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Consumer Shift to Quality Outpaces Big Three Price and Production Cuts; Big 3
Inventories Get Big, But How Big? Three for One, Anyone?
Auto on Info October 2006
U.S. Consumer Shift to Quality Outpaces Big Three Price and Production Cuts; Big 3 Inventories Get Big, But How Big? Three for One, Anyone?
By James B. Bleeker
Of late, the U.S. Consumer shift to quality and out of Big Three products has accelerated, as the following chart helps depict.
And in a recent survey by J.D. Power & Associates, 61% of the consumers queried indicated that reliability and durability will be the primary factors in their selection of a new vehicle. See "AFP Reports J.D. Powers Says 61% of U.S. Car Buyers Want Reliability and Durability: More Disastrous News for GM?" Auto on Info, October 2006.
This move toward quality has left General Motors Corporation, Ford Motor Company, and the Chrysler Group of DaimlerChrysler AG with large inventories. However, how large is a matter of debate. Here are three sets of numbers.
Autodata's and AutoNation's Number of Selling Days of Inventory for Chrysler, Ford, General Motors, and Toyota as of the End of September 2006 and Edmunds' Average Number of Days That Cars Sold in September 2006 Had Sat on Dealership Lots Manufacturer Autodata Corporation's Numbers Edmunds.com's Numbers AutoNation, Inc.'s Numbers Chrysler Group 82 101 128 General Motors Corporation 76 88 94 Ford Motor Company 75 84 105 Toyota Motor Corporation 29 26 34 Autodata Corporation says its numbers are based on data provided by the manufacturer and may not include vehicles stashed on company lots. (Ford says that the numbers it provides include stashed vehicles; Chrysler says that its numbers omitted 50,000 stashed vehicles.) They also use fleet sales to compute the number of selling days of inventory. The Wall Street Journal quotes the president of Autodata as saying that the current method of calculation "doesn't truly reflect what supply is."
AutoNation, Inc., the nation's largest dealership network, estimates its numbers from experience.
The following charts help depict the respective inventory measures.
The Big Three, for whatever reason, try to have their dealerships hold 60 days of inventory; Toyota tries to have 30 days of inventory available to its dealerships.
Until recently, the U.S. consumer turn toward quality and resulting Big Three inventory glut had presented little concern to the more solvent Big Three dealerships. However, now that interest rates have risen, big inventories are a burden. AutoNation states that it will accept 30% fewer vehicles from the Big Three in the 4th quarter of 2006.
For a historical comparison, this is how inventories stood at the end of October 2004, per the Financial Times.
See "December Big Three Fire Sale Viewed as Likely," Auto on Info, November 2004.
Such excess inventories prompted a fire sale in late 2004 and early 2005. During this or other fire sale of recent vintage, some Big Three dealerships offered a 2-for-1 sale (the second vehicle was a smaller vehicle). With some luck, the consumer disposed to pay money for a Big Three vehicle might, if enough other similarly disposed consumers hold off on purchases, get even a sweeter deal, say 3 for 1.
Sources: "Car Dealer Stocks May Signal Pain for the Big Three," Neal E. Boudette, The Wall Street Journal, October 25, 2006, pp. A2, A12, "AutoNation to Cut Detroit Orders," Neal E. Boudette, The Wall Street Journal, October 27, 2006, p. A3,
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