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Car Dealer's First Overflow Lot in 37 Years Exposes U.S. Pileup

Scorpio

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Car Dealer's First Overflow Lot in 37 Years Exposes U.S. Pileup

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Bloomberg
Gabrielle Coppola 3 hrs ago


(Bloomberg) -- For the first time in his 37 years working at New Jersey car dealerships, Larry Kull had to rent extra space to store unsold new Honda vehicles -- one of the latest signs that the record U.S. auto market is cooling.

Across dealer lots in America, inventory is piling up as automakers produce more cars than are being bought. Dealers had about 85 days worth of cars and trucks on hand at the beginning of February -- about 22 days more than at the beginning of 2017 and eight days more than a year earlier, according to Automotive News Data Center.

“The sales are good, I just have more product on the ground than I’ve had before,” said Kull, who has about 60 days of passenger cars including Civic compacts and Accord sedans stocked at an office parking lot down the road from his Honda store in Marlton, New Jersey. He prefers to have just 45 days worth of cars on hand.

The buildup suggests automakers will have to cut back production or boost discounts as the market’s record growth spurt peters out. Analysts project automakers’ sales slowed this month to a seasonally adjusted annualized rate of 17.5 million light vehicles, according to a Bloomberg News survey, from 17.7 million a year earlier.

While automakers may not be facing a significant sales slowdown, they’ve supplied dealers as though the market would keep growing following last year’s record 17.55 million annual sales. The inventory glut also is a reflection of the challenge it’s been for companies to make deep enough cuts to production of slumping passenger cars, which Americans are snubbing in favor of sport utility vehicles.

“No one likes to cut production or dial up incentives, and we’re seeing a bit of both,” Thomas King, an analyst with J.D. Power, said by phone. “We’ve got a lot of cars on the ground when the market is moving away from cars.”

Among eight major automakers in the U.S., General Motors Co., Honda Motor Co. and Volkswagen AG are expected to post sales gains this month. Combined deliveries for the VW and Audi brands may gain 17 percent, as the German automaker recovers from an emissions scandal that halted sales of diesel models a year ago.

© Gabrielle Coppola
Analysts project GM sales will rise about 2.5 percent. The largest U.S. automaker boosted discounts on its full-size trucks this month, likely supporting sales of the Chevrolet Silverado and GMC Sierra models that compete with Ford Motor Co.’s F-Series and Fiat Chrysler Automobiles NV’s Ram pickups.

Fiat Chrysler is expected to post the biggest drop among the major automakers, with analysts estimating a decline of about 8.4 percent. GM spent 26 percent more in discounts on each Silverado truck than Fiat Chrysler paid per Ram and 85 percent more than Ford allocated for F-Series, according to J.D. Power dealer data obtained by Bloomberg News.

As GM staged a “Truck Month” promotion in February, Nissan Motor Co. advertised as much as $5,050 off 2017 Altima sedans in some markets. Despite the discounts, Nissan sales are forecast to fall about 1.8 percent this month. Automakers marketed big incentives after it took dealers an average of 75 days to sell a car last month, seven days longer than a year before, according to data from Kelley Blue Book.

Trimming Production

Production cutbacks also have already begun. GM and Fiat Chrysler have eliminated shifts, laid off employees or scheduled days off early this year at plants making slower selling models including the Chevrolet Cruze compacts, Chrysler Pacifica minivans and Buick Lacrosse sedans.

While heavy inventory is a signal of potential pressure on automakers’ profits, it also boosts costs for dealers, which pay interest on inventory as well as any extra expense to store vehicles.

Raj Murjani, a sales manager at a Lexus dealership in Queens, said he’s selling about 40 or 50 fewer vehicles than usual this month. He sees the gap in popularity between SUVs and sedans continuing to widen, as low gasoline prices encourage consumers to switch to bigger vehicles.

“If it’s a person who’s been in a sedan and they got just the slightest taste of an SUV, they don’t ever want to go back,” he said. “They think going back into a sedan is a downgrade.”

Still, even SUVs are contributing to the industry’s inventory issues. Manufacturers scrambled to meet surging demand for them and overbuilt in November and December, said Jeff Schuster, an analyst with researcher LMC Automotive. Incentives on SUVs rose in January.

Kull is the president of Burns-Kull Automotive Group, which operates seven dealerships in New Jersey. He leased an extra lot to store Hyundais in anticipation of new Genesis luxury vehicles. But it’s Honda, with its sedan-heavy mix, that’s giving him the biggest headache.

If automakers moderate production, “it should be OK,” he said.

--With assistance from Jamie Butters Keith Naughton and David Welch

To contact the reporter on this story: Gabrielle Coppola in New York at gcoppola@bloomberg.net.

To contact the editors responsible for this story: Craig Trudell at ctrudell1@bloomberg.net, Anne Riley Moffat

©2017 Bloomberg L.P.

http://www.msn.com/en-us/money/comp...years-exposes-us-pileup/ar-AAnDakE?li=BBnbfcN
 

arminius

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^ already happening. When I turned 16 the first thing I did was get a car, a normal process for most of us turning 16 until lately. Nowadays more and more teens can't begin to afford it and don't.
 

southfork

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^ already happening. When I turned 16 the first thing I did was get a car, a normal process for most of us turning 16 until lately. Nowadays more and more teens can't begin to afford it and don't.
Plus people been having less kids, less people to buy their cars. Wages arent growing nor the population how will they grow the GDP?
 

Uglytruth

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#6
Your being programmed to accept self driving ubers owned by transportation companies like Ford & GM.
So expensive you can't afford them. So complicated you can't fix them.
Huge fights, rights, entitlements, going on right now between the tech companies and the auto companies.

Somewhere the guy was talking about loosing 100K yr income on obamiecare...... wait until he looses car insurance and motorcycles along with RV industry, boating, racing, etc........ no driving for you without a special license controlled by big brother.
 

Howdy

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#7
I'm in the market for a brand new truck and in a position to pay cash for it. The problem is that there is nothing worth buying. It's ridiculously overpriced poor quality junk with lots of electronic junk that I don't want. If they improved the quality and backed off on the planned in obsolescence, they would sell a lot more vehicles. As it stands, I'm going to put a few thousand into my older vehicles and keep them a few more years.
I'm not poor, but I'm not going to be taken for a ride either.
 

Uglytruth

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Buy a clean southern truck & have it rebuilt. New modern engine, trans, they have some great after market computer controls out, rear end, freshen the interior & paint job & your still money ahead.
 

mtnman

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Aurumag

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#11
I've been watching the local overflow lots for years, and they are not emptying out.

I also want to get a new(er) truck, but I am going to drive my 92 chevy until it quits, again.