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Big pickups clog U.S. dealer lots, concern analysts

DETROIT (Reuters) - Big pickup trucks are clogging many U.S. dealer lots, causing headaches for General Motors and other automakers, and raising concerns about price wars and lower profits later in the year.

GM has garnered much of the attention for its inventory of Chevrolet Silverado and GMC Sierra full-size trucks that stood at 122 days at the end of June, according to the Automotive News Data Center. That’s about 50 percent higher than the 80 days typically preferred and above the industry’s still-hefty average of 99 days, according to Ward’s Auto.

Chrysler Group LLC and Toyota Motor Corp. also lag at 93 days supply, while Ford Motor Co stood at 79.

“Clearly most manufacturers overestimated the kind of demand we were going to get for full-size trucks in the first half,” said analyst Jesse Toprak with online car-buying research website TrueCar.

“Do we have high inventory levels for full-size trucks? Yes. Is it a major issue? It’s not at crisis level, but it’s above healthy levels,” he said.

Pickup trucks have been a bright spot this year for Detroit automakers. Silverado and Ford F Series sales are up 10 percent, while Ram demand has surged 32 percent and Sierra sales have climbed 22 percent. Overall U.S. car and light truck sales are up 13 percent through June.

But what makes analysts and industry officials most nervous is whether the U.S. economy will depress the usual surge in demand in the second-half. If buyers don’t show, heftier incentives could result – especially from GM – and drag down profits.

“That is what we would like to know,” Richard Bame, Toyota’s national marketing manager for trucks, said of fears of higher incentives later in the year.

“We thought Ford was showing some pretty good restraint,” he added. “But we haven’t seen so much of that from General Motors and Chrysler.”

Sales of the Toyota Tundra are down 12 percent this year, in part because of inventory shortages following the March earthquake in Japan.

Buyer incentives for full-sized pickup trucks are $5,350 per sale for the Sierra, $4,880 for the Silverado, $4,450 for Chrysler’s Dodge Ram, $3,750 for Ford’s F-Series and $2,654 for the Toyota Tundra, TrueCar said.

GM raises the most concern with the high number of trucks on its dealer lots.

“If demand doesn’t come back in the second half, that means fire sale come December,” Toprak said of the risk to GM. On the flip side, if demand does rebound, the company will be sitting pretty with lots of trucks to offer, he added.

Buckingham Research analyst Joseph Amaturo already believes GM will boost its deals, increasing incentive spending by September by about $700 per vehicle. That would match levels seen in January and February, when the No. 1 U.S. automaker was heavily criticized for being too generous with deals.

Higher incentives by GM would force its rivals to respond to keep up, hurting everyone’s profits, analysts said.

GM officials have tried to assure Wall Street that its inventories are not out of control, and will fall to between 100 and 110 days by year end.

Don Johnson, GM’s U.S. sales chief, said on Friday that a production stoppage for two weeks in July at the company’s pickup truck plants and a pickup in second-half sales will help lower the inventory level. He also said GM will not get aggressive with incentives.

Johnson said GM sells a larger share of its pickup trucks to retail customers than Ford, requiring a broader range of trucks on hand to satisfy buyers’ various needs in a segment where prices can range from the low-$20,000s to the high $40,000s.

The different cab sizes and bed lengths, and engine types in pickups demand a higher inventory to ensure a potential customer does not walk away, industry executives said.

Officials at Chrysler, which is managed by Italy’s Fiat , and Toyota said they were satisfied with their inventory levels as well. “We’re not in a bad place,” Toyota’s Bame said.

However, analysts are concerned because the costs associated with building the big pickups are higher than cars and it is more expensive for dealers to maintain those inventories on their lots. Toprak is worried especially that GM will have to offer financial aid to dealers if the trucks sit too long.

While fuel-efficient cars are getting a lot of attention with the high gasoline prices, it is still big pickups that generate big profits. Toprak estimated automakers net $5,000 to $6,000 per truck.

Analysts fear a big hit to GM’s finances. Amaturo said on Thursday Buckingham Research expects GM’s third-quarter truck production to be 65,000 lower than the second quarter, “which would suggest a loss of $520 million in profits”, assuming $8,000 per vehicle profit margin.

In the end, analysts fear they have seen this story before. “The concern is that it looks more like the old GM again,” IHS

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Just as one commenter said, GM is still up to it’s usual business tactics of building things no one wants, and that’s because it’s management hasn’t really changed since the bailout. I just hope the gov’t learns a lesson from this and not bail them out again. Doubt it, but one can always hope.

A large portion of truck sales are made by construction workers. Those guys are not buying much of anything unless they are lucky enough to be working on some government project…

Not just for construction, but any work truck sales would be off because of the economy and fuel prices. This includes private use as well. An advantage that GM had over others in their big truck sales had always been availability of models. In these times, that’s a disadvantage. You just can’t win. I don’t blame GM anymore than any maker who tries to fill a need and falls victim to the times.

The US is just NOW slowly recovering from a recession…Construction is just now starting to see slight increases…If GM’s truck sales are off…it’s their own fault. I could understand the 1st or maybe the 2nd year of the recession…but that’s not the case. Maybe thought the economy would pick up faster then it has and didn’t want to get caught in a not-enough inventory.

Again I scoff at the business model of sending to the dealers “allocations” of various vehicles for their inventory…
…instead of allowing the dealers to place orders for the vehicles they know they’ll be able to sell.
----this crazy method has waaay too many CARS gathering dust on our lot, and not enough pickups.
Granted, we ‘dealer trade’ to get the trucks we need but that creates problems for the customer who may opt to just go elsewhere.
1- needing to wait for us to ‘order’ their truck.
2- not having inventory for the customer to hands-on shop.
3- a slightly higher price because the transfering dealer gets a profit too.

Analysts should analyze that that’s the root problem and get the big auto makers to stop stuffing them into lots who don’t even want them in the first place.

Supply and demand would play a more obvious role if the market could clearly show the demand at the ORDER stage instead of long after the production of un-wanted inventory.
ie; Let the dealers order what they want…cars in Philly…pickups in the four corners…and the factories would instantly see the production demand AND create a more suitable buying experience for all the customers.

How long before the dealerships are no longer available? Just have test drive centers for people to try out different cars, then they go online, fill out the color, options, and packages they want, fill out the loan application and wait for delivery.

Come visit our Ford “order processing center” ; )

( The trucks I liked best and kept the longest were special ordered. )

If you’re gonna buy new, and drop a ton of money on it, you might as well as get exactly what you want.

Dagosa: “I don’t blame GM anymore than any maker who tries to fill a need and falls victim to the times.”

You don’t? I do.

Companies like Ford and Wal-Mart have proven economic forecasting isn’t just for the government. By employing people who are good at economic forecasting, companies like Ford and Wal-Mart can plan ahead for declines in the economy.

I don’t know if GM doesn’t engage in contingency planning or if they just do it poorly, and I don’t really care. They need to get their act together. No company as large as GM should ever “fall victim to the times.” When they do, someone messed up.

"In the end, analysts fear they have seen this story before. “The concern is that it looks more like the old GM again,”

I think that says all that needs to be said. GM’s historical business model has been to run the factories making their highest “margin” products at their level of “optimum efficiency” and then unload excess via discounts and kickbacks. A true change in their business model would have made them market driven and we wouldn’t be seeing this. Withe the economy in a serious recession with no end in sight, gas prices high and rising, and the constuction industry and real estate industry being “flat” at best, there was every sign that demand for pickups would be weak at best.

GM hasn’t changed. The bailout did not have the intended effect. Rather, it had the effect that common sense suggested it would. It saved GM from the pain of having to implement real change.

I know there are those out there that will immediately take to the keyboar and debate this. But apparently there are analysts out there that agree with me.

Was watching this documentary about companies…and they show cased Wallmart. Their inventory warehouse system is extremely sophisticated. When a product enters their warehouse from one of their vendors…on average it’ll stay in the warehouse a total of 45 minutes. They have no stockpile of products.

When the supply gets upto 210 days, I will worry. I’m not helping either. If I buy a new one, all I have to trade in is another one. I’d trade in the Yaris but it gets 32 MPG the way we drive it. It’s the wife’s car so I better not get any funny ideas.

Good thing Dear Leader bailed GM out.

too big to fail = too big to exist

I am not sure if all this is due to recession. To me it always seemed that a certain percentage of the population bought big trucks without needing them, or only needing them once a year. That group now is buying more fuel efficient cars. So while they are having a big party selling those, the trucks are sitting there.

"too big to fail = too big to exist "


piter_devries, what Dear Leader are you referring to, North Korea’s president, or congressional Republicans who voted for the bailout?

Predicting the future is a crap shoot. Who’d a thunk?

Ooooh… I sound like Piter now!

JT, there are guys that make big bucks predicting markets. Then those predictions should, theoretically, be used to plan manufacturing schedules.

The market analysts should know all the demographics. What the population age distribution is, what the family data shows, what they tend to want, how much discretionary and disposable income is out there, etc. etc. etc. Regarding the heavy pickup market they should also be watching economic trends (home sales, housing permits, industrial vacancies and permits, and other various indicators. From these and other data they should be able to predict roughly what the demand will be for large pickups.

Either the market research guys are sleeping at the switch or the managers aren’t properly using the data. I tend to believe the latter. Historically they’ve always been able to produce whatever made their factories “efficient” and sell it off. Times have changed. Apparently they haven’t.

This is GM we’re talking about, so it’s probably both. “The heck with the future, just get me my bonus check next quarter or you’re fired.”