A warning on U.S. vehicle inventories


AutoNation (AN) CEO Mike Jackson sours the euphoria at the Detroit Auto Show just a bit with his claim that the supply of new cars in the U.S. is increasing too fast.

By his estimation, U.S. dealers currently have $100B worth of unsold cars and trucks on their lots - repping 90 to 120 days of supply if fleet sales are backed out.

Jackson rates the odds of an all-out discount war in the automobile industry at 50%.

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Related stocks: F, GM, TM, NSANY, HMC, VLKAY.

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Comments (18)
  • JoseV
    , contributor
    Comments (401) | Send Message
     
    US automakers could be returning to their old ways: betting on sales of gas guzzlers, hiking up their inventories and execs who have been in the company for a long time, a tiger really cant change his stripes!
    15 Jan 2014, 07:53 AM Reply Like
  • kevinconway
    , contributor
    Comments (2754) | Send Message
     
    This is disturbing. My previous comments on auto and F...the pent up demand pipeline is being filled...all of the auto companies THINK 2014 will be a great year.

     

    F is being overly agressive on new product launches that will be full of problems. US consumer debt is on the rise. There is pent up demand to be filled in other retail categories. It will become an issue of enough people with the disposable income to buy the projected volumes. Look at the 10 year chart for retail categories and auto new car dealer in particular.

     

    This could become a perfect storm...and there is no Plan B if they get in trouble again.

     

    The above report on inventories adds yet another element of RISK to owning any auto stocks long.
    15 Jan 2014, 08:15 AM Reply Like
  • cbroncos
    , contributor
    Comments (2913) | Send Message
     
    Without details this is meaningless. Sounds like someone who wants to see Ford drop since they are shorting it and it is has been going up.
    15 Jan 2014, 09:42 AM Reply Like
  • george_wwww
    , contributor
    Comments (19) | Send Message
     
    Excess inventory will hurt some OEMs and will help others. Ford will benefit with an inventory that allows buyers to see almost exactly what they need in a new vehicle and drive away with it from the dealership on the same day. Excess inventory might help Chrysler but will hurt GM and the Asian producers. GM is most likely to let the bottom fall on pricing, this will be disastrous for them. Does Auto Nation have primarily the used car business? AN will suffer should their be a collapse in new car pricing. Is this their real concern?
    15 Jan 2014, 03:39 PM Reply Like
  • kevinconway
    , contributor
    Comments (2754) | Send Message
     
    you lost me...no idea how this works..and spent years in the business.
    15 Jan 2014, 04:32 PM Reply Like
  • george_wwww
    , contributor
    Comments (19) | Send Message
     
    Regarding inventory, See the Wall Street article "The cars Americans Don't Want to Buy ". Aside from Volvo and Land Rover, all of the vehicles on the list are Japanese.
    21 Jan 2014, 10:17 PM Reply Like
  • george_wwww
    , contributor
    Comments (19) | Send Message
     
    See: http://bit.ly/1cTbqsl
    21 Jan 2014, 10:23 PM Reply Like
  • george_wwww
    , contributor
    Comments (19) | Send Message
     
    I have been in the business 32 years.
    21 Jan 2014, 10:24 PM Reply Like
  • kevinconway
    , contributor
    Comments (2754) | Send Message
     
    does not matter...they will blow them out the door...keeps eating away at an industry projection I do not believe is realistic...you know all about the egos in the business...some will get burned.
    22 Jan 2014, 07:04 PM Reply Like
  • Flylooper
    , contributor
    Comments (8) | Send Message
     
    While domestic sales increases have no doubt helped Ford, it's important to consider that Ford is an international company with very profitable operations in Canada, Europe, Latin America and most especially China. Ford is expanding in India. With around $130B in sales, more than 51% of profits are coming from overseas.

     

    If this kind of news scares people off, they have no business investing to begin with. I rate Ford very highly as a long term investment and I think it's a great time to invest in it. I bought a block of F shares yesterday.
    15 Jan 2014, 10:13 AM Reply Like
  • Robin Hewitt
    , contributor
    Comments (5473) | Send Message
     
    A breakdown by make/model would make this meaningful. Without that, it's not particularly informative.
    15 Jan 2014, 11:12 AM Reply Like
  • starcorral
    , contributor
    Comments (1646) | Send Message
     
    The backlog issue is an old one. We can predict the long cycle better than the short one. The fact remains that after decades of waiting for the falling urn to hit the tile floor before they try to catch it, the automakers will be able to milk their computers to reach a workable balance between end user pricing and remaining model year inventory. This definitely means we'll see profits wax and wane, but being long means sticking with the long cycle and maybe range trading when we are satisfied that the writing (for a few day, weeks, or months is on the wall. For me Ford is a portfolio withing itself.

     

    There are many cycles in the long; if you follow things closely you can better take advantage.
    15 Jan 2014, 11:19 AM Reply Like
  • Manitou_Commando
    , contributor
    Comments (3) | Send Message
     
    The sales model of US automakers and their dealers is an unsustainable model. Indeed, it is a model that unnecessarily over-burdens the deal and the consumer. Having worked at a chain of dealerships I have insights that seem obvious now.
    Dealerships have traditionally required costly paved real estate in choice locations on which they park millions of dollars worth of inventory. This inventory will frequently sit for months or longer waiting for a buyer. Inventories are financed and depending on the credit-worthiness of the dealer, they get better or worse borrowing rates. If you are wondering why dealers sit on so much inventory, the answers are based in fear: fear that if the dealer doesn't have the exact car you want, that will move onto the next dealer who may have that car. Additionally, many of the more desirable cars require dealers to buy "X" number of these cars each year to be in line for the most desirable model. Chevrolet requires that dealers take "X" number of base level Corvettes in order to get a couple of the high end Corvettes. Likewise, Ford requires that a number of base level Mustangs be purchased before dealers can get a few of the high end Mustangs. And so on......Consumers pay for the finance costs, the real estate, the taxes that dealerships incur. These costs unduly bear on the consumer.
    An alternative model might reveal itself as a small store front with a dozen new cars outside. Centrally placed large inventories would stock those inventories currently owned by dealerships. Such a model would transfer liability from dealers back to the manufacturers. More efficient inventory management would remove swings form the markets for new cars.
    15 Jan 2014, 11:57 AM Reply Like
  • kevinconway
    , contributor
    Comments (2754) | Send Message
     
    When things are not going right the auto companies panic....then deals + deals....salespeople pused on volumes.

     

    Logic goes out the window and so does proper inventory management.
    15 Jan 2014, 04:37 PM Reply Like
  • kevinconway
    , contributor
    Comments (2754) | Send Message
     
    A safer bet is to invest in companies like Magna. There are many variables that influence auto sales....bottom line, will consumers have the available disposable income to buy vehicles so that the industry hits the projected sales numbers? Past performance in a recovery situation is abnormal and missleading...past performance does not dictate the future. All the best with this but I strongly recommend a meaningful RISK assessment.
    15 Jan 2014, 12:01 PM Reply Like
  • lemm
    , contributor
    Comments (1175) | Send Message
     
    george-www,Please explain why this will help Ford and Chrysler,and not Gm and Asian producers.
    17 Jan 2014, 11:50 AM Reply Like
  • lemm
    , contributor
    Comments (1175) | Send Message
     
    george-www,Please explain why this will help Ford and Chrysler and not GM and the Asian producers.
    17 Jan 2014, 12:06 PM Reply Like
  • jamessparrow
    , contributor
    Comment (1) | Send Message
     
    This is really essential to know that the supply of new car is rapidly increases in the US in past years. Might be it is the revolutionary change in the automobile industry or it might be the excess of production with less qualitative vehicles. But somehow we have found that the demands of cars are less than the production of cars; therefore the chances of losses are almost double. This trend will also directly or indirectly affect the business of repair and services centers also; so it is better to plan for a suitable strategy to maintain a balance in between sales and productions.
    http://bit.ly/1eSZQGo
    5 Jun 2015, 06:28 AM Reply Like
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