Growing inventories forces automakers to reduce production

5/27/2003

Bloated car and light truck inventories from lower-than-expected U.S. sales this year are forcing the world's largest automakers to cut production.

Both General Motors Corp. and Ford Motor Co. started May with enough vehicles for 83 days, more than a third higher than the traditional ideal range. Ford is cutting second-quarter production by 16 percent from a year ago and has temporarily idled some factories, GM is trimming output by 10 percent this quarter, and both plan to announce their third-quarter plans next month, officials said.

“When your sales don't line up to expectations, then over the next period ... you just adjust your production downward,” said George Pippas, Ford's U.S. sales analysis manager. “It's a manageable situation. It's not like we have to close 20 assembly plants next week, or the next week, or the week after that.”

Nationwide, there was a 73-day supply of cars and light trucks sitting on dealership lots, at factories, and in other holding areas at the beginning of this month. That's nearly 4 million vehicles, or more than 1.7 million cars and 2.2 million pickups, sport-utility vehicles, minivans, and vans.

Of the traditional Big Three, DaimlerChrysler AG started May with the lowest supply of vehicles at 69 days, up from 67 days in April. A vehicle supply of roughly 60 days has traditionally been considered ideal.

Industry experts, however, are debating whether that 60-days mark may be too low for today's market, said David Cole, president of the Center for Automotive Research in Ann Arbor.

If inventory levels go above 100 days, then there could be a problem, he said. Automakers will cut back overtime, but they will avoid idling plants as much as possible because they have to pay workers anyhow, he said.

Chrysler had a 79-day supply of both Toledo-made Jeeps, Liberty and Wrangler, on May 1. At the beginning of April, the automaker had a 66-day supply of Libertys and 91-day supply of Wranglers.

Automakers entering this month with low inventories, meanwhile, included BMW AG at 37 days; Toyota Motor Corp., 43; Honda Motor Co., 45; and Porsche AG, 54. Isuzu Motors Co. Ltd. started May with the most at 118 days, followed by Volkwagen AG's 113.

Ford has been stockpiling F-150s for several months, both because the pickup continues to sell well and to have reserves ready for when factories begin gradually making the redesigned 2004 model, Mr. Pippas said. F-150 factories in Virginia and Missouri will be down for two to three weeks to prepare for production of the new model, which will not be coming out at full capacity right away, he said.

Both Mr. Pippas and GM spokesman Deborah Silverman quashed speculation that the automakers were building inventories to prepare for potential United Auto Workers strikes this year. The UAW's national contracts with each of the Big Three expires Sept. 14; bargaining likely will begin in July.

If they were preparing for strikes, Mr. Cole said, they wouldn't be building inventories until late summer or fall. “I don't think anybody anticipates a strike,” he said.