Riders of the Storm
01-29-2008 | 05:56 AM
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Riders of the Storm
http://www.forbes.com/opinions/2008/...0129flint.html
[quote]Storm winds are blowing across the economy. The good news is that carmakers seem to be battening down those hatches, and are as ready as they can be.
In this industry, preparing for bad times means reducing inventories of unsold cars and trucks and cutting production. If manufacturers are not overstocked, they can ride out the bad months without losing as much money in sales incentives to lower those stocks. Having fewer cars and trucks to sell when business falls is that "ounce of prevention" mother used to talk about.
Overall stocks are lower for some automakers, and not in bad shape for a few others.
The days’ supply number is the inventory divided by the daily sales rate from the previous month. When things are worrisome, lower is better. As a rule, manufacturers don't fret too much about inventories if the supply on a vehicle is 60 days or lower.
The inventories of the Detroit Three run higher than the Japanese leaders, Toyota (nyse: TM - news - people ) and Honda (nyse: HMC - news - people ), but the domestic companies show better numbers than the prior year. Even so, the proportion of trucks is too high, and while the numbers in the above table are for each company’s overall inventories, they do not reflect the excessive inventory levels of some models. The GMC Sierra pickup, for example, at 79,900, has a 115-day supply, the Ford Mustang, with 36,400, has 114 days, and Honda’s Element is 11,000 or 99 days, all as of Jan. 1.
As a whole, the inventory situation is in good shape. Another positive sign is that companies have reduced their first-quarter production schedules.
What’s more interesting are the early sales reports. Last year, total industry sales fell to 16,150,000 cars and light trucks, a poor year, especially for the home team--General Motors (nyse: GM - news - people ), Ford Motor (nyse: F - news - people ) and Chrysler. Analysts have been predicting a downturn in 2008, with many forecasts ranging from 15.7 million to 15 million units, but a number of experts worry about even lower results.
If you look at the last three months of 2007, sales figures were not that bad. In October, the industry had sales of 1,232,000, which was actually 1% ahead of the year before. November sales fell a bit, 1.6%, to 1,180,000 units, which was not good, but not a depression.
December 2007 was not a great month, as sales fell 2.9% from the prior year, to 1,390,000 vehicles. That represents a loss of only 40,000 units, but if you multiply 40,000 by the 12 months in the year, you are losing a half million unit sales for the year.
Pay close attention to how the industry fares in January. Early projections for January sales are heartening. Ward’s Automotive Reports, a newsletter that is fairly good at sales estimates, predicts January sales will run about 5% ahead of last year. If that happens, it's good news.
Ward’s predicts that that the big companies--General Motors, Ford, Chrysler, Toyota and Honda--will have solid sales gains, and the industry total will be the highest January number since 2001.
What is the story?
Well, the early estimates could just be wrong; January could be a down month after all. Another possibility is that car sellers refrained somewhat from their customary practice of "borrowing" sales from January by using heavy incentives to boost sales in December. January is often a bad month because of the weather, but this winter's weather has been a bit milder in some parts of the country.
In any case, we will know for sure in a couple days, when the actual figures come out, but a strong start to the year would be welcomed.
New models coming out over the next 12 months may help the results later in the year. For example, both Ford and Dodge (Chrysler) will have new, big pickup trucks--their best sellers. Chrysler will have more models of
[quote]Storm winds are blowing across the economy. The good news is that carmakers seem to be battening down those hatches, and are as ready as they can be.
In this industry, preparing for bad times means reducing inventories of unsold cars and trucks and cutting production. If manufacturers are not overstocked, they can ride out the bad months without losing as much money in sales incentives to lower those stocks. Having fewer cars and trucks to sell when business falls is that "ounce of prevention" mother used to talk about.
Overall stocks are lower for some automakers, and not in bad shape for a few others.
The days’ supply number is the inventory divided by the daily sales rate from the previous month. When things are worrisome, lower is better. As a rule, manufacturers don't fret too much about inventories if the supply on a vehicle is 60 days or lower.
The inventories of the Detroit Three run higher than the Japanese leaders, Toyota (nyse: TM - news - people ) and Honda (nyse: HMC - news - people ), but the domestic companies show better numbers than the prior year. Even so, the proportion of trucks is too high, and while the numbers in the above table are for each company’s overall inventories, they do not reflect the excessive inventory levels of some models. The GMC Sierra pickup, for example, at 79,900, has a 115-day supply, the Ford Mustang, with 36,400, has 114 days, and Honda’s Element is 11,000 or 99 days, all as of Jan. 1.
As a whole, the inventory situation is in good shape. Another positive sign is that companies have reduced their first-quarter production schedules.
What’s more interesting are the early sales reports. Last year, total industry sales fell to 16,150,000 cars and light trucks, a poor year, especially for the home team--General Motors (nyse: GM - news - people ), Ford Motor (nyse: F - news - people ) and Chrysler. Analysts have been predicting a downturn in 2008, with many forecasts ranging from 15.7 million to 15 million units, but a number of experts worry about even lower results.
If you look at the last three months of 2007, sales figures were not that bad. In October, the industry had sales of 1,232,000, which was actually 1% ahead of the year before. November sales fell a bit, 1.6%, to 1,180,000 units, which was not good, but not a depression.
December 2007 was not a great month, as sales fell 2.9% from the prior year, to 1,390,000 vehicles. That represents a loss of only 40,000 units, but if you multiply 40,000 by the 12 months in the year, you are losing a half million unit sales for the year.
Pay close attention to how the industry fares in January. Early projections for January sales are heartening. Ward’s Automotive Reports, a newsletter that is fairly good at sales estimates, predicts January sales will run about 5% ahead of last year. If that happens, it's good news.
Ward’s predicts that that the big companies--General Motors, Ford, Chrysler, Toyota and Honda--will have solid sales gains, and the industry total will be the highest January number since 2001.
What is the story?
Well, the early estimates could just be wrong; January could be a down month after all. Another possibility is that car sellers refrained somewhat from their customary practice of "borrowing" sales from January by using heavy incentives to boost sales in December. January is often a bad month because of the weather, but this winter's weather has been a bit milder in some parts of the country.
In any case, we will know for sure in a couple days, when the actual figures come out, but a strong start to the year would be welcomed.
New models coming out over the next 12 months may help the results later in the year. For example, both Ford and Dodge (Chrysler) will have new, big pickup trucks--their best sellers. Chrysler will have more models of
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