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Ford, GM and Chrysler face the Inventory test

March 05, 2014 | About:

It's time to clean up the closets for the Detroit Automakers as inventory reached a five-year high. As forecast, sales figures have taken a hit, but what is critical is the way inventory management is balanced with profitability during this period of low movement.

According to auto data, for last month, Detroit automakers are in a spot of bother with General Motors (NYSE:GM) at 114 days’ supply of sales at dealer points, followed by Ford (NYSE:F) at 107 and Chrysler at 105. Industry average stood at 89 days.

The Trade Off

The question now is obvious: whether to cut down on production or compromise on margins? That decision has already been taken it seems. As GM spokesman Jim Cain sums it up: “We believe we can sell our way out.” Yes, it's time for some sweet discounts coming your way!

Good times for the consumers then, as new incentives are being rolled out to boost sales. But, are we seeing the start of a profit-killing price war?

The U.S.'s largest automaker, General Motors, has reportedly announced a discount of up to $7,000 on some of its models.

All that is good for business as long as the sales are high and inventory levels are kept under control. But here’s a thing about discounts: It might land you to a point of no return!

Worry for Investors

We all remember that Ford, Chrysler and General Motors have primarily relied on large pickup trucks to swing back to profitability during the last three years.

Under the circumstances the new discounts announced on pickup trucks are indeed worrying for investors who are concerned whether the profits can be sustained over time.

The Report Card

Historically, January and February are not a very good time for automakers in the U.S. in terms of business as temperatures fall to sub-zero levels. Nevertheless, let's look at how the Big Three fared in February.

Ford sold 183,947 cars and trucks in February, a 6.1% decline from the number of units sold the same time last year.

General Motors too had posted sales of 221,104 units, down 1% compared to last year.

Mustang was the only Ford Brand that was not in the red, up 6.4%. While General Motors' mini crossover SUV-Encore did particularly well, up 92.7%

Chrysler Group, on the other hand, sprung a surprise, reporting sales of 154,866 in February, up a staggering 11%! The fairy tale continues for Chrysler then for the 47th consecutive month.

The Jeep brand was 47% up, outdoing Ram and Fiat, both of whom also posted higher sales compared to last year.

Experts believe that the severe weather has affected all the car makers, but when it comes to the Jeep brand, all that severity has suited it ideally and sales have soared.

When asked to comment on how the industry should plan to tackle the inventory problem, Larry Dominique, executive vice president of True Car, said, "We expect a return to balance once the winter subsides and inventories ease."

We certainly do hope so!

About the author:

The author holds a Management Degree in Finance and provides deep insights primarily in the fields of Telecom,Automobile,Technology and retail

Rating: 4.8/5 (4 votes)



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