October auto sales expected to have little impact on inventories

If you want to buy a pickup truck or sport utility vehicle, November may be the time to pounce, according to many industry analysts and one of the Big Three automakers.

Inventories of the truck-based vehicles are high, with some nearing an unusually bloated six-month supply, and the analysts don’t expect October sales to make much of a dent in them when the numbers come out Wednesday.

As a result, analysts said, automakers are likely to sweeten incentives to move the growing inventory off dealer lots.

At Dodge, Jeep and Chrysler dealers, that means one thing: “Pretty damn good deals,” said Chrysler (NYSE:DCX) spokesman Jason Vines.

According to Wards AutoInfoBank, DaimlerChrysler AG’s Chrysler Group had an 82-day supply of cars and trucks as of Sept. 30, the largest in the industry, followed by General Motors Corp. (NYSE:GM) at 76 days and Ford Motor Co. (NYSE:F) at 74. Toyota Motor Corp. (NYSE:TM), in contrast, had only a 29-day supply.

Earlier this week, Chrysler touched off added scrutiny of the automakers’ inventories when it admitted to building thousands of vehicles but not reporting them as inventory. On Thursday, Mike Jackson, chief executive of AutoNation Inc., the country’s largest auto dealer group, said the Big Three’s inventory statistics are deceptive because they don’t include cars produced for fleet sales. Subscribe for more info here at theproaudiowebblog.com

Jackson said his inventory was so high that he would reduce orders to the Big Three by 30 per cent in the fourth quarter, which means bad news for the domestics.

All of this inventory talk adds up to a truck supply that exceeds demand, and that’s good for the consumer, said Jack Nerad, executive market analyst for Kelley Blue Book, an industry price-tracking and analysis company.

“I think something’s got to be done about these inventory levels, so we’re going to see something in the fairly short term to move some of this iron,” Nerad said. “What exactly it’s going to be I think they’re working on right now.”

GM, he said, is in a better shape than Ford and Chrysler because it has newer truck-based products.

Chrysler is in the worst shape, with a 158-day supply of its Dodge Dakota midsize pickup truck leading all high-volume vehicles, according to Ward’s.

“That’s way out of whack,” Nerad said.

Jesse Toprak, chief economist for Edmunds.com, a research site for car buyers, said Chrysler is in the worst shape because it has a higher percentage of trucks in its product portfolio than other manufacturers.

The Dodge Durango SUV sits on dealer lots longer than almost any other vehicle, even though Chrysler is offering more than US$8,000 in incentives, Toprak said.

“How much more do you need to spend to get rid of these?” he asked. “There are not a whole lot of other alternatives to make these vehicles desirable once they’re on the lots.”

Toprak predicted Chrysler would be the only manufacturer to see a sales decline in October, with a 6.5 per cent drop compared with October 2005. Ford, he said, should be up 4.1 per cent, while GM should show an 18 per cent increase due in large part to a slow October last year after a summer-long discount program.

Toyota will continue its roll with an 18.5 per cent increase, while Honda should be up 2.5 per cent, Toprak predicted.

Bob Schnorbus, chief economist with J.D. Power and Associates, said the industry may be waiting for GM to come off its resistance to incentives before a wholesale incentive war erupts on the overstocked trucks.

“The pressures are building to get rid of this stuff,” he said.

“In my mind, until GM gets aggressive, the customers are going to sit back and not worry about it. It’s the manufacturers’ problem.”

At this point, though, GM believes it can handle its remaining inventory without huge incentives. Paul Ballew, the company’s executive director of global market and industry analysis, said GM already has some incentives targeted to slower-moving trucks, but it also has more flexibility to switch assembly lines from SUVs to its new line of pickups, which should sell better.

“We’re not planning on a big incentive war,” he said.

Neither is Ford, where only 25 per cent of its inventory is in 2006 models, said George Pipas, U.S. sales analysis manager. That, coupled with previously announced production cuts, should bring inventory in line, he said.

“By the time we get through the end of the fourth quarter, if things proceed according to plan, we’re going to end the year with substantially less inventory than we had a year ago,” he said.

Chrysler also is confident it can bring down its inventory by the end of the year.

“We have every intention to get to basically zero,” Vines said.

On its inventory numbers, Vines said it’s common industry practice to leave vehicles built but not assigned to dealers off the inventory list, but GM and Ford said they don’t do it.