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U.S. Automakers May Add Discounts

U.S. Automakers May Add Discounts, Cut Output on Inventory Glut

December 17, 2011

Dec. 16 (Bloomberg) -- U.S. automakers led by General Motors Co. and Chrysler Group LLC may need to boost incentives or cut production to reduce inventories that have risen to a 31- month high, according to Bloomberg Industries.

GM, Chrysler and Ford Motor Co. had 80 days supply of cars and light trucks as of Nov. 30, according to a report led by Kevin Tynan, a Princeton, New Jersey-based Bloomberg Industries analyst. Inventories are considered “manageable” when in the range of 55 days to 65 days, he said.

The automakers’ supply of cars and trucks may be too high as Toyota Motor Corp. and Honda Motor Co. production recovers from Japan’s tsunami and Thailand’s floods this year. Toyota, Asia’s largest automaker, may use incentives to reclaim U.S. market share that has stayed below 14 percent in every month since the March tsunami from 18 percent in December 2009.

“You just don’t want to be out there with so much inventory when a price war starts or it’s going to get ugly,” Tynan said today in a phone interview. “If I’m GM, Ford or Chrysler, I’m trying to get that days supply down” before Japanese automakers’ inventories return to 60 days supply.

U.S. auto sales may total 12.7 million this year, the best annual performance since 2008, Bloomberg Industries estimates. Deliveries may increase to 13.5 million in 2012, rising for a third consecutive year from a 27-year low of 10.4 million cars and light trucks in 2009.

GM is poised to retake leadership in global auto sales, which it ceded to Toyota in 2008. The automaker has reported 6.79 million sales through September of this year, leading disaster-stricken Toyota by 1 million vehicles. Volkswagen AG has jumped to second with 6.17 million vehicles sold through the first nine months, expanding faster than it had forecast.

Depressed Inventory

U.S. inventory for Japanese automakers fell to 47 days at the end of March after the nation’s earthquake and tsunami earlier that month disrupted car and truck assembly plants and the supply of parts. The automakers’ supply has yet to surpass 50 days since, and inventories for Korean carmakers Hyundai Motor Co. and Kia Motors Corp. have trailed 40 days throughout that span, according to Bloomberg Industries.

If the pace of auto sales slow early next year as Toyota and Honda’s supply recovers, cuts to production or increased incentives probably would affect U.S. automakers’ earnings beginning in the second quarter of 2012, Tynan said.



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