Published December 05, 2012
DETROIT – Detroit automakers said on Wednesday they will not revert to practices like pushing consumer incentives to profit-eating levels even as they deal with oversupply on some key models.
Heading into the 2008-2009 downturn in the auto industry and the bankruptcies of General Motors and Chrysler, U.S. automakers routinely overproduced in order to keep factories running and then piled on consumer incentives to prop up sales.
This was a money-losing proposition General Motors Co , Ford Motor Co and Chrysler Group LLC vow not to repeat.
While each of the three major U.S. domestic automakers has several models that are overstocked, most worrisome, analysts say, is the 139 days of supply at the end of November for pickup trucks at General Motors Co .
The preferred level in the auto industry is to have about 80 days of supply for full-sized pickup trucks like GM's Chevrolet Silverado and GMC Sierra.
Ford Motor Co has 89 days of supply for its industry sales leader F-Series pickup truck, which Erich Merkle, sales analyst with Ford, says is right where the automaker wants to be heading into December.
U.S. auto sales in December are often 20 percent higher than in November, and December is one of the best-selling months for pickup trucks as businesses purchase at the end of the year to reap tax advantages, all three Detroit automakers said on Wednesday.
When GM announced November U.S. sales on Monday, analysts expressed concern that GM would layer on incentives that lower the price for consumers while cutting profit for the automakers on pickup trucks, a major revenue and profit source.
According to Edmunds.com, November incentives on the Silverado were $4,610 per vehicle sold, compared with $4,533 for the Chrysler's RAM 1500 pickup truck and $4,166 for the F-150, the most popular F-Series pickup from Ford.
Mark Reuss, North American president for GM, did not detail the company's incentive plans for pickup trucks, but said he's pleased with the company's discipline in holding the line on incentives even though the Chevrolet Silverado has been the oldest truck on the market for the past three years.
"We're trying to run this on a longer-term basis than just matching (competition) in the market on a short-term basis," Reuss said Monday.
Analyst Jim Hall of 2953 Analytics said GM's pickup truck inventories are high, but it's because GM is making smart business decisions.
"The company's making a bet in a way that they would rather have the revenue right now," said Hall. "The bad old ways would have been high production, high stocks and high inventories. They've broken that equation."
Ford has changed its ways on layering on the incentives since it instituted a turnaround plan about five years ago, said Merkle.
"We have every intention of running our business in a very consistent fashion," he said. "We produce to demand and we're very consistent with our incentive spend."
Reid Bigland, head of U.S. sales for Chrysler and also chief of the Dodge brand, said his company also has become more disciplined when it comes to incentive spending.
GM is preparing for production of a new version of the Silverado in the second quarter of 2013, and is building up its stocks of pickups to smooth out any production launch problems.
"The last thing we want to do is get caught short of inventory in a growing market," said Jim Cain, GM spokesman. "Then, you are just handing sales to the competitors."
GM on Monday admitted its truck inventories were too high, and that it will miss its end-year target of having U.S. inventory of no more than 220,000 pickup trucks, or about 85 days of supply.
(Reporting By Bernie Woodall; Editing by Bernard Orr)