problem?' " Jackson said.
"I look at my storage lots, and there are vehicles as far as the eye can see. There's no way that's 75 days. And as you dig into it, you see there's massive distortion."
The problem, according to Jackson, is that automakers don't separate retail sales to consumers and fleet sales to rental car companies, governments and businesses. So fleet numbers distort how many days of supply of inventory are really crowding dealership lots across the country.
Ron Pinelli, president of Autodata Corp., an independent auto research firm in Woodcliff Lake, N.J., said firms such as his rely on data automakers provide publicly, and that the way days of supply is calculated hasn't changed in decades. But he agreed Jackson has a valid concern about the way fleet sales distort the picture.
Chrysler spokesman Kevin McCormick said the company was comfortable with the current method of reporting and calculating supply. "It reflects sales to all of our customers," he said. "It's a recognized industry way of reporting."
But Jackson gave his own calculation as to how many days of supply Detroit's automakers are carrying at retail, to show that the automakers have many more months' worth of vehicles than needed.
"Nationally, GM retail inventory is 94 days, not 76," he said. "Nationally, Ford retail inventory is 105 days, not 75 days. And finally, national Chrysler retail inventory is 126 days, not 82 days."
More than anything else, Jackson's assertion may show that the old automotive standard of "60 days supply" may be going out the window.
Ford's Pipas said the automaker doesn't use the days of supply figure for any operational purpose inside the company. And Ballew said GM has found that 75-80 days of supply works out better, considering 200,000 or so vehicles are in transit at any given time.
"According to Mike's logic, we should be at 800,000 units in total inventory," Ballew said. "We were there last September. ... Dealers were screaming at us that they didn't have enough inventory, screaming at us. E-mails. Phone calls. ... So, the proof is in the pudding."
The nation's largest dealer of new cars and trucks said Thursday it is struggling to sell many more domestic vehicles than industry reports about swelling inventories would suggest -- and the problem must be dealt with soon.
"The challenge that we have is even greater than people are talking about," Mike Jackson, chief executive officer of Florida-based AutoNation Inc., told the Free Press in an interview. "It's weighing on every retailer."
AutoNation is a crucial cog in the U.S. auto industry, with 80 General Motors Corp., 48 Ford Motor Co. and 58 Chrysler Group dealerships nationwide, in addition to 147 other auto franchises. Jackson's remarks came after AutoNation reported that its profits sank 37% in the past three months, to $81.8 million -- giving a glimpse into how Detroit automakers' falling sales are affecting dealers.
Jackson said GM, Ford and Chrysler need an aggressive combination of incentives and production cuts soon to deal with the inventory glut. Otherwise, he said he feared dealerships across the country would be selling 2006 vehicles well into 2007.
All three automakers noted that they already are taking steps to cut production.
Ford said it would cut its production of new cars and trucks during the last three months of the year by 168,000 vehicles -- its deepest production cut in more than two decades. GM is cutting 150,000 from its production. Chrysler, meanwhile, has said it would build about 135,000 fewer vehicles during the second half of this year.
Paul Ballew, executive director of market and industry analysis at GM, and George Pipas, Ford's top sales analyst, emphasized that AutoNation orders its vehicles, so it has some control over its inventory levels.
But Jackson insisted the automakers are not being aggressive enough in managing their supply of vehicles.
Dealers take out hefty loans to pay for the big inventories they keep on their lots, an expense that can become painful when inventories swell or interest rates rise. The Federal Reserve raised interest rates 17 straight times before August to keep inflation in check. That means the candle has been burning at both ends for domestic auto dealers.
How inventory is measured
Jackson expressed concern the automakers are not taking the problem seriously enough because they are relying on an outdated industry measurement called "days supply."
That is the number of vehicles in inventory divided by the selling rate of vehicles in the prior month. Historically, a 60-day supply of vehicles is considered adequate to meet consumer demand. Anything more than that has been viewed as excess inventory, leading to discounts or production cuts.
"They're sitting there saying, 'Well, we have 75 days. That's not too far from 60. What's the problem?' " Jackson said.
"I look at my storage lots, and there are vehicles as far as the eye can see. There's no way that's 75 days. And as you dig into it, you see there's massive distortion."
The problem, according to Jackson, is that automakers don't separate retail sales to consumers and fleet sales to rental car companies, governments and businesses. So fleet numbers distort how many days of supply of inventory are really crowding dealership lots across the country.
Ron Pinelli, president of Autodata Corp., an independent auto research firm in Woodcliff Lake, N.J., said firms such as his rely on data automakers provide publicly, and that the way days of supply is calculated hasn't changed in decades. But he agreed Jackson has a valid concern about the way fleet sales distort the picture.
Chrysler spokesman Kevin McCormick said the company was comfortable with the current method of reporting and calculating supply. "It reflects sales to all of our customers," he said. "It's a recognized industry way of reporting."
But Jackson gave his own calculation as to how many days of supply Detroit's automakers are carrying at retail, to show that the automakers have many more months' worth of vehicles than needed.
"Nationally, GM retail inventory is 94 days, not 76," he said. "Nationally, Ford retail inventory is 105 days, not 75 days. And finally, national Chrysler retail inventory is 126 days, not 82 days."
More than anything else, Jackson's assertion may show that the old automotive standard of "60 days supply" may be going out the window.
Ford's Pipas said the automaker doesn't use the days of supply figure for any operational purpose inside the company. And Ballew said GM has found that 75-80 days of supply works out better, considering 200,000 or so vehicles are in transit at any given time.
"According to Mike's logic, we should be at 800,000 units in total inventory," Ballew said. "We were there last September. ... Dealers were screaming at us that they didn't have enough inventory, screaming at us. E-mails. Phone calls. ... So, the proof is in the pudding."
10-27-2006, 10:18 AM
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AutoNation Drops Big 2.5 Orders by 30% to Stave Off Retail Inventory Crisis
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Originally Posted by Detroit Free Press
The nation's largest seller of new cars and tucks, AutoNation, Inc., on Friday said it would cut orders for Detroit automakers by 30% during the last three months of the year until it can sell what it called excessively high levels of inventory.
AutoNation spokesman Marc Cannon said the company would continue ordering the same number of foreign-branded vehicles as in the past.
The news comes a day after Mike Jackson, CEO of AutoNation, slammed General Motors Corp., Ford Motor Co. and the Chrysler Group for their high levels of stock nationwide, a result of wanting sales. Through September of this year, sales are down 11.3% for GM, 8.6% for Ford and 7.3% for Chrysler.
Jackson said the nation's auto dealers are struggling to sell domestic vehicles, and the situation is much worse than industry reports about swelling inventories would suggest.
He said Detroit's automakers need an aggressive combination of incentives and production cuts soon to deal with the inventory glut. Otherwise, he feared, dealerships across the country will still be selling 2006 model-year vehicles well into 2007.
AutoNation spokesman Marc Cannon said the company would continue ordering the same number of foreign-branded vehicles as in the past.
The news comes a day after Mike Jackson, CEO of AutoNation, slammed General Motors Corp., Ford Motor Co. and the Chrysler Group for their high levels of stock nationwide, a result of wanting sales. Through September of this year, sales are down 11.3% for GM, 8.6% for Ford and 7.3% for Chrysler.
Jackson said the nation's auto dealers are struggling to sell domestic vehicles, and the situation is much worse than industry reports about swelling inventories would suggest.
He said Detroit's automakers need an aggressive combination of incentives and production cuts soon to deal with the inventory glut. Otherwise, he feared, dealerships across the country will still be selling 2006 model-year vehicles well into 2007.
10-27-2006, 11:51 AM
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How many domestic cars do they expect to sell? I see brand new Fusions, 300Cs, Cobalts, etc... all the time, do they really expect 85% marketshare in order to make a profit? 
11-01-2006, 05:33 AM
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Car sales slowdown hits Ford, Chrysler
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Originally Posted by Detroit Free Press
Analysts: Market share lost to Toyota
November 1, 2006
BY SARAH A. WEBSTER
FREE PRESS BUSINESS WRITER
Sales of new vehicles from dealer showrooms have been worse for Ford Motor Co. and DaimlerChrysler AG than the companies' already-weak figures from July to September suggest -- largely because sales to rental car companies, businesses and governments camouflage how slowly their vehicles really are selling to consumers.
The soft sales show up in quarterly estimates of U.S. retail-only market share prepared for the Free Press by the Power Information Network, a subsidiary of consumer research firm J.D. Power and Associates.
Toyota Motor Corp. was strongly in second place at 17.8% of retail share, 4.2 percentage points behind General Motors Corp.'s steady 22%, but easily ahead of Ford's 16.1%. The retail numbers -- those vehicles sold to consumers -- are in contrast to total monthly sales reported by automakers, which include fleet sales. Those numbers have shown Ford holding onto second place in every month except July.
The Power estimates, based on data collected from more than 7,000 dealership franchises, show Ford and DaimlerChrysler losing retail market share between 2005 and 2006 to Toyota and, to a lesser extent, Honda Motor Co.
"It shows the true demand for products," said Tom Libby, director of industry analysis for PIN. "It's a completely different marketplace than it was even 10 years ago." GM remained steady in the competitive marketplace. The world's largest automaker appealed to buyers with a refreshed lineup and a strategy of cutting sticker prices and easing off incentives, such as cash-back rebates and no-interest financing.
Still, the data show that foreign automakers have nearly won the heart of the nation, with 49.6% of the retail market share -- a more serious encroachment than figures -- including both retail and fleet -- suggest. Those overall numbers put GM, Ford and DaimlerChrysler with a more comfortable 56.8% of the U.S. market. Free Press polling has shown Michiganders loyal to domestic brands at a rate over 80%.
The retail market share report -- the first of its kind -- helps explain losses posted during the quarter by Ford and Chrysler. It also corroborates the suffering of dealers, many of whom are complaining about steeper-than-reported sales declines and higher inventory levels.Today, all the major automakers will report their monthly sales results for October -- but those figures won't tell the full story of how vehicles are selling. The companies will report their retail sales and fleet sales combined.
Retail sales are a more trusted measure of demand for a product and the health of an automaker, industry experts say, because these are direct sales to consumers from dealerships and tend to be more profitable than fleet sales.
Fleet sales can obscure the picture because automakers can push more cars and trucks into the fleet market when their retail sales are weak. These bulk sales are usually heavily discounted, too. Sometimes, experts say, they aren't profitable at all.
Overall, Bob Schnorbus, chief economist for J.D. Power, estimates that between 18% and 25% of industry sales are to fleet customers.
Schnorbus said U.S. retail sales are down 3.5% for the year, or by about 500,000 sales. While higher gas prices, a declining housing market and a slowing economy played a role, he primarily blamed a lack of incentives for the decline. Automakers try to minimize profit-cutting incentives, but dealers, particularly for Chrysler, have been calling for such steps to help move vehicles off their lots.
During the third quarter, retail sales for Chrysler were off 2% from 2005.
Ford and Chrysler did the poorest job of holding onto the retail customers who stayed in the market, and each automaker has been handling that setback with a different strategy.
Ford's retail share fell to 16.1% in the third quarter of this year, down 2.8 percentage points from 18.9% a year ago.
The dismal retail performance contributed to Ford's 10% decline in sales revenue, to $36.7 billion, as well as the company's $5.8-billion loss in the quarter. Ford's response: Build fewer cars and trucks. Ford announced a historic 21% cut in production for the last three months of the year, which will mean 168,000 fewer new cars and trucks for dealership lots. Another 8-12% production cut also will follow in the first half of 2007.
Ford's top sales analyst, George Pipas, said the company was "very concerned" about its retail share, although he stressed that Ford had a tough comparison over a year ago, when retail sales were stoked by employee pricing discounts. He also noted that all three Detroit automakers have posted year-to-date retail share declines.
"This is not just a Ford problem," he added. "It's an indication of the underlying demand for your products relative to everybody else. Every Big Three company has to be concerned about the continuing decline in retail demand. ... It relates to the size and profitability of our companies."
At DaimlerChrysler, retail market share fell to 12.3% during the July-September period, down from 14.3% a year ago.
While DaimlerChrysler earned an operating profit of $1.13 billion in the quarter, thanks mostly to the Mercedes division, the Auburn Hills-based Chrysler Group booked a $1.5-billion operating loss, largely due to a 26% decline in sales revenue. Chrysler's sales fell to $12.1 billion from $16.4 billion.
The sales slowdown at the Chrysler Group has vehicles stacking up at dealership lots across the country, with tens of thousands more crowding storage lots around Detroit. It took Chrysler 110 days, on average, to sell a vehicle during most of October, PIN reports. Chrysler has also said it will cut back production in the fourth quarter, by about 45,000 vehicles.
Chrysler spokesman Kevin McCormick said the company had no comment on the retail share estimates.
Turning to Toyota
At GM, the retail numbers provided good news. The company's overall market share decline of 3.5% belies the company's flat performance at retail.
GM's chief financial officer Fritz Henderson recently boasted about the performance during GM's third-quarter earnings announcement. The company posted a profit of $529 million, excluding special items, as sales grew 3.5% to $48.8 billion.
"This was our best retail performance of the year," he said. "So said another way, our ... reduction year-to-year in market share was driven by reduced rental car sales."
More than anything, though, the retail share numbers provided to the Free Press show the strength of Toyota, which is more popular than ever with consumers.
Toyota's retail market share during the third quarter grew to 17.8%, up 3.7 percentage points from a year ago. The growth is identical to the company's overall market share gains -- largely because Toyota doesn't depend much on fleet sales.
Ernest Bastien, vice president of Toyota's vehicle operations group, said the company is proud of its performance.
"Over the 50 years we've been in business here in the United States, consumers understand that our brand is trusted and represents a great value," he said. "We've generated a lot of loyalty."
November 1, 2006
BY SARAH A. WEBSTER
FREE PRESS BUSINESS WRITER
Sales of new vehicles from dealer showrooms have been worse for Ford Motor Co. and DaimlerChrysler AG than the companies' already-weak figures from July to September suggest -- largely because sales to rental car companies, businesses and governments camouflage how slowly their vehicles really are selling to consumers.
The soft sales show up in quarterly estimates of U.S. retail-only market share prepared for the Free Press by the Power Information Network, a subsidiary of consumer research firm J.D. Power and Associates.
Toyota Motor Corp. was strongly in second place at 17.8% of retail share, 4.2 percentage points behind General Motors Corp.'s steady 22%, but easily ahead of Ford's 16.1%. The retail numbers -- those vehicles sold to consumers -- are in contrast to total monthly sales reported by automakers, which include fleet sales. Those numbers have shown Ford holding onto second place in every month except July.
The Power estimates, based on data collected from more than 7,000 dealership franchises, show Ford and DaimlerChrysler losing retail market share between 2005 and 2006 to Toyota and, to a lesser extent, Honda Motor Co.
"It shows the true demand for products," said Tom Libby, director of industry analysis for PIN. "It's a completely different marketplace than it was even 10 years ago." GM remained steady in the competitive marketplace. The world's largest automaker appealed to buyers with a refreshed lineup and a strategy of cutting sticker prices and easing off incentives, such as cash-back rebates and no-interest financing.
Still, the data show that foreign automakers have nearly won the heart of the nation, with 49.6% of the retail market share -- a more serious encroachment than figures -- including both retail and fleet -- suggest. Those overall numbers put GM, Ford and DaimlerChrysler with a more comfortable 56.8% of the U.S. market. Free Press polling has shown Michiganders loyal to domestic brands at a rate over 80%.
The retail market share report -- the first of its kind -- helps explain losses posted during the quarter by Ford and Chrysler. It also corroborates the suffering of dealers, many of whom are complaining about steeper-than-reported sales declines and higher inventory levels.Today, all the major automakers will report their monthly sales results for October -- but those figures won't tell the full story of how vehicles are selling. The companies will report their retail sales and fleet sales combined.
Retail sales are a more trusted measure of demand for a product and the health of an automaker, industry experts say, because these are direct sales to consumers from dealerships and tend to be more profitable than fleet sales.
Fleet sales can obscure the picture because automakers can push more cars and trucks into the fleet market when their retail sales are weak. These bulk sales are usually heavily discounted, too. Sometimes, experts say, they aren't profitable at all.
Overall, Bob Schnorbus, chief economist for J.D. Power, estimates that between 18% and 25% of industry sales are to fleet customers.
Schnorbus said U.S. retail sales are down 3.5% for the year, or by about 500,000 sales. While higher gas prices, a declining housing market and a slowing economy played a role, he primarily blamed a lack of incentives for the decline. Automakers try to minimize profit-cutting incentives, but dealers, particularly for Chrysler, have been calling for such steps to help move vehicles off their lots.
During the third quarter, retail sales for Chrysler were off 2% from 2005.
Ford and Chrysler did the poorest job of holding onto the retail customers who stayed in the market, and each automaker has been handling that setback with a different strategy.
Ford's retail share fell to 16.1% in the third quarter of this year, down 2.8 percentage points from 18.9% a year ago.
The dismal retail performance contributed to Ford's 10% decline in sales revenue, to $36.7 billion, as well as the company's $5.8-billion loss in the quarter. Ford's response: Build fewer cars and trucks. Ford announced a historic 21% cut in production for the last three months of the year, which will mean 168,000 fewer new cars and trucks for dealership lots. Another 8-12% production cut also will follow in the first half of 2007.
Ford's top sales analyst, George Pipas, said the company was "very concerned" about its retail share, although he stressed that Ford had a tough comparison over a year ago, when retail sales were stoked by employee pricing discounts. He also noted that all three Detroit automakers have posted year-to-date retail share declines.
"This is not just a Ford problem," he added. "It's an indication of the underlying demand for your products relative to everybody else. Every Big Three company has to be concerned about the continuing decline in retail demand. ... It relates to the size and profitability of our companies."
At DaimlerChrysler, retail market share fell to 12.3% during the July-September period, down from 14.3% a year ago.
While DaimlerChrysler earned an operating profit of $1.13 billion in the quarter, thanks mostly to the Mercedes division, the Auburn Hills-based Chrysler Group booked a $1.5-billion operating loss, largely due to a 26% decline in sales revenue. Chrysler's sales fell to $12.1 billion from $16.4 billion.
The sales slowdown at the Chrysler Group has vehicles stacking up at dealership lots across the country, with tens of thousands more crowding storage lots around Detroit. It took Chrysler 110 days, on average, to sell a vehicle during most of October, PIN reports. Chrysler has also said it will cut back production in the fourth quarter, by about 45,000 vehicles.
Chrysler spokesman Kevin McCormick said the company had no comment on the retail share estimates.
Turning to Toyota
At GM, the retail numbers provided good news. The company's overall market share decline of 3.5% belies the company's flat performance at retail.
GM's chief financial officer Fritz Henderson recently boasted about the performance during GM's third-quarter earnings announcement. The company posted a profit of $529 million, excluding special items, as sales grew 3.5% to $48.8 billion.
"This was our best retail performance of the year," he said. "So said another way, our ... reduction year-to-year in market share was driven by reduced rental car sales."
More than anything, though, the retail share numbers provided to the Free Press show the strength of Toyota, which is more popular than ever with consumers.
Toyota's retail market share during the third quarter grew to 17.8%, up 3.7 percentage points from a year ago. The growth is identical to the company's overall market share gains -- largely because Toyota doesn't depend much on fleet sales.
Ernest Bastien, vice president of Toyota's vehicle operations group, said the company is proud of its performance.
"Over the 50 years we've been in business here in the United States, consumers understand that our brand is trusted and represents a great value," he said. "We've generated a lot of loyalty."