U.S. carmakers will boost incentives or cut production to reduce inventories

Article by Christian A., on December 19, 2011

The inventories of several automakers led by General Motors Co. and Chrysler Group LLC have increased to its highest within 31 months, prompting the need to either increase incentives or reduce production, according to an analysis from Bloomberg. Kevin Tynan, a Princeton, N.J.-based Bloomberg analyst, said that as of Nov. 30, GM, Chrysler and Ford Motor Co. each had an 80-day supply of cars and light trucks. He said that inventories become “manageable" when they’re from 55 days to 65 days. The supply is high amid efforts by the production of Toyota Motor Corp. and Honda Motor Co. to recover from the Japan earthquake and Thailand floods.

It’s possible that Toyota will use incentives to reclaim U.S. market share that has been under 14% in each month since the Japan disaster in March from 18% in December 2009. Tynan said that having this much inventory is a bad thing when there’s a price war. He explained that if he were GM, Ford or Chrysler, he would get the inventory down before the inventories of the Japanese automakers go back to a 60-day supply. Bloomberg estimates that U.S. auto sales would amount to 12.7 million this year, its best annual performance since 2008. In 2012, sales could go up to 13.5 million in 2012, climbing for a third straight year from 2009 when it suffered a 27-year low of 10.4 million cars and light trucks.

GM is on track to take back the No. 1 spot in global auto sales. It lost this title to Toyota in 2008. Through September of this year, the automaker sold 6.79 million units. This beat Toyota’s record of 1 million units. Meanwhile, Volkswagen AG rose to second place with 6.17 million vehicles sold in the first nine months, increasing much faster than was predicted. At the end of March, the U.S. inventory for Japanese automakers decreased to 47 days due to the impact of the flooding and the earthquake, halting car and truck assembly plants. Bloomberg said that the automakers' supply has not yet been able to exceed 50 days since. Bloomberg also said that the inventories for Hyundai Motor Co. and Kia Motors Corp. have gone below 40 days throughout this period. [source: Bloomberg]

Topics: united states

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