GM inventory at 8-year high; will reduce car production
A glut of inventory is prompting General Motors Co. to reduce production at its Detroit-Hamtramck Assembly Plant, as well as at factories in Lansing, Ohio and Kentucky.
GM says it had more than 874,000 cars, trucks and crossovers in its inventory at the end of November — the most it has had in its U.S. stock in eight years, when vehicles went unsold during the Great Recession.
And with some car models nearing six months of supply, GM will stop assembly lines for three weeks in January at Detroit-Hamtramck, according to the United Auto Workers union. The automaker announced in November it would cut shifts at plants in Lansing and Lordstown, Ohio.
GM confirmed on Monday that a total of five U.S. assembly plants will take downtime in January to deal with inflated car inventory.
The Lansing Grand River Assembly Plant, which is losing its third shift next month, will halt production for two weeks in January. GM’s Bowling Green Assembly Plant also will go down for a week in January. And the Lordstown Assembly Plant, which also is losing its third shift next month, is slated to be down for a week.
Detroit-Hamtramck builds the Chevrolet Volt plug-in hybrid electric, Cadillac CT6, Chevrolet Impala and Buick LaCrosse. GM builds the Chevrolette Corvette in Bowling Green; the Chevrolet Camaro and the Cadillac ATS and CTS in Lansing; and the Chevrolet Cruze at Lordstown.
Although sales have remained strong, buyers are increasingly choosing trucks and SUVs over cars. That, and GM’s focus on selling to retail customers and relying less on rental fleets, has helped drive up inventory on most car models.
At the end of November, GM said its supply of all vehicles stood at 87 days. That was up from 84 days at the end of October. Analysts say an overall inventory level of 60 to 70 days is healthy.
The 874,000 vehicles it had in November inventory is up about 182,000 from the same month a year ago, and an increase of nearly 40,000 from Oct. 31 of this year.
The supply of cars was especially acute: The Detroit-based automaker had a 105-day supply at the end of last month, up from 75 days at the same time a year ago, according to Autodata Corp. Analysts typically say a 60-day supply is healthy for cars.
GM at the end of November, it had a 168-day supply of the LaCrosse; 177 days of the Camaro; 170 days of the Corvette and Chevrolet Spark; 121 days for the Cruze; 119 days for the ATS; 132 days for the CTS; and 110 days for the CT6, according to Autodata.
GM also plans to cut the third shift next month at its Lansing Grand River and its Lordstown Assembly Plant in Ohio. GM builds the Camaro and the ATS and CTS in Lansing, and the Cruze at Lordstown. More than 2,000 hourly workers will be laid off, and reducing inventory on those cars will take time.
While GM’s supply figures are raising eyebrows among analysts and competitors, the automaker says its build-up of certain models will help the company because it has to halt production at some plants next year to change tooling for the introduction of new SUVs.
“We’re going to be responsible in managing our inventory levels,” Chevrolet spokesman Jim Cain said.
GM believes the U.S. industry will remain strong and at near-record levels, and is aiming for about a 70-day supply by year’s end, Cain said.
Brian A. Johnson, an analyst with Barclays Capital Inc., said in a recent note to investors that GM may have to make additional production cuts.
“Incentives are elevated, residuals are declining, and rates are rising,” he wrote. “And while GM in particular may benefit in the months ahead from new product launches, it’s important to recognize that GM’s inventory is elevated at the moment, and it wouldn’t surprise us if they need to announce another production cut – which could pressure the stock.”
Big 3 rivals adjusting
Ford Motor Co., which believes U.S. auto sales have plateaued, has taken action over the past year and a half to trim inventory by cutting shifts and production. It eliminated a shift at its small-car Michigan Assembly Plant in Wayne in June 2015 and has announced downtime at several plants this fall to trim inventories on cars, trucks and SUVs.
Ford’s total inventory stood at 649,754 vehicles at the end of November, down a few thousand from a year ago, according to Autodata. Ford, which sells fewer vehicles than GM does, at the end of November had an 83-day supply of vehicles overall and an 88-day supply of cars. A year ago, those figures were 81 days for all vehicles and 86 days for cars.
Fiat Chrysler Automobiles NV, meanwhile, has opted to stop building small cars such as the Chrysler 200 and Dodge Dart. The company says its inventory totaled 567,769 or 84 days of supply at the end of October, and rose to 93 days or 596,500 at the end of November; its supply of cars was 103 days in November. A year ago, Fiat Chrysler had an overall supply of 76 days.
Matching supply, demand
GM plans to shut down production at its Fairfax Assembly Plant in Kansas City, Kansas, for the first three weeks of January, according to the UAW. The plant builds the Chevrolet Malibu. UAW Local 31, which represents hourly workers at the plant, said on its website that time off is for improvements at the plant for a new vehicle.
Analysts believe that the Fairfax plant will be home to a new Cadillac crossover called the XT3. LMC Automotive predicts that crossover will begin production in the second half of 2018, with sales projected between 25,000 and 30,000 annually.
GM does not comment on production schedules or its future production plans or vehicles, a spokesman said.
Joseph Spak, an analyst with RBC Capital Markets LLC, said in a note to investors last week that he recently met with GM’s Chief Financial Officer Chuck Stevens. Spak said GM wants to match supply to demand and plans to have a 70-day supply in December, but that figure could rise to 95 days by June to build up inventory ahead of crossover launches and some full-size truck downtime. Spak said GM plans for a 70-day supply a year from now.
In October, Stevens told analysts that its inventory was sufficient as it moved into a period of strong seasonal pickup sales and because of holiday-related downtime in the fourth quarter. He said he expected dealer inventory in the fourth quarter to remain higher than a year ago “as the industry remains strong and we build dealer stocks ahead of our upcoming crossover launches in 2017.” Stevens said days supply would fluctuate before moderating by the end of the year.
Stevens also said some of the increased inventory level comes from newly launched vehicles such as the CT6 and Buick Envision and compact crossover stocks that are being increased so it has a “sufficient supply as we look to change those models over in 2017.”
Cain said inventory for some high-demand vehicles — the Chevrolet Trax, Colorado midsize pickup and large SUVs — is less than 50 days.
GM’s sales rose 10.2 percent in November to 252,644 vehicles. GM said its retail sales through November are up nearly 2 percent this year, while it expects sales to rental companies to be down about 75,000 vehicles.
In November, GM’s spending on incentives jumped more than $1,100 per vehicle from a year ago to more than $4,800, according to J.D. Power PIN (Power Information Network). The industry overall increased incentives last month by about $650.
GM’s average retail transaction price after incentives hit $35,767 in November, more than $4,000 higher than the industry average.
GM said its incentives as a percentage of average transaction prices was 13.7 percent last month and remained lower than many foreign competitors; Ford was at 13.3 percent. For the year through November, GM’s incentive spend as a percentage of average sales prices was 11.7 percent, while the industry average was 11.4 percent.
“We’re really disciplined about this,” Cain said.
GM inventory spike
GM’s inventory level has ballooned 26.5 percent from a year ago. Here are its month-end inventories for the past year:
Dec. 2015: 630,950
Nov. 2015: 691,133