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Risky business: GM increases unsold inventory in the midst of slow market

May 15, 2017 0 Comments

In the midst of slow auto sales and record high discounts since the recession, most automakers have held steady in terms of unsold inventory, with an overall combined increase of 0.6 percent. General Motors stands out as the exception, raising their on-site inventory by 37 percent since last year.

From May 2016 until May 2017, the overall auto inventory increased by “272,500 units from 3.88 million,” with GM responsible for 93 percent of the hike. According to Automotive News, GM “accounts for 22 percent of total industry inventory.” On May 1, GM reportedly had 97 days worth of cars and 100 days worth of “light trucks” available, totalling 934,300 vehicles at their dealerships, the highest since November 2007.

The U.S. auto industry averaged a 76 day supply across the board, higher than the previous 25 year average of 67 days. May stocks were “three days higher” than the beginning of April, which was “nine days above the longer-term average” (Automotive News). On average, 2017 sales are 2.4 percent lower than last year.

GM executives said the inventory increase was done intentionally, citing some of their plants “going offline” for retooling and said that the numbers should fall back to a normal rate later this year. GM CFO Chuck Stevens said that “half of the inventory growth in recent months has been tied to planned downtime,” with month-long shutdowns affecting “multiple plants, including several that make pickups” (Automotive News).

Stevens further reported that GM is aiming to reduce inventory down to a 90 day supply by June and down to a 70 day supply by the end of this year. He reiterated that it was done on purpose and that the build-up is “not a concern” as they head into the spring sales season.

While the automaker seems optimistic, the surplus could come back to bite them. In a report by Barclays Capital analyst Brian Johnson, he wondered if the move might hurt the company, “either via higher incentives or production cuts, which would reduce earnings upside.”

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