Auto Sales Shrink, Inventories Grow -- WSJ

By Adrienne Roberts and Mike Colias Features Dow Jones Newswires

Auto makers signaled their hot streak in the U.S. is rapidly cooling, as demand last month turned surprisingly sluggish for the trucks and SUVs that have fueled record profits for domestic players.

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General Motors Co. and Ford Motor Co. on Tuesday reported declines in April of 5.8% and 7.1%, respectively, compared with the same month last year. Fiat Chrysler Automobiles NV reported a 7% decline, as sales at its Jeep brand continued to tumble.

Another troubling sign: It is taking dealers far longer to sell off inventory, resulting in a glut of unsold cars and trucks. GM, the No. 1 U.S. auto maker, has nearly 1 million vehicles sitting on dealer lots.

Overall, auto makers sold 1.43 million vehicles in the U.S. in April, down 4.7% from a year earlier, according to Autodata Corp.

Detroit is hoping its traditionally strong summer sales season will get it out of the rut. Car makers plan to offer plenty of discounts, and rely on low gasoline prices and broad economic strength.

The U.S. auto industry has been on a winning streak since bailouts rescued GM and Chrysler in 2009. After seven straight years of sales gains, including two consecutive record performances, demand has cooled in 2017's first four months despite soaring discounts.

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Discounts are nearing an average of $4,000 per car or truck sold, according to J.D. Power, denting the favorable impact that selling a richer mix of pricier Ford F-150s or Cadillac Escalades can deliver.

GM will be shutting down some factories later this year to ready assembly lines for new models. Executives say a lack of new supply in the second half, along with the prospect of job growth, wage increases and cheap gasoline will help ease GM's bloated inventory. GM, which has 17% market share, is carrying more than one-fifth of the industry's inventory.

Working down high inventories can take a deep financial toll. Ford., the No.2 seller in the U.S., faced a glut last spring and took tough actions to work it down. The company, however, has reported four consecutive quarterly earnings declines, and its share price has suffered.

GM already has relatively low utilization of its North American factories, according to WardsAuto.com. It has laid off thousands of hourly employees due to a collapse of demand for fuel-sipping passenger cars. Now, its core truck business is also showing fatigue.

Fred Rentschler, a dealer in Slatington, Pa., said his family's Chevrolet store has 120 models on the lot and another 50 being delivered, nearly 20% more than the same time last year. "They're coming through with inventory," he said. "We're just not selling them as quickly."

Ford officials echo GM's optimism, with the company's sales chief, Mark Laneve, saying "our big seasonal selling months are still in front of us."

Mr. Rentschler said the current expectation for 2017 sales -- pegged at more than 17 million -- remains solid compared with the industry's last downturn. "Coming out of bankruptcy, we were happy when the industry did 10 or 11 million," the Chevrolet dealer said.

A record 17.55 million vehicles were sold in 2016.

Mark Wakefield, global co-head of consultancy Alix Partners' automotive practice, said he was encouraged that some auto makers have pulled back on passenger-car production, such as Chevrolet Malibu sedans or Ford's Focus compacts.

"You may start to see truck production cut and even more on the car side, " Mr. Wakefield said. Industrywide inventory is "climbing and it needs to be managed," he said.

The largest Japanese auto maker, Toyota Motor Corp., reported a 4.4% drop in April sales. Honda Motor Co.'s U.S. sales decreased 7% for the month. Nissan Motor Co. -- among the only mass-market players posting growth for 2017 -- reported its first sales decline of the year, with April sales dropping 1.5%.

Write to Adrienne Roberts at Adrienne.Roberts@wsj.com and Mike Colias at Mike.Colias@wsj.com

(END) Dow Jones Newswires

May 03, 2017 02:47 ET (06:47 GMT)