Reverting to old ways? Inventories grow at GM
General Motors now has more than three months' worth of unsold inventory. Will its bet hedging pay off with strong sales?
Analysts are showing concern over the growing numbers of new cars showing up in General Motors' unsold inventories.
Before Detroit's Big 3 crumble turned into disaster a few years ago, Chrysler, Ford and GM routinely built more cars than they could reasonably sell, resulting in a glut of new car inventory at dealers. As the crisis worsened, all three automakers pledged to reduce inventory levels in an effort to increase value and help dealers remain profitable.
Now, it looks like all three automakers are reverting to their old habits. GM has a 95 day supply, up from 76 days in August. Chrysler has a 79 day supply. Ford has a 71 day supply.
The industry average? According to Citi Investment Research and Analysis, it's just 67 days, although it will likely trail off to 60 days by the end of December as assembly slows down over the holiday season. It is also not unusual for automakers to build up inventory ahead of December, but analysts tell the Detroit News that these hefty inventories are a potential red flag.
GM says that it is anticipating strong demand for end-of-the-year deals this month, but the automaker risks having too much inventory if its plan fails.
"If they don't get it [strong sales], then Wall Street will punish them in January," said Warren Browne, a retired GM executive who now runs his own firm as an analyst, WP Browne Consulting LLC.
Dealers have reported inventory shortages for some popular models, like the Chevrolet Equinox, Chevrolet Cruze, Buick Regal and GMC Terrain, but analysts say they are concerned about a build up of less popular models. That might spell huge discounts to clear inventory in the near future if GM's intended sales push doesn't succeed.
1.'Big 3 bulk...' view